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February 2010
February 28, 2010
Don't Break Your Part of the Internet!! The Atlantic Monthly's Redesign Does Not Seem to Have Been Well-Thought Out...
The Atlantic Monthly demonstrates how not to play well with others:
You know, those media companies that will survive will be those where the bosses tell their flunkies: "You can redesign the website if you want, but don't break things."
Ten Things Worth Reading, Mostly Economics: February 28, 2010
1) Sahil Kapur: Mitt Romney’s health care hypocrisy:
On Real Time With Bill Maher last night, Financial Times editor Chrystia Freeland made the point (I’m not getting this word for word) that Republicans have every right to declare they oppose any kind of comprehensive health care reform and declare they aren’t interested in covering the uninsured. Sure, of course they do. But then Freeland referenced Mitt Romney’s criticisms of Democratic health care reform at CPAC as legitimate and fair. Ahem. There’s just one problem: Governor Romney’s 2006 health care plan for Massachusetts comprised the exact three core components as the current private sector-oriented Democratic bill — insurance regulations, subsidies and an individual mandate. Don’t take my word for it. Here’s the conservative Wall Street Journal editorial board:
In a rational world, the prognosis for ObamaCare would wait on the evidence in Massachusetts, given that the commonwealth’s 2006 program closely resembles what Democrats are trying to do in Washington… The Massachusetts law, which was championed by former GOP Governor Mitt Romney…
And here’s what Romney said on health care at this year’s CPAC:
Congressional Democrats are gearing up to take over the health care system. We need to advance a conservative plan – one based on free choice, personal responsibility, and private medicine; one that doesn’t add massive new federal spending. I like what I proposed in Massachusetts when I was governor. And even though the final bill and its implementation aren’t exactly the way I wanted, the plan is a good model. Today, almost every Massachusetts citizen who had been uninsured now has private, free-market coverage, and we didn’t have to raise taxes or borrow money to make it happen. We may find even better ideas in other states. But let’s make certain that conservative principles are front and center. A big-government takeover of health care is the next thing liberals are going to try, and it’s the last thing America needs.
So the plan he signed into law a few years ago was based on free-market principles. But virtually the same plan now being considered by the other party on a national level is a socialist, government takeover. Interesting.
2) Robert Hall: By How Much Does GDP Rise If the Government Buys More Output?:
During World War II and the Korean War, real GDP grew by about half the increase in government purchases. With allowance for other factors holding back GDP growth during those wars, the multiplier linking government purchases to GDP may be in the range of 0.7 to 1.0, a range generally supported by research based on vector autoregressions that control for other determinants, but higher values are not ruled out. New Keynesian macroeconomic models yield multipliers in that range as well. Neoclassical models produce much lower multipliers, because they predict that consumption falls when government purchases rise. Models that deliver higher multipliers feature a decline in the markup ratio of price over cost when output rises, and an elastic response of employment to increased demand. These characteristics are complementary to another Keynesian feature, the linkage of consumption to current income. The GDP multiplier is higher—perhaps around 1.7—when the nominal interest rate is at its lower bound of zero.
3) John Quiggin: Invulnerable zombies: the Efficient Markets Hypothesis — Crooked Timber:
The ultimate zombie is one that is completely invulnerable. Neither special bullets nor hammer blows nor even decapitation can finally lay this undead being to rest. But dramatic logic requires that a zombie invulnerable to external threats must be subject to a subtle, but ultimately terminal, flaw that ends in its own destruction.... This set of observations from Scott Sumner in a blog post aptly titled ‘Defending the indefensible’ at least recognises the difficulties of the position
But why is Fama’s theory now in such disrepute? Because in the past ten years the world economy has seen two very important bubble-like patterns, indeed arguably the only two such market cycles in the US during my lifetime with macro significance. And they were both predicted by lots of experts because they violated popular theories of fundamentals.... People think they have made accurate predictions because an upswing is always EVENTUALLY followed by a downturn. Then add in the fact that The Economist really did make accurate predictions in two of the most important events in modern history. Do you think it will be possible to convince them that they just got lucky? About as likely as a husband convincing an already suspicious wife that he is innocent after twice being caught in bed with two separate women. So I feel sorry for Fama. He’s probably right, but I don’t see how he could ever convince anyone in this environment....
As a well known blogger would say, ‘Indeed’. Looking at the evidence of the two gigantic bubbles of the last decade, it’s hard to see how Sumner maintains his own faith, and he never really gives an explanation, except to say that it’s easy to misperceive bubbles. As far as macroeconomics is concerned, the experience of the Great Depression and of the current Global Financial Crisis (which as Sumner implies, really began with the 2001 recessions) is pretty strong evidence that neoliberalism is not the right policy, at least not for all occasions and not in the forms that prevailed in the 1920s or the 1990s. But the ultimate response to this invulnerable zombie must be the same as Popper on Freudian psychology. If the Great Depression, the dotcom boom and bust and the current Global Financial Crisis are all consistent with the efficient markets hypothesis, the hypothesis can’t tell us much of interest about anything. At most, it says that even when markets are way out of line with economic reality, it is hard to exploit this fact to make a profit.... [We] already knew that...
4) Ed Hugh: Too Soon To Cry “Victory” On Latvia?:
Latvia’s great economic fall may be coming to an end, but as I explained in this post here, that is not the same thing at all as resuming growth. To get back to growth Latvia’s internal devaluation needs to be driven hard enough and deep enough to generate a sufficient export surplus to drive headline economic growth at a sufficient speed to start creating jobs again. This is not about a fiscal adjustment, it never was, and it is little consolation for Latvia to be compared with Greece and told that they are doing just that little bit better. Cry Victory we are told, and unlease the jobs of war. Would that things were as easy done as said!
5) Andrew Samwick: Have Republicans Forgotten the Purpose of a Political Party?:
Why are the Republicans not using their elected offices to advance policies that serve their own supporters? Their main voting constituency is middle class (or higher) white families in the suburbs, particularly the husbands and fathers in that constituency. They don't face the raft of problems that others do in our society. But one big problem that they do face is that something beyond their control happens to someone in their family. Medical catastrophes have to rank high on that list -- they certainly do for me. If a member of my family were to be afflicted with an expensive medical condition, then I am financialy viable only for as long as I stay insured with my current employer. Put simply, there are gaps in private insurance markets that leave such families exposed. This is plain to see and should be the focus of Republican efforts on health care reform...
6) GRAPH OF THE DAY: The Senate:
7) SECOND BEST NON-ECONOMICS THING I HAVE READ TODAY: Adam Serwer:
The Senate is holding a hearing today where several current and former Blackwater employees will be testifying, but honestly the only way Congress would stop giving Blackwater money is if it started registering black people to vote.
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Scott Horton: More Investigations for the Torture Lawyers:
I am just back from the Alliance For Justice’s panel discussion on the OPR Report, at which I spoke, at the Washington office of Wilmer Hale. The show-stealer was the presentation by Georgetown professor Michael Frisch, one of the District of Columbia’s leading legal ethics experts and a long-time enforcer for the D.C. Bar Council. Frisch eviscerated both the OPR report and the David Margolis memo. The key ethics inquiry, he argued, was under Rule 1.2(d)—whether Yoo, Bybee, and Bradbury were actually counseling a crime. In this case, the evidence that their advice was designed to facilitate torture is clear-cut, torture is a felony, and multiple players putting a scheme in place to torture is a conspiracy to torture. Yet neither the OPR report nor David Margolis even considered this question, focusing all their energy instead on two weak and rarely enforced provisions of the ethics code dealing with the duty of candor and the duty to exercise independent professional judgment. Frisch also reviewed Margolis’s disingenuous use of D.C. case law in some detail, noting that in one key passage Margolis distorted a case that Frisch managed for the D.C. Bar. Finally, he said that the Justice Department, when presented with evidence of a serious ethics lapse by its officers, had a duty under Rule 8.3 to turn the matter over to the D.C. Bar for action. Not only did it fail to do this, its memos suggest it wasn’t even aware of the obligation. The lesson to draw from this, Frisch suggested, is that the Justice Department has failed to show it is capable of self-regulation.
Frisch is certainly right about this. Indeed, he’s being charitable to the Justice Department. The solution that suggests itself is to abolish OPR and place its mandate in the hands of the Department’s inspector general, who is both autonomous and has demonstrated the competence and energy that the task requires. Eric Holder, however, suggests that everything is just wonderful at DOJ, this best of all possible worlds–even at OPR. The New York Times had a sober editorial today, making some obvious points:
Poor judgment is an absurdly dismissive way to describe giving the green light to policies that have badly soiled America’s reputation and made it less safe. As the dealings outlined in the original report underscore, the lawyers did not offer what most people think of as “legal advice.” Mr. Yoo and Mr. Bybee were not acting as fair-minded analysts of the law but as facilitators of a scheme to evade it. The White House decision to brutalize detainees already had been made. Mr. Yoo and Mr. Bybee provided legal cover.
More to the point, the Times zeroes in on what strikes me as the fishiest part of the whole DOJ ethics escapade: the “disappearance” of John Yoo’s and Patrick Philbin’s emails. Emails at an institution like the Justice Department don’t just “disappear.” Someone deleted them. Moreover, for a deletion to be effective enough to avoid an investigation, extraordinary steps have to be taken. In a criminal investigation (as should have taken place), this would have been an act of criminal obstruction. What’s out there that they don’t want us to see?
9) STUPIDEST THING I HAVE READ TODAY: A twofer... threefer first the oious Washington Post's Marc Thiessