Grasping Reality with Both Hands: Economist Brad DeLong's Fair, Balanced, and Reality-Based Semi-Daily Journal

Covering the Economy: February 28: International Trade

Covering the Economy: February 28, 2006: International Trade

Today's lecture is going to be much more like a standard economics lecture than our classes have been so far. I'm sorry. But I see no way of doing it otherwise.

Major points to be hit:

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International Trade: Background

1. From 2% of GDP (1800) to 8% of GDP (1913) to 5% of GDP (1939) to 15% of GDP (today) to ????
2. Effects of trade:
   1. Comparative advantage--each specializes in what it does best
   2. Stolper-Samuelson: the "scarce" factor in each country loses from the opening-up of trade
   3. Dynamic effects
      1. Does manufacturing matter?
      2. The political economy of protection
      3. Extent of the market
      4. Examples of countries that have gained lots of relative ground under free trade?
   4. Political consequences: late nineteenth century Germany and the marriage of iron and rye

International Trade: Effects

1. Not number of jobs, quality of jobs.
2. What if monetary factors mean that the exchange rate is wrong?
   1. Reagan deficits and the high dollar of the 1980s
   2. Bush deficits, Chinese dollar purchase program, and the trade deficits of the 20002.
3. Our current $1 trillion annual deficit
   1. Balance up or balance down?
   2. How long can this go on?

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Readings:

Monthly Trade Release http://www.bea.gov/bea/newsrel/tradnewsrelease.htm

U.S. INTERNATIONAL TRADE IN GOODS AND SERVICES December 2005

The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total December exports of $111.5 billion and imports of $177.2 billion resulted in a goods and services deficit of $65.7 billion, $1.0 billion more than the $64.7 billion in November, revised. December exports were $2.3 billion more than November exports of $109.2 billion. December imports were $3.3 billion more than November imports of $173.9 billion.

In December, the goods deficit increased $1.2 billion from November to $70.6 billion, and the services surplus increased $0.3 billion to $4.9 billion. Exports of goods increased $1.9 billion to $79.0 billion, and imports of goods increased $3.1 billion to $149.6 billion. Exports of services increased $0.5 billion to $32.5 billion, and imports of services increased $0.2 billion to $27.6 billion.

In December, the goods and services deficit was up $11.0 billion from December 2004. Exports were up $9.8 billion, or 9.6 percent, and imports were up $20.8 billion, or 13.3 percent.

Commentators:

• Alan Greenspan on the current-account deficit: http://economistsview.typepad.com/economistsview/2005/11/the_grass_is_al.html
• Paul Blustein on Tim Adams's dilemma: http://economistsview.typepad.com/economistsview/2005/11/the_grass_is_al.html
• Martin Wolf on global imbalances: http://delong.typepad.com/sdj/2005/04/martin_wolf_on_.html

From the Economists' Voice http://bepress.com/ev:

• J. Bradford DeLong (2005) "Divergent Views on the Coming Dollar Crisis", The Economists' Voice: Vol. 2: No. 5, Article 1 http://www.bepress.com/ev/vol2/iss5/art1
• John Quiggin (2004) "The Unsustainability of U.S. Trade Deficits", The Economists' Voice: Vol. 1: No. 3, Article 2 http://www.bepress.com/ev/vol1/iss3/art2
• J. Bradford DeLong (2004) "Should We Still Support Untrammelled International Capital Mobility? Or are Capital Controls Less Evil than We Once Believed?", The Economists' Voice: Vol. 1: No. 1, Article 1. http://www.bepress.com/ev/vol1/iss1/art1

Cultural Consumption and Identity in 18th Century Germany

Gerry Feldman invited Michael North to come up from his temporary home base at the Getty Museum to talk:

Cultural Consumption and Identity in 18th Century Germany : Monday, February 27, 2006 Time:4:00PM Speaker:Prof. Michael North (Professor of History Ernst-Moritz-Arndt University, Greifswald) Location:201 Moses: Description:The lecture will discuss culture and consumption and the issues of luxury and taste in Germany at the turn of the nineteenth century...

Absolutely fascinating. The nugget that fascinated me the most was this. I think I understood it properly:

If, in the late eighteenth century (if you were rich--solidly bourgeois) you wanted to get the score of a piano sonata by Karl Philip Emmanuel Bach, it was easy: C.P.E. Bach sold subscriptions and partnered with publishers to make money off of selling scores. He was, among other things, an intellectual property entrepreneur. On the other hand if, in the middle of the eighteenth century, you wanted to get the score of one of Johann Sebastian Bach's Brandenburg Concertos... you needed to know and be owed a favor by the Kapellmeister of some small princely state who knew and was owed a favor by the Kapellmeister of Frederick the Great and so had a copy of the score that could be recopied by hand. C.P.E. Bach was in lines of business that J.S. Bach was not.

I suppose this explains why we have only the St. Matthew and St. John Passions. Surely J.S. Bach wrote St. Luke and St. Mark Passions too, didn't he?

Graduates Versus Oligarchs

Why is America becoming a land of oligarchs and the insecure? Paul Krugman writes:

Graduates Versus Oligarchs - New York Times: What we're seeing isn't the rise of a fairly broad class of knowledge workers. Instead, we're seeing the rise of a narrow oligarchy: income and wealth are becoming increasingly concentrated in the hands of a small, privileged elite. I think of Mr. Bernanke's position, which one hears all the time, as the 80-20 fallacy. It's the notion that the winners in our increasingly unequal society are a fairly large group -- that the 20 percent or so of American workers who have the skills to take advantage of new technology and globalization are pulling away from the 80 percent who don't have these skills.

The truth is quite different. Highly educated workers have done better than those with less education, but a college degree has hardly been a ticket to big income gains. The 2006 Economic Report of the President tells us that the real earnings of college graduates actually fell more than 5 percent between 2000 and 2004. Over the longer stretch from 1975 to 2004 the average earnings of college graduates rose, but by less than 1 percent per year.

So who are the winners from rising inequality? It's not the top 20 percent, or even the top 10 percent. The big gains have gone to a much smaller, much richer group than that. A new research paper by Ian Dew-Becker and Robert Gordon of Northwestern University, "Where Did the Productivity Growth Go?," gives the details. Between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn't a ticket to big income gains. But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that's not a misprint.

Just to give you a sense of who we're talking about: the nonpartisan Tax Policy Center estimates that this year the 99th percentile will correspond to an income of $402,306, and the 99.9th percentile to an income of $1,672,726. The center doesn't give a number for the 99.99th percentile, but it's probably well over $6 million a year.... The idea that we have a rising oligarchy is much more disturbing. It suggests that the growth of inequality may have as much to do with power relations as it does with market forces. Unfortunately, that's the real story. Should we be worried about the increasingly oligarchic nature of American society? Yes, and not just because a rising economic tide has failed to lift most boats. Both history and modern experience tell us that highly unequal societies also tend to be highly corrupt. There's an arrow of causation that runs from diverging income trends to Jack Abramoff and the K Street project. And I'm with Alan Greenspan, who... has repeatedly warned that growing inequality poses a threat to "democratic society."

Say, rather, that five things are going on:

1. The rise of a very powerful, successful, exploitative upper class.
2. Further increases in inequality as the tax and transfer system becomes less progressive.
3. Increases in risk that threaten to move middle-class families sharply downward in the wealth distribution.
4. Skill-biased technical change that sharply raises the benefits to education.
5. Holes in the safety net--the fall in the value of the minimum wage, time-limited welfare, and so forth.

