Brad DeLong

links for 2008-03-01

• Jason Horowitz: Harold Ickes: Blame Mark Penn
• Nutrition Facts and Analysis
• Felix Salmon: Are Equities Attractive?

Is This for Real?

This must be a parody:

PoliTex: Clinton camp tries to change expectations:

To: Interested Parties
From: The Clinton Campaign
Date: Friday, February 29, 2008
RE: Obama Must-Wins

The media has anointed Barack Obama the presumptive nominee and he's playing the part. With an eleven state winning streak coming out of February, Senator Obama is riding a surge of momentum that has enabled him to pour unprecedented resources into Texas, Ohio, Rhode Island and Vermont.

The Obama campaign and its allies are outspending us two to one in paid media and have sent more staff into the March 4 states.  In fact, when all is totaled, Senator Obama and his allies have outspent Senator Clinton by a margin of $18.4 million to $9.2 million on advertising in the four states that are voting next Tuesday. Senator Obama has campaigned hard in these states.  He has spent time meeting editorial boards, courting endorsers, holding rallies, and - of course - making speeches.

If he cannot win all of these states with all this effort, there's a problem.

Should Senator Obama fail to score decisive victories with all of the resources and effort he is bringing to bear, the message will be clear: Democrats, the majority of whom have favored Hillary in the primary contests held to date, have their doubts about Senator Obama and are having second thoughts about him as a prospective standard-bearer.

Robert J. Gordon Reviews the History of World War II

Hoisted from Comments: Robert J. Gordon:

Grasping Reality with Both Hands: Economist Brad DeLong's Fair, Balanced, and Reality-Based Semi-Daily Journal: I am currently writing a book review of the impressive Tooze book "Wages of Destruction". Contra Brad's description, this is not military history but rather economic history. My initial criterion to assess the value of the book is to ask "what is new" as compared to the Abelshauser chapter in the Mark Harrison edited (1998) volume on the Economics of World War II.

I learned two big new ideas from the Tooze book as contrasted to the huge existing literature on Nazi society and economy 1933-45. First, the push to rearmament 1933-39 was consistently forced to face a severe foreign exchange constraint. An oddity of the Nazi economy was its refusal to devalue its currency. Instead, it placed extreme constraints on imports of consumer goods. This was in addition to what everyone already knew, that the Nazi economy held down wages in order to boost profits and stimulate production and hiring.

The second big new idea in the Tooze book, which maybe everyone already knew about but has gotten lost in the focus on the Holocaust, was General Plan Ost. This was a mind-boggling plan to deport (to some unknown destination, mainly death) most of the inhabitants of non-Jewish Poland, Belorussia, and the Ukraine in order to provide "lebensraum" for German settlers. Tooze documents plans to deport as many as 40 million inhabitants. Fortunately, the reverses suffered by the German army starting with the Moscow campaign in Nov-Dec 41 postponed the General Plan Ost. According to Tooze, they tried it out on a part of Poland, and the inhabitants ran away into the forests rather than being subjected to deportation.

Brad talked about his top three WWII military histories of the last half-decade. One of the best new books is Ian Kershaw's (2007) "Fateful Choices" about strategic choices in the major capitals (London, Berlin, Moscow, Tokyo, Washington) in 1940 and 1941. This is deep and wonderful writing about the big issues of WWII -- why didn't the British negotiate with Hitler, why did Hitler decide so early (July 1940) to invade Russia, what was Roosevelt thinking in 1940-41, and the biggest puzzle of all, why did the Japanese decide to attack Pearl Harbor. A related book on strategic planning, but mainly about the U.S., is Michael Beschloss (2002) "The Conquerors" about FDR and Truman. This book's major figure is Morgenthau, and many will be interested in M's efforts to get FDR to take the ongoing holocaust seriously.

I Am Not This Spacey, Am I?

"Hello. My name is Brad DeLong. May I please speak to Jason Furman?" "I'm sorry. He's at a conference." "OK. I'll try his voice mail..."

"Hello. This is Brad DeLong again. Somehow I got myself into Eileen Chang's voice mail instead of Jason's. Could you please..."

"Hello. This is Brad DeLong. May I please speak to Peter Orszag?" " Peter Orszag?" "Oops. I just talked to you, didn't I?" "Yes." "Oh. When Peter moved over from the Hamilton Project to become Director of CBO a year ago, I must never have updated the contact. I'm sorry.... You wouldn't happen to have Peter's number handy..."

links for 2008-02-29

• Chicago GSB Faculty and Staff Directory - University of Chicago Graduate School of Business
• Nir Rosen: The Myth of the Surge
• Antonio Bernardo
• Sean Masaki Flynn

Still Stocks Rather than Bonds for the Long Run

J. Bradford DeLong and Konstanin Magin (2008), "The U.S. Equity Premium: Past, Present, and Future" http://www.j-bradford-delong.net/2008_pdf/20080228_jep_submit.pdf

ABSTRACT: For more than a century, diversified long-horizon investors in America’s stock market have invariably received much higher returns than investors in bonds: a return gap averaging some six percent per year that Rajnish Mehra and Edward Prescott (1985) labeled the “equity premium puzzle.” The existence of this equity return premium has been known for generations: more than eighty years ago financial analyst Edgar L. Smith (1924) publicized the fact that long-horizon investors in diversified equities got a very good deal relative to investors in debt: consistently higher long-run average returns with less risk. As of this writing the annual earnings yield on the value-weighted S&P composite index is 5.53%. This is a wedge of 3.22% per year when compared to the annual yield on 10-year Treasury inflation-protected bonds of 2.31%. The existence of the equity return premium in the past offered long-horizon investors a chance to make very large returns in return for bearing little risk. It appears likely that the current configuration of market prices offers a similar opportunity to long-horizon investors today.

New York Times Death Spiral Watch: Jay Rosen Asks a Question

Outsourced to Jay Rosen and his commentators:

PressThink: Three Vetting Stories Went Awry at the New York Times: Find the Pattern.: Obama's drug use. Hillary's marriage. McCain's lobbyist. The New York Times made weird decisions in all three. What gives?....

• The New York Times trying to “vet” Obama. (On youthful drug use.)
• The New York Times trying to “vet” Hillary Clinton. (On the state of her marriage.)
• The New York Times trying to “vet” John McCain. (On cozy ties with lobbyists.)

Each story went weirdly wrong. Each story left people scratching their heads: what were the editors thinking? Each was part of the “vetting” ritual in which the press imagines itself asking the hard questions of candidates who would be president. Each has a touch of the bizarre to it.

My question to you: what is going on here? Anything in common among the cases?

It’s just a question. I’ll post any good answers I get....

Freudians! “This “vetting” may seem to reveal skeletons in the closet, but what what it really seems to reveal to me is that the NYT editors are Freudians looking for keys to character.”

Weldon Berger: “I don’t think there’s an institutional link between the three stories other than that the people who run the paper live in an alternate reality from most people.”

Benjamin Melançon: “All three ‘tough-on-the-candidates’ pieces, driven by the New York Times’ own choices and research rather than breaking events, have in common a great lack. Each goes out of its way to turn something arguably tangential to being president into a character issue.”...

---

The McCain piece was a bigger fiasco because they departed from the formula by dropping in the not-ready-for-prime-time sex angle. Given that the sex-with-lobbyist allegation had originally been concieved as a stand-alone piece of "investigative reporting" and got shoehorned into the historical "vetting" piece at the last minute, I don't think the "vetting" genre deserves the blame. --Ralph Phelan at February 28, 2008 2:28 PM....

Bill Keller's incredulous reaction to the nearly universal professional disdain for the McCain story's shoddy sourcing pretty much said it all: No one at the top of the New York Times can conceive that they might be wrong about a story, before or after the fact. That kind of insularity may be understandable, but it is also correctable. And as the NYT is a leader in American journalism, and is so conscious of seeing itself in that role, correcting that attitude would be helpful to the entire trade. --Mike at February 28, 2008 3:41 PM....

I thought money might have something to do with the Obama piece: they must have spent $20K or more on time and travel, sending the writer to Hawaii and California and giving him a couple of months to pull the story together. Not much there there for that kind of money, so they decided to wonder whether Obama was exaggerating his drug experience. Without that angle, the story was so vacant that it wouldn't have been printable. The reporter, oddly, seems to have been a refugee from the society pages with no real history of political or investigative reporting that I could find. The Clinton piece was just another manifestation of the weird fascination the couple hold for the higher echelons of the press: Chris Matthews light. On McCain, the problem may have been that the editors didn't recognize the significance of the lobbying shenanigans and felt, similarly to the Obama piece, that it needed sexing up; it was just coincidence that the sexing up was literal. The angle probably gained value to them because the McCain camp fought it so strongly before publication. I don't think there's an institutional link between the three stories other than that the people who run the paper live in an alternate reality from most people. --weldon berger at February 28, 2008 4:21 PM

Tyler Cowen Recommends "Luck and the Irish: A Brief History of Change"

Recommended by Tyler Cowen:

R. F. Foster (2008), "Luck and the Irish: A Brief History of Change from 1970"Books (New York: Oxford University Press: 0195179528).

