The cautious approach to fixing banks will not work: With one bound the banks are free...
The cautious approach to fixing banks will not work: With one bound the banks are free...
Matthew Yglesias » Home Page: Having read some excerpts (e.g.) from Chris Anderson’s Free and also Malcolm Gladwell’s takedown review, I think the whole subject could stand to benefit from a little less good writing and a bit more plodding distinction-drawing...
Now other people are weighing in. Here are a bunch of smart reactions to my "Sympathy for Greenspan" piece.
First, some scene-setting:
Knut Wicksell some eighty years ago argued that the purpose of a central bank like the Federal Reserve is to manipulate the money stock so that the "market" rate of interest is equal to the "natural" rate of interest. The natural rate of interest is the rate of interest at which intended savings is equal to intended investment--at which the rewards to saving call forth enough abstinence from consumption on the part of households to equal business desires to try to make additional profits by expanding capacity.
Why have the central bank manipulate the money stock? After all, won't the market eventually get it right? Wicksell said that the key was the "eventually": if the money stock was too low then the market rate of interest would be above the natural rate, and you would have a prolonged period of unanticipated deflation (because demand for consumption and investment goods together would be below the value of production, which is equal to households' incomes) that would cause lots of unemployment until the price level had fallen enough to make desired money holdings low enough to reduce the market rate to the natural rate; if the money stock was too low then the market rate of interest would be below the natural rate, and you would have a prolonged period of inflation (because demand for consumption and investment goods together would exceed the value of production, which is equal to households' incomes) that would cause lots of unjust wealth redistributions until the price level had risen enough to make desired money holdings high enough to increase the market rate to the natural rate. Better to aid the market in its job via activist central-bank monetary policy.
Thus Wicksell gave economists and central bankers:
You can think of Wicksell's insights this way: In a credit economy the market interest rate would always be equal to the natural interest rate that balances desired saving and desired investment. However, we live not in a credit but in a monetary economy in which the interest rate has to both balance supply and demand for investment and balance desired increases in people's cash holdings to the increase in the money supply. It cannot do both of those--not and keep full employment--unless the increase in the money supply is of exactly the right magnitude. The job of the Federal Reserve is thus to change us back so that even though we live in a monetary policy interest rates are as if we lived in a credit economy.
That was what Alan Greenspan was trying to do in the first half of the 2000s: to set the market rate of interest equal to the natural rate. And he succeeded: there was neither unexpected inflation nor unexpected deflation.
But was it a mistake for Greenspan to have carried out the mission that Knut Wicksell assigned him? Should he have pushed the market rate of interest above the natural rate--pushed investment, production, and employment below their credit-economy laissez-faire levels--in the interest of avoiding the growth of a housing bubble?
I don't know: http://delong.typepad.com/sdj/2009/06/three-or-four-mistakes-in-american-monetary-policy.html. But other people are willing to venture an opinion:
Economist's View: I have argued the Fed's decision to keep interest rates low contributed to the bubble, but was not itself the sole cause of it. As to whether the Fed made a mistake, I'll just note that the tradeoff wasn't quite as stark as Brad implies, i.e. there were other policy instruments that Fed could have used to limit the housing bubble. Regulation is certainly one means the Fed had to that end, but Fed communication could have helped too. If Greenspan had, for example, told people to stay away from mortgages because they were toxic rather than implicitly encouraging them to invest in housing, things might have been different.
Would limiting the bubble through regulation, communication, or other means have limited the employment response, the primary worry? I don't think so, at least not enough to matter. The money would have been invested somewhere, housing had an opportunity cost after all, so the next best alternatives would have been pursued to the extent that they were profitable (and many would have been, just not as profitable - apparently anyway - as investing in housing and mortgages). So people still would have been employed somewhere as the money was invested, just not in housing, and that would have helped to insulate us from the housing crash. (And a lot of them might still have those jobs, unlike the people who depended upon the housing markets for employment.)
So narrowly, keeping interest rates low and employment high was the right thing to do. The mistake was letting all of the action brought about by those low rates, or most of it anyway, occur in a single sector, housing, rather than using regulation and other means to limit the flow of resources into the housing market in pursuit of profits based upon the misperception of risk. Those resources could have been redirected into other sectors and put to productive use rather than wasted building houses nobody wants, and achieving this result did not require the Fed to aggressively raise the target rate, it only needed to use the other tools it already had available.
Unfortunately, however, those tools were not used, and the ideology Greenspan brought to the Fed played a large role in this outcome.
Michael @ Bright Rights:
Bright Rights: The causes of the financial crisis: Brad Delong has a nice post outlining some of the mistakes the government made before or during the crisis. I agree with all of the three points listed at the beginning of his article, but I disagree with his comment on Greenspan's involvement. Brad DeLong states:
On Tuesdays and Thursdays I think that going forward central bankers must now also recognize that it is imprudent to lower interest rates in pursuit of full employment when doing so risks an asset price bubble. On Mondays, Wednesdays, and Fridays I think that even with the extra information about the structure of the economy we have learned in the past two years that Greenspan's decisions in 2001-2004 were prudent and committed us to a favorable and acceptable bet. And I am writing this on a Friday.
I think before explaining my point of view, let me explain something about Alan Greenspan. Alan Greenspan believed (I don't know if he still holds this view) that central bankers should not involve themselves in asset bubbles. According to Mr. Greenspan, it is too difficult to identify when something is actually a bubble, until after it blows up. I think this is an incredibly irresponsible opinion. But I think if you are going to take the view, as Brad DeLong does at the end of his post, that Greenspan's actions were reasonable at the time, you have to take into account how Greenspan would react if he lost this bet. If an asset bubble occurs, in my opinion a central banker needs to step in and try to deflate it before it creates a crisis. However, Greenspan didn't believe in deflating bubbles; he believed in dealing with them after they blew up. Taking this view into account, it seems unreasonable to me to say Greenspan's actions were correct. I think they were only correct if he would have been willing to deflate bubbles. But we know he wasn't.
Macro and Other Market Musings: Yes Brad, the Fed's Low Interest Rate Policy Was a Mistake: Brad Delong is wondering whether the Federal Reserves' low interest rate policy in the early-to-mid 2000s was truly a mistake:
There is, however, active debate over whether there was a fourth mistake: whether Alan Greenspan's decision in 2001-2004 to push and keep nominal interest rates on Treasury securities very very low in order to try to keep the economy near full employment was a fourth mistake...I am genuinely not sure which side I come down on in this debate.
Brad's uncertainty is understandable given he invokes the entire 2001-2004 time frame. For during this period there was a time when the U.S. economic recovery was sputtering along (2001-2002) and a time when the recovery began to take hold (2003-2004). It was during this latter period that Fed's low interest rates were a big mistake. But even for that period I think Brad is misreading the data:
People claim that the Greenspan Federal Reserve "aggressively pushed the interest rate below its natural level."... [T]he market interest rate[, however,] was if anything above the natural interest rate in the early 2000s: not accelerating inflation but rather deflation threatened. The natural interest rate was very low because, as Ben Bernanke explained at the time, the world had a global savings glut (or, rather, a global investment deficiency). You can argue--and on Tuesdays and Thursdays I will believe you--that Alan Greenspan's policies in the early 2000s were wrong. But you cannot argue that he aggressively pushed the interest rate below its natural level. The low interest rate was at its natural level.
I think the evidence shows the opposite. The natural interest rate is a function of individual's time preferences, productivity, and the population growth rate. Of these three components, the one that changed the most in 2003-2004 was productivity.... [A] rise in productivity growth should lead to a rise in the natural interest rate and ultimately, a rise in the federal funds rate for monetary policy to stay neutral. However, this latter development did not happen. It seems, then, the Fed did push its policy rate below the natural rate and in the process created a huge Wicksellian-type disequilibria. This interpretation of events has been borne out more rigorously in this ECB paper. One a more practical level, this disequilbria comes through in the Taylor rule which similarly shows the federal funds rate was below the neutral rate during this time.
It is also worth noting that these same rapid productivity gains were the source of the deflationary pressures in 2003 that Brad mentions. Thus, these deflationary pressures did not indicate a weakening economy. In fact, aggregated demand (AD) was growing at at rapid rate in 2003-2004 which, if anything, indicated an overheating economy. The figure below shows a measure of AD, final sales to domestic purchasers, relative to the federal funds rate and has the period 2003-2004 marked off by the dotted lines (click on picture to enlarge):
The productivity gains, apparently, were offsetting the upward pressure on prices being created by the robust growth in AD at this time. There simply was no real deflationary threat in 2003. By way of contrast, this figure shows for 2008-2009 what a real AD-induced deflationary threat looks like. Regarding the saving glut theory I would recommend Menzie Chinn's post here or my previous post here...
What the regulators did wrong | Free exchange | Economist.com: BRAD DELONG catalogues the consensus on three mistakes the Fed made leading up to and during this crisis, and also gives a balanced and anguished analysis of a fourth: whether Alan Greenspan erred in keeping interest rates as low as he did.
I agree with almost everything here, in particular that it was almost impossible at the time to believe the Fed was erring in holding rates too low. (If the error was so obvious, surely more people would have pointed it out at the time, even if not a majority of people, right?) That this does not look the right decision in hindsight is because the small risk of a catastrophic financial collapse was in fact realised.
Where I do disagree, however, is his faulting abandoment of principles-based regulation, which he says allowed the shadow banking system to grow as much as it did beyond the reach of regulation. In fact, the decision to let the shadow banking system grow as large as it did was a textbook example of principles-based regulation. In most of the markets that went awry, bank regulators ran the show, and in America bank regulation is principles-based.
Regulators pride themselves on closely monitoring banks' behaviour, often from inside the banks themselves. If they get worried, they quietly tap the bankers on the shoulder and suggest they do something differently. When troubles arise, they are often handled with a nonpublic order. And when an order becomes public it is devoid of useful information, such as what the bank did wrong.
Contrast this with the SEC, which is rules-based and will make an errant broker take a perp walk in front of the TV cameras as a lesson to his peers. This different approach is precisely why, during the 2008 debate about financial modernisation, people like Hal Scott wanted a single financial regulator to adopt the approach of the bank regulators rather than that of the SEC.
This principals-based approach can be very powerful: regulators can bar a merger, ban a banker or do any number of far-reaching things. But the fact of the matter is that the bank regulators choose which principles to live by. They had countless opportunities to rein in the shadow banking system and chose not to because the most important principle guiding their action was to safeguard the depository. The Fed oversaw bank-holding companies and in theory had oversight of the off-balance sheet and non-bank activities that got banks into trouble. It chose not to exercise that oversight as long as the rest of the entity was a “source of strength” to the depository. Regulators also did not force banks to keep full capital on hand for off-balance-sheet vehicles, because to do so would've frustrated the very purpose of them: to legally segregate risky assets from the depository. In both these instances bank regulators used a principals-based approach. They simply deprioritised the principles that would prove most important. They failed to look for potential sources of systemic risk and think creatively about how things that should not have threatened the bank in theory did in practice.
This is a cautionary tale to those who call for principles-based regulation. Just how it works in practice depends on the principles being observed.
Are We Too Hard On Greenspan? (Hint: Probably Not.) - The Stash: I guess my problem with this analysis is that I don't think it's right to lump the years 2001-2004 together. From early 2001 to early 2003, the economy was indeed very weak, and it's hard to quibble with Greenspan's decision to ease interest rates aggressively and stay easy. But by mid-2003, the economy was growing at a decent clip. It may not have been quite at full employment, but certainly stable. And yet Greenspan lowered the fed funds rate another quarter point to an eye-popping 1 percent in June of 2003, and kept it there through June of 2004. (And though the tightening began at that point, the fed funds rate was still at a mere 2.25 percent through January of 2005.) During the four quarters between June '03 and June '04, the economy grew at a real rate of 7.5 percent, 2.7 percent, 3 percent, and 3.5 percent. So when people talk about a monetary policy mistake, I think they're generally refering to that final year of easing, not the 2001 through mid-2003 period.
The stated reason for this continued easing was that Greenspan wanted to take out an insurance policy against deflation, of which there were some mild hints at the time, though even Greenspan referred to them as remote. In retrospect, this concern was probably unwarranted, as inflation chugged along either at or well-above the Fed's implicit target through all of 2004. Worse, all the easing appears to have resulted in a massive real estate bubble.