Franklin Foer Is Named Top Editor of New Republic

Ah. A good choice:

Franklin Foer Is Named Top Editor of New Republic: Franklin Foer, a senior editor with the magazine, is quietly taking over the shop next week.... [T]he magazine that Mr. Foer, 31, takes over is hardly on a roll. The New Republic's circulation has dropped by almost 40 percent in four years; it cut its circulation and staff salaries after aggressively spending on the Web in 2002. Meanwhile, its historical role as a maypole for middle-way Democrats is under challenge from countless Web sites and bloggers.... But the magazine is financially stable, its owners say, in part because there are now four of them. Roger Hertog and Michael Steinhardt, successful New York financiers with an interest in policy and media, were enticed in 2002 to share in The New Republic's glories and seemingly inevitable losses with its longtime owner and editor in chief, Martin Peretz. More recently, CanWest, a Canadian media conglomerate bought a share as well.

To look at The New Republic, with a weekly circulation of 62,000 and a demure size of about 40 pages, the subject of who might be its editor would seem to be a game that is played in a very small parlor....

This is the question: can the New Republic remain a central place for center-left argument in the digital age? What are its edges?

Wow. Abe Lincoln Would Be Proud

You can fool all of the people some of the time. But you can only fool 34% of the people all the time:

Poll: Bush Ratings At All-Time Low : (CBS) The latest CBS News poll finds President Bush's approval rating has fallen to an all-time low of 34 percent, while pessimism about the Iraq war has risen to a new high.... CBS News senior White House correspondent Jim Axelrod reports that now it turns out the Coast Guard had concerns about the ports deal, a disclosure that is no doubt troubling to a president who assured Americans there was no security risk from the deal.... In a separate poll, two out of three Americans said they do not think President Bush has responded adequately to the needs of Katrina victims. Only 32 percent approve of the way President Bush is responding to those needs, a drop of 12 points from last September’s poll, taken just two weeks after the storm made landfall.

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

What Are America's Intangible Exports?

Brad Setser continues to think about "dark matter" and related issues:

RGE - Mandel v. Setser. Round two. More on intangible exports and dark matter : [Michael] Mandel makes two points in response to my argument. Both are worth a bit of further discussion. First, he challenges the conventional wisdom that the United States has taken out external debt to finance a surge in consumption... relative to income and a surge in investment in residential real estate.... [He says] we in the US are borrowing from China to invest in ourselves. We are borrowing to invest in our human capital.... Mandel thinks pessimists are wrong on a second count as well.... We are investing in assets that generate external revenues - revenue that can be used to pay the US import bill once we stop exporting so much debt.... No worries, according to Mandel. Starbucks China may pay rent to the Chinese communist party (and its well-connected friends), and employ Chinese labor to operate Italian expresso machines. But the (predominantly) American owners get most of the profits, and those future profits in China can pay for lots of low-end electronics assembly....

Is Mandel right? Are we in the US taking on external debt to ramp up our investment in ourselves... intangible assets - human capital, management training, R&D, brands - that will generate enough dark matter and intangible exports to allow the US pay for lots of imported Asian assembly?.... Mandel thinks the worry warts (i.e. the gloom and doom caucus, trade deficit division) pay too much attention to the United States' lack of "tangible" exports.... [M]anagerial genius ekes out higher returns on US investment abroad than foreigners get on their investment in the US....

Should our image of the US economy shift from a home equity line financed by the Chinese central bank -- OK, really, the Chinese central bank, the Saudi monetary authority, the Russian central bank, the Abu Dhabi investment authority and a few less visible central banks in the emerging world -- to a college loan and corporate bond issue to finance US firms R and D?... Mandel wants to compare the US today with the US in the 1950s, and argue that since the 1950s, investment in intangibles is way up, even if investment in tangibles is way down.... My baseline world is one where the US current account deficit expanded during the US investment boom (and Asian bust) of 98-00, but then comes down.... Redefining a lot of spending as investment in intangibles doesn't change the balance between corporate savings and investment unless firms are investing a lot in intangibles than at the peak of the .com bubble. That's unlikely....

What of Mandel's second argument - one that parallels the argument of Hausmann and Sturzenegger. Will US investment in new intangible assets (the Starbucks brand, The Ipod's software, design and brand, and so on) allow the US to pay the bill for all its tangible imports?... There is no doubt that the US does better exporting intangibles than exporting tangibles. But that is a low bar for a country that imports twice as many tangible goods as it exports. The only question is does it all add up.... A point of clarification. The export of "intangibles" can come from foreign direct investment. Starbucks had the genius to marry Italian café culture with American drive-through (and walk-through) habits. The profit margins are higher if you take your tall skinny latte to go. In Mandel's vision, the profits from exporting the Starbucks experience -- the return on Starbucks investment in China -- will pay the US import bill. Coffee is a commodity. As is the labor required to make a tall skinny latte. Starbucks is an experience.... What matters... is the net external revenue.... The profits on Starbucks Beijing. The royalties on Microsoft's software.... Boeing's external sales.... The question is... whether [the US] can export enough intangibles to pay for all the tangible goods that enter US ports every month.... Mandel's argument is that the US right now is investing in ways that will generate future external revenues....

Why am I skeptical. Fist, the US will need to sell an awful lot of intangibles to make up for the exceptionally large gap between its (large) tangible imports and (small) tangible exports.... Second.... Third, I am not convinced that the US economy is gearing up to produce "intangible" goods that can readily be exported -- rather than just shifting into the production of domestic intangibles.... I don't see US firms doing a wonderful job building up the kind of intangible assets that easily translate into future exports. Like Calculated Risk, I see a lot of investment in housing, and lots of people training to be real estate brokers.

Fourth, I suspect that a lot of what Hausmann and Sturzenegger call dark matter - or what Mandel would call the gains from exporting "intangible" US expertise at financial and brand management - will turn out to be the product of exporting the Federal Reserves super-low US interest rates. I would be the first to concede the world has been -- and still is -- wiling to loan the US money at very generous terms. My big concern is that those terms are too generous to last....

Let me conclude by noting that in 2006, the US will export about one trillion less - counting both US exports of tangible goods and intangible services, including the service of financial intermediation - than it imports. It will - if all goes well - maybe borrow $1.2 trillion from the rest of the world. About $900 billion of that will go to pay for US impost of goods and services, and about $70 billion will go to pay interest on past US imports of goods and services (US debt).... About $200 billion will be used to finance US foreign direct investment abroad and US portfolio equity investment. Is there any plausible way that the $200 billion investment will generate sufficient investment income to pay for the interest on the $1 trillion the US takes on, let alone generate enough investment income in the future to let the US pay for its ongoing imports of tangible goods out of the returns on its past investment?

Try doing the math. It doesn't work.

Crooked Timber's Brain Explodes

It writes:

Crooked Timeber: [Bush's] latest defense is, "I didn't know anything about it." Whaaaa? "The president is a sock-puppet moron" is supposed to be a snide criticism, not an exculpatory point. In general I am confused and await further information. Matthew Yglesias rightly notes that the alert citizen will have learned not to trust the administration to make S'mores without plunging half the nation into a sticky-sweet inferno of death. Death that's sandwiched between Graham crackers! Food for thought.

Robert Shiller: U.S. Coastal Property Markets Are Overvalued

The Financial Times has lunch with Robert Shiller:

FT.com / Arts & Weekend - Lunch with the FT: The man and the bubble By Jim Pickard: The Yale professor correctly predicted the last stock market crash five years ago in his book, Irrational Exuberance. Now he is predicting a property meltdown.... for a 59-year-old - young features. He wears a blue jacket over a light blue shirt.... Shiller has sold truckloads of books by using plain English and eschewing more arcane economic theory. But he is not averse to more complicated words....