Menzie Chinn Looks at the Dollar

From http://www.econbrowser.com/archives/2008/02/musings_on_the_1.html:

From Malthus to the Singularity: Econ 101b February 6 Lecture

Econ 101b: February 6 Lecture: Extending the Solow Growth Model: From Malthus to the Singularity

Lecture Audio

---

• Greg Clark's World Economic History in One Picture
• Longest-Run Economic Growth Once Again
• Divergence
• The Basic Malthusian Model
• How Does This Model Behave?
  • Let's simulate it: http://www.j-bradford-delong.net/2008_xls/20080205_Malthus.xls
  • One sample path
  • Add in Αποκαλυψις Ιωαννου: a famine that kills 20% of the population...
• The Malthusian Nightmare
• How Did We Escape from the Malthusian Nightmare?: Demographic and Invention Transitions
• The Demographic Transition
• The Invention Transition: Scale and Connectivity
  • Numbers
  • Education
  • Mobility
  • Communication Technologies
• Open Source, Public Funding, For Profit: Optimal innovation

Econ 101b: Web Assignment 5: Medium-Run Model Spreadsheet

A spreadsheet for playing with the medium-run flexible-price model set out at http://delong.typepad.com/delongslides/2008/02/the-flexible-pr.html is now up on the internet at: http://www.j-bradford-delong.net/2008_xls/20080227_flexmodel.xls

Parameters go in g44:g57; outcomes are in g60:g70 and in the graph to the left of parameters and outcomes...

Your assignment is to:

1. Test the spreadsheet. Download the .xls file, open it in Excel (or equivalent), change one parameter value, and report if what the model says happened makes sense--is the spreadsheet correct?

2. Analyze the results: explain why--that is, provide some intuition--the spreadsheet reported that your change in the model parameters had the effects that it did...

Econ 101b: Quantity of Money Problem Set

Quantity of Money Problem Set

The Price Level in the Medium Run: Background and the Quantity Theory Model

The Price Level in the Medium Run: Background and the Quantity Theory Model

J. Bradford DeLong

February 2008

The U.S. experienced an episode of relatively mild inflation--prices rising at between five and ten percent per year--in the 1970s. Although relatively mild, that inflation was large enough to cause significant economic and political trauma. Avoiding a repeat of the inflation of the 1970s remains a major goal of economic policy even today, a quarter century later.

Many countries have experienced inflations that are not mild. In Russia in 1998 the price level rose at a rate of 60 percent per year. In Germany in 1923 prices rose at a rate of 60 percent per week. In Zimbabwe last month price tripled in a day. Such so-called *hyperinflations have been seen in many other countries: from Argentina to Ukraine, from Hungary to China. They are extremely destructive. They inflict severe damage on the ability of money to grease the wheels of the social mechanism of exchange that is the market economy. The system of prices and market exchange breaks down, and production can fall to a small fraction of potential output.

In the medium run model we analyze real economic quantities withought ever having to refer to the price level or the inflation rate. This is a special feature of the model, this classical dichotomy: the fact that real variables (like real GDP, real investment spending, or the real exchange rate) can be analyzed and calculated without thinking of nominal variables like the price level. You will also hear economists speak of this as the property that "money" is neutral, or that "money" is a veil--a covering that does not affect the shape of the face underneath.

Now it is time to turn to the question of the price level and inflation in the medium-run model. This is worth doing for two reasons. First, it provides a useful baseline analysis against which to contrast the conclusions of future chapters. Second, whenever we look over relatively long spans of time—three to five years or more, perhaps—wages and prices are effectively flexible, they do have time to move in response to shocks, and the flexible-price assumption is a fruitful and useful one.

First, some underbrush: when normal people use the word "money," they may mean a number of things. "Money" may be used as a synonym for wealth: when we say "she has a lot of money," we mean that she is wealthy. "Money" may be used as a synonym for income: when we say "he makes a lot of money," we mean that he has a high income.

Economists, however, are not normal. When an economist uses the word "money," he or she means something different. To an economist, "money" is wealth that is held in a readily-spendable form. Money is that kind of wealth that you can use immediately to buy things because others will accept it as payment... continued

The Circular Flow of Economic Activity, Aggregate Demand, and Inventories

• The Circular Flow of Economic Activity
  • The Expenditure Side of the Circular Flow
  • Flows: Incomes, Expenditures, Factors, and Goods
• Inventories and Equilibrium

Today's Must Read: Nir Rosen, "The Myth of the Surge"

From Rolling Stone:

Nir Rosen: The Myth of the Surge: Rolling Stone: Hoping to turn enemies into allies, U.S. forces are arming Iraqis who fought with the insurgents. But it's already starting to backfire. A report from the front lines of the new Iraq...

http://delong.typepad.com/egregious_moderation/2008/02/the-myth-of-the.html

Democratic Message

Via A Tiny Revolution:

The last five of these are, I think, the worst from the point of view of their long-run implications.

Not Quite a Recession, at Least Not Yet

The Bureau of Economic Analysis Reports:

Real gross domestic product (GDP) grew at an annual rate of 0.6% in the fourth quarter of 2007, compared with 4.9% in the previous quarter, according to today's preliminary estimate. Real GDP grew 2.2% in 2007, compared with 2.9% in 2006.

This information is sent to you free from http://www.economicindicators.gov. Check out other demographic and economic data from the Census Bureau http://www.census.gov and the Bureau of Economic Analysis http://www.bea.gov...

Note to Self: The Value of Investment Opportunities

J. Bradford DeLong (2008), "Note: The Value of Investment Opportunities" http://www.j-bradford-delong.net/2008_pdf/20080228_vio.pdf

Jeet Heer Praises William F. Buckley's Capacity to Learn

Jeet Heer:

: I do have to say though that the passing of William F. Buckley, whose death has just been announced, makes me feel wistful and at a loss. Like countless other readers, I read Buckley not for his ideas but for his voice, that languid self-assured upper-crust tone that was saved from being offensively twee by a certain tart wit and generous capacity to engage with other points of view....

I want to focus in on a few key themes in his life.

Race and his capacity for change. Conservatives are supposed to be defenders of the status quo but Buckley had a life-long capacity to change, adapt and learn. This can be seen most clearly on the issue of race. Like many Americans of his generation, Buckley was raised to be a bigot. His siblings once burned a cross in front of a Jewish resort. In the 1950s, Buckley and the circle of writers at National Review around him were unabashedly racist, often publishing whole-hearted defenses of Jim Crow segregation. This is evident in an 1957 editorial defending the Southern states from challenges to Jim Crow: "The central question that emerges... is whether the White community in the South is entitled to take such measures as are necessary to prevail, politically and culturally, in areas in which it does not prevail numerically? The sobering answer is Yes - the White community is so entitled because, for the time being, it is the advanced race. It is not easy, and it is unpleasant, to adduce statistics evidencing the cultural superiority of White over Negro: but it is a fact that obtrudes, one that cannot be hidden by ever-so-busy egalitarians and anthropologists." (National Review, August 27, 1957).

Despite this dismal stance, Buckley did in fact change and renounce racism by the mid-1960s, in part because his horror at the terrorist tactics used by white supremacists to fight the civil rights movement, in part because of the moral witness of friends like Garry Wills who confronted Buckley with the immorality of his politics.... There are a host of other issues on which Buckley moderated his politics. In the 1980s, he said that if he were a black South African he would probably support the ANC, a statement that shocked fellow conservatives. This independence of mind continued to the end of his life. Not too long ago, he admitted that the Iraq war was a ghastly mistake, again annoying his intellectual fellow travelers. He was learning until his last days....

Buckley was a literary man at heart, which can best be seen in his skill at discovering young writers. To read the book review section of the old National Review is to come across an amazing range of stylists who had either been discovered by Buckley or nurtured by his friendship: Arlene Croce, Garry Wills, Joan Didion, Hugh Kenner, Guy Davenport, John Leonard, D. Keith Mano. As Buckley became disengaged from National Review, the magazine lost its taste for strong, distinctive prose....

Buckley will be widely and enormously missed. Rest in peace.

Stagnant Wages and Ohio: NAFTA Isn't the Problem

An excellent column by David Leonhardt:

The Politics of Trade in Ohio: Now come Mr. Obama and Mrs. Clinton... tough talk about foreign trade... you'd have to conclude that they believe that Nafta and other trade agreements have caused Ohio's huge economic problems.

"She says speeches don't put food on the table," Mr. Obama said in Youngstown. "You know what? Nafta didn't put food on the table, either." Later, he went further, claiming that Ohio's workers have "watched job after job after job disappear because of bad trade deals like Nafta."