But, as DeLong says, the question isn't whether a policymaker is wrong in retrospect. The question is whether he or she made a reasonable bet at the time. DeLong thinks maybe. I lean the other way. Here's why: DeLong's defense of Greenspan hinges on the idea that, if it turned out the Fed was wrong about the necessity of easing--so wrong it created a bubble that later popped and threatened a deflationary spiral--the Fed had enough powerful tools at its disposal to prevent a depression at that point.
In the circles in which I travel, there is near-universal consensus that here in America our monetary philosopher-princes have made three serious mistakes. This consensus is almost always qualified by fervent declarations that we have been very well served by our Federal Reserve chairs and others since at least Paul Volcker's accession to the chair at the end of the table in the Eccles' Building's conference room, and that each of us who has not sat in that chair knows that he or she would have made worse mistakes, but nevertheless there is a consensus that mistakes were made when:
the Federal Reserve and the Treasury decided to nationalize AIG rather than to support AIG's counterparties last fall, allowing financiers to pretend that their strategies were fundamentally sound rather than things that would have shut down their firms had the Feds not paid AIG's bills.
the Federal Reserve and the Treasury decided to let Lehman Brothers go into an uncontrolled bankruptcy last fall in order to try to teach financiers that having an ill-capitalized counterparty was not riskless and that people should not expect the government to come to their rescue always.
the long-ago decision was made to eschew principles-based regulation and allow the shadow banking sector to grow unregulated with respect to its leverage and its compensation schemes in the belief that government regulation of finance should be minimal and that the government's guarantee of the commercial banking system was enough to keep us out of messes like the one we are currently in.
As I said, there is near-universal consensus in the circles in which I travel that these were mistakes and serious mistakes--and it is as certain as it is that the sun will rise in the east tomorrow morning that monetary policymakers will not make these mistakes again.
There is, however, active debate over whether there was a fourth mistake: whether Alan Greenspan's decision in 2001-2004 to push and keep nominal interest rates on Treasury securities very very low in order to try to keep the economy near full employment was a fourth mistake. Should Alan Greenspan have kept interest rates higher and triggered a much bigger recession with much higher unemployment back then in order to head off the growth of a housing bubble? If we push interest rates up, Alan Greenspan thought, millions of extra Americans will be unemployed and without incomes to no benefit--they will not enjoy the prolonged "staycations" they will be taking, and the rest of us won't have the stuff they could make. If we allow interest rates to fall, Alan Greenspan thought, these extra workers will be employed building houses and making things to sell to all the people whose incomes come from the construction sector and making things to sell to the people whose incomes come from making things to sell to people whose incomes come to the construction sector. Full employment is better than high unemployment if both can be accomplished without inflation, Alan Greenspan thought. If a bubble does develop, and if the bubble does not deflate but crashes, and if the crash threatens to cause a depression--well, Greenspan thought, then will be the time to deal with that, and the Federal Reserve is a very powerful institution with policy tools that can short-circuit that chain leading to catastrophe at any point.
With hindsight Alan Greenspan was wrong. Catastrophe does stare us in the face. His policies have crapped out. But not every good policy is certain to have a good outcome. The question is: was the bet that Alan Greenspan made a favorable one? Whenever in the future we find ourselves in a situation like 2003 should we try to keep the economy near full employment even at some risk of a developing bubble?
I am genuinely not sure which side I come down on in this debate. Central bankers have long recognized that it is imprudent to lower interest rates in pursuit of full employment if the consequence is an inflationary spiral in wages, resource prices, or consumer prices. On Tuesdays and Thursdays I think that going forward central bankers must now also recognize that it is imprudent to lower interest rates in pursuit of full employment when doing so risks an asset price bubble. On Mondays, Wednesdays, and Fridays I think that even with the extra information about the structure of the economy we have learned in the past two years that Greenspan's decisions in 2001-2004 were prudent and committed us to a favorable and acceptable bet. And I am writing this on a Friday.
I do, however, know that the way the issue is usually posed is wrong. People claim that the Greenspan Federal Reserve "aggressively pushed the interest rate below its natural level." But what is the natural level of the interest rate? Swedish economist Knut Wicksell defined the natural rate of interest in the 1920s: it is the interest rate at which, economy wide, desired investment is equal to desired savings and hence in which there is neither upward pressure for consumer price, resource price, and wage inflation to accelerate as aggregate demand outruns supply nor downward pressure on those three inflation rates as demand falls short of supply. On Wicksell's definition--which is the best, in fact, to my knowledge the only definition--the market interest rate was if anything above the natural interest rate in the early 2000s: not accelerating inflation but rather deflation threatened. The natural interest rate was very low because, as Ben Bernanke explained at the time, the world had a global savings glut (or, rather, a global investment deficiency).
You can argue--and on Tuesdays and Thursdays I will believe you--that Alan Greenspan's policies in the early 2000s were wrong. But you cannot argue that he aggressively pushed the interest rate below its natural level. The low interest rate was at its natural level. Rather, Greenspan's mistake--if it was a mistake--was his failure to overrule the market and aggressively push the interest rate up above its natural rate, thus deepening and prolonging the recession that started in 2001.
It's Friday, and I don't think Greenspan's failure to push the interest rate up above its natural rate to generate high unemployment and head off the growth of a mortgage-finance bubble was a mistake. There were mistakes--other places where the chain that has generated the catastrophe that faces us should have been interrupted. But today at least I don't think Greenspan's unwillingness to overrule the market's choice of the natural interest rate was one of them.
Jeebus save us! Does National Review have no editors? Does Thomas Sowell have no friends?
In National Review, Thomas Sowell writes:
Why Republican Infighting Matters: A quadrupling of the national debt in just one year... [is] not [a thing] from which any country is guaranteed to recover...
The national debt is estimated to be likely to increase by 17% in nominal terms over fiscal 2010. It is not estimated to quadruple. Is there nobody at National Review who will tell Sowell that +17% is not equal to +300%? Does nobody at National Review care to keep the magazine from embarrassing itself? Does nobody like him enough to care enough to keep him from embarrassing himself?
It gets worse after that:
Thomas Sowell: A quadrupling of the national debt in just one year and accepting a nuclear-armed sponsor of international terrorism such as Iran are not things from which any country is guaranteed to recover. Just two nuclear bombs were enough to get Japan to surrender in World War II. It is hard to believe that it would take much more than that for the United States of America to surrender — especially with people in control of both the White House and the Congress who were for turning tail and running in Iraq just a couple of years ago. Perhaps people who are busy gushing over the Obama cult today might do well to stop and think about what it would mean for their granddaughters to live under sharia law.
The glib pieties in Barack Obama’s televised sermonettes will not stop Iran from becoming a nuclear terrorist nation. Time is running out fast and we will be lucky if it doesn’t happen during the first term of this president. If he gets elected to a second term — which is quite possible, despite whatever economic disasters he leads us into — our fate as a nation may be sealed...
Tyler Cowen snarks:
Marginal Revolution: Knowledge and Decisions: Today I wanted to cover lots of different topics, so here is a thought from Thomas Sowell:
Perhaps people who are busy gushing over the Obama cult today might do well to stop and think about what it would mean for their granddaughters to live under sharia law.
And to think that I was worried about high marginal rates of taxation. The full article is here. Not so long ago, Yana asked me: "What does Thomas Sowell think of Barack Obama?" I believe I now have an answer for her.
Matthew Yglesias is too dumbstruck to even snark:
Matthew Yglesias: Sowell: Obama Will Lead to Sharia: Via Tyler Cowen, Thomas Sowell argues that “Perhaps people who are busy gushing over the Obama cult today might do well to stop and think about what it would mean for their granddaughters to live under sharia law.” And, yes, that was in National Review the flagship publication of the American right...
I hope I always have editors--and friends. It would be very sad to be without them.
Greg Mankiw's Blog: The Arbiter of Ignorance: In a brief blog post on healthcare, Paul Krugman says that George Will and I are "either remarkably ignorant or simply disingenuous." I cannot speak for George, but I can attest that I am completely ingenuous. So I suppose I must be remarkably ignorant.
There is a lot of that going around lately. In an earlier post on the state of macroeconomics, Paul says, "Brad DeLong and I have been sort of tag-teaming the Great Ignorance which seems to have overtaken much of the economics profession."
What is going through Paul's head as he writes these posts?...
Two things are going through Paul's mind:
That at least since Kenneth Arrow weighed in on the subject... generations ago, there has been a consensus among health economists that adverse selection and moral hazard make properly structuring health-care markets very hard and very tricky, and that even if you do many of the usual benefits of market mechanisms are greatly attenuated in the health sector.
He reads what Mankiw is writing right now--for example: "The Pitfalls of the Public Option in Health Care: [Obama's] economic logic regarding the public option is hard to follow. Consumer choice and honest competition are indeed the foundation of a successful market system, but they are usually achieved without a public provider. We don’t need government-run grocery stores or government-run gas stations to ensure that Americans can buy food and fuel at reasonable prices..."--and he doesn't find any recognition that information and selection problems that are not present in grocery or gasoline markets are of the essence in the health care sector.
The economic logic behind a public plan springs from these information and selection problems. Private health-insurance companies are currently spending a fortune in a negative-sum game by which they try to make other private companies and not themselves actually pay for treating sick people. A public plan run by bureaucrats would not face those incentives, and would not waste money in that way. A public plan would, however, have its own inefficiencies: it would be run by bureaucrats, and would waste money in other ways.
Which set of inefficiencies would be greatest? We don't know. The argument for a public plan is that we should be like the mongoose Rikki-Tikki-Tavi, whose motto is: "run and find out." We should set up a public plan, let it compete with the privates, and see if it can provide care people like more cheaply than the private insurance companies. Friedrich Hayek would approve: the idea is to use the market as an institutional discovery mechanism.
The arguments against a public plan are two:
It would be able to provide people with better health care more cheaply, and would drive the private-insurance companies out of business, and their executives would lose their jobs and be sad, and their shareholders would lose their money and be sad, and their lobbyists would lose their jobs and be sad, and their tame legislators would lose their campaign contributions and be sad.
Mankiw's argument that a public plan will inevitably receive large and wasteful federal subsidies no matter what the initial law says.
The exammple Mankiw uses to back up his argument seems to me to be very strange. It is: "Fannie Mae and Freddie Mac, the mortgage giants created by federal law, were once private companies. Yet many investors believed--correctly, as it turned out--that the federal government would stand behind Fannie’s and Freddie’s debts..." and thus provide them with a subsidy.
There is a problem with this argument.
The problem is that in the past year and a half the Federal government has stood behind the debts of not just Fannie and Freddie, but AIG, Bear Stearns, Merrill Lynch, Bank of America, Morgan Stanley, and Goldman Sachs--none of which bear any resemblance whatsoever to a "public plan." The government has stood behind Fannie and Freddie not because they were, before 1968, public enterprises but because they were--like AIG, Bear Stearns, Merrill Lynch, Bank of America, Morgan Stanley, and Goldman Sachs--too big to fail. The Treasury staff would have loved to have let Fannie and Freddie default on their bonds had they not feared the systemic consequences.
The fact that Mankiw can't find an example of his argument (2) makes me think that it is very weak, and that the real reason people oppose the public plan is (1).
Pessimism of the intellect! But optimism of the will, Andrew! I must say I want my sensible bipartisan center back, I want it back real bad.
Climate Vote Shows Why I Am Still a Man Without a Party: I had three reactions to yesterday's cap-and-trade vote, two of which came from The New York Times article that I read this morning and one of which came from Stan's very smart post. Here they are:
- From the article, "Only eight Republicans voted for the bill, which runs to more than 1,300 pages."
- From the article, "The bill would grant a majority of the permits free in the early years of the program, to keep costs low."
- From Stan, "But the bigger story is that the White House once again has demonstrated an excellent ability to get Congress to go along with the things it wants."
And now let me take each one in turn.
1) From the article, "Only eight Republicans voted for the bill, which runs to more than 1,300 pages." Much as you may like the idea, this is another 1300 pages of complexity and loopholes. Buried in there, I'll wager, are more than enough ways for large organizations (the ones who hire lobbyists) to get all the exemption and evasion they'll need. Consider the alternative of a carbon tax calibrated to achieve the same emission reductions, and applied to all sectors including vehicle fuel consumption. I'm no expert on translating ideas into pages of a bill, but that can't be much. And given that it allows us to do away with the CAFE standards, I figure we've done a great service of dramatically simplifying the whole regulatory process for carbon emissions.