What I really want to know, not least as a homeowner, is when and how the property market will crash. So I ask him. For a man whose written predictions seem so definite - and dire - he appears loath to be nailed as an inveterate doomster. “I really don’t know what prices will do,” he says hesitantly, playing with his cutlery. But hasn’t he predicted a huge drop in US house prices? Only in some specific cities and states, he clarifies. The professor is no doubt aware that the history of economic forecasting is littered with the names of those who made the right forecasts at the wrong time.

He was already well respected before he became an author. Indeed, he may have been the one who lent Alan Greenspan the phrase “irrational exuberance.”... Shiller’s life has changed since Irrational Exuberance was published in 2000. He now gives a dozen speeches a year to business audiences across the world and makes frequent media appearances....

Alan Greenspan was praised for his handling of the economy during his interminable run as head of the Fed; in particular for his rapid cuts in interest rates to keep the economy afloat after the last stock market crash. Yet this has pumped up the housing bubble even more. I want to provoke mild-mannered Shiller into a little criticism. What, exactly, can Ben Bernanke, Greenspan’s successor, do to rescue the US economy if the property market crashes? Has the Fed already used up its one silver bullet - that of interest rate cuts?

“Bernanke thinks there is no housing bubble,” says Shiller. “According to the White House website, he said recently that the fundamentals explained house price movements except in some speculative markets.” The new chairman of the Fed is a “brilliant man”, Shiller continues, but he has not shown any interest in behavioural economics.... Here we come to the crux of Shiller’s theories about asset bubbles, whether tulips, shares or property: people get excited as they see the price of an asset rising, so they buy more, which pushes the prices up further until they are unsustainable. “The bubble is made by a ‘story’, by excitement and glamour,” he says. And then, once a market loses that momentum, it will experience negative feedback, where people rush to sell before things worsen further....

First, I ask, is he underestimating the role of low interest rates in fuelling the global property bubble? Prices may seem ridiculously high but if the cost of servicing property debt is low, why should it matter? Shiller’s reply seems well-rehearsed: interest rates are not so low in a historical context and in the US they are rising. An unprecedented number of variable rate mortgages... spells danger.... My second criticism is that it is not enough for an academic to point out when a market has over-heated. It’s only really useful to know when a market is so over-heated it will implode. In other words: timing. It is a point that he concedes....

Later, as Shiller eats a poached pear with cinnamon ice cream - which he declares delicious - we discuss his own investment approach. If the professor thinks that property and shares are both overheated, then where would he invest? Under a bed in cardboard boxes? Shiller’s advice is to diversify and to keep plenty of money in the bank or in “boring” inflation-proofed bonds....

Launceston Place Restaurant, Kensington, W8, London

1 x cauliflower soup with blue cheese croutons
1 x pan-fried black pudding with apple sauce
2 x roast cod with parsnip puree and curry cream
1 x poached pear with cinnamon
1 x coffee
1 x bottle mineral water
1 x cranberry and apple juice
Total: £52.75

Outsourcing Torture

Hilzoy of Obsidian Wings writes:

Obsidian Wings: Maher Arar's Case Dismissed : Maher Arar's case has been dismissed.... [I] do not feel competent to address the legal issues it raises.... However, there is one point on which I disagree strongly with the Court. Apparently, one of the counts could have proceeded had the Court not found that the national security questions it raises require that it be deferred to Congress or the executive.... I think this is just wrong. Article VI of the Constitution states that "all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby". We have entered into the Convention Against Torture. Article III of that Convention states that "No State Party shall expel, return ("refouler") or extradite a person to another State where there are substantial grounds for believing that he would be in danger of being subjected to torture." There are very substantial grounds for believing that someone rendered to Syria, as Arar was, would be tortured, even leaving aside the possibility that we asked the Syrians to torture him. We have therefore violated one of those treaties which are, according to the Constitution, the law of the land.

This means that the extradition of Maher Arar is a violation of the law. It may also have foreign policy implications, but it does not thereby cease to be a violation of the law. And while conducting foreign policy may not fall within normal judicial expertise, reading laws, and determining whether the facts in evidence warrant conviction under them, is exactly what judges do. If determining when conduct violates a law and when it does not does not fall within their purview, I have no idea why on earth we bother to have them.

Moreover, while the Court argues that Congress has not addressed the issue of extraordinary rendition, I would have thought that it did so by ratifying the Convention Against Torture, thereby making it the law of the land.

The only way I can see of holding that Maher Arar's detention should not be justiciable is to say that when something is both (a) a violation of law and (b) significant for foreign policy, its foreign policy significance should trump its illegality. But this would be crazy. Do we really want to say that whenever foreign policy is in any way involved, our laws cease to apply? That whatever our officials do that relates to foreign policy is therefore immune to legal scrutiny? I don't.

I Don't Understand This

I don't understand this. I may never understand this.

Uncertain Principles :You Can't Get There From Here: Category: Quantum Optics: Buried beneath some unseemly but justified squee-ing, Scalzi links to an article about "counterfactal computation", an experiment in which the group of Paul Kwiat group at Illinois managed to find the results of a quantum computation without running the computer at all. Really, there's not much to say to that other than "Whoa." The article describing the experiment is slated to be published in Nature, so I don't have access to it yet, but I'll try to put together an explanation when I get a copy. The experiment involves a phenomenon know as the "Quantum Zeno Effect".... [M]ake the measurement a much shorter time after the excitation-- a tenth of a second, say. The probability that the atom has already decayed is really, really small-- 0.002%-- so you're really likely to find it in the excited state, after which the atom is entirely in the excited state again, and the decay clock starts over.... If you keep making measurements at short intervals, you can keep the atom in the excited state basically forever.

The cool thing is, you can do this sort of thing with passive measurements. You don't have to bounce a photon off the atom to prove that it's in the excited state-- instead, you can send in a photon that will only be absorbed by a ground-state atom, and see what happens. If it isn't absorbed (and it most likely won't be), that's just as effective at keeping the atom in the excited state as if you'd done something more active to detect the excited-state atom.... If you're really clever about it (and Paul Kwiat is a really clever guy)... computing without running a computer should come as no surprise...

Class, Status, Vehicular Manslaughter

An excellent, sad, and awful story from Bitch, Ph.D., who finds two young American men's roads diverging on a wet slippery night:

Bitch Ph.D. : Mi familia; or, visiting the iniquity of the fathers on the children: Two stories about two different young men.

1. J. immigrated with his family from Russia. In Russia, his family was wealthy, and after they arrived in the States, they quickly re-established themselves, using their education and business acumen, so that they are now quite comfortably upper middle class. J. was a student of mine and is now a friend to whom I am something of a mentor. I wrote him recommendations for several law schools, and he is now enrolled at one of the better ones in this country.

J. loved car racing and driving fast. For his 16th birthday, his parents leased him a new sporty car. He did some modifications on it and, unknown to them, used the money that was amply provided to him to take racing classes at a local track, and to occasionally race there. He liked to speed, and had an accident (which pissed his parents off), but he generally avoided street races because he did not want to run afoul of the law, since he had aspirations to go to law school.

Demand for American Treasury Securities

Barry Ritholtz meditates on the conundrum:

The Big Picture: In Long-Term American Treasury Securities They Trust : What does it mean when so many overseas investors -- governmental, corporate, and institutional -- are hungry for US paper? There are a variety of potential explanations: Yield is relatively attractive here, its a safe investment for those looking to move cash away from their native countries. For exporters, buying US Treasuries helps pressure rates down, thus financing additional consumer spending. Floyd Norris writes: "The vast majority of foreign Treasury purchases came from private foreign investors, who presumably were attracted by the yields and by the fact that the dollar gained in 2005 against the Japanese yen, the euro and the British pound, while falling less than 3 percent against the Chinese yuan."