Mrs. Clinton's advisers, meanwhile, have been putting out the word that she tried to persuade her husband not to support Nafta -- which liberalized trade with Mexico and Canada -- when he was running for president....

[However, n]either candidate calls for a repeal of Nafta, or anything close to it. Both instead want to tinker with the bureaucratic innards of the agreement.... They call the country's trade policy a disaster, and yet their plan to fix it starts with, um, cracking down on Mexican pollution....

The first problem with what the candidates have been saying is that Ohio's troubles haven't really been caused by trade agreements. When Nafta took effect on Jan. 1, 1994, Ohio had 990,000 manufacturing jobs. Two years later, it had 1.03 million. The number remained above one million for the rest of the 1990s, before plummeting in this decade to just 775,000 today. It's hard to look at this history and conclude Nafta is the villain. In fact, Nafta did little to reduce tariffs on Mexican manufacturers, notes Matthew Slaughter, a Dartmouth economist. Those tariffs were already low before the agreement was signed.

A more important cause of Ohio's jobs exodus is the rise of China, India and the old Soviet bloc, which has brought hundreds of millions of workers into the global economy.... [Y]our credit card's customer service center isn't in Ireland because of a new trade deal. All this global competition has brought some big benefits, too. Consider that cars, furniture, clothing, computers and televisions -- which are all subject to global competition -- have become more affordable, relative to everything else. Medical care, movie tickets and college tuition -- all protected from such competition -- have become more expensive.

So what can be done for Ohio?

There is actually a fair amount of agreement among economists on this question. The solution should involve more government investment in infrastructure, the medical sciences, alternative energy and other areas that could produce good new jobs. A more strategic approach to investment, one less based on the whims of individual members of Congress, would also help....

Over the last week, the candidates' talk has, at times, been silly and even inaccurate. And Ohio's problems would certainly be easier to solve if, as Luis Proenza, president of the University of Akron put it, the candidates were "more true to reality and less prone to invective." But the larger problem is that Ohio%u2019s voters have good reason to be angry. For years, they have been promised that globalization was making the United States a richer country. They're still waiting for their share of the bounty.

links for 2008-02-28

• Scott Rosenberg: Code Mining
• George Catlett Marshall, Jr. (December 31, 1880 – October 16, 1959)
• Gordon Handon: Globalization, Labor Income, and Poverty in Mexico by Gordon Hanson
• Sars Mead: Early Ed Watch
• Kevin Carey: Selection Effects and... What?
• Felix Salmon: How the Optics of Wealth Fuelled the Argentine Debt Boom - Finance Blog - Felix Salmon - Market Movers - Portfolio.com
• Teresa Nielsen Hayden: Turkey is radically revising the Hadith

"Death of the Wehrmachtl"

Robert Citino's Death of the Wehrmacht: The German Campaigns of 1942 is not as good as his earlier The Getman Way of War. That makes it only the third-best work of military history I have read in the past half-decade or so (behind Adam Tooze's truly brilliant The Wages of Destruction).

Brad DeLong http://delong.typepad.com brad.delong@gmail.com

Patrick Nielsen Hayden on William F. Buckley

Patrick writes:

Making Light: William F. Buckley, dead:

The central question that emerges... is whether the White community in the South is entitled to take such measures as are necessary to prevail, politically and culturally, in areas where it does not predominate numerically? The sobering answer is Yes--the White community is so entitled because, for the time being, it is the advanced race. --William F. Buckley, National Review, August 24, 1957

There's your "refined, perspicacious mind" for you. The one that, we're told by [the New York Times], "elevated conservatism to the center of American political discourse." Racism and power-worship--and, from first to last, uncompromising defense of the idea that society should be structured into orders and classes.

A Historical Remembrance: George C. Marshall

William F. Buckley died last night, which makes me think that today is a good day to praise George C. Marshall, chief among those present at the creation who made the post-WWII world that has been such a blessing to all humanity--at least in comparison to all prevous world orders:

George Catlett Marshall, Jr.: (December 31, 1880 -- October 16, 1959) was an American military leader, Secretary of State, and the third Secretary of Defense. Once noted as the "organizer of victory" by Winston Churchill for his leadership of the Allied victory in World War II, Marshall supervised the U.S. Army during the war and was the chief military adviser to President Franklin D. Roosevelt. As Secretary of State he gave his name to the Marshall Plan, for which he was awarded the Nobel Peace Prize in 1953...

It is fitting to remember George C. Marshall today. William F. Buckley had wishes as to how Joseph McCarthy should be remembered:

Hoisted from the Archives: Elliott Abrams, William F. Buckley, and Joe McCarthy Celebrate Joe McCarthy's Birthday: William F. Buckley: A Conspiracy so Immense: McCarthy's record is... not only much better than his critics allege, but, given his metier, extremely good.... [he] should not be remembered as the man who didn't produce 57 Communist Party cards but as the man who brought public pressure to bear on the State Department to revise its practices and to eliminate from responsible positions flagrant security risks...

And Tail Gunner Joe had wishes as to how George C. Marshall should be remembered. From McCarthy's Senate speech of June 14, 1951:

How can we account for our present situation unless we believe that men high in this Government are concerting to deliver us to disaster? This must be the product of a great conspiracy, a conspiracy on a scale so immense as to dwarf any previous such venture in the history of man. A conspiracy of infamy so black that, when it is finally exposed, its principals shall be forever deserving of the maledictions of all honest men.

Who constitutes the highest circles of this conspiracy? About that we cannot be sure. We are convinced that Dean Acheson, who steadfastly serves the interests of nations other than his own, the friend of Alger Hiss, who supported him in his hour of retribution, who contributed to his defense fund, must be high on the roster. The President? He is their captive. I have wondered, as have you, why he did not dispense with so great a liability as Acheson to his own and his party's interests. It is now clear to me. In the relationship of master and man, did you ever hear of man firing master? Truman is a satisfactory front. He is only dimly aware of what is going on.

I do not believe that Mr. Truman is a conscious party to the great conspiracy, although it is being conducted in his name. I believe that if Mr. Truman bad the ability to associate good Americans around him, be would have behaved as a good American in this most dire of all our crises.

It is when we return to an examination of General Marshall's record since the spring of 1942 that we approach an explanation of the carefully planned retreat from victory, Let us again review the Marshall record, as I have disclosed it from all the sources available and all of them friendly. This grim and solitary man it was who, early in World War II, determined to put his impress upon our global strategy, political and military.

It was Marshall, who, amid the din for a "second front now" from every voice of Soviet inspiration, sought to compel the British to invade across the Channel in the fall of 1942 upon penalty of our quitting the war in Europe.

It was Marshall who, after North Africa had been secured, took the strategic direction of the war out of Roosevelt's hands and - who fought the British desire, shared by Mark Clark, to advance from Italy into the eastern plains of Europe ahead of the Russians.

It was a Marshall-sponsored memorandum, advising appeasement of Russia In Europe and the enticement of Russia into the far-eastern war, circulated at Quebec, which foreshadowed our whole course at Tehran, at Yalta, and until now in the Far East.

It was Marshall who, at Tehran, made common cause with Stalin on the strategy of the war in Europe and marched side by side with him thereafter.

It was Marshall who enjoined his chief of military mission in Moscow under no circumstances to "irritate" the Russians by asking them questions about their forces, their weapons, and their plans, while at the same time opening our schools, factories, and gradually our secrets to them in this count.

It was Marshall who, as Hanson Baldwin asserts, himself referring only to the "military authorities," prevented us having a corridor to Berlin. So it was with the capture and occupation of Berlin and Prague ahead of the Russians.

It was Marshall who sent Deane to Moscow to collaborate with Harriman in drafting the terms of the wholly unnecessary bribe paid to Stalin at Yalta. It was Marshall, with Hiss at his elbow and doing the physical drafting of agreements at Yalta, who ignored the contrary advice of his senior, Admiral Leahy, and of MacArtbur and Nimitz in regard to the folly of a major land invasion of Japan; who submitted intelligence reports which suppressed more truthful estimates in order to support his argument, and who finally induced Roosevelt to bring Russia into the Japanese war with a bribe that reinstated Russia in its pre-1904 imperialistic position in Manchuria-an act which, in effect, signed the death warrant of the Republic of China.

It was Marshall, with Acheson and Vincent eagerly assisting, who created the China policy which, destroying China, robbed us of a great and friendly ally, a buffer against the Soviet imperialism with which we are now at war.

It was Marshall who, after long conferences with Acheson and Vincent, went to China to execute the criminal folly of the disastrous Marshall mission.

It was Marshall who, upon returning from a diplomatic defeat for the United States at Moscow, besought the reinstatement of forty millions in lend-lease for Russia.

It was Marshall who, for 2 years suppressed General Wedemeyer's report, which is a direct and comprehensive repudiation of the Marshall policy.

It was Marshall who, disregarding Wedemeyer's advices on the urgent need for military supplies, the likelihood of China's defeat without ammunition and equipment, and our "moral obligation" to furnish them, proposed instead a relief bill bare of military support.

It was the State Department under Marshall, with the wholehearted support of Michael Lee and Remington in the Commerce Department, that sabotaged the $125,000,000 military-aid bill to China in 194S.

It was Marshall who fixed the dividing line for Korea along the thirty-eighth parallel, a line historically chosen by Russia to mark its sphere of interest in Korea.

It is Marshall's strategy for Korea which has turned that war into a pointless slaughter, reversing the dictum of Von Clausewitz and every military theorist since him that the object of a war is not merely to kill but to impose your will on the enemy.

It is Marshall-Acheson strategy for Europe to build the defense of Europe solely around the Atlantic Pact nations, excluding the two great wells of anti-Communist manpower in Western Germany and Spain and spurning the organized armies of Greece and Turkey-another case of following the Lattimore advice of "let them fall but don't let it appear that we pushed them."

It is Marshall who, advocating timidity as a policy so as not to annoy the forces of Soviet imperialism in Asia, had admittedly put a brake on the preparations to fight, rationalizing his reluctance on the ground that the people are fickle and if war does not come, will hold him to account for excessive zeal.

What can be made of this unbroken series of decisions and acts contributing to the strategy of defeat? They cannot be attributed to incompetence. If Marshall were merely stupid, the laws of probability would dictate that part of his decisions would serve this country's interest. If Marshall is innocent of guilty intention, how could he be trusted to guide the defense of this country further? We have declined so precipitously in relation to the Soviet Union in the last 6 years. How much swifter may be our fall into disaster with Marshall at the helm? Where Will all this stop? That is not a rhetorical question: Ours is not a rhetorical danger. Where next will Marshall carry us? It is useless to suppose that his nominal superior will ask him to resign. He cannot even dispense with Acheson.

What is the objective of the great conspiracy? I think it is clear from what has occurred and is now occurring: to diminish the United States in world affairs, to weaken us militarily, to confuse our spirit with talk of surrender in the Far East and to impair our will to resist evil. To what end? To the end that we shall be contained, frustrated and finally: fall victim to Soviet intrigue from within and Russian military might from without. Is that farfetched? There have been many examples in history of rich and powerful states which have been corrupted from within, enfeebled and deceived until they were unable to resist aggression. . . .

It is the great crime of the Truman administration that it has refused to undertake the job of ferreting the enemy from its ranks. I once puzzled over that refusal. The President, I said, is a loyal American; why does he not lead in this enterprise? I think that I know why he does not. The President is not master in his own house. Those who are master there not only have a desire to protect the sappers and miners - they could not do otherwise. They themselves are not free. They belong to a larger conspiracy, the world-wide web of which has been spun from Moscow. It was Moscow, for example, which decreed that the United States should execute its loyal friend, the Republic of China. The executioners were that well-identified group headed by Acheson and George Catlett Marshall.

How, if they would, can they, break these ties, how return to simple allegiance to their native land? Can men sullied by their long and dreadful record afford us leadership in the world struggle with the enemy? How can a man whose every important act for years had contributed to the prosperity of the enemy reverse himself? The reasons for his past actions are immaterial. Regardless of why he has done what be did, be has done it and the momentum of that course bears him onward. . . .

The time has come to halt this tepid, milk-and-water acquiescence which a discredited administration, ruled by disloyalty, sends down to us. The American may belong to an old culture, he may be beset by enemies here and abroad, he may be distracted by the many words of counsel that assail him by day and night, but he is nobody's fool. The time has come for us to realize that the people who sent us here expect more than time-serving from us. The American who has never known defeat in war, does not expect to be again sold down the river in Asia. He does not want that kind of betrayal. He has had betrayal enough. He has never failed to fight for his liberties since George Washington rode to Boston in 1775 to put himself at the head of a band of rebels unversed in war. He is fighting tonight, fighting gloriously in a war on a distant American frontier made inglorious by the men he can no longer trust at the head of our affairs.

The America that I know, and that other Senators know, this vast and teeming and beautiful land, this hopeful society where the poor share the table of the rich as never before in history, where men of all colors, of all faiths, are brothers as never before in history, where great deeds have been done and great deeds are yet to do, that America deserves to be led not to humiliation or defeat, but to victory.

The Congress of the United States is the people's last hope, a free and open forum of the people's representatives. We felt the pulse of the people's response to the return of MacArthur. We know what it meant. The people, no longer trusting their executive, turn to us, asking that we reassert the constitutional prerogative of the Congress to declare the policy for the United States.

The time has come to reassert that prerogative, to oversee the conduct of this war, to declare that this body must have the final word on the disposition of Formosa and Korea. They fell from the grasp of the Japanese empire through our military endeavors, pursuant to a declaration of war made by the Congress of the United States on December 8, 1941. If the Senate speaks, as is its right, the disposal of Korea and Formosa can be made only by a treaty which must be ratified by this body. Should the administration dare to defy such a declaration, the Congress has abundant recourses which I need not spell out.

links for 2008-02-27

• Matthew Yglesias: Chris Dodd Endorses Obama
• Matthew Yglesias: Chris Dodd Endorses Obama
• Brad Setser: Shipping Containers
• Lawrence Summers: America needs a way to stem foreclosures
• Paralipsis

Tyler Cowen on Visualizing Poverty

Cuba, he says, is desperately poor, but does not look desperately poor:

Marginal Revolution: How poor does Cuba look?: The question is why anyone might think Cuba is doing OK, relative to northern Mexico. Megan McArdle offers (more than) two points:

3) Deep poverty is much more picturesque.... Poor countries have their old colonial buildings still standing, because no one had the money (or the reason) to tear them down.... The countryside is dotted with adorable houses made out of natural materials and natives wearing colorful traditional garb.... Middle income countries are smoggy, and almost everything looks like a cheaper, shabbier version of what you get in the US... cinderblock buildings... hideous tin roofs... boxy modern buildings that look something like our housing projects. The genteel decay that looks gothic and intriguing on an old Victorian mansion just looks seedy when it's eating away at badly poured concrete. Affluent Americans underestimate the utility value of things like having personal space, or an automobile.

4) Cuba was relatively wealthy in 1959; it therefore has more of the markers, like old majestic buildings, that we associate with wealth.

I found the most evident signs of Cuban poverty to be the unceasing supply of articulate and sometimes weakly sobbing mendicants, none of whom sounded like con men, all of whom needed money to buy food and clothes for their families. The most shocking part is what small sums of money they would ask for.... Yes in Cuba there is good access to doctors but anesthesia is in short supply and the health care system stopped improving long ago.

If you want to understand northern Mexico, get out of the Tijuana tourist strip and visit Hermosillo. Count the number of new housing developments, and then count how many of them are inhabited by fairly dark-skinned, previously dirt poor, Mexican mestizos. Put that number over the number of buildings in Havana that do not have serious maintenance problems and see if you can divide by zero.

It's quite possible that a lower middle class Mexican eats better food than you do, but there is no chance of that for anyone in Cuba except the top elite. Powdered milk is a luxury there.

I've long thought that Prague looks much richer than it is, and that the ugly northern Virginia or Houston looks poorer than it is. Where else looks deceivingly rich or poor?

Why the Soviet Union Fell

Mark Thoma reminds us of Paul Krugman's decade-old thoughts on the moral economy of communism:

The Unofficial Paul Krugman Web Page: [PBS's] stark honesty in a way makes the account of the Soviet Union's wartime achievement [during WWII] all the more impressive. The Soviet Union did not win through military genius: most of its trained officers had been purged in political witch-hunts, and while the war eventually threw up a new set of leaders, they were competent rather than brilliant - and their advice was often overruled by a dictator whose military judgement was usually disastrous. Russian soldiers fought with dogged heroism - but then so did the Germans. Why did the Russians prevail?

The answer is surprising, given the way the 20th century has actually turned out. The Soviet triumph in World War II was, above all, a victory of production.... Soviet industry managed to build tanks, artillery, and aircraft that were technologically a match for Germany's weapons, and to do so at a rate that consistently exceeded anything their opponents thought was possible....

What does this have to do with the world of 1997? Well, nowadays we take the triumph of capitalism as something preordained by [its] superiority.... [E]very time a Communist regime collapses, it turns out that the actual state of the economy it governed was far worse than anyone had imagined. For example, typical estimates of the GDP of East Germany before the old regime collapsed put its real GDP per capita at 70 or 80 percent of the West German level - meaning that East Germany was actually richer than some regions in the West. Yet after the fall of the Berlin Wall, visiting Westerners found something that looked like a Third World economy, with antiquated factories (and disastrous environmental problems) producing consumer goods of ludicrously low quality.... We used to think that there was a real technological race between socialism and capitalism.... It seems obvious to many people in retrospect that the productive and technological triumphs that Communists used to claim - all those heroic photgraphs of dams and posters of muscular steelworkers - were mere propaganda....

But one lesson of "Russia's War" is that matters are not that simple.... The fact is that Stalin did transform Russia into a massive industrial power - a power tested in the most unambiguous way imaginable. And his successors did achieve real technological triumphs - not just showy triumphs like sending cosmonauts into orbit, but the creation of a highly sophisticated scientific and engineering establishment. True, Russia was never any good at producing high-quality consumer goods. But it was not always the bumbling, incompetent system we now imagine.

What this means is that the collapse of Communism and the triumph of capitalism need more of an explanation.... [A] market economy is more efficient than a centrally planned one... but the question is why a system that functioned well enough to compete with capitalism in the 1940s and 50s fell apart in the 1980s. What went wrong?

One possible answer is that changing technology changed the rules... the age when countries or companies grew rich by making heavy products in big factories seems to have passed. One can make a case that whereas old-fashioned heavy industry was susceptible to central planning, new technologies, especially in microelectronics, favor free-wheeling competition.... But neither technological change nor globalization can explain the fact that socialist economies did not merely lag the West: they actually went into decline, and then collapse. Why couldn't they at least hold on to what they had?

I don't think anyone really knows the answer, but let me make a conjecture: the basic problem was not technical, but moral. Communism failed as an economic system because people stopped believing in it.... Capitalism can run, even flourish, in a society of selfish cynics. But a non-market economy cannot. The personal incentives for workers to do their jobs well, for managers to make good decisions, are simply too weak....

So why did the system ever work? Because people believed in it.... [T]hey did not take as much advantage of the system as they might have (and did, in the system's later years). And... because people in authority believed in the system, they were willing to impose brutal punishments on those who did try to take advantage....

The market does not require people to believe in it; but the centrally planned economies that live inside a market economy, known as corporations, do. Everybody knows that financial incentives alone are not enough to make a company succeed; it must also build morale, a sense of mission, which makes people work at least somewhat for the good of the company rather than think only of what is good for them. Luckily, under capitalism an individual company can fail without taking the whole society down with it - or it can be reformed without a bloody revolution....

In the end, then, capitalism triumphed because it is a system that is robust to cynicism, that assumes that each man is out for himself. For much of the past century and a half men have dreamed of something better, of an economy that drew on man's better nature. But dreams, it turns out, can't keep a system going over the long term...

Mark Halperin Doesn't "Cover" the Freak Show. Mark Halperin Is the Head Freak

Atrios informs me of Mark Halperin, saying:

The Page - by Mark Halperin - TIME: Things McCain can do when running against Obama that Clinton has been unable to do well or at all.... 6. Allow some supporters to risk being accused of using the race card when criticizing Obama.... 8. Play dirty.... 11. Emphasize Barack Hussein Obama's unusual name and exotic background through a Manchurian Candidate prism.... Perhaps an ad such as this will run in Ohio:

So, what do you really know about Barack Obama? Did you know he supports meeting with the head of xxxxxxxxx xxxxxx? Do you know he wants to get rid of your right xx xxx x xxxxxxx? Do you know he is calling for the repeal of the law preventing xxx xxxxxxxx? Do you know he is for a xxxxxxxx-xxxxxx xxx xxxxxxxx? Xxxx xx xxx xxxxxx xxxx xxxxx Barack Obama?

I have a question for Mark Halperin: Wouldn't it be even better if John McCain did not have to pay for that ad but could get some corrupt, complaisant, ethics-free freak of a "journalist" to put that ad in the pages of Time?

Oh. That's what you just did. So that's what you ment when you said: "McCain could..." You meant "I, Mark Halperin, will--and boy will McCain be grateful."

Halperin hasn't made a prediction of immoral and unethical things McCain might do. Halperin has gone and done it.

That is the problem with performative utterances.

Mark Halperin doesn't "cover" the freak show. Mark Halperin is the freak show.

---

UPDATE: Mark Kleiman writes:

The Reality-Based Community: Mark Halperin, enabler of bigotry: Mark Halperin would say that he's merely describing tactics the McCain campaign might use... not advocating them. But when a reporter for a mainstream publication suggests that a candidate for President appeal to racism... and religious bigotry... it's time for someone to call the meeting to order.

Referring to how McCain should treat Michelle Obama's gaffes, Halperin calls for "unrestricted censure."

Sauce. Goose. Gander.

It would be good for the country if Mark Halperin lost his job in the next 24 hours. Just sayin'.

links for 2008-02-26

• Dani Rodrik: Mr Kristol, you get a C in economics!
• Eric Kleefeld: Obama Up by Four in Texas
• M.J. Rosenberg: Race-Baiting and the Obamas

Dani Rodrik Doesn't Think Much of "Mr. Kristol"

Dani Rodrik has been waiting a long time--decades, in fact--to give William Kristol a grade:

Mr Kristol, you get a C in economics!

I think that Dani is being really generous: a C is a real gift here.

Most interesting, perhaps, is Dani's report of William Kristol's teaching methodology, which appears to have involved giving lots of unmotivated Cs to a man who is the finest political economist of my generation. It is an interesting method--but I would classify it not as a way of teaching but as an exercise in Herrschaft...

Jan de Vries, The Limits of Globalization in the Early Modern World

Notes on Jan de Vries's early globalization seminar:

Period: 1500-1800:

1. Soft vs hard globaization
2. Boom in trade volume? Price convergence? Monopoly political limits
   to trade?
3. What set the limits? Asian supply? European demand? Transaction costs?

50000 tons of Asian commodities a year arriving in W. Europe in 1800. 5000 tons in 1600... Asian goods value? 1lb. at wholesale: 1 shilling per pound. Two percent of annual craftsman income...

16th c spices, 17th c textiles, 18th c teas...

New World trade in 1800: 6% of western European consumption...

Pepper price convergence by 1700... No apparent textile convergence... No apparent tea convergence...

links for 2008-02-25

• D-squared Digest: can anyone, particularly the rather more Bush-friendly recent arrivals to the board, give me one single example of something with the following three characteristics...
• Fareed Zakaria: The End of Conservatism
• Jennifer Hochschild: How, If at All, Should We Evaluate Flawed Historical Heroes?
• Roger Whitson: Cinematic Betrayal in Joe Wright's Atonement
• Mark Thoma: Do Elections Matter for Economic Policy?
• Eric Alterman: Conservative Cannibalism
• Herbivore - The Earthly Grill

Staff "Loyalty" to Hillary Rodham Clinton

More and more these days I am hearing people say that the reason Hillary Rodham Clinton lost the Democratic nomination is that she hired people who were "loyal" rather than people who were competent for her campaign. First of all, she hasn't lost--I put her chances at 28%, Barack Obama's chances at 70%, and the rest of the field's chances at 2%.

Second--well, let's listen to what these "loyal" campaign workers, aides, and advisors have to say. Here they speak to two Washington Post stenographers:

Clinton Soldiers On Despite Setbacks: Anne E. Kornblut and Shailagh Murray: Inside Clinton's inner circle on Friday, the feeling was that the Thursday night debate in Austin was unlikely to slow Obama's momentum from 11 straight primary and caucus victories. Some supporters said they had discussed how to raise with Clinton the subject of withdrawing from the race should she fail to win decisively on March 4. One option was to wait a day or two and then dispatch emissaries to former president Clinton to urge him to make the case.

One adviser, who spoke on the condition of anonymity to speak freely, said Obama's 17-point Wisconsin victory on Tuesday had started to sink in as a decisive blow, given that the state had been viewed weeks earlier as a level playing field. "The mathematical reality at that point became impossible to ignore," the adviser said. "There's not a lot of denial left at this point.... She knows where things are going. It's pretty clear she has a big decision. But it's daunting. It's still hard to accept."...

Here they speak to Patrick Healy:

Somber Clinton Soldiers On as the Horizon Darkens: Over take-out meals and late-night drinks, some regrets and recriminations have set in... several advisers have now concluded that they were not smart to use former President Bill Clinton as much as they did, that "his presence, aura and legacy caused national fatigue with the Clintons," in the words of one senior adviser who spoke on condition of anonymity to assess the campaign candidly....

Some aides said Mr. Penn and the former campaign manager, Patti Solis Doyle, had conceived and executed a terribly flawed campaign....

Her advisers said internal polls showed a very tough race to win the Texas primary -- a contest that no less than Mr. Clinton has said is a "must win."... [S]ome are burning out. Morale is low. After 13 months of dawn-to-dark seven-day weeks, the staff is exhausted. Some have taken to going home early -- 9 p.m. -- turning off their BlackBerrys, and polishing off bottles of wine, several senior staff members said.

Some advisers have been heard yelling at close friends and colleagues.... Mr. Penn and the campaign advertising chief, Mandy Grunwald, had a screaming match over strategy.... Others have taken several days off, despite it being crunch time.... And some of her major fund-raisers have begun playing down their roles, asking reporters to refer to them simply as "donors," to try to rein in their image as unfailingly loyal...

Joshua Green: [Patti] Solis Doyle... began as Clinton’s personal scheduler in 1991 (and who, as it happens, coined the term “Hillaryland”) was Clinton’s alter ego... the most revealing thing about Solis Doyle is her oft-repeated line: “When I’m speaking, Hillary is speaking.” It is revealing both because it is true and because it conveys—and even flaunts—an arrogance that I think is the key to understanding all that has gone wrong for the Clinton campaign.... It’s not unfair that she lost her job; but it is unfair that no other senior staffers appear to be in danger of losing theirs....

As much as Clinton touts her own “executive experience” and judgment, she made Solis Doyle her campaign manager because of Solis Doyle’s loyalty, rather than her skill, despite a trail of available evidence suggesting she was unsuited for the role... rivalry and factionalism in Hillaryland.... Tensions flared between advisers such as Penn and Mandy Grunwald, her media consultant, who wanted her to stick to the issues, and others, such as Jewson and Harold Ickes, who thought she should confront her chief shortcoming--the notion that she was power-hungry and calculating.... The battle between the camps intensified to the point that it began to go public... someone leaked Penn’s internal polling data to The New York Times Magazine. Penn and Ickes regularly erupted into shouting matches and eventually... stopped speaking to each other....

After the [senate] race, Solis Doyle was put in charge of fund-raising and later became campaign manager for Clinton’s Senate reelection bid in 2006... many of the staff members who worked under her left or were forced out, including several high-powered members of Clinton’s inner circle, such as Kelly Craighead and Evelyn Lieberman, the deputy chief of staff to Bill Clinton famous for banishing Monica Lewinsky to the Pentagon. The frequent turnover in the fund-raising shop was a significant measure of Solis Doyle’s unpopularity. Clinton staffers are notably loyal, and turnover among them tends to be much lower than it is among the staffs of other politicians. Fund-raising under Solis Doyle was a glaring exception, chalking up the kind of body count you’d expect from an episode of The Sopranos. She was infamous among her colleagues for referring to herself as “the queen bee” and for her habit of watching daytime soap operas in her office. One frequent complaint among donors and outside advisers was that Solis Doyle often did not return calls or demonstrate the attention required in her position.

Concerns about Solis Doyle have preoccupied many in the campaign for several years. Clinton insiders say that her campaign chairman, Terry McAuliffe, launched an unsuccessful bid to remove Solis Doyle while on vacation with the Clintons two years ago. Two top campaign officials told me that Maggie Williams, Hillary’s former chief of staff (and, as of Sunday, her campaign manager), also sought and failed to have Solis Doyle removed two years ago. Last year, some of Bill Clinton’s former advisers, known as the “White Boys,” lobbied to oust her, too....

[A]bove all, Clinton prizes loyalty and discipline, and Solis Doyle demonstrated both traits, if little else.... By all accounts, Solis Doyle’s firing became imminent after the first loss, as the extent of the damage sank in.... She’d been dispatched to Iowa to oversee operations in the final weeks before the caucuses, and Clinton still finished third. She’d been placed in charge of the campaign’s relationship with John Kerry and hoped to get an endorsement, but he’d chosen to back Obama. And of course, the campaign had hemorrhaged money, which Solis Doyle had managed to conceal.... Solis Doyle’s departure took a near-mutiny to bring about. Williams and Lieberman left their jobs last week; this finally seemed to have influenced Clinton to oust Solis Doyle...

The senior HRC aides who are Green's, Healy's, Kornblut's, and Murray's sources--well, "loyal" is not how I would describe them. Their candidate still has a 30% chance of winning, and they are diminishing that chance by dishing "campaign in turmoil" dirt to reporters in the hope that it will get a knife stuck in the back of one of their competitors for future White House jobs and in the hope of gaining reporter points that they can use in some way at some future date.

I've seen this before. There are two kinds of people who get involved in politics--those who care about the substance of policy, and those who want to get White House Mess privileges, or as a consolation prize become media celebrities. The first kind--the policy people--will be loyal to a politician as long as he or she is trying his or her best to achieve the shared policy goals. The second kind--the spinmasters--will be loyal to a politician as long as he or she is a winner who favors them. If a politician stops looking like a winner, or if a politician starts favoring others for what they hoped would be their west wing job, they will jump ship as fast as they can--and you will start seeing the "infighting" stories.

The moral? A politician with an ideological policy compass is best off not hiring spinmasters as his or her senior aides. Hire people who care about the substance of policy instead.

Dealing with the Financial Crisis, Stage III: Nationalization

Stage I of dealing with a financial crisis is to provide liquidity to the banking system at high interest rates in order to keep commerce and finance liquid while punishing feckless overleveraged financiers. We passed out of Stage I at the end of last year. Stage II is forgetting about punishing feckless financiers and focusing on lowering interest rates in order to raise asset prices to keep finance solvent. We are now in Stage II.

Now Alan Blinder says that it is time to--in a limited way--move on to Stage III: nationalization.

Here is his case for a partial nationalization of mortgage banking:

From the New Deal, a Way Out of a Mess: I have several reasons for focusing on just one aspect of the mess: the potential tsunami of home foreclosures.... Foreclosures throw families -- some of whom were victims of deception -- into the streets. They erode home values, damage neighborhoods and reduce the values of other properties, thereby intensifying the decline in housing prices that underlies many of our current problems. And they might even cut into consumer spending, which would really throw us into recession.

A second reason is that reducing the wave of foreclosures would mitigate the closely related financial crises in home mortgages and the alphabet soup of financial creations based on them.... A third reason for focusing on foreclosures is that we've seen this film before. During the Depression, President Franklin D. Roosevelt and Congress dealt with huge impending foreclosures by creating the Home Owners' Loan Corporation. Now, a small but growing group of academics and public figures, including Senator Christopher J. Dodd, Democrat of Connecticut, is calling for the federal government to bring back something like the HOLC. Count me in.

The HOLC was established in June 1933 to help distressed families avert foreclosures by replacing mortgages that were in or near default with new ones that homeowners could afford. It did so by buying old mortgages from banks.... mThe scale of the operation was impressive. Within two years, the HOLC received about 1.9 million applications from distressed homeowners and granted just over a million new mortgages.... Its total lending over its lifetime amounted to... 5 percent of a year's gross domestic product at the time. (The corresponding figure today would be about $750 billion.)

As a public corporation chartered for a public purpose, the HOLC was a patient and even lenient lender. It tried to keep delinquent borrowers on track with debt counseling, budgeting help and even family meetings. But times were tough in the 1930s, and nearly 20 percent of the HOLC's borrowers defaulted anyway.... The HOLC closed its books in 1951... with a small profit. It was a heavy lift, but the incredible HOLC lifted it.

Today's lift would be far lighter. And a good thing, too, because our government is far more timid and divided than Roosevelt's....

Details matter, so here are a few: First, any new HOLC should refinance only owner-occupied residences. Speculators can fend for themselves -- or go into default. Similarly, second homes or vacation homes should be ineligible, as should very expensive real estate. (Precise limits would vary regionally.) Third, mortgages obtained via misrepresentation by borrowers should be ineligible for HOLC refinancing, but cases of fraud or deception by the lender should be treated generously. Fourth, as the original HOLC found, not all bad mortgages can be turned into good ones....

What about the operation's scale? Based on current estimates, such an institution might be asked to consider refinancing one million to two million mortgages... as much as $200 billion to $400 billion. The midpoint, $300 billion, is one-seventh the size of Citigroup and would rank the new institution as the sixth-largest bank in the United States....

[T]he new HOLC seems likely to turn a profit, just as the old one did. But even if it loses a few billion, we must remember its public purpose: to help the economy recover, not to make a buck. By comparison, the new economic stimulus package has a price tag of $168 billion.

The Trunk Monkey

Xeni Jardin of boingboing sends us to the trunk monkey:

Why Fareed Zakaria Likes Barack Obama

Too many years of hanging with American Republicans have brought Fareed Zakaria partway to sanity:

Fareed Zakaria: I never thought I'd be in this position. There's a debate taking place about what matters most when making judgments about foreign policy— experience and expertise on the one hand, or personal identity on the other. And I find myself coming down on the side of identity.

Throughout the campaign, Barack Obama and Hillary Clinton have been squabbling over who has the better qualifications to lead the world's only superpower. Obama's argument is about more than identity... father—and later an Indonesian stepfather—who spent four years growing up in Indonesia, and who lived in the multicultural swirl of Hawaii.

I never thought I'd agree with Obama. I've spent my life acquiring formal expertise on foreign policy. I've got fancy degrees, have run research projects, taught in colleges and graduate schools, edited a foreign-affairs journal, advised politicians and businessmen, written columns and cover stories, and traveled hundreds of thousands of miles all over the world. I've never thought of my identity as any kind of qualification. I've never written an article that contains the phrase "As an Indian-American ..." or "As a person of color ..."

But when I think about what is truly distinctive about the way I look at the world, about the advantage that I may have... it is that I know what it means not to be an American.... I know it because for a good part of my life, I wasn't an American. I was the outsider, growing up 8,000 miles away from the centers of power....

When I hear confident claims about liberty and democracy in the Third World, I always think about rural India, where I spent a great deal of time when I was young, and wonder what those peasants struggling to survive would make of the abstractions of the American Enterprise Institute. When I read commentators fulminating about women wearing the burqa—which I don't much like either—I think about one of my aunts, who has always worn one, and of the many complex reasons she keeps it on, none of which involves approval of misogyny or support for suicide bombers. When I talk to people in a foreign country, no matter how strange, they are always, at some level, familiar to me....

We're moving into a very new world, one in which countries from Brazil to South Africa to India and China are getting richer, stronger and prouder. For America to thrive, we will have to develop a much deeper, richer, more intuitive understanding of them and their peoples. There are many ways to attain this, but certainly being able to feel it in your bones is one powerful way. Trust me on this. As a Ph.D. in international relations, I know what I'm talking about.

The Crucial Flaws in Mearsheimer and Walt's "The Israel Lobby"

Henry Farrell picks up an excellent line from Scott McLemee:

The Monkey Cage: Discussions of the substance of Walt/Mearsheimer often degenerate rapidly in quite unpleasant ways, so I'll note my agreement with Scott McLemee's statement that[:]

[their] book has one thing in common with the state of Israel: Before any progress can be made, it is necessary to affirm its right to exist...

Henry moves on:

I'm less lenient than... on... [Mearsheimer and Walt's] lack of explicit interview[s].... Interviewees surely lie or shade the truth, but when you are trying to get at something as difficult to measure as the influence of a body that putatively does most of its work behind closed doors, you need to get some sort of sense of the world of shared understandings that policy makers work within. Interview evidence or (even better) participant/observer analysis are usually the only real ways properly to get at these understandings.

More broadly though, it seems to me that there is a characteristic flaw of much international relations scholarship in particular that pervades their work, and that is identified in this post by Jacob Levy on their original paper. When they say in an aside that:

The mere existence of the Lobby suggests that unconditional support for Israel is not in the American national interest. If it was, one would not need an organized special interest to bring it about.

they reveal themselves to be operating with a particular and systemic (in more than one sense) set of biases. As structural realists, neither Walt and Mearsheimer really believe domestic explanations for state behaviour. This means that they don't understand very well how domestic politics operates, arguing in effect that national interests are somehow so self-evident that they don't need to be defended, and that domestic interest politics are at the very best a source of distortion and error in state policy making. This, to put it mildly, jars with the kinds of assumptions and arguments that more domestically inclined political scientists (including, in fairness, some IR scholars) find necessary to a proper understanding of how politics works. Not all international relations scholars are systems theorists, let alone Waltzians, but the effect of systems theorists on the thought of IR scholars is pervasive. Even when, as in this case, it obscures far more than it reveals...

I would go a step further. The strength in America of what Walt and Mearsheimer call "the Israel lobby"--which is in truth not a lobby for Israel at all, but we'll get there--does not reflect the strength or deviousness of the lobbyists, but instead three other factors:

• An American belief that justice is best served if the Jews of Europe, the Maghrib, and the Mashriq have a state to call their own, and that there are powerful, powerful reasons for having this state in the neighborhood of Jerusalem rather than of Bialystock or Seville or Cardiff or Salt Lake City.
• A historical memory and some guilt over the genocides of the 1940s, for the U.S. was very late to the party that was WWII--although we did bring a s---load of refreshments when we finally showed up.
• The belief of every churchgoing or ex-churchgoing or bible-reading American Protestant that at some deep level we are Israel.

None of these three are reasons that either Walt or Mearsheimer can understand, and so they--falsely and ignorantly--attribute the strength of the American one-sided alliance with Israel as due to corruption and propaganda by the Israel lobby. That is a bad thing for them to do.

But worse is their characterization of their subject as "the Israel lobby"--as a group that tries to make American foreign policy serve the "national interest" of Israel. But it doesn't. The principal deed done today by the Israel lobby is to block any effective American action to slow or reverse the settlement of Israeli citizens on the West Bank. And planting settlers on the West Bank is no more Israel's national interest than the installation of a German-speaking mayor in Strasbourg is Germany's, or than the conquest of Toronto or Vancouver is America's. In fact, less so: every day that the number of settlers on the West Bank increases--indeed, every day Israeli settlers remain on the West Bank--Israel becomes weaker, and the chance that Tel Aviv will become an abbatoir, a sea of radioactive glass--along with Damascus and Tehran--goes up. Whether "the Israel lobby" has influence that is in some sense "outsized" is a much less important and vital question than the question of what future its actions are pushing all of us towards.

links for 2008-02-24

• Charlie Stross: Cows with Blogs
• Emanuel Derman: Laughter in the Dark: An Introduction to the Volatility Smile
• Zong Massacre
• The End of Feudalism: Sark

Keming: A New Typography Term

Teresa Patrick Nielsen Hayden directs us to:

Ironic Sans: Idea: A new typography term: keming. noun. The result of improper kerning.

Introduction to Financial Engineering: Emanuel Derman Laughs in the Dark

Emanuel Derman, author of the excellent My Life as a Quant, is putting the lecture notes from his Columbia Master's in Financial Engineering course up on the web:

Laughter in the Dark: An Introduction to the Volatility Smile: These are unpublished lecture notes from the Master's in Financial Engineering Program at Columbia University. I have used many published papers and books to improve (I hope) the pedagogic nature of these notes, and perhaps not referenced them properly. Since they are in rough form, I will be pleased to correct any errors or omissions. I'll add new lectures as the semester progresses.

• Lecture 1: The Principles of Valuation
• Lecture 2: Dynamic Replication: Myths and Realities of Options Pricing
• Lecture 3: The Smile: Constraints and Problems

Cows with Weblogs

From Charlie Stross:

Charlie's Diary: News from the Weird: Yes, that was the subject of conversation in the pub last night. I can't provide any URLs, but I am assured that the dairy industry in Scotland is extremely interested in fitting their herd with telemetry to track everything from their location (via GPS) to their blood pressure, activity levels, and possibly even emotional state: an eventual goal is that the subjects of this exercise will effectively become spimes. As Bruce Sterling (who coined the term) explains it, "a Spime is a location-aware, environment-aware, self-logging, self-documenting, uniquely identified object that flings off data about itself and its environment in great quantities." Presumably the blogging bovines would emit an RSS feed that their owners could browse (or should that be "graze"?) in order to determine that Daisy has gotten into the bottom field again, or is overdoing the clover.

NB: I want the wikipedia admins to know that I am very annoyed that someone has deleted the wikipedia article on spimes. It's all very well to do the housekeeping, but it's gone too far when useful resources are being erased before I can link to them from my blog, dammit...

links for 2008-02-23

• Jake Tapper: Afghanistan

New York Times Death Spiral Watch

Both Bill Keller and Jill Abramson badly need to find other lines of work: I recommend cosmetics animal testing.

Outsourced to Kevin Drum:

The Washington Monthly: THE TIMES SPEAKS....Really, this is unbelievable. Here is New York Times executive editor Bill Keller in an online Q&A declaring himself surprised by both the volume and the lopsidedness of the reaction to Wednesday's John McCain non-affair story. Then his surprise continues:

And, frankly, I was a little surprised by how few readers saw what was, to us, the larger point of the story. Perhaps here, at the outset of this conversation, is a good point to state as clearly as possible our purpose in publishing. [Blah blah blah] The point of this "Long Run" installment was that, according to people who know him well, this man who prizes his honor above all things and who appreciates the importance of appearances also has a history of being sometimes careless about the appearance of impropriety, about his reputation. The story cites several examples, and quotes friends and admirers talking of this apparent contradiction in his character. That is why some members of his staff were so alarmed by the appearance of his relationship with Ms. Iseman. And that, it seemed (and still seems) to us, was something our readers would want to know about a man who aspires to be president.