2) From the article, "The bill would grant a majority of the permits free in the early years of the program, to keep costs low." That's a couple of interesting pages, no? This is the critical issue and the bill is flawed for giving into the special interests who demanded and got this giveaway. The caps require the price to go up, much like a tax would. Advocates of a green tax swap, like me, would like the additional revenue that consumers of carbon-intensive products pay to be returned to the private sector in a way that lowers the taxes on something desirable, like payroll. Giving the revenue back to the producers should not be an option.
3) From Stan, "But the bigger story is that the White House once again has demonstrated an excellent ability to get Congress to go along with the things it wants." I think that this sentence -- which is a completely accurate description of the way policy gets made in Washington -- is also an indication of what's backwards about the way policy gets made in Washington. The power in government should reside with the legislature, not the executive. I think that much of the reason why the presidential election season has grown to its current monstrous proportions (a full two years of campaigning) is that politicians have realized that the presidency has all the power and the Congress has made itself a weak, secondary player. I'll be a much happier citizen when Stan has occasion to write, "But the bigger story is that the Congress once again has demonstrated an excellent ability to get the White House to go along with the things it wants."
So how does all of this make me a man without a party? On each one of these issues, my reading of the polical landscape is that the Republicans are further from the correct policy action than the Democrats.
It's a step. It's not a big step. It's a very small step. And it's mostly in a sideways direction. But at least it is a step that is not away from where we need to be, and the hope is that having taken one step it will then be easier to take another.
But God only knows what--if anything--will come out of the Senate and conference if this is what comes out of the House.
I want my Al Gore BTU tax from 1993 back!
Why would the Washington Post have a health-care story written by a reporter who knows neither legislative process nor health-care policy substance?
Outsourced to Robert Waldmann (Robert! Paul and Nadine Mende say hello!):
Decimate or Alienate: A good sign of a totally bogus argument is reliance on contradictory presumptions of fact. When one is simply wrong, one can often make a convincing argument by inventing facts. When one is being absurd, one can fall into the temptation to invent inconsistent facts.
In this article in the Washington Post Ceci Connolly is being absurd. She argues that progressives (such as movon) who attack Democratic Senators who don't support a public option are endangering health care reform. For brevity only I will call the first group "leftists" and the second "centrists." "Centrists" is not as accurate as "people who care more about the value of insurance company shares than equity or efficiency and who are willing to sell their votes for campaign contributions" would be more accurate but too long.
She presents two arguments: one stated in her own name (in what is supposed to be a news article), and one ascribed to an anonymous source whom she does not criticize.
The first is that the centrists have the power and might destroy health care reform if their feelings are hurt. Hence her personally stated opinion that leftist pressure is a bad idea because "the intraparty rift runs the risk of alienating centrist Democrats who will be needed to pass a bill." Now I know it was rude of me to suggest that said centrists are more or less corrupt, but at least I didn't assert--as Connolly did--that they are willing to leave people without health insurance out of pique.
The second is that centrist Democrats are better than Republicans and terribly weak so that criticizing them will cause them to lose office -- just look what a close call Ben Nelson had last time. Hence the anonymous source:
The strategist, who asked for anonymity because he was criticizing colleagues, said: "These are friends of ours. I would much rather see a quiet call placed by [Obama chief of staff] Rahm Emanuel saying this isn't helpful. Instead, we try to decimate them?"
So which are they? People so powerful that they must not be offended or they will damage the country, or people so weak that one tenth of them will die horrible deaths if they are criticized?... Oh and did the strategist also ask that it not be mentioned whether or not he or she is paid by big business for helping them with public relations?
Just reading the headline, I knew I'd be hearing about this at eschaton, who linked to Adam Green.
Boy am I late on this. I'm not even the first Waldman[n] to denounce Connolly...
And, of course, from the past: Eric Boehlert on why the world would be a better place if Ceci Connolly had never written a word:
The Press vs. Al Gore : Rolling Stone: Lots of well-known embellishment stories were not legitimate, such as the infamous Love Canal incident. When Gore spoke at Concord High School in New Hampshire on November 30th, 1999, and urged students to take an active role in politics, he recalled that it was a letter years before from a student in Toone, Tennessee, that got then-Rep. Gore interested in the topic of toxic waste. "I called for a congressional investigation and a hearing," Gore told the students. "I looked around the country for other sites like that. I found a little place in upstate New York called Love Canal. I had the first hearing on that issue - and Toone, Tennessee, that was the one that you didn't hear of. But that was the one that started it all."
The next day, both the Washington Post and the New York Time botched the quote, erroneously reporting Gore had bragged, "I was the one that started it all."
The Post's Ceci Connolly, who covered Gore campaign for eighteen months and made the error, today insists that her miscue "did not change the context" of Gore's original statement. She contends that the key quote, the one that catches Gore embellishing, was the quote "I found a little place in upstate New York called Love Canal." Yet clearly from his response, Gore used the term "found" in reference to "looking around the country for other sites like" Toone, and in no way suggested he uncovered the Love Canal toxic-waste disaster.
Thanks to the high-profile misquote, though, the media's echo chamber erupted, with MSNBC's Chris Matthews mocking Gore for being delusional, while ABC's George Stephanopoulos lamented that the vice president had "revealed his Pinocchio problem." (In a press release, the ever-helpful Republican National Committee cleaned up the mangled quote, changing "that" to "who" in order to make the misquote grammatically correct: "I was the one who started it all.") This time Gore responded quickly but was again too humble, calling a reporter the morning after the Concord visit to say he was sorry if his Love Canal comments had not been clear enough.
It was actually local students, enrolled in a media-literacy course, who had to set the record straight by taking the unusual step of issuing their own press release under the headline TOP TEN REASONS WHY MANY CONCORD HIGH STUDENTS FEEL BETRAYED BY SOME OF THE MEDIA COVERAGE OF AL GORE'S VISIT TO THE THEIR SCHOOL.
It took the Post and the Times a week to run Love Canal corrections. Yet one month before Election Day, the usually reliable Associated Press reported confidently, "Gore's exaggerations have placed him more centrally than warranted at the creation of . . . the Love Canal toxic-waste investigation." The episode fit a distinct pattern: Journalists just refused to drop unflattering Gore stories, no matter what the facts revealed...
Matthew Yglesias on the hissy-fit the policy substance-free "opinions on shape of earth differ" journamalists of the Stenographer faction are pulling. It seems it was unfair for Barack Hussein Obama at his press conference to have asked an Aggregator, Nico Pitney (who has been doing a wonderful job on covering Iran via new and social media), to give him a question from Iran:
Matthew Yglesias: Pitney vs Millbank: I actually ran into Nico Pitney, destroyer of journalism, last night at a party. Neither of us seem to be on the Georgetown cocktail party circuit, but we’re both on the Green Line accessible beer ‘n Beam circuit. To me, it just brought home the extent to which this controversy is driven by status anxiety. It’s a convention that White House Correspondent for an Important Media Outlet is a highly prestigious and incredibly important job. The idea that a more interesting question might come from a young guy who writes for some website and has been aggregating news out of Iran would upend the whole thing. The case against Nico might make some sense if you could say he lobbed Obama a softball or asked about some pointless trivia. But that’s not the case, so…
Scene: Washington DC: A TV Studio: Enter two journamalists of the faction of the Stenographers, armed with notebooks and fountain pens...
Dana Milbank: A dog of the house of the Aggregators moves me.
Howard Kurtz: To move is to stir; and to be valiant is to stand: therefore, if thou art moved, thou runn'st away.
Dana Milbank: A dog of that house shall move me to stand: I will take the wall of any man or maid who is an Aggregator.
Howard Kurtz: That shows thee a weak slave; for the weakest goes to the wall.
Dana Milbank: True; and therefore women, being the weaker vessels, are ever thrust to the wall: therefore I will push the Aggregator men from the wall, and thrust the maids to the wall.
Howard Kurtz: The quarrel is between our masters and us their men.
Dana Milbank: 'Tis all one, I will show myself a tyrant: when I have fought with the men, I will be cruel with the maids, and cut off their heads.
Howard Kurtz: The heads of the maids?
Dana Milbank: Ay, the heads of the maids, or their maidenheads; take it in what sense thou wilt.
Howard Kurtz: They must take it in sense that feel it.
Dana Milbank: Me they shall feel while I am able to stand: and 'tis known I am a pretty piece of flesh.
Howard Kurtz: 'Tis well thou art not fish; if thou hadst, thou hadst been poor John. Draw thy tool! here comes two of the house of the Aggregators...
As to what followed, Amanda Terkel reports:
Think Progress: The Washington Post’s Dana Milbank calls Nico Pitney a ‘dick’ after heated debate on CNN.: By Amanda Terkel at 3:04 pm The Washington Post’s Dana Milbank calls Nico Pitney a ‘dick’ after heated debate on CNN. Last week, the Huffington Post’s Nico Pitney (who is also a former member of ThinkProgress) found himself in the center of controversy after President Obama called on him at a press conference. One of the harshest pieces came from the Washington Post’s Dana Milbank, who called Pitney a “planted questioner.” Today the two faced off on Howie Kurtz’s “Reliable Sources” segment on CNN. Pitney called some of Milbank’s past reporting “pathetic,” and Milbank claimed that Nico had “worked in collusion with an administration.” Watch it:
The discussion was evidently so heated that Milbank called him a “dick” at the end of the segment, as Pitney writes on Huffington Post:
The only thing that surprised me was when Dana turned to me after our initial sparring and called me a “dick” in a whispered tone (the specific phrase was, I believe, “You’re such a dick”). Howie Kurtz wrote on Twitter that he didn’t hear it, which is understandable — he was doing the lead-in for the next part of the segment on the ABC White House special. But it happened (I urge Howie to watch the video of the panel during the ABC intro) and it was frankly pretty odd.
Dickgate: Now comes the after-action report from Ana Marie Cox:
Sources say that at the end of the Dana/Nico segment, Dana says, "You're such a dick." Wishful thinking? Can anyone confirm?
Howie Kurtz whose bread is buttered by the WaPo is all, nuh-uh:
Dana Milbank did not call Nico Pitney a dick or anything else after their Reliable debate, @anamariecox. It was civil. I was there.
Ana Marie is all, yuh-huh:
@HowardKurtz Nico stands by the quote. Obviously, you both were there.
Howie backs off:
Well, maybe it got heated betw Pitney and Milbank after they left the set. I DID suggest (jokingly) that they take it outside...
Chatological Humor: can tell you that there has been some disagreement about Froomkin's column over the years between the paper-paper and dotcom; the issue, I think, was whether he was as informed and qualified to opine as people who had been actively covering the White House for years...
I have been looking for this quote for years!
Caesar, in writing home, said of the Britons, “They are the most ignorant people I have ever conquered. They cannot be taught music.” Cicero, in writing to his friend Atticus, advised him not to buy slaves in England, “because,” said he, “they cannot be taught to read, and are the ugliest and most stupid race I ever saw.”
William Wells Brown (1863), The Black Man: His Antecedents, His Genius, and His Achievements (Boston: James Redpath), pp. 33-4; quoted on p. 92 by Mia Bay (2000), The White Image in the Black Mind: African American Ideas About White People, 1830-1925 (Oxford: Oxford University Press: 019510045X).
Now where in Caesar's Commentaries and Cicero's Letters to Atticus are the originals?
UPDATE: The internet to the rescue (actually the UVA Classics Department)! Gregory Hays:
I think one of the quotations in Brown is a very vague paraphrase of Cicero, Letters to Atticus 4.16.7. Here's D.R. Shackleton Bailey's English rendering:
... The Paccius letter having been answered, let me tell you the rest of my news. A letter from my brother contains some quite extraordinary things about Caesar's warm feelings towards me, and is corroborated by a very copious letter from Caesar himself. The result of the war against Britain is eagerly awaited, for the approaches to the island are known to be 'warded with wondrous massy walls.' It is also now ascertained that there isn't a grain of silver on the island nor any prospect of booty apart from captives, and I fancy you won't expect any of them to be highly qualified in literature or music!
Ah. There appears to be some confusion in the text--does the passage follow "Paccianae epistulae respondi" (I have responded to the letter brought by Paccius) in 4.16 (Scr. Romae ex. m. Iun. aut in. Quint. a. 700) or does it follow "in illis quidem tribus libris, quos tu dilaudas, nihil reperio" (no report in those three books which you praise) in 4.17 (Scr. Romae K. Oct a. 700)?
I am, Zeus Pater knows, no Classics scholar. But from context--we are talking about profit for the res publica from imperialism here--I would be more inclined to translate "litteris aut musicis eruditos" as something like "taught to read or play" rather than Shackleton Bailey's "highly qualified in literature or music." The point appears to be that Caesar is engaged in folly: raiding an island where (a) there is no silver to be stolen, and (b) the slaves he will capture won't be worth much.
By what process Brown gets "ugliest and most stupid race" I do not know...
The answer is: "Barack Hussein Obama has a spaceborne flotilla of orbital mind-control time traveling lasers at his command."
"What is the question?" you ask. It's Steve Benen's:
The Washington Monthly: TYING IT ALL TOGETHER.... We learned yesterday, by way of Rush Limbaugh, that Mark Sanford's sex scandal was President Obama's fault. If it weren't for the administration's economic policies, the argument goes, Sanford would have been more optimistic about the future, wouldn't have cheated on his wife, and wouldn't have secretly left the country to see his mistress.
Who can argue with air-tight logic like this?
Today, Limbaugh's right-wing colleague, Michael Savage, takes this one step further. Obama didn't just inspire Sanford to betray his family; the White House conspired to make this scandal happen in the first place.
"The fact is, Obama's team is taking out potential  rivals, one after another," Savage argued:
Just last week, the media jumped on the story of Sen. John Ensign (R) of Nevada and his infidelity. He was considered to be a possible Republican presidential candidate in '12. Now Sanford, who had similar ambitions, caught in a similar situation. This is politics at its worst, brought to us by the worst administration, the meanest administration, the most closed administration, the most incompetent administration in American history."
Now, listening to the clip, it's a little unclear to me whether Savage thinks Obama made Sanford and Ensign have sex with these other women, or whether Obama was spying on Sanford and Ensign, learned of their adultery, and brought it to public attention.
Sure, either way, this is all painfully stupid, and not to be taken seriously. But even from the perspective of a twisted right-wing worldview, I'm curious about one thing: how does an incompetent administration pull off a feat like this? Wouldn't it take an enormous amount of competence to secretly hatch such an elaborate conspiracy?
Silly Steve. He just doesn't understand the Republican Party: Obama is incompetent and he controls a flotilla of orbiting mind-control lasers that he can send back in time eight years to persuade Sanford to ask Maria for her phone number.
There are, I think, two big questions in behavioral finance:
Under what circumstances will normal, human behavior by investors produce forces in financial markets that drive them to speculative excess?
Under what circumstances will arbitrageurs--smart, sophisticated investors who understand what is going on--fail to help the situation much?
A first whack at trying to answer (1):
Download now or preview on posterous
Tyler Cowen asks:
Marginal Revolution: Paying interest on reserves, and why it should be easy to disarm future inflationary pressures. Do I believe it?
The correct answer is "maybe."
If inflationary pressure comes because banks and others regain their confidence and seek to move their excess reserve deposits into higher-yielding dollar denominated assets, then the Federal Reserve can fix that with a flick of its wrist by raising the interest rate on deposits.
If inflationary pressure comes because banks and others fear a large dollar depreciation and seek to move their excess reserve deposits into non-dollar denominated assets, then the Federal Reserve is helpless, and the situation is dire--unless the Federal Reserve has gotten the authority to issue bonds and has preemptively used that authority to mop up the excess liquidity.
Paul McCulley of PIMCO:
PIMCO - Global Central Bank Focus June 2009 Exit Strategy: Most rational investors accept the dual proposition that a Fed funds rate pinned against zero and near-$800 billion of excess reserves sloshing around the banking system are not enduringly sustainable. This is the case despite the fact that most – though a smaller most – applaud the Fed for engineering these outcomes, so as to cut off the fat tail risk of deflationary Armageddon. The consensus overwhelmingly holds that once that fat tail has been cut off and then killed, borrowing from Colin Powell’s famous description of America’s strategy for running Iraq out of Kuwait, it will be necessary for the Fed to exit its extraordinarily accommodative strategy, hiking the Fed funds rate and soaking up all those excess reserves. It’s hard to argue with the basic thrust of this exit thesis. Because it’s basically right!
I must admit, however, that I’m perplexed that so many pundits put so much emphasis on the importance of the Fed soaking up excess reserves, as if it is a necessary condition for hiking the Fed funds rate. It is not. To be sure, it used to be, before the Fed had the legal authority to pay interest on reserves, which Congress granted last fall. Before then, the only way the Fed could achieve a meaningfully positive Fed funds rate target was to constrain the supply of reserves relative to the banking system’s demand for reserves, essentially required reserves. If there were excessive excess reserves, then the Fed funds rate would fall below the Fed’s target, as banks with excess would be willing to lend them out in the Fed funds market below the Fed funds target, given that if they simply left them at the Fed, they would earn nothing. But now, the Fed pays interest on banks’ excess reserves (presently at an interest rate of 0.25%, the top of the Fed’s 0% – 0.25% target band for the Fed funds rate). Thus, logic says that banks with excess reserves will not lend them in the Fed funds market at a rate appreciably lower than the Fed pays, but simply leave them on deposit at the Fed. Accordingly, the rate that the Fed pays on excess reserves should now act as a proximate floor for the Fed funds rate, even if there are huge excess reserves in the system. Thus, by hiking the rate it pays on excess reserves, the Fed now has the ability to enforce a rising Fed funds rate target – even before it “unwinds” its bloated balance sheet....
The Federal Reserve’s approach to supporting credit markets is... credit easing... focuses on the mix of loans and securities that it holds and on how this composition of assets affects credit conditions.... [C]redit spreads are much wider and credit markets more dysfunctional in the United States today than was the case during the Japanese experiment with quantitative easing. To stimulate aggregate demand in the current environment, the Federal Reserve must focus its policies on reducing those spreads and improving the functioning of private credit markets more generally.... When markets are illiquid and private arbitrage is impaired by balance sheet constraints and other factors, as at present, one dollar of longer-term securities purchases is unlikely to have the same impact on financial markets and the economy as a dollar of lending to banks, which has in turn a different effect than a dollar of lending to support the commercial paper market.... [T]he stance of Fed policy in the current regime – in contrast to a QE regime – is not easily summarized by a single number....
Yes, I know that many of your eyes are probably glazing over about now, given my (and Ben’s) wonkishness. I’m sorry about that, but this is really, really important stuff to understand, given the widespread yammering about the need for the Fed to have an exit strategy to de-create all the excess reserves it has created, as if they are intrinsically the kindling for an (eventual) rip-roaring inflationary fire. They are not.... [W]e can categorically say that the near-zero Fed funds rate is not, for the moment, fueling an inflationary pace of aggregate demand growth.... And neither is the Fed’s Credit Easing.... Yes, in the fullness of time, zero Fed funds could conceptually re-ignite borrowers’ and lenders’ mojo. Indeed, that’s precisely the Fed’s objective. And if and when that objective is achieved, the Fed funds rate will need to be hiked.... But right now, the least of my worries, and I think the Fed’s, too, is the prospect for an overheated economy, putting too many idled resources, both labor and industrial capacity, back to work too quickly... it would be delightful if that were our primary worry! But it isn’t....
Chairman Bernanke and a number of his colleagues have talked about all these various tools, stressing they have plenty of potential doors in their exit strategy. And indeed they do, even though simply hiking the rate the Fed pays on excess reserves is the cleanest way to hike the Fed funds rate...
It is, I think, much too early to be worrying about closing America's structural deficit through any policies other than trying to set health care cost-containment in motion. Recession-fighting should be the agenda for 2009-2010. Structural balance should be the agenda for 2011-2012.
Ed Luce disagrees:
Deficit disorder: Back in February, Barack Obama’s presidency suffered an early setback when Judd Gregg, the Republican senator from New Hampshire, withdrew as his nominee for commerce secretary... decided he could not belong to an administration that would preside over such high budget deficits.... The Congressional Budget Office, a nonpartisan watchdog, forecasts that the US will post deficits in excess of a trillion dollars in each of the next 10 years... national debt will double to 82 per cent of GDP in the next decade – a level not seen since the second world war.... America’s fiscal outlook has rapidly become the object of widespread alarm....
The administration cannot be blamed for what is this year an almost entirely inherited deficit. Mr Obama’s new spending accounts for only about one-tenth of it. The effects of the recession, the costs of the bank bail-out and the structural legacy of the three large tax cuts and two wars bequeathed by George W. Bush account for the remainder. Nor do critics, including Mr Gregg, blame the new president for pushing through a $787bn two-year fiscal stimulus within a month of moving into the White House. “We needed to dig the economy out of a hole,” says Mr Gregg. “I understand that.”...
Barack Obama made it clear this week that the door to further fiscal stimulus is wide open – even as he stressed that his administration has not yet decided to seek one from Congress, writes Krishna Guha. “I think it’s important to see how the economy evolves and how effective the first stimulus is,” he told a news conference. But the US president added that “nobody understood what the depths of this recession were going to look like” when the current stimulus package was passed weeks after he took office in January. Many analysts think it is all but inevitable that the administration will end up seeking an additional stimulus if only to smooth the cliff-edge effect when the effects of the previous boost fade and tax cuts introduced under George W. Bush expire from late 2010. Otherwise, many see a serious risk of a double-dip recession in 2011....
But politics is quick to change. The otherwise deeply unpopular Republican party is starting to sense an opportunity. A rapidly growing proportion of the US public is registering anxiety at the sea of red ink.... Ben Bernanke, governor of the Federal Reserve, told Congress this month: “Unless we demonstrate a strong commitment to fiscal sustainability in the longer term, we will have neither financial stability nor healthy economic growth.” All this leaves Mr Obama in a deepening quandary. In Augustinian style, he needs to keep pumping the economy in the short term, since consumers, who are the mainstay of the US economy, are unlikely to resume spending soon. But he needs simultaneously to reassure investors that he has put in place plans for a return to fiscal responsibility the moment recovery sets in.
The White House promises to halve the deficit it inherited by the end of Mr Obama’s first term in 2012. But few believe the economic growth numbers on which its projections are based. “I probably shouldn’t say this but President Obama’s plans remind me of George W. Bush,” says Douglas Holtz-Eakin, a former head of the CBO who was John McCain’s chief economic adviser during the the presidential election. “Both presidents experienced a crisis – 9/11 and the financial meltdown. Both promised to halve their resulting budget deficits. Neither were credible.”...
[T]he vast looming deficits in Medicare and Medicaid.... Conventional wisdom says Mr Obama should set up a bipartisan commission to tackle the problem. This would be the only way of shielding both parties from the political fall-out that would undoubtedly result from a cut in benefits.... Most Republicans, meanwhile, would agree to join the commission only if it excluded the possibility of tax increases – a precondition that would in effect kill the exercise before it began....
A plausible alternative scenario is that Mr Obama will head into next year’s midterm congressional elections, which will help determine his re-election chances in 2012, facing a sullen electorate that fears the Democrats are taking their country towards bankruptcy. It might not be fair – Mr Bush, rather than Mr Obama, deserves most of the blame for America’s deepening structural deficits. But it is the kind of message that could help bring a moribund Republican party back to life...
They are, he says, safeguarding vulnerable Democrats. And the Republicans are shooting themselves in the head by driving policy leftward:
Climate Vote Shows White House Still Really Knows How To Work The Hill: You don't have to like the climate bill that was approved last night by the House to be impressed by the White House's ability to get it passed. The bill 219-212, with eight Republican votes in favor. The margin was narrow but isn't the big story. The ultimate political value for the White House is that it was able to get the bill adopted at all but still allow 44 Democrats to vote against it. Not asking Democrats to walk a political plank will pay huge dividends later this year and in the 2010 elections because those members who needed to vote against it were able to do so. And, of course, the White House didn't have to use up huge favors in the process. Having voted against the administration's climate change bill on the record means that at least some of theese House Democrats will be able to vote for what emerges from a House-Senate conference later in the year. Therefore, the chances of a climate bill being enacted this year is now much greater than it was 24 hours ago.
But the bigger story is that the White House once again has demonstrated an excellent ability to get Congress to go along with the things it wants. In fact, the climate change bill is the latest in what has now been a steady series of legislative victories for the Obama administration. As I said in April.. this is very impressive and has to be a cause of real concern for congressional Republicans. It also has to make the GOP leadership wonder whether its "all-in" strategy is really that smart. Voting against everything and not participating in the process really only works when you win once in a while and your take-my-ball-and-go-home position is validated. You make yourself irrelevant if you refuse to play and the game goes on without you.
I watched this happen many times during my years as a staffer on the House Budget Committee. Led by Rep. Delbert Latta from Ohio, the Republican members of the committee always refused to vote for the budget resolutions the Democrats were considering. That forced the chairman, Bob Giaimo from Connecticut, to work more closely than he would have otherwise done with the liberals on the committee to get the votes he needed to approve the budget resolution for the coming year. When Giaimo got those votes, which he always did, the GOP members of the committee couldn't do much more than hold their ball and watch the game from the sidelines.
Thirty years or so later, the GOP now seems to be following Latta's game plan. In the meantime, the Obama administration is repeatedly scoring.
Yes, he does. I couldn't believe it, but the Washington Post is worse than I could imagine.
Andy Alexander says that Fred Hiatt and company at the Washington Post won't talk to him about their decision to fire Dan:
Ombudsman Blog: Institutionally, The Post is now responding by circling the wagons.... [A] wall of silence was erected. Raju Narisetti, the managing editor who oversees the Web site, declined to go beyond last week’s PR statement. Online Opinions Editor Marisa Katz, after talking Thursday with the Washington CityPaper, said she had been instructed not to respond to additional queries. And Editorial Page Editor Fred Hiatt, who had previously responded to questions from me and other journalists (including the CityPaper on Thursday), today said he was unable to comment...
One of the rules of journalism is that if one side is eager to explain it's point of view and the other side is not, any journalist has good cause to conclude that the side that is very quiet has something to hide.
Yet Alexander doesn't act like a journalist here. He writes:
Ombudsman: Froomkin Departs, Leaving Angry Loyalists And Questions: It's too bad both sides could not have found a way to save White House Watch...
The Post will lose a valued voice, even with its diminished audience. And Froomkin will lose the benefit of The Post's prestige and reach. But... he'll survive. So will The Post.
I should note that Andy Alexander is the only person inside the Washington Post building who is sure that it will survive. The Post's moat senior executives put it this way: Donald Graham's willingness to subsidize the newspaper is large but not unlimited, so we need to put in front of him a plan that will return the newspaper to profitability in a decade, and at the moment we do not have such a plan.
You would think that he would be clued in enough to what is going on in his building to know this. And to know that to hire Paul Wolfowitz and fire Dan Froomkin on the same day is a blunder that diminishes the Post's chances of survival. Indeed, it is what James Fallows calls it: insane:
James Fallows: The Washington Post's insane decision.... This is an example of a self-inflicted wound. Are papers like the Post under suspicion for being too insidery and old-media-y? How does it make sense get rid of an independent minded, new media, presumably not-that-expensive, non-Washington-cliquey voice on politics and the media and leave... well, the full opinion and media lineup the Post is sticking with?...
And I should note that while Andy Alexander does not know why Froomkin was fired, his predecessor as ombudsman Deborah Howell does:
Political reporters at The Post don't like WPNI columnist Dan Froomkin's "White House Briefing," which is highly opinionated and liberal. They're afraid that some readers think that Froomkin is a Post White House reporter. John Harris, national political editor at the print Post, said, "The title invites confusion. It dilutes our only asset -- our credibility" as objective news reporters. Froomkin writes the kind of column "that we would never allow a White House reporter to write..."
Why oh why can't we have a better press corps?
Rest in Peace...
And Jacqui Cheng:
Internet groans under weight of Michael Jackson traffic - Ars Technica: The passing of pop icon Michael Jackson affected numerous services across the Internet in major ways Thursday evening. As fans and onlookers tried to locate and pass on news, various sites were pushed to their limits, with Google describing the incident as "volcanic"...
White House Watched: Today's column is my last for The Washington Post. And the first thing I want to say is thank you. Thank you to all you readers, e-mailers, commenters, questioners, Facebook friends and Twitterers for spending your time with me and engaging with me over the years. And thank you for the recent outpouring of support. It was extraordinarily uplifting, and I'm deeply grateful. If I ever had any doubt, your words have further inspired me to continue doing accountability journalism. My plan is to take a few weeks off before embarking upon my next endeavor -- but when I do, I hope you'll join me.
It's hard to summarize the past five and a half years. But I'll try.
I started my column in January 2004, and one dominant theme quickly emerged: That George W. Bush was truly the proverbial emperor with no clothes. In the days and weeks after the 9/11 terror attacks, the nation, including the media, vested him with abilities he didn't have and credibility he didn't deserve. As it happens, it was on the day of my very first column that we also got the first insider look at the Bush White House, via Ron Suskind's book, The Price of Loyalty. In it, former Treasury Secretary Paul O'Neill described a disengaged president "like a blind man in a room full of deaf people", encircled by "a Praetorian guard,” intently looking for a way to overthrow Saddam Hussein long before 9/11. The ensuing five years and 1,088 columns really just fleshed out that portrait, describing a president who was oblivious, embubbled and untrustworthy....
[I]t's now very clear that the Bush years were all about kicking the can down the road – either ignoring problems or, even worse, creating them and not solving them. This was true of a huge range of issues including the economy, energy, health care, global warming – and of course Iraq and Afghanistan. How did the media cover it all? Not well. Reading pretty much everything that was written about Bush on a daily basis, as I did, one could certainly see the major themes emerging. But by and large, mainstream-media journalism missed the real Bush story for way too long. The handful of people who did exceptional investigative reporting during this era really deserve our gratitude: People such as Ron Suskind, Seymour Hersh, Jane Mayer, Murray Waas, Michael Massing, Mark Danner, Barton Gellman and Jo Becker, James Risen and Eric Lichtblau (better late than never), Dana Priest, Walter Pincus, Charlie Savage and Philippe Sands; there was also some fine investigative blogging over at Talking Points Memo and by Marcy Wheeler. Notably not on this list: The likes of Bob Woodward and Tim Russert. Hopefully, the next time the nation faces a grave national security crisis, we will listen to the people who were right, not the people who were wrong, and heed those who reported the truth, not those who served as stenographers to liars...
And he asks us to take a look at: http://whitehousewatch.com/
James Fallows has the best take on this:
James Fallows: [T]he Washington Post's insane decision to fire its media-political blogger Dan Froomkin. (I know Froomkin only through his work, not personally.)... This... a self-inflicted wound. Are papers like the Post under suspicion for being too insidery and old-media-y? How does it make sense get rid of an independent minded, new media, presumably not-that-expensive, non-Washington-cliquey voice on politics and the media and leave... well, the full opinion and media lineup the Post is sticking with? Some people tell me that it's a mistake to say that the Post's editorial page (and the weight of its op-ed lineup) has "become" neo-con and establishment-minded under its current editor, Fred Hiatt; the argument is that this is the Post's long tradition, which its anti-Nixon crusade concealed...
Do remember that Woodward and Bernstein came out of the Metro section--not the national news or the political desk. And do remember that Woodward and Bernstein were to a large extent sock puppets for senior FBI officials. The history of the the Post has not yet been written.
I would have thought it impossible for Krugman to cite Robert Reich completely approvingly, without even a trace of snark. Yet, lo and behold, it has happened:
Read Robert Reich: Just read. He’s right.
Robert Reich's Blog: "What Can I Do?": Someone recently approached me at the cheese counter of a local supermarket, asking "what can I do?" At first I thought the person was seeking advice about a choice of cheese. But I soon realized the question was larger than that. It was: what can I do about the way things are going in Washington?
People who voted for Barack Obama tend to fall into one of two camps: Trusters, who believe he's a good man with the right values and he's doing everything he can; and cynics, who have become disillusioned with his bailouts of Wall Street, flimsy proposals for taming the Street, willingness to give away 85 percent of cap-and-trade pollution permits, seeming reversals on eavesdropping and torture, and squishiness on a public option for health care.
In my view, both positions are wrong. A new president -- even one as talented and well-motivated as Obama -- can't get a thing done in Washington unless the public is actively behind him. As FDR said in the reelection campaign of 1936 when a lady insisted that if she were to vote for him he must commit to a long list of objectives, "Maam, I want to do those things, but you must make me."
We must make Obama do the right things. Email, write, and phone the White House. Do the same with your members of Congress. Round up others to do so. Also: Find friends and family members in red states who agree with you, and get them fired up to do the same. For example, if you happen to have a good friend or family member in Montana, you might ask him or her to write Max Baucus and tell him they want a public option included in any healthcare bill.
My memory reaches back to September 18, 1787:
Mrs. Powell: "Well, doctor, what have we got?”
Benjamin Franklin: "A Republic, if you can keep it."
You know, it is very odd: When nominal interest rates on short-term Treasury securities are at their normal levels--4% or 3% or even 2% per year--I am among the very first to declare that discretionary fiscal policy has no proper role to play, and that the task of managing the business cycle should be left to the fiscal automatic stabilizers and to the Federal Reserve.
But things are--as we economists have known for nearly a century--different when short-term safe nominal interest rates are at their floor to make safe short-term bonds nearly perfect substitutes for cash, for then the standard mechanisms of monetary policy--flooding the system with cash and relying on the fact that holding wealth in cash is expensive (for it means that you forego interest) to trigger a rise in spending--is not guaranteed to work. And then fiscal policy has a place. To deny that fiscal policy has a place is then, it seems, to me, to fail the most basic test of thinking like an economist. As John Hicks put it back in 1937, we know that the speed at which people spend their cash--the velocity of money--is a function of the short-term safe nominal interest rate. And we know that the velocity of money becomes very elastic as the short-term safe nominal interest rate becomes very low:
On grounds of pure value theory, it is evident that the direct sacrifice made by a person who holds a stock of money is a sacrifice of interest; and it is hard to believe that the marginal principle does not operate at all in this field. As Lavington puts it:
The quntity of resources which (an individual) holds in the form of money will be suh that the unit of money which is just and only just worthwhile holding in this form yields him a return of convenience nad security equal to the... net rate of interest.
The demand for money depends upon the rate of interest!...
It is not only possible to show that a given supply of money determines a certain relation between [national] income and interest... it is also possible to say something about the shape of the cure. It will probably tend to be nearly horizontal on the left.... If is lies to the right, then we can indeed increase employment by increasing the quantity of money; but if IS lies to the left [and short-term safe interest rates are at their minimum], we cannot do so; merely monetary means will not force down the interest rate any further...
and we have to resort to fiscal policy and banking policy--things that affect not the quantity of money but the flow-of-funds through financial markets.
Now, however, we have to add John Taylor to the votaries of the 1920s-era "Treasury View": the claim that fiscal policy must be ineffective. He is thus one of those who, as Olivier Blanchard puts it, does not know things that Irving Fisher and Knut Wicksell (or at least John Hicks) knew.
Why John Taylor believes in the "Treasury View" is not at all clear. Paul Krugman writes:
The virus is spreading: I just taped Fareed Zakaria with John Taylor, who is a fine economist. But if I understood John’s position, it was that fiscal expansion is actually contractionary, because deficits drive up interest rates, unless the fiscal expansion takes the form of permanent tax cuts...
I'm not so sure about Taylor. The last paper of his I cracked... wasn't impressive. It was supposed to show that fiscal policy could not be powerful. And it didn't deliver.
Here's what I had to say about it at a conference at Stanford early in May:
Tuesday afternoon I sat down to... Cogan, Cwik, Taylor, and Wieland (2009).... I dug--and found that Cogan et al.’s claim [that they and the Obama administration had analzyed] “exactly the same policy change” was simply wrong. Romer-Bernstein model an increase in government spending with the Federal Reserve expanding and keeping on expanding the money supply in order to keep the short-term Treasury Bill interest rate the same. Taylor (1993) models an increase in government spending with the Federal Reserve contracting the real money supply to push the short-term Treasury Bill interest rate up over time as unemployment falls and inflation creeps up. There is no “robustness” problem with Romer-Bernstein at all: the results are different because the policy changes are different.