The United States is politically stable (despite red/blue divisions); Nor does it hurt that we have an unblemished track record of paying our sovereign debts -- even with all of the economic imbalances of recent years or the past....

Here's the details, via Norris: "GUESS who's financing the budget deficit of the United States? Hint: Very few Treasury securities are being purchased by American consumers or businesses. The federal government released its calculations this week on net investments in United States long-term securities, and found that foreigners had invested $350.8 billion in Treasury bonds and notes in 2005. They were net sellers of short-term Treasury bills, so their total Treasury holdings grew by just $290.9 billion.... Treasury securities held by the public — that is, by everyone except the Federal Reserve System and other arms of the government — rose by $306.4 billion. That means that 95 percent of the deficit was financed overseas.... The gain last year showed increasing foreign trust in American corporations. While United States government and agency securities got most of the money, the increase largely came from a greater willingness to buy corporate bonds and stocks. Foreigners put a net $391.7 billion into corporate bonds, 27 percent more than they had invested the previous year and the largest amount for any year on record."

Let's hope they don't change their collective minds anytime soon . . .

Ka Ching! Ka Ching! Ka Ching!

Brad Setser writes:

Roubini Global Economics (RGE) Monitor : The 2006 US current account deficit looks to be a bit under $1 trillion.... So it is not at all unreasonable to say that financing the US current account deficit requires that the US raise $20 billion a week, whether by selling debt, selling stocks or selling off real US assets. 52 * $20b = $1040. That is equal to selling one Unocal a week to China (CNOOC was willing to pay $20 billion). Or selling three companies the size of P&O to the Emirates a week.

P&O is a bad example though. It is British company, so its sale finances the UK's current account deficit, not the United States' deficit. And most of the value of the $6.8 billion deal doesn't come from the P&O's American assets. But the broader point still stands. If the US was financing its current account deficit with equity not debt, the Committee on Foreign Investment in the US (CFIUS) - the group that approved the port deal - would be very, very busy. Moreover, if foreigners who already hold dollar-denominated bonds ever decided they wanted to shift into equities, the potential sale of physical US assets would be even larger.

So far the US has financed its deficits with debt - and debt doesn't carry with it the right of control. Though countries that are hooked on debt do sometimes find that their creditors have a bit of influence over their policies. But fundamentally, there is no way the US can sustain $1 trillion deficits - the 2006 deficit is not going away in 2007 or 2008 barring a catastrophe, at best, the deficit won't keep getting bigger - without selling off large pieces of itself to the rest of the world.

Wysocki, Phillips and Schroeder got this -- and much more -- right in their page 1 Wall Street Journal article. My only real quibble with their article: by relying on the US TIC data, they vastly understate the capability of the oil sheiks to acquire US assets. The TIC data shows total Middle Eastern oil exporters hold $121 billion in US securities. That almost certainly understates their dollar holdings....

One thing is pretty clear: the US isn't ready to accept the consequences of sustained $1 trillion deficit. Even if the current account deficit stops rising in nominal terms and starts to fall in real terms, $1 trillion annual deficits imply that the US will sell $10 trillion of US financial assets to foreigners over the next ten years. And unless something changes, the foreigners with cash to spare will in the Middle East and East Asia.

$10 trillion can buy a lot of ports, oil companies, computer companies, consumer brands - you name it. But only if the US allows it. My personal guess is that the US won't. We in the US are willing to sell tons of IOUs to the world, but not tons of US companies. At the same time, there is no evidence the US is ready to take the policy steps needed to reduce its need for financing from China and the world's oil exporters...

Fair Harvard...

Larry Summers's critic J. Lorand Matory speaks:

The Harvard Crimson: "This university is more mine than Larry Summers'," says J. Lorand Matory '1982, professor of Anthropology and of African and African American studies. "I will not let Larry Summers determine that this will become a place where social Darwinism is the leading ideology or leading practice." Matory this semester emerged as one of University President Lawrence H. Summers' most outspoken critics, filing the motion that led to the successful vote of no confidence in the president and becoming one of only three Harvard professors to call publicly for Summers' resignation.

This struck me as odd: A professor who thinks Larry is a social darwinist really has no idea what a 'social darwinist' is at all--and has certainly never met a real one. What's he doing with his time to know so little about social darwinism and other topics in intellectual history?

A quick sweep through the Harvard catalog reveals that this year he is teaching:

African and African American Studies 140z. The Other African Americans Catalog Number: 0300 J. Lorand Matory Half course (spring term). W., 4-6. EXAM GROUP: 9: We survey the history and contemporary experiences of self-identified “mixed-race” groups, as well as voluntary immigrant groups from Africa and the Caribbean, such as Cape Verdeans, Nigerians, Jamaicans, Afro-Puerto Ricans, and Haitains [sic] in the US. Students are introduced to arguments central to the social scientific study of modern societies generally, such as the invention of ethnicity, and negotiation of identity, and the social constructedness of race.

Anthropology 1600 (formerly Anthropology 110). Introduction to Social Anthropology Catalog Number: 8296 J. Lorand Matory (spring term) Tu., Th., at 11. EXAM GROUP: Spring: 13: Introductory exploration of anthropological approaches to society, culture, language, and history. Lectures, readings, and ethnographic films focus on global social and cultural diversity, and the intellectualand ethical challenges of anthropological research on human difference, experience, and complexity, across a wide range of theoretical perspectives and social/cultural topics, including kinship, social and political hierarchy, exchange, gender, language, ideology, religion, and global political economic systems.

Also: Foreign Cultures 86

They do look like interesting courses. They put J. Roland Matory in the classroom, teaching, for about 55 79 hours total for the 2005-2006 academic yeqar.

JSTOR reports two articles since 1995: J. Lorand Matory (1999), "The English Professors of Brazil: On the Diasporic Roots of the Yoruba Nation," Comparative Studies in Society and History Vol. 41, No. 1 (which I read a couple of years ago: it is quite good); and J. Lorand Matory (1996), "Review: Revisiting the African Diaspora," American Anthropologist New Series, Vol. 98, No. 1 (Mar., 1996), pp. 167-170.

There is also a Princeton University Press book from 2005: Black Atlantic Religion: Tradition, Transnationalism, and Matriarchy in the Afro-Brazilian Candomblé, which describes itself as:

Black Atlantic Religion illuminates the mutual transformation of African and African-American cultures, highlighting the example of the Afro-Brazilian Candomblé religion. This book contests both the recent conviction that transnationalism is new and the long-held supposition that African culture endures in the Americas only among the poorest and most isolated of black populations. In fact, African culture in the Americas has most flourished among the urban and the prosperous, who, through travel, commerce, and literacy, were well exposed to other cultures. Their embrace of African religion is less a "survival," or inert residue of the African past, than a strategic choice in their circum-Atlantic, multicultural world.

With counterparts in Nigeria, the Benin Republic, Haiti, Cuba, Trinidad, and the United States, Candomblé is a religion of spirit possession, dance, healing, and blood sacrifice. Most surprising to those who imagine Candomblé and other such religions as the products of anonymous folk memory is the fact that some of this religion's towering leaders and priests have been either well-traveled writers or merchants, whose stake in African-inspired religion was as much commercial as spiritual. Morever, they influenced Africa as much as Brazil. Thus, for centuries, Candomblé and its counterparts have stood at the crux of enormous transnational forces.

Vividly combining history and ethnography, Matory spotlights a so-called "folk" religion defined not by its closure or internal homogeneity but by the diversity of its connections to classes and places often far away. Black Atlantic Religion sets a new standard for the study of transnationalism in its subaltern and often ancient manifestations.

Google Scholar reports 198 hits for "Lorand Matory." Google proper reports 927 hits for "Lorand Matory".

Matory writes that his next book will be:

Matory: a collaborative effort with my wife, a presidential protocol officer during the rule of Nigerian president Ibrahim Babangida. We have planned it as a culturally sensitive account of the inner workings of the dictatorship that ruled Africa's largest nation from 1985 to 1993. It is intended both as a corrective to standardized journalistic and political science cliches about the nature of autocracy and corruption in Africa and as a historical study of the genesis of Nigeria's current political crisis.

Wikipedia reports:

Ibrahim Babangida - Wikipedia, the free encyclopedia: General Ibrahim Badamosi Babangida (born August 17, 1941), popularly known as IBB, was the military ruler of Nigeria from August 1985 until his departure from office under heavy popular pressure in 1993, after his annulment of elections held that year.... Babangida hails from the Gwari ethnic group and was born in Minna in Niger State, the city in which he has resided since his departure from office. He joined the Nigerian Army's officer corps in 1962.... Babangida once again took up a political position under the administration of General Muhammadu Buhari, whose regime he overthrew on 27 August 1985, promising at the time to bring to an end the human rights abuses perpetuated by Buhari's government, and to hand over power to a civilian government by 1990. He was instrumental to the culture of "settlement"... bribery and corruption in Nigeria. His administration embezelled over $12.5 billion during the gulf war from the oil 'windfall' money. He is probably the most corrupt African leader.

I doubt that Babandiga was the most corrupt African leader.

Unqualified Offerings Is Shrill

We welcome Jim Henley, Grand Heresiarch and High Tentacled One of the Ancient, Occult, and Hermetic Order of the Shrill:

Ia Henley!! Ia Fhtagn!!: Outraged Moderate got hold of Steven Cambone’s handwritten notes of his meeting with Donald Rumsfeld from the afternoon of September 11, 2001. The notes confirm CBS News’ report of September 4, 2002 that, at that meeting, Rumsfeld was already thinking of using the atrocities as an excuse to go to war with Iraq. It’s important to stress: Rumsfeld is not wondering if Iraq did it; he’s wondering if it can look enough like Iraq did it to pin the blame there.

It can’t be stressed enough: the Pentagon was aflame; there was smoke pouring from a hole in the Pennsylvania fields and the World Trade Center complex was belching its ghastly cloud, and already our rulers were thinking not, who is to blame? but what can we get away with? What will the still-bubbling fat of the murdered serve to cook?

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

Why Oh Why Can't We Have a Better Press Corps? (The Washington Times Celebrates Black History Month Edition)

Black Republicans are as rare as Republican academics. Here's part of the reason why: the Washington Times celebrates Black History Month:

The Washington Times: By Peter Cliffe: It is just as well Harriet Beecher Stowe knew nothing about Mary Chesnut. The child of fervently puritanical parents and driven by her abolitionist beliefs to write "Uncle Tom's Cabin," Stowe created an incredibly successful and influential novel although she had no firsthand knowledge of her subject.... Stowe was convinced that all slaveholders were brutish oppressors (as some undoubtedly were), but what would she have made of Mary Boykin Miller, who as a young girl taught slaves on two plantations to read and write although this was strictly forbidden in South Carolina? Both she and the man she married were opposed to slavery. In every regard, Mary Chesnut, as she became, was a remarkable woman.... Hardly likely to revise her beliefs, Stowe probably would have dismissed Mary as an irrelevance, an aberration of the plantocracy....

She was just 17 when in 1840 she married James Chesnut Jr., the son of wealthy parents, and settled at Mulberry, a luxurious plantation home where all the Chesnuts resided. Taking little or no part in the running of the plantation but sometimes acting as a hostess, Mary seems to have been contented enough. James served first in the state legislature and then in 1855 became a U.S. senator.... Mary had a well-attended salon in Washington... a close friend of Varina Davis, future first lady of the Confederacy.... Then came secession. James Chestnut resigned, and back they went to Mulberry before moving to Montgomery and then to Richmond after Virginia left the Union....

Mary never lost her distaste of slavery. As a child on her paternal grandparents' plantation, she had rescued a slave there from illiteracy with her grandmother's consent. It was an establishment where slaves were treated humanely. She again broke the law at Mulberry, also with family permission, by teaching other slaves to read and write.... James may have disliked slavery, but he was an ardent secessionist, serving on Gen. P.G.T. Beauregard's staff, initially as a brigadier general and ultimately as a general. Although he saw action at First Manassas, his were primarily administrative duties.

Mary's voluminous journal was filled with opinions, not always favorable, of those who guided the destiny of the fledgling Confederacy... the privations endured by civilian.... Women could go without fashionable garments, but prices spiraled ever higher, and food became so scarce.... When the Confederacy collapsed, the Chesnuts returned to the wreck of their home.... Mary never referred to her journal as "A Diary From Dixie," which was a title used by the Saturday Evening Post when part of her work was serialized in 1905.... Nothing but tall, blackened chimneys to show that any man had ever trod this road before," Mary Boykin Chesnut wrote, summing up in a single sentence the tragedy of a cause utterly lost. Ironically, Harriet Beecher Stowe's subsequent novels never achieved anything like the success of "Uncle Tom's Cabin," which President Lincoln had told her started the Civil War.

Alternate History: Iraq

Victor Davis Hanson phones in from whatever alternate universe his deranged brain thinks he is living in--an alternate universe in which George W. Bush is the second coming of Winston S. Churchill:

Victor Davis Hanson: The insurgency in Iraq has no military capability either to drive the United States military from Iraq or to stop the American training of Iraqi police and security forces — or, for that matter, to derail the formation of a new government. The United States air base at Balad is one of the busiest airports in the world.... [T]he terrorists have an invaluable ally in the global media, whose “if it bleeds, it leads” brand of journalism always favors the severed head in the street over the completion of yet another Iraqi school.... During this sort of waiting game in Iraq, the American military silently is training tens of thousands of Iraqis to do the daily patrols, protect construction projects, and assure the public that security is on the way, while an elected government reminds the people that they are at last in charge....

Who will win? The Americans I talked to this week in Iraq — in Baghdad, Balad, Kirkuk, and Taji — believe that a government will emerge that is seen as legitimate and will appear as authentic to the people. Soon, ten divisions of Iraqi soldiers... over 100,000 police... crush the insurgency... a public tired of violence and assured that the future of Iraq is their own.... [T]he American presence in Iraq will... lessen considerably in 2006... reaching Korea-like levels and responsibilities in 2007...

Meanwhile, out in the non-alternate reality of the real Baghdad, Zayed the Dentist keeps his head down and phones to try to get the word out:

Healing Iraq : Fierce streetfighting at my doorstep for the last 3 hours. Rumor in the neighbourhood is that men in black are trying to enter the area. Some armed kids defending the local mosque three blocks away are splattering bullets.... [T]he attackers were fended off in our neighbourhood.... In Adhamiya, armed groups in black crossed the river in boats from neighbouring Kadhimiya and took over the Nu'man hospital. In Khadhraa', a combined force of Interior ministry forces and men dressed in black are surrounding 2 mosques with several families inside, threatening to burn them down on the occupants.... An armed group in 10 vehicles with no number plates entered the Al-Iskan Al-Sha'bi district in Dora... but was turned back by the residents. Eyewitnesses claim that as many as 40 bodies and 5 burnt vehicles.... Another group dressed in black in one Daewoo and two Opel vehicles passed the Interior ministry forces' checkpoint at Abu Dshir square... entered the Yassin mosque with explosives in tin containers. The keeper was killed and the mosque blown up. A Shi'ite armed group carried Sheikh Ghazi Al-Zoba'i in a pickup truck around Sadr city, shouting that they have a Wahhabi terrorist with them, before he was lynched on the streets by the angry mob.

Government officials and spokespersons are deliberately suppressing any news of these ongoing attacks on Sunni neighbourhoods and mosques. The official Al-Iraqiya channel is playing a historical movie, while other channels are playing Shi'ite mourning and Quran. The Interior ministry says it only has reports of 19 mosques attacked and one cleric killed. Go figure.

The FBI phones in from Guantanamo Bay, complaining

E-Mails Show FBI Agents Fretted About Prisoner Abuse - Los Angeles Times : that Defense Secretary Donald H. Rumsfeld's public pronouncements about interrogation policies were misleading. "I know these techniques were approved at high levels within DoD and used" on specific prisoners, said the official, referring to the Department of Defense. The names of the author and recipients of the e-mail were blanked out... no information was provided to indicate how the author knew the techniques were authorized at top levels.... Guantanamo's prison commander, Army Maj. Gen. Geoffrey D. Miller, was described as favoring aggressive methods "despite FBI assertions that such methods could easily result in the elicitation of unreliable and legally inadmissible information."... A Pentagon spokesman described the ACLU documents as "old information," and said that 12 investigations and reviews had found there was no Defense Department policy that encouraged or condoned abuse of detainees at Guantanamo Bay. The FBI memos had been previously released to the ACLU in December 2004, but with most of their contents censored...

William F. Buckley calls upon George W. Bush to acknowledge defeat in Iraq:

William F. Buckley Jr.: [T]he American objective in Iraq has failed.... Iraqi animosities have proved uncontainable by an invading army of 130,000 Americans.... The Iraqis we hear about are first indignant, and then infuriated, that Americans aren't on the scene to protect them and to punish the aggressors. And so they join the clothing merchant who says that everything is the fault of the Americans.... President Bush... postulate[d], from the beginning... that the Iraqi people... would suspend internal divisions in order to get on with life in a political structure that guaranteed them religious freedom... the invading American army would succeed in training Iraqi soldiers and policymkers to cope with insurgents bent on violence.

This last did not happen. And the administration has, now, to cope with failure.... Mr. Bush has a very difficult internal problem here because to make the kind of concession that is strategically appropriate requires a mitigation of policies he has several times affirmed in high-flown pronouncements.... [D]ifferent plans have to be made. And the kernel here is the acknowledgment of defeat.

And John Podhoretz calls for the Bush administration to deal with the situation by mobilizing--Karl Rove:

The Corner on National Review Online : PAGING KARL ROVE--EMERGENCY!... Democrats in Congress are outpolling President Bush on national security. By a margin of 43 to 41 percent, Americans say they trust Congressional Democrats more than Bush when it comes to protecting our national security.... [T]he political consequences could be catastrophic.

Impeach George W. Bush. Impeach Richard Cheney. Donald Rumsfeld, Condi Rice, Stephen Hadley, Porter Goss, Andrew Card too.

We Hear and Obey

Elvis Costello tells us to go listen to Rilo Kiley. Very good advice.

Even the Ministry of Truth Is Alarmed...

Even the Ministry of Truth is alarmed. National Review's. John Podhoretz writes:

The Corner on National Review Online : PAGING KARL ROVE--EMERGENCY! [John Podhoretz] Rasmussen has a new poll up in which -- hold on now -- Democrats in Congress are outpolling President Bush on national security. By a margin of 43 to 41 percent, Americans say they trust Congressional Democrats more than Bush when it comes to protecting our national security. And by a margin of 64-17 percent, they oppose the sale of the ports to Dubai.... Congressional Republicans have no choice but to be extremely aggressive and nasty toward the president and the White House, because they will be properly terrified of looking like Bush's lapdogs on a hugely unpopular matter that goes to the heart of the Republican party's political advantage in the United States. If the White House doesn't handle this well in the next three days, the political consequences could be catastrophic.

Hey, John! Instead of worrying how the Bush administration can *appear* to be a competent guardian of America's national security, how about worrying about how we can get a government that *IS* a competent guardian of America's national security?

I know, I know. That strikes you as a whacky--a weird--a bizarre idea of what we should be worrying about. But it's just a thought.

Lies, Damn Lies, and Gingrichisms

The excellent Jonathan Chait makes the mistake of actually *believing* Newt Gingrich:

The Plank: Gingrich expounds at length upon his ideas in a recent interview with Brian Carney of The Wall Street Journal editorial page. At one point Gingrich offers up what Carney describes as a "telling anecdote":

We just got a report yesterday that was in the newspaper that children on Medicaid are six times as likely to be obese as children who are not on Medicaid. Now even for a liberal that should give them some pause as to how bad Medicaid is as a system.

Actually, this is a statistic, not an anecdote...

Actually, Jonathan, it's neither a statistic nor an anecdote. 24% of kids are obese. 34% of kids on Medicaid are obese. 21% of kids not on Medicaid are obese. It's not 6 to 1--it's 3 to 2.

Where does the 6 to 1 figure come from? It comes from a claim by Thomson Medstat that kids on Medicaid are six times more likely to be *treated* for *severe* obesity--about one in a hundred for the Medicaid population, and less than two in a thousand for the non-Medicaid population. Thomson Medstat "wouldn't identify the eight states that provided the Medicaid data because the programs had insisted on anonymity. The report is not being published, but is being presented to the company's clients." In other words, it's not going to be peer-reviewed.

Is Medicaid causing obesity among children--as Gingrich claims? Extremely doubtful. 28% of children in the South are obese, compared to 22% in the rest of the country. 34% of low-income children are obese, compared to 19% of high-income children. One-third of African-American children are obese, compared to one-fifth of white children. We do have a big fat problem here--more serious among the poor than the rich, more serious in the South than elsewhere, more serious among African-Americans than among whites. But there's no sign anywhere that access to Medicaid makes children fatter. No sign at all.

Jonathan: next time you are tempted to write about an apparently strange and interesting fact spouted out by some right-winger, *lie down* until the temptation goes away--or at least call somebody like Ken Thorpe of Emory who can figure out what is really going on.

Jack Abramoff

Ah:

Talking Points Memo: by Joshua Micah Marshall: February 19, 2006 - February 25, 2006 Archives: Former Malaysian Prime Minister Mahathir Mohamad confirms that Jack Abramoff was paid $1.2 million to set up his meeting with President Bush.

The Washington Post will soon report that Jack Abramoff directed his Malaysian clients to give money to legislators from both political parties.

Why Oh Why Can't We Have a Better Press Corps? (Washington Post Edition)

George Orwell, please pick up the White courtesy phone:

Jim VandeHei writes:

Bush Calls For More Muscle In Darfur : With memories of the failed 1993 U.S. military operation in Somalia fresh in their minds, many U.S. policymakers have been reluctant to commit U.S. forces unilaterally or through multilateral organizations such as NATO. But Bush brushed aside the resistance of some senior policymakers and sided with White House adviser Michael J. Gerson and others who have been lobbying for more assistance to Darfur...

Matthew Yglesias is bemused at the characterization of Michael J. Gerson:

Process Questions | TPMCafe: Will calling for 7,000 NATO troops to go to Darfur actually have a beneficial impact on the situation over there, or is this just an effort to be seen as "doing something" without really facing up to what one would have to do to achieve anything worthwhile? I'm far from certain, but this doesn't reassure me: "But Bush brushed aside the resistance of some senior policymakers and sided with White House adviser Michael J. Gerson and others who have been lobbying for more assistance to Darfur." Gerson, of course, is a speechwriter. I hope the "others" who agree with him included some people with relevant policy expertise, but the administration's record on that score hasn't been encouraging.

Think of how differently "Bush brushed aside the resistance of the Secretaries of State and Defense and the National Security Advisor and sided with White House speechwriter Michael J. Gerson..." sounds than "Bush brushed aside the resistance of some senior policymakers and sided with White House advisor Michael J. Gerson..."

Cracks in the Euro Face

Edward Hugh observes that the fiscal-stability order underlying the euro continues to crack in Germany:

A Fistful of Euros: Who Will Be The First To Blink? : Methinks the first serious test of the eurosystem is now looming on the horizon. The title of this post refers to an earlier point made by Nouriel Roubini. The FT this morning is reporting that: "The German cabinet will on Wednesday endorse a 2006 budget that breaks the European Union's fiscal rules for the fifth year in a row, amid criticism that Angela Merkel's coalition government is failing to meet its own target to cut spending."If this is confirmed the EU Commission and the ECB will then have to respond. One of these fine days all hell is going to break loose in the financial markets. Will that be sooner or later? We await developments.

Vote! For Michael Berube

Now is your chance to make a difference.

Danger: Godwin's Law Violation in Progress!

Newsweek's Michael Hirsh compares Bush's strategic judgment to Hitler's:

Hirsh: Bush's Poor Leadership in Terror War: Again, lest I'm accused of being partisan (I'm really just a reporter, and a very disappointed hawk), I would just refer you to the rebellion within Bush's own party.... We did not have a clash of civilizations four years ago, but we're getting closer to one now. As violent anti-Western protests sweep the Islamic world, and what remains of the moderate Muslim community is cowed into silence, how unbearably sad it is to cast one 's mind back to the eve of 9/11.... No one had much use for Al Qaeda, even in the Islamic world. Global polls like those taken by Pew and the German Marshall Fund showed a remarkable degree of global consensus in favor of a one-superpower (in other words, American-dominated) world. The silver lining of 9/11 was a chance to reaffirm the legitimacy of America's role as trusted overseer of the international system.... How then did we arrive at this day, with anti-American Islamist governments rising in the Mideast, bin Laden sneering at us, Qaeda lieutenants escaping from prison, Iran brazenly enriching uranium, and America as hated and mistrusted as it ever has been? The answer, in a word, is incompetence. We now have testimony from enough Republicans and Bush loyalists—-from former Treasury Secretary Paul O'Neill to former CIA senior director Paul Pillar--that the administration knew all along how flimsy its WMD case against Iraq was. We also now know, from Berntsen and others, that the administration knew then how solid the intel on bin Laden's and Zawahiri's whereabouts was. So catastrophic was Bush's decision to shift his attention and resources to Iraq, when bin Laden was panting at Tora Bora, that one is tempted to rank it with Adolf Hitler's decision to invade the Soviet Union in June 1941, at a time when Great Britain was prostrate and America was still out of the war (a decision that almost certainly cost Hitler the war then and there)....

A Good Article on Larry Summers

James Traub writes:

School of Hard Knocks - What President Summers never learned about Harvard. By James Traub: I, for one, will miss Summers, since university presidents who have something to say that is worth hearing are as rare as hen's teeth. And I worry that an emboldened faculty will push the Harvard Corporation to choose as his successor the reincarnation of Neil Rudenstine. Summers had a worthy cause

Monsters

Alex Tabarrok has some pictures of the deed of some monsters:

Marginal Revolution: Monsters.

European History: The Cheese Approach

Tonight we have:

• Provolone Piccante, because we like sharp, aged provolone.
• Manchego, made from cows herded on the plains of La Mancha, homeland of the fictional Don Quijote--either the most pitiful of comic or the silliest of tragic heroes, depending on how you read the greatest novel in the Spanish language.
• Valterina Casera: everyone who has read C.V. Wedgwood's history of the Thirty Years' War (1618-1648) knows of the critical importance of the valley from whence this cheese comes: the Val Telline, control of which was absolutely vital to the ability of the Habsburgs to reinforce their legions in Germany with fresh Spanish tercios.

Earthly Paradise, Part XLVII

"Why, this is the early paradise, nor am I out of it." Sitting outside in February, basking in the sun, with the temperature in the high 60sF, drinking iced lattes, demanding of passing graduate students that they produce new drafts of their papers, and discussing which are our respective favorite paragraphs in the "Great Contraction" chapter of Milton Friedman and Anna J. Schwarz (1963), A Monetary History of the United States.

Does it get any better than this?*

---

*Yes, it does, but not in a manner that can be described on a G-rated family weblog.

Why Oh Why Can't We Have a Better Press Corps? (Yet Another Washington Post Edition)

Washington Post reporters Jim VandeHei and Jonathan Weisman conclude that the facts--what Bush said--are biased against Bush. They can't have that. So they clean it up.

Here's what Bush said:

Roundtable Interview of the President by the Press Pool: I want those who are questioning it to step up and explain why all of a sudden a Middle Eastern company is held to a different standard than a Great British company.

Here's what they write:

Bush Threatens Veto Against Bid To Stop Port Deal : "I want those who are questioning it to step up and explain why all of a sudden a Middle Eastern company is held to a different standard than a [British] company," Bush told reporters.

Why must the readers of the Washington Post be protected from knowing that Bush uses "Great British" as an adjective? I know, I know--both Jim and Jonathan are scared of offending Karl Rove.

Sarbanes-Oxley

Volcker and Levitt do not want it relaxed:

WSJ.com - Financial Stars Urge Regulators To Not Dilute Sarbanes-Oxley : A group of financial notables has urged regulators to reject a proposal to exempt thousands of smaller public companies from Sarbanes-Oxley-imposed rules on internal controls. Former Securities and Exchange Chairman Arthur Levitt and former Federal Reserve Chairman Paul Volcker and others warn in a Feb. 13 letter that such a rule relaxation is "misguided" and "simply goes too far" in addressing the concerns of small companies.... A section of Sarbanes-Oxley, a 2002 corporate-governance law, requires public companies to review their financial-reporting systems and safeguards -- so-called internal controls -- to ensure their financial statements aren't susceptible to errors or fraud. Hundreds of companies have spotted internal-control problems and many have had to restate earnings since the internal-controls rules went into effect in late 2004, but smaller companies have complained the rules are disproportionately costly and burdensome for them.

In response, an SEC advisory panel made a recommendation in December that would lead to exempting an estimated 80% of public companies from at least part of the rules. For example, companies with market values below about $125 million would be exempt from the rules entirely; others would face relaxed variations on the rules.... Exempting smaller companies from the internal-controls rules would be a mistake, according to the letter writers. "When new accounting and corporate-fraud scandals develop, as they surely will, people will ask who was responsible for a policy decision resulting in such sweeping exemptions," they wrote. The letter was also signed by John Bogle, the former chairman of Vanguard Group Inc.; John Biggs, the former chairman and chief executive of pension company TIAA-CREF; and Charles Bowsher, former U.S. comptroller general and former head of the Public Oversight Board, the PCAOB's predecessor in regulating the accounting industry...

Dan Drezner Defends the Peninsular and Oriental Steam Navigation Company

Dan Drezner defends the Bush administration's willingness to allow the UAE-OWNED P&O to buy U.S. ports: the FBI and CFIUS have approved it--and they to err on the side of preventing foreigners from buying U.S. businesses where national security is concerned. This is one of the few occasions where the Bush administration appears to be on the side of the angels:

danieldrezner.com :: Daniel W. Drezner :: What's the big deal about the port deal? : I can certainly see why there's some political controversy about a firm owned by the government of the United Arab Emirates helping to run ports on the Eastern seaboard -- but after reading this Christian Science Monitor story by Alexandra Marks, I don't think there's any real basis for the kind of outrage I'm seeing....