The "larger point." Right. This is just embarrassing. Everybody with a pulse knows that no one is criticizing the Times for reporting that McCain was doing the bidding of a lobbyist and campaign contributor. Rather, this story has gotten saturation coverage because the Times has been careful to refer to Vicki Iseman as a "female lobbyist" on practically every occasion it can %u2014 including the introduction to the very Q&A Keller is taking part in. Times reader aren't children. We all know what this means, and we all know perfectly well that the Times piece loudly insinuated some kind of inappropriate romantic involvement between McCain and Iseman. So far, though, the Q&A has addressed only the peripheral subjects of what "Long Run" pieces are like, what the Times' policy on anonymous sources is, and the Chinese wall between the newsroom and the editorial page staff. Riveting stuff. And the elephant in the room? Missing in action so far. Do you think they'll ever get to it?

UPDATE: Several hours into the Q&A, Jill Abramson finally gets around to the elephant:

We believed it was vital for the story to accurately reflect the range of concerns shared by our sources....If the editors had summarily decided to edit out the issue of romance, because of possible qualms over "sexual innuendo" or some of the others issues cited in the reader questions, our story would not have been a complete and accurate reflection of what our sources told our reporters. The editors and the reporting team believed it was important for readers to know what could have concerned top advisers so much that they confronted their boss. We believe the story did this fairly and accurately, giving readers as much information as we could.

That's it? Abramson acts as though the rules for dropping a tactical nuke are the same as they are for authorizing a mortar attack. But she knows perfectly well how incendiary this stuff is. Surely it requires a little more justification than "this was a vague suspicion that a few guys had at the time"?

I dunno. Abramson is right when she says, "Documents are always useful in reporting, but they are not required." Still, reporters don't just uncritically pass along everything every source tells them, and in this case her sources didn't provide any evidence at all that McCain was romantically involved with Iseman. It was just a concern they apparently had %u2014 maybe well founded, maybe not. Is that really enough?

But I'm also intrigued by Abramson's claim that the Times piece gave readers "as much information as we could." That's not the same thing as "all the information we had." Does this signify something, or am I reading too much meaning into her choice of words?

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

links for 2008-02-22

• Vicki Iseman
• Ezra Klein on Alex Rossmiller's Still Broken
• Marc Cooper: Why John McCain Owes The New York Times a Thank You Card
• Radley Balko: Mississippi's criminal forensics disaster
• Mayhill Fowler: Clinton's Texas Ground Game Plunges Into Chaos

New York Times Death Spiral Watch

Outsourced to Matthew Yglewias:

A Real Story (Politics): Mark Kleiman points out that the AP's version of the of the [John McCain-]Vicky Iseman story has less [sexual] innuendo, but a clearer explanation of actual misconduct.... Basically, in exchange for money and freebies, McCain sought to intervene in a federal regulatory process in favor of a company that had provided him with tens of thousands of dollars in cash and services.... Now whether or not some guy gets to buy some TV station in Pittsburgh or not isn't a big deal as such, but it's an example of how dubious McCain's "straight talk" persona is. What's more, I think we can all agree that the subversion of the basic functioning of the federal government (see, e.g., US Attorneys scandal, FEMA, etc.) has been a major problem during the Bush years and we see here that McCain takes a Bush-like attitude to the integrity of these processes.

UPDATE: NB, thinking more clearly past my loathing of John McCain, the Times's effort to substitute [sexual] innuendo for making a straightforward true or false assertion is seems like a pretty shameful attempt to set up a Kaus-like presumption of guilt. If they have reporting they're willing to stand behind of a McCain-Iseman affair, they should publish it. And if, as seems to be the case, they don't have the reporting, then they shouldn't write the story.

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

New York Times Death Spiral Watch

Outsourced to Greg Sargent:

Horses Mouth February 21, 2008 10:45 AM: The gist of [the New York Times story held since December and released today] seems to be that according to anonymous sources, eight years ago McCain's aides intervened in a relationship between him and a female lobbyist that may or may not have been sexual, and may or may not have constituted improper influence peddling, because they were worried that something untoward might be happening and were concerned about what her appearances with him in public looked like.

This is basically the core allegation....

The suggestion that the relationship might have been sexual, which is made at the top and towards the end of the story, basically amounts to an allegation that anonymous sources said there was concern that the relationship might have become romantic. Anonymous sources say McCain acknowledged behaving "inappropriately," but the story doesn't say how....

To be clear, there very well may be much more to the story that is yet unknown. As Josh wrote last night, the story reads as if it had the meat lawyered out of it, and it's perfectly possible that The Times went with this because it knew lots more that it couldn't report. And as Mark Kleiman notes, more reporting by the AP is showing that there may be some meat to the lobbying side of the story.

But if you merely evaluate the words that are on the page of The Times... you can't help but conclude, as Matthew Yglesias did, that they just didn't have or couldn't share the goods on an alleged romantic relationship and thus shouldn't have gone there.

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

Let's Get Even More Depressed About Castro's Cuba: Hoisted from the Archives

Let't take the Wayback Machine back to 2003:

Let's Get Even More Depressed About Cuba: Archive Entry From Brad DeLong's Webjournal: Just because people begin their papers with quotes from Ludwig von Mises does not automatically mean that they are wrong: http://lanic.utexas.edu/la/cb/cuba/asce/cuba8/30smith.pdf http://lanic.utexas.edu/project/asce/pdfs/volume12/perezlopez.pdf

The hideously depressing thing is that Cuba under Battista--Cuba in 1957--was a developed country. Cuba in 1957 had lower infant mortality than France, Belgium, West Germany, Israel, Japan, Austria, Italy, Spain, and Portugal. Cuba in 1957 had doctors and nurses: as many doctors and nurses per capita as the Netherlands, and more than Britain or Finland. Cuba in 1957 had as many vehicles per capita as Uruguay, Italy, or Portugal. Cuba in 1957 had 45 TVs per 1000 people--fifth highest in the world. Cuba today has fewer telephones per capita than it had TVs in 1957.

You take a look at the standard Human Development Indicator variables--GDP per capita, infant mortality, education--and you try to throw together an HDI for Cuba in the late 1950s, and you come out in the range of Japan, Ireland, Italy, Spain, Israel. Today? Today the UN puts Cuba's HDI in the range of Lithuania, Trinidad, and Mexico. (And Carmelo Mesa-Lago thinks the UN's calculations are seriously flawed: that Cuba's right HDI peers today are places like China, Tunisia, Iran, and South Africa.)

Thus I don't understand lefties who talk about the achievements of the Cuban Revolution: "...to have better health care, housing, education, and general social relations than virtually all other comparably developed countries." Yes, Cuba today has a GDP per capita level roughly that of--is "comparably developed"--Bolivia or Honduras or Zimbabwe, but given where Cuba was in 1957 we ought to be talking about how it is as developed as Italy or Spain.

Marty Feldstein on the Current Macroeconomic Situation

He writes:

Our Economic Dilemma: The sharp reduction in the federal funds interest rate and the new fiscal stimulus package may, of course, be enough to avert a downturn.... If a recession does occur, it could last longer and be more painful than the past several downturns because of differences in its origin and character.... [P]ast recessions were caused by deliberate Federal Reserve policy aimed at reversing a rise in inflation....

In contrast, the real interest rate in 2006 and 2007 stayed at a relatively low level of less than 3%. A key cause of the present slowdown... was... the bursting of the house-price bubble.... The Fed therefore will not be able to end the recession as it did previous ones by turning off a tight monetary policy....

[T]he principle cause for concern today is the paralysis of the credit markets.... The dysfunctional character of the credit markets means that a Fed policy of reducing interest rates cannot be as effective in stimulating the economy.... Because market participants now lack confidence in asset prices, they are unwilling to buy existing assets, thus preventing current asset owners from providing credit to new borrowers....

It is not clear what can bring back the confidence in asset prices that is needed for credit to flow again. Some analysts suggest that confidence would return if the financial institutions declare the true market value of their assets by restating balance sheets.... The current situation has the elements of a Catch-22: The credit flows needed for economic expansion require confidence in the values of existing financial assets, but market participants may not have such confidence while the risk of recession hangs over us....

The Fed's bank examinations are supposed to assess the adequacy of each bank's capital and the quality of its assets. The Fed declared that the banks had adequate capital because it gave far too little weight to their massive off balance-sheet positions -- the structured investment vehicles (SIVs), conduits and credit line obligations -- that the banks have now been forced to bring onto their balance sheets....

The implication of this for Fed supervision policy is clear. The way out of the current crisis of confidence is not. We can only hope that those who predict nothing worse than a temporary slowdown are correct.

links for 2008-02-21

• Richard Adams: Lost in Wisconsin
• Ezra Klein: Straight Talk
• Ezra Klein: The Commuting Paradox

February 21: The Full-Employment Flexible-Price Macro Model

Lecture Audio

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• Real GDP in The United States
• Business Cycles since World War II
• The FEFPM
• The Full-Employment Assumption
• Components of Aggregate Demand
• Equilibrium through the Flow of Funds
  • Closed Economy Case
• Comparative Statics