“Geez,” my first thought was, “this is embarrassing--none of four coauthors of Cogan actually read Romer-Bernstein at all carefully. Sloppy.” Then I got to page 5 of Cogan: “Romer and Bernstein assume that the Federal Reserve pegs the interest rate....” Cogan et al. know perfectly well that the policy changes are not “exactly the same.” They just say they are.
I am sorry. In Europe that gets you four red cards. In America that gets you sent to the showers. The first intellectual responsibility of critique is to accurately present what you are critiquing. When Cogan et al. learn that they can come back into the game. But not until then.
What is their explanation for not telling us up front that they are assuming a different monetary policy? They give none. What is their explanation for assuming a different fiscal policy? It is this:
Romer and Bernstein assume that the Federal Reserve pegs the interest rate—the federal funds rate—at the current level of zero.... [S]uch a pure interest rate peg is prohibited in new Keynesian models with forward-looking households and firms because it... lead[s] to instability and non-uniqueness.... Inflation expectations of households and firms become unanchored and unhinged and the price level may explode in an upward spiral….
In short, the monetary policy rule that Romer and Bernstein believe that the Federal Reserve is following makes fiscal policy incredibly powerful: so powerful that the level of nominal spending explodes. So we are going to make a different assumption about monetary policy that makes fiscal policy weak because we assume the Federal Reserve neutralizes the effects of government spending.
Do they provide any reason to justify their monetary policy assumption--any reason to believe that the Federal Reserve is currently engaged in raising short-term interest rates to neutralize the effects of fiscal expansion? No, they do not.
This morning's observation from Zachary Roth that the mainline press corps has no way--in fact, regards it as a breach of ethics--to tell its readers that important political figures are likely to be lying reminded me of the other major grave deficiency of the press corps: its inability to exercise any quality control over its own members. And that reminded me of thus just-ain't-so story from four years ago:
Brad DeLong's Website: Why Oh Why Can't We Have a Better Press Corps? (New York Times Book Review Edition): Everyone who has read Jared Diamond's excellent Guns, Germs, and Steel: The Fates of Human Societies knows that its principal theme is that Eurasian civilizations have dominated world history because Eurasia (including the southern shore of the Mediterranean) was the best environment to nurture the growth of preindustrial human cultures, technologies, and civilizations. The large size of and easy east-west communications across Eurasia meant that Eurasia had more people in communication thinking about solving cultural, technological, and civilizational problems--and two heads are always better than one. The east-west axis of Eurasia meant similar climates across ten thousand miles--so whatever good ideas your neighbors had were probably relevant to you as well. The rich biological resources of Eurasia gave its civilizations an advantage in terms of the crops and animals they could selectively breed and domesticate. And, at a slightly finer scale, Europe's mountain ranges and narrow seas provided barriers to control that were not impediments to communication: thus the Ming Dynasty could suppress shipbuilding, but the Pope could not suppress astronomy.
Thus I was astonished to open the New York Times Book Review and find:
Gregg Easterbrook: "Guns" asked why the West is atop the food chain of nations. Its conclusion, that Western success was a coincidence driven by good luck, has proven extremely influential in academia, as the view is quintessentially postmodern.... [E]nvironmental coincidences are the principal factor in human history. Diamond contends it was chance, not culture or brainpower, that brought industrial power first to Europe; Western civilization has nothing to boast about.
But this is completely false. Diamond does say it was culture, it was brainpower--brainpower that could be successfully amplified, harnessed, and applied to building cultures because of the tremendous long-run advantages provided by the Eurasian incubator. It's not either/or. Diamond's view is not postmodern: it is materialist--the antithesis of postmodernism. Diamond's story gives "Western civilization" a great deal to boast about (and also gives it, as any attempt to tell history straight does, a great deal to be bitterly ashamed of).
Some quality control, people. Somebody's job should be to catch book reviewers who don't understand or don't accurately present the books they are reviewing, and pull their reviews before they hit the press.
In email, firstname.lastname@example.org writes, contra those who say, "At least Mark Sanford is sincere!":
It's hard for me to find anything decent or honest about a politician who rejects stimulus money for a state with the 2nd highest unemployment rate in the country out of some misguided loyalty to an uncompromising political ideology. I understand the point you're trying to make here, but there is nothing even remotely admirable or honest about putting ones narrow and misguided beliefs ahead of the livelihoods of the voters who you are nominally elected to serve.
Just because Sanford isn't as hypocritical as your average Republican doesn't mean he's not a jerk. In fact, I'll gladly take the hypocrite over the ideologue; at least people dont get hurt as badly when the hypocrite is around. (The contrast btw Reagan and [George W.] Bush comes to mind here).
Also, its hard for me to believe that currying favor with the mindless and knee jerk enemies of government in South Carolina, not to mention New Hampshire and Iowa, didn't also play a role in Sanford's thinking...
Stan Collender watches Obama take his responsibilities to the nation seriously:
Attention All Deficit Hawks: Do You Know Where Your Veto Threats Are? | Capital Gains and Games: The White House yesterday did something that should truly warm the hearts of deficit hawks everywhere: it threated to veto the 2010 military authorization bill over two big spending issues -- the F22 and the alternate engine for the F35.
A little background. Although both of these programs were questioned for years by the Bush White House, Congress kept insisting that the Pentagon spend the money anyway and the president always went along. This year, The F22 was a target of Secretary of Defense Robert Gates ....
The Obama veto threat is a much bigger deal than it seems.
First, the White House didn't have to do it. It's threating to veto an authorization bill that, even if it's adopted, won't actually spend any money. That will happen later in the year with the appropriation. That means that the administration is drawing the line now and trying to stop the spending for both programs from gaining any momentum. That's a good sign.... Second, the veto threat came in the midst of the much bigger fight for the White House on health care. The White House could have backed away so that it didn't antagonize the members who support these programs... but it didn't. Again, another good sign for deficit hawks who want proof of the president's devotion to reduced spending...
I certainly don't.
And once again I am reminded of the two rules for understanding the world:
What I was afraid of: Back in March, when I was lamenting the inadequate size of the Obama stimulus, I made this prediction:
Republicans are now firmly committed to the view that we should do nothing to respond to the economic crisis, except cut taxes — which they always want to do regardless of circumstances. If Mr. Obama comes back for a second round of stimulus, they’ll respond not by being helpful, but by claiming that his policies have failed.
And I laid out the following scenario:
So here’s the picture that scares me: It’s September 2009, the unemployment rate has passed 9 percent, and despite the early round of stimulus spending it’s still headed up. Mr. Obama finally concedes that a bigger stimulus is needed. But he can’t get his new plan through Congress because approval for his economic policies has plummeted, partly because his policies are seen to have failed, partly because job-creation policies are conflated in the public mind with deeply unpopular bank bailouts.
It’s only June, but Republicans are already claiming that the Obama economic plan has failed. (Yes, that’s insane — hardly any of the money has flowed to the economy yet — but this was predictable.) Meanwhile, unemployment is already above 9 percent. And the green shoots are looking browner by the week, especially on the jobs front: new claims for unemployment insurance are stubbornly running at more than 600,000 a week, far above the 350,000 or so that would be consistent with a stable unemployment rate.
We really do need a bigger stimulus. But it’s going to be hard slogging.
I understand that last December we thought (wrongly) we had a one-quarter long and not a two-quarter long collapse in the economy and thus that the unemployment rate could be kept from rising above 8%. I understand the (wrong) judgment that Congress would increase and make more effective rather than diminish and make less effective whatever stimulus program bid Obama put on the table. But what I don't understand is the failure to understand that a too-big fiscal boost package could be neutralized by the Federal Reserve's raising interest rates while a too-small package could not be further boosted by the Federal Reserve's lowering interest rates, and hence that prudent policy last December involved at least planning for a fiscal boost package that would then look very large indeed.
Remember: World War II-style deficit spending was needed to get the unemployment rate down from 10% to 3%, suggesting to me at least that a truly effective fiscal boost capable of doing half that would have to be a quarter to a third of large. And we are not there: we are far from there:
From the Department of Labor:
ETA Press Release: Unemployment Insurance Weekly Claims Report: In the week ending June 20, the advance figure for seasonally adjusted initial claims was 627,000, an increase of 15,000 from the previous week's revised figure of 612,000. The 4-week moving average was 617,250, an increase of 500 from the previous week's revised average of 616,750...
Unemployment is still going up for quite a while...
Zachary Roth explains why the Washington press corps as we know it needs to vanish quickly and quietly: "There's almost no acceptable way for a mainstream reporter to explicitly tell readers that the information being put out by a powerful office-holder may be false or misleading..."
And so Roth shows us that Jonathan Martin, Andy Barr, Ben Smith, the editors of Politico who send previous versions of the organization's work down the memory hole, Mike Viqueira, Chris Cillizza, Will Haygood, and Susan Davis all need to have their brains scrubbed by webloggers with bristle brushes.
Roth reads the Politico's (and others') reporting of Mark Sanford:
Media Recap: Credulous Press Ate Up Spin From Sanford's Office: Now that the dust has settled -- at least for a few hours -- on the tale of the love-struck guv, it's worth focusing on another angle: the shockingly credulous news coverage of the story. Throughout Monday and Tuesday, there were pretty good reasons to be skeptical of the ever-changing official line that Sanford's office was putting out. After all, here's how things went down, in a nutshell:
By Monday, the governor had been unreachable for four days, without his security detail, and without transferring power to the state number 2. His office put out a comically vague statement that afternoon saying he needed to "recharge after the stimulus battle." His wife, meanwhile, had said she didn't know where he was but that he was "writing something and wanted some space to get away from the kids" -- on Father's Day. Next the Lieutenant Governor Andre Bauer's office told reporters that the governor's office said they'd spoken to Sanford and knew his whereabouts, only to be contradicted a little over an hour later by the governor's office, now saying it never said it had spoken to Sanford. That night, Bauer's office issued a statement charging the governor's office with giving out misleading information. Shortly afterwards, a new statement from Sanford's office: he's hiking the Appalachian Trail - which, conveniently, is 2500 miles long. No location was specified, and no one seemed to have seen the governor making preparations for the trip. The next morning, Sanford's office issued yet another statement saying Sanford had called the office, that he was "taken aback" by the fuss, and would be back at work Wednesday. But still no specifics on where exactly he was.
It's fair to say you didn't need to be Sherlock Holmes to think there might be something fishy going on here. We followed the evolving story with a series of skeptical posts on both TPM and TPMmuckraker. But some mainstream outlets didn't quite see things that way. Politico's performance was maybe the funniest. On Monday afternoon, they were told by Sanford's office that he had gone "out of pocket" to "clear his head" and that before leaving town last week he "let staff know his whereabouts and that he'd be difficult to reach." That was good enough for Jonathan Martin and Andy Barr, who dutifully reported:
South Carolina GOP Gov. Mark Sanford is safe and secure, his office said Monday afternoon, moving to tamp down speculation that he had gone missing.
For good measure, they even threw in some spin from "Sanford allies," suggesting that the story was being manufactured by state Sen. Jake Knotts, a Sanford antagonist. "It was Knotts," noted Politico, "who provided the only on-record confirmation of Sanford's absence to The State newspaper, prompting nationwide buzz about the unlikely story of the disappearing governor."
But a few hours later, amid Monday night's back and forth between Sanford's and Bauer's offices, Politico seemed to realize it had goofed, replacing its original story to a far more skeptical one which no longer contained the reference to the governor being safe and secure. (Politico didn't let its readers in on the evolving process, of course. It removed the original story by "updating" it to create the new one. The original story is preserved only thanks to the wonders of syndication.)
Later that night, after we'd been fed the Appalachian Trail line by Sanford's office, Politico's Ben Smith headlined his post "Found." (Remember, no one, not even Sanford's office, was claiming to have actually seen the guv since Thursday. They just said he'd called in.) Under that, he wrote:
Sanford is off hiking the Appalachian Trail, according to his spokesman.
This may be eccentric enough to disqualify him from national office; it also inspires a bit of envy on my part, at least.
Yes, lucky old Sanford, hiking away in solitude. The next morning, Smith placed an asterisk next to "Found" and added an update that only confused things further: "Readers point out that he was more "located" than actually 'found.'"
Smith was hardly the only one to buy the Appalachian Trail line. On The Today Show Tuesday morning, NBC's Mike Viqueira crowed: "It's a mystery solved!"
The Washington Post's Chris Cillizza -- in a Tuesday morning post hilariously headlined "Sanford Returns!" -- reported that Sanford "will return to the state tomorrow after spending the last five days hiking the Appalachian Trail, according to a statement released by his office this morning."
In fact, the Post fell so hard for the Appalachian Trail line that they even ran a story -- "For the Gov, A Little Me Time," by reporter Will Haygood, highlighting the quirkiness of Sanford's decision to "trek off into the woods," without ever stopping to ask whether tale was true. For good measure, the story reported: "The governor, it should be noted, is quite happily married" -- something it had no way of knowing.
And the Wall Street Journal headlined its post: "Once Lost, Gov. Sanford Is Now Found," and wrote a lede similar to Cillizza's.
There's a larger point here than just, we were right and you were wrong (really there is).
None of these are the biggest crimes in the world, but still: It feels absurd to have to point this out, but politicians and their staffers frequently have reason to dissemble, about issues far more important than an extra-marital affair. Too often, though, the press treats public statements from elected officials' offices -- especially those purporting simply to provide information, like the Appalachian Trail line -- as self-evidently accurate. It's as if, despite everything, some in the press can't quite bring themselves to believe that politicians might try to mislead people.
Part of this is structural. There's almost no acceptable way for a mainstream reporter to explicitly tell readers that the information being put out by a powerful office-holder may be false or misleading. But the only way that this structural flaw will change is if individual reporters are willing to stick out their necks to change it.
Until then, people will read blogs for stories like these.
Can they speak a word of truth ever, about anything? Or is every word coming out of the mouth of Heritage a lie, even "and" and "the"?
Matthew Yglesias sends us to Benjamin Friedman, who is on the case:
Matthew Yglesias » Heritage Slams Mythical Defense Cuts: The Heritage Foundation has a blog post complete with chart claiming to demonstrate that “Obama plan cuts defense spending to pre-9/11 levels”. As Benjamin Friedman lays out this is nonsense:
This is a standard rhetorical device for defense hawks (see the Wall Street Journal editorial page, Mitt Romney and lots of others) so it’s worth pointing out that it’s misleading. The unfortunate truth is that Obama is increasing non-war defense spending this year and seems likely to increase it at least by inflation in the near future.
It’s true that defense spending will probably decline as a percentage of GDP, assuming the economy recovers. But that’s because GDP grows. Ours is more than six times bigger than it was in 1950. Meanwhile, we spend more on defense in real, inflation adjusted terms, than we did then, at the height of the Cold War. The denoninator has grown faster than the numerator.
By saying that defense spending needs to grow with GDP to be “level,” you are arguing for an annual increase in defense spending without saying so directly. That’s the point, of course.
Matthew piles on, detailing how Heritage is doing Al Qaeda's bidding here:
Since economic growth causes real wages to rise over time, there is some reason for thinking that a military sized appropriately to the strategic environment would need real increases in spending to maintain its level of capabilities. But one way or another, the crucial issue is that the appropriate level of defense spending is determined by the nature of the strategic environment, not by the pace of economic growth. The US economy grew rapidly during the 1990s but the level of military threats facing the country didn’t—thus, a decline in defense expenditures relative to GDP was appropriate.
One interesting trope both in the substance and rhetoric of this argument from Heritage is the idea that 9/11 ought to have touched off a large and sustained increase in defense spending. On the merits, this is a little hard to figure out. It’s difficult to make the case that the 9/11 plot succeeded because the gap in financial expenditures between the U.S. government and Osama bin Laden was not big enough. Would an extra aircraft carrier have helped? A more advanced fighter plane? A larger Marine Corps? Additional nuclear weapons? One of the most realistic ways an organization like al-Qaeda can damage the United States is to provoke us into wasting resources on a far larger scale than they could ever destroy. The mentality Heritage is expressing here is right in line with that path.
And, of course, we all remember that the Washington Post's David Broder likes the tripe that Heritage produces for its "intellectual honesty": another reason that every day the Washington Post publishes is a crime against rationality.
When the English professors eat their wheaties and get their game on I just cannot compete. The levels of irony and indirection here leave my head spinning. I don't know what is going on.
The futility of the humanities: Deresiewicz’s essay contains a bunch of things I wish I’d said, like the conclusion of this piquant paragraph:
Again and again, Darwinian criticism sets out to say something specific, only to end up telling us something general.... Boyd devotes a hundred pages to the Odyssey without saying anything he couldn’t have said with Anna Karenina or Middlemarch or Proust. The discussion is nothing more than an illustration of Darwinian ideas, not an explication of Homeric meanings.... I have read any number of Darwinian essays about Pride and Prejudice (one critic calls it their “fruit fly”), but I have yet to read one that told me anything interesting. The idea that the novel is about mate selection does not count as an original contribution.
...I’m encouraged to see that Deresiewicz says that Boyd is “a clearer and more careful thinker than most of these other writers,” because those other writers are people like Denis Dutton, whose work has always seemed to me to be a variation on “the giraffe has a long neck, and the elephant has a long trunk, and therefore humans make abstract sculptures, just so! Thus I have refuted Judith Butler!” But... I do love Deresiewicz’s final sentence, the idea that the novel is about mate selection does not count as an original contribution. Besides, everyone knows that Pride and Prejudice is not about mate selection. Hart Crane’s The Bridge is about mate selection, as is Blake’s “The Marriage of Heaven and Hell,” and that’s where your literary Darwinism really comes in handy...
And then it starts:
alex 06.24.09 at 3:06 pm: “Besides, everyone knows that Pride and Prejudice is not about mate selection.” Sorry, can’t resist: I thought that was a truth universally acknowledged? But then I’m not a lit crit…
dsquared 06.24.09 at 3:10 pm: "The idea that the novel is about mate selection does not count as an original contribution." Ahhh those naive Darwinists! I am currently working on a massive book-length essay on Pride & Prejudice, analysing it for the first time from the standpoint of Freakonomics. You see, what the “humanities majors” have never really paid attention to is that Mr Darcy is very rich, and this fact shapes a great deal of the other characters’ social interactions with him.
I think that’s the right one; if he was in Sense & Sensibility then someone else, these books are all basically interchangeable.
Michael Bérubé 06.24.09 at 3:11 pm: Dang! A twofer. I am pwned with regard to Jane Austen and Darwinism, and pwned again with regard to objective knowledge. Thanks, Alex! I will go home now.
Chris 06.24.09 at 3:20 pm: "Honest to Moloch, I’m beginning to think nobody takes me seriously when I cite the Digest of Higher Education Statistics, and that makes me sad." Well, if it doesn’t contain any objective knowledge, why should they? It’s just a tool of the mathematical empire, or something. Their perception that the field is in decline is just as valid as the statistics that purport to prove it isn’t. Theory says so....
Michael Bérubé 06.24.09 at 3:25 pm: Good point about Darcy’s wealth, dsquared! People do tend to overlook these little things. Except for the Marxists, bless their hearts! Speaking of which, here’s another of the false notes in Deresiewicz’s essay: “If Marxist criticism is always about the rise of the bourgeoisie, literary Darwinism is always about mate selection or status competition.”...
John Quiggin 06.24.09 at 8:25 pm: What stuns me here is the literary Darwinist stuff. Is this some sort of elaborate Bérubé hoax speaking through an invented Deresiewicz? Or are there really humanities academics recycling 1970s-style sociobiology (the quoted examples don’t even make to the dismal level of 1990s-style Ev Psych) as lit crit? I’d lean to the first, except that everyone in comments seems to be playing it straight in this respect...
Ric Mishkin writes:
How to Get The Fed Out Of Its 'Box': When the Federal Open Market Committee meets this Tuesday and Wednesday, the Federal Reserve will face a serious dilemma. Since the last committee meeting six weeks ago, the 10-year U.S. Treasury yield has risen by around 70 basis points (0.70%), with the result that the interest rate on 30-year mortgages has risen by a similar amount. The rise in long-term interest rates is particularly worrisome, because it has the potential to choke off economic recovery and lead to further deterioration in the housing market. That would put an already weakened financial system under stress. Does the situation call for the Fed to expand its purchases of Treasury bonds to lower long-term interest rates?
To answer this question, we need to look at why long-term interest rates have risen. Here, there is good news and bad news. One cause of the rise in long-term rates is the more positive economic news of the past couple of months, particularly in financial markets. The bad news is that long-term interest rates are higher because of concerns about the deteriorating fiscal situation, with massive budget deficits expected for the indefinite future. To fund these budget deficits, the Treasury has to sell large quantities of bonds both now and in the future, causing bond prices to fall and interest rates to rise. The increased supply of Treasury debt puts pressure on the Fed to buy it up.... The Fed is boxed in. The slack in the economy that is likely to persist for a very long time suggests the need for stimulative monetary policy to lower long-term interest rates through the purchase of Treasurys. The fiscal situation argues against this policy action, because it would weaken the Fed's inflation-fighting credibility.
How can the Fed get out of the box and pursue the expansionary monetary policy that is needed right now? The answer is that the Obama administration and Congress have to get serious about long-run fiscal sustainability. Large budget deficits naturally occur during severe recessions when tax revenue undergoes a substantial decline. In addition, fiscal stimulus to promote economic recovery when the economy is in a severe recession is a sensible prescription. However, the failure to take steps to get future budgets under control is a recipe for disaster.... [I]t may even make the fiscal stimulus package less effective... if you know that the government is issuing a lot of debt that has to be paid back someday you can expect to pay much higher taxes in the future. With the prospect of higher taxes, you will be less likely to spend today.
How can the Obama administration and Congress help the Fed do its job and help the fiscal stimulus package work? It needs to address exploding spending on entitlements -- Social Security and particularly Medicare -- which are causing future deficit projections to be so bleak. One possibility is to establish a nonpartisan commission on entitlement reform, along the lines of the National Commission on Social Security in the early 1980s.... Another is taxing health-care benefits as part of any package to reform health care.... There are surely many other ways to promote more fiscal responsibility. The Fed can assist this process. It could indicate that implementing measures that would promote fiscal sustainability will be rewarded with Federal Reserve actions to bring long-term Treasury rates down. Deals like this have been successfully made in the past. In the current extremely difficult economic environment, we surely need such a deal now.
I think pieces like Ric Mishkin's are much less useful than they could be, because Mishkin talks in a peculiar kind of code:
When Mishkin writes: "[t]he Fed... could indicate that implementing measures that would promote fiscal sustainability will be rewarded with Federal Reserve actions to bring long-term Treasury rates down. Deals like this have been successfully made in the past..." he means: "Alan Greenspan and Bill Clinton and the Democratic Party did a very good thing back in 1993 when--over unanimous Republican opposition--they coordinated action to raise taxes, cut the future growth path of spending, and ease monetary policy."
When Mishkin writes: "nonpartisan commission on entitlement reform, along the lines of the National Commission on Social Security in the early 1980s..." he means: "the Democratic Party then did a good thing in giving Republican President Ronald Reagan bipartisan cover to raise taxes and so reduce the damage to long run fiscal stability that he had done in his first year..."
When Mishkin writes: "budget deficits naturally occur during severe recessions when tax revenue undergoes a substantial decline... fiscal stimulus to promote economic recovery when the economy is in a severe recession is a sensible prescription..." he means: "Republican root-and-branch opposition to Obama's stimulus plan is stupid and harmful to the country..."
Everyone who was around in 1982, or 1993, or 2001-3 (when Republicans were welcoming and expanding deficits as recession-fighting measures understands the code that Mishkin is talking in: that Republican politicians behaved badly and Democratic politicians behaved well, and it would be good for the country if the Democratic politicians were to step up to the plate and once again do the right thing for the country. But for some reason Mishkin won't say that in anything but the most elliptical of implicatory sentences.
It matters, I think, because until senior Republican presidential appointees like Ric Mishkin will call Republican politicians on their misdeeds--and cross the aisle in response--Republican politicians will continue to misbehave. And it is not clear the country can afford that.
It watches and waits:
Information received since the Federal Open Market Committee met in April suggests that the pace of economic contraction is slowing. Conditions in financial markets have generally improved in recent months. Household spending has shown further signs of stabilizing but remains constrained by ongoing job losses, lower housing wealth, and tight credit. Businesses are cutting back on fixed investment and staffing but appear to be making progress in bringing inventory stocks into better alignment with sales. Although economic activity is likely to remain weak for a time, the Committee continues to anticipate that policy actions to stabilize financial markets and institutions, fiscal and monetary stimulus, and market forces will contribute to a gradual resumption of sustainable economic growth in a context of price stability.
The prices of energy and other commodities have risen of late. However, substantial resource slack is likely to dampen cost pressures, and the Committee expects that inflation will remain subdued for some time.
In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; William C. Dudley, Vice Chairman; Elizabeth A. Duke; Charles L. Evans; Donald L. Kohn; Jeffrey M. Lacker; Dennis P. Lockhart; Daniel K. Tarullo; Kevin M. Warsh; and Janet L. Yellen.
Total systemwide savings rising to $400 billion in 2019--and we will need those savings and more to pay for the government health programs as they are currently constituted.
Melinda Beeuwkes Buntin and David M. Cutler:
The Two Trillion Dollar Solution: Saving Money by Modernizing the Health Care System: The fundamental challenge in health reform is to reduce the growth rate of health care costs.... If we cannot “bend the curve” of increasing health care costs, then we will not be able to afford our current commitments to Medicare, Medicaid, and the State Children’s Health Insurance Program, let alone the cost of covering the 45 million uninsured Americans....
[W]idely accepted solutions include bringing health care into the information age, reforming health insurance markets, and learning what works and which health care providers are better at what they do. Reform will also require reorienting payments away from fee-for-service... toward value-based systems that pay for entire episodes of care, stressing prevention and not just acute treatment....
[O]ur best guess is that fundamental health system reform involving just three of these strategies will lead to federal savings of about $550 billion over the next decade... [First,] health information technology... direct federal savings of $196 billion between 2010 and 2019... administrative simplification... more productive use of time by physicians and nurses. Second... insurance “exchanges”... $64 billion over the next 10 years. Finally, payment system reforms... could save the federal government $299 billion... by reducing the frequency and intensity of hospitalizations.
These three sets of policies together would yield overall [additional] system savings of $1.5 trillion over the coming decade [in reduced private and state costs]....
We first lay out the two potential means for achieving savings—by cutting waste and inefficiency out of the “base” of current health care spending and by aligning incentives to encourage the growth of only effective health care services. We then discuss how other industries have achieved efficiency gains and the specific policies that experts agree can bring cost savings. In the second half of the paper, we present evidence about the quantitative impact of these types of policies taken together. We sum up each section with a discussion of [additional] related strategies that [also] have promise...
FT.com / Columnists / Martin Wolf - Reform of regulation has to start by altering incentives: At the heart of the financial industry are highly leveraged businesses. Their central activity is creating and trading assets of uncertain value, while their liabilities are, as we have been reminded, guaranteed by the state. This is a licence to gamble with taxpayers’ money. The mystery is that crises erupt so rarely....
[B]anks are special sorts of businesses: for them, debt is more than a means of doing business; it is their business. Thus limited liability is likely to have an exceptionally big impact on their behaviour.... In a highly leveraged limited liability business, shareholders will rationally take excessive risks, since they enjoy all the upside but their downside is capped: they cannot lose more than their equity stake, however much the bank loses. In contemporary banks, leverage of 30 to one is normal....
A solution seems evident: let creditors lose. Rational creditors would then charge a premium for lending to higher-risk operations, leading to lower levels of leverage. One objection is that creditors may be ill-informed about the risks being run by banks they are lending to. But there is a more forceful objection: many creditors are protected by insurance backed by governments. Such insurance is motivated by the importance of financial institutions as sources of credit, on the asset side, and suppliers of money, on the liability side. As a result, creditors have little interest in the quality of a bank’s assets or in its strategy. They appear to have lent to a bank. In reality, they have lent to the state.... [C]reditors are most at risk in a systemic crisis. But a systemic crisis is precisely when governments feel compelled to come to the rescue, as they did at the end of last year....
The well-known solution is to regulate such insured institutions very tightly. But an enormous part of what banks did in the early part of this decade – the off-balance-sheet vehicles, the derivatives and the “shadow banking system” itself – was to find a way round regulation....
Such a crisis is not only the result of a rational response to incentives. Folly and ignorance play a part. Nor do I believe that bubbles and crises can be eliminated from capitalism. Yet it is hard to believe that the risks being run by huge institutions had nothing to do with incentives.... Regulatory reform cannot end with incentives. But it has to start from incentives...
There are three players relevant here: shareholders of banks, lenders to banks, and managers and traders of banks.
Shareholders are already on the hook to some extent: they can lose their investment. Nevertheless, there is space for reform. The natural reform I would like to try--to see what happens--would be to make financial-institution stock into par-value stock. It would work like this: If you hold a share of a regulated bank, then in a crisis the bank can call on you for an additional capital investment of up to $X. As a condition of their licenses to do business, financial institutions would be required to have outstanding equity on such terms and conditions that they can always call for half their book net worth from their shareholders.
Lenders are now largely off the hook in the event of a systemic crisis. (They are on the hook for a one-off collapse.) I think lenders need to stay off the hook in a systemic crisis--what you gain in ex ante caution you more than lose in the additional likelihood of bank runs.
Managers and traders are, however, where I would focus most of my attention. I believe we need compensation reform: compensation schemes that make it a complete personal catastrophe for the CEO and all other employees if their bank fails. If managers and traders are, personally, wiped out--reduced in assets to their last two cars and their last four-bedroom house--if any financial institution they worked for goes bankrupt anytime in the next two years, then we have a chance of creating sufficient caution. Otherwise, I don't see how we do it.
Paul Krugman Sends Us to Ali Frick Who Reportrs on Barney Frank:
Think Progress: Barney Frank: GOP Thinks $2 Billion F-22 Project Is Funded By Monopoly Money: On a press call hosted by the Center for American Progress Action Fund this afternoon, Frank pointed out Republicans’ hypocrisy in railing against the deficit while simultaneously funding a $2 billion air force jet that has never once flown a mission in Afghanistan or Iraq. Frank said so-called deficit hawks act as though the Pentagon is funded with “Monopoly money”:
I am of course struck that so many of my colleagues who are so worried about the deficit apparently think the Pentagon is funded with Monopoly money that somehow doesn’t count...
Frank also dismissed concerns that eliminating the F-22 will cost jobs:
These arguments will come from the very people who denied that the economic recovery plan created any jobs. We have a very odd economic philosophy in Washington: It’s called weaponized Keynesianism. It is the view that the government does not create jobs when it funds the building of bridges or important research or retrains workers, but when it builds airplanes that are never going to be used in combat, that is of course economic salvation...
Indeed, conservatives declare that canceling the F-22 would result in thousands of lost jobs. However, as Center for American Progress Senior Fellow Lawrence Korb pointed out on the call, the administration has also ramped up production of the F-35, which is produced at many of the same facilities — and by the same workers — as the F-22.
Frank called the F-22 fight an important “test” for the Obama administration’s efforts to cut wasteful military spending. “If we cannot hold the line on this, then it’s very bad news for trying to hold down any kind of excesses in military spending,” he said.
Tyler Cowen says that he is "pro-copyright... but... the default settings make it too hard for successful negotiations to occur..."
I wonder: doesn't that also mean that he is "anti-copyright, but the default settings don't provide enough rewards to creative authorship..."?
How would one tell the difference between the qualified pro-copyright and the qualified anti-copyright positions?
Marginal Revolution: Kindle and DRM and Netflix too: As a reader, I find it good policy to keep the number of books on my Kindle to below twenty. That forces me to read the ones I order and it also protects me from "stranded" consumer durables. Uncertainty and confusion about my rights only strengthens my desire to keep that policy.
As a writer, I expect the Kindle is temporarily in my financial self-interest, as it gets more "influentials" reading my work and perhaps talking it up. In the longer run I suspect it means a lower equilibrium price for books. One question is whether publishers use "sticky" or inconvenient DRM practices as an implicit collusive method for limiting the spread of Kindle.
Today I was struck by this passage about the origins of Netflix:
Netflix's selection of more than 100,000 DVD rental titles is made possible by the "first-sale doctrine" of U.S. copyright law, which permits buyers of DVDs to lend them out without studios' consent.
In Netflix's early days, its buying team would sometimes purchase DVDs at local Wal-Marts or Best Buys if it couldn't get copies through studios, says Ted Sarandos, Netflix's chief content officer.
In contrast, to deliver movies and television shows over the Internet, Netflix has to license them from studios. So far, it has gotten only about 12,000 titles, a hodgepodge of older films such as "Diehard," episodes of popular TV shows including "30 Rock" and a smattering of new releases.
That's right, we had more innovation because some of the usual copyright strictures about negotiating rights did not apply. I am pro-copyright, but once again the default settings make it too hard for successful negotiations to occur.
Me? I'm putting my trust in Google as semi-benevolent kami. Google Books is rolling forward. Google Movies and Google Music are YouTube in disguise. When the titanic battle between them and iTunes takes place, it will shake the universe.
Back in the old days, when Tom Ricks worked for the Washington Post, you never knew what he thought or how to read his stories: Did he really think Danielle Pletka had a point of view worth taking seriously? You could not tell until three years later, when his book would come out. (Answer: no.)
That is not a problem any more:
Wise words on Iran from Karim Sadjadpour: If you are as weary as I am of knee-jerk nonsense from pundits and pols who would rather tear down their president than really aid the Iranian people, then you might enjoy this commentary by Karim Sadjadpour. And unlike many in Washington, he actually knows what he is talking about. An expert on the Iranian opposition, he offers these wise words of advice:
This is extremely delicate and the situation is so dynamic. We clearly have to be on the right side of history here, but I think if we try to insert ourselves into the momentous internal Iranian drama that's unfolding we may unwittingly undermine those whom we're trying to strengthen. Historically that's often been the case in Iran.
It goes without saying that the Obama administration should clearly not acknowledge the results of these contested elections. This would demoralize people. We should also be pushing all of our allies not to acknowledge the results of these elections until justice prevails in Tehran. I was disappointed that Turkey's Abdullah Gul and Afghanistan's Hamid Karzai did not hesitate to congratulate Ahmadinejad.
But again, I think if we overtly take sides the regime could well react with a massive and bloody crackdown on the demonstrators using the pretext that they are acting against an American-led coup."
(HT to old Steve Coll)
Of course, if the crackdown does grow bloody, then the United States government can step up the rhetoric-but then it will be doing so alongside its allies, instead of having other countries wary of joining us. But for the moment, as my friend (and counterinsurgency expert) Terry Daly observes, the question for President Obama is, "Does he have the intestinal fortitude to continue to do the difficult right thing and keep hands off the events in Iran, or will he fold under intense domestic pressure and loudly support Moussavi and the demonstrators?"
Meanwhile, this analysis points out that in two provinces, the recorded turnout exceeded 100 percent! Also check out this nice essay by proven provider Robin Wright about the role of Ayatollah Montazeri, who has issued a fatwah dismissing the election results.
CORRECTION: The other day this blog referred to right-wingers recklessly calling Obama weak for his careful handling of the Iranian crisis as "clowns." In fact, they should have been called "dangerous clowns." Best Defense regrets the error.
"I now know it is a rising, not a setting, sun" --Benjamin Franklin, 1787
J. Bradford DeLong—that's me—is a professor of economics at the University of California at Berkeley, a research associate of the National Bureau of Economic Research, a weblogger for the Washington Center for Equitable Growth, and was in the Clinton administration a deputy assistant secretary of the U.S. Treasury.
My best work extends from business cycle dynamics through economic growth, behavioral finance, political economy, economic history, international finance to the history of economic thought and other topics.
Among my best works are: "Is Increased Price Flexibility Stabilizing?" "Productivity Growth, Convergence, and Welfare," "Noise Trader Risk in Financial Markets," "Equipment Investment and Economic Growth," "Princes and Merchants: European City Growth Before the Industrial Revolution," "Why Does the Stock Market Fluctuate?" "Keynesianism, Pennsylvania-Avenue Style," "America's Peacetime Inflation: The 1970s," "American Fiscal Policy in the Shadow of the Great Depression," "Review of Robert Skidelsky (2000), John Maynard Keynes, volume 3, Fighting for Britain," "Between Meltdown and Moral Hazard: Clinton Administration International Monetary and Financial Policy," "Productivity Growth in the 2000s," "Asset Returns and Economic Growth."
I have signed up with the Leigh Speakers' Bureau for non-academic and non-public service talks...