P&O is not commenting on the political uproar over the deal. But a source within the company worries that the media and politicians are misrepresenting the arrangements. Other who work within the port communities agree. They note that P&O will not be "managing" the ports, as many news organizations have reported. Instead, the company is one of many that leases terminals at the port. "I've never quite seen a story so distorted so quickly," says Esther de Ipolyi, a public-relations executive who works with the port of Houston. "It's like I go to an apartment building that has 50 apartments, and I rent an apartment. This does not mean I took over the management of the whole building."...

[A]ll the facts were reviewed by the Committee on Foreign Investments in the United States (CFIUS) earlier in the month. People aren't upset that there's been a review -- they're upset because there's been a review and the outcome is one they disagree with on a gut level.... There's been a lot of hot air in the blogosphere on this -- and even hotter air from the United States Senate and local politicians -- but I haven't seen anything approaching a rational, reality-based argument against this deal.

Some Highlights from Larry Summers's Resignation Letter

Some highlights from Larry Summers's resignation letter:

Letter to the Harvard Community: I have reluctantly concluded that the rifts between me and segments of the Arts and Sciences faculty make it infeasible for me to advance the agenda of renewal that I see as crucial to Harvard's future. I believe, therefore, that it is best for the University to have new leadership....

[T]he quality of the experience we provide our students is not fully commensurate with their quality or the quality of the Harvard faculty... student-faculty contact... international opportunities... a start on bringing space for student activities and social life up to the standard of peer institutions....

At a time when the median age of our tenured professoriate is approaching 60, the renewal of the faculty has to be a central concern.... [I]t [is] essential that the University do much better than it has done traditionally to ensure that we are doing everything we can to attract, develop, and retain the most promising emerging scholars...

[E]xtend to all parts of the University the promise that talent, and not ability to pay, is the key to a Harvard education.... We are extending the same philosophy to our graduate and professional schools by making sure that students who choose academic or public service careers are well supported while at Harvard so that they are not unduly burdened if they choose careers whose chief rewards do not come in financial terms... much more... can and should be done to sustain a University-level commitment to financial aid....

[T]he University is in the midst of unprecedented commitments to science and technology. The success of these investments will be crucial over the next several decades to the University's global standing.... We cannot maintain pre-eminence in intellectual fields if we remain constrained by artificial boundaries of departments and Schools. "Each Tub On Its Own Bottom" is a vivid, but limiting, metaphor.... We will not escape its limits unless our Schools and Faculties increase their willingness to transcend parochial interests...

Sixty as the median age of tenured non-emeritus faculty?

Num Sum

And yes, I have been playing with:

Num Sum: Easy, Sharable Web Spreadsheets

Dan Ziblatt Has Finished His Book

Dan Ziblatt did a wonderful job teaching for us here at Berkeley before he managed to grow legs and scramble ashore from the nourishing sea of graduate school onto the dry land of the quest for tenure. His book is now out, and so the pile grows bigger:

Daniel Ziblatt (2006), Structuring the State: The Formation of Italy and Germany and the Puzzle of Federalism (Princeton: Princeton University Press: 0691121672).

Dark Matter

The late Rudi Dornbusch said that one of the infallible warning signs that we are near the collapse of an overvalued currency associated with an unsustainable trade deficit is when highly intelligent and respected economists begin evolving plausible theories that--this time--the trade deficit is sustainable.

Now come Hausmann and Sturzenegger (2005), "U.S. and Global Imbalances: Can Dark Matter Prevent a Big Bang?" (Cambridge: Harvard CID Working Paper) with a theory that the U.S. trade deficit is not so big and not so unsustainable after all.

What is their theory? The best way I have found to explain it is to look at the spreadsheet immediately below, which presents what we think will happen on the U.S. capital account side in 2006 in two ways. In column 1 it presents what the Commerce Department's Bureau of Economic Analysis will record as the book value of assets created across countries in 2006. In column 2 it presents what Hausmann and Sturzenegger think should be recorded as the income-producing value of those assets.

In the BEA's book-value accounting, in 2006 U.S. companies will invest $600 billion in foreign direct investment elsewhere in the world--building factories, establishing links in value chains, taking over existing foreign-owned businesses, and so forth. In HS's accounting, that $600 billion in visible FDI will be accompanied by $300 billion worth of "dark matter" organizational and technological know-how that American firms carry to their operations abroad. The FDI flow will thereafter generate as much income as would a pure $900 billion bricks-and-mortar FDI flow.

In the BEA's book-value accounting, U.S. residents will also purchase $600 billion in foreign securities, and U.S. banks and other corporations will acquire $400 billion in loans payable and other credits. The gross overseas asset accumulation of Americans will thus amount to about $1,600 billion (in the BEA's book-value accounting) and to about $1,900 billion of income-producing assets (including the $300 billion of "dark matter" that boosts the income-producing potential of U.S. FDI).

Now let's look at the liabilities side. In the BEA's book-value accounting, in 2006 foreign governments will invest $800 billion acquiring U.S. securities--Treasuries, Fannie Maes, and others. Because the U.S. is at the center of the world monetary system it has the "exorbitant" privilege of being offer to sell its securities at lower interest rates. In HS's accounting, that $800 billion consists of the U.S. providing foreign governments and central banks seeking foreign exchange reserves with $600 billion of income-producing potential and an extra $200 billion of "dark matter" liquidity.

Similarly, foreign private investors will spend $700 billion acquiring U.S. securities, which HS assess as consisting of $600 billion of income-producing potential and $100 billion of extra security--insurance because whatever happens to foreigners' assets in their home countries, their U.S.-housed assets will still be there.

In addition, foreign companies will make $300 billion of FDI investments in America, and foreign banks and companies will acquire $600 billion in loans payable and other credits from U.S. residents. The gross accumulation by foreigners of assets in America will thus amount to about $2,400 billion (in the BEA's book-value accounting), and to about $2,100 billion of incomes-producing potential (plus an extra $200 billion of liquidity and an extra $100 billion of security provided by the superior qualities of ).

Look at this pattern of asset position changes through the BEA's eyes, and you see the U.S. becoming indebted to the rest of the world to the tune of an extra $800 billion every year: a staggering figure that we cannot imagine going on for even a decade. Look at this pattern of asset position changes through HS's eyes, on the other hand, and you see the U.S. becoming indebted to the rest of the world to the tune of an extra $200 billion of income-producing potential every year. That's not a big deal. That's sustainable: the flow of real profits and interest owed on an extra $200 billion is approximately $10 billion a year, and that is only 1/40 of the approximately $400 billion by which U.S. incomes grow every year.

The way that HS see it, U.S. trade is nearly balanced. We are importing some $2,000 billion and exporting some $1,200 billion of regular goods-and-services every year, but we are also exporting (a) $300 billion of technological and organizational knowledge via FDI, (b) $200 billion of liquidity services by serving as reserve banker to the world's central banks and governments, and (c) $100 billion of security services by giving foreign private investors a safer place to plant their wealth. Properly evaluated, HS argue, U.S. trade is nearly balanced.

The debate over HS's "dark matter" claims is rolling around the internet, with Willem Buiter and Ricardo Hausmann exchanging views at Martin Wolf's distressingly ovary-free Martin Wolf's Financial Times Economic Forum, Brad Setser harassing Hausmann and Business Week's Michael Mandel from his perch at Roubini Global Economics, and Michael Mandel parrying at his Economics Unbound.

Do I believe in Hausmann and Sturzenegger's "Dark Matter"? No. This post is in the interest of explicating an interesting line of argument only.

I believe what Rudi Dornbusch said: that when highly intelligent and respected economists begin evolving plausible theories that--this time--the trade deficit is sustainable, that is the time to start running for the hills, because the crash is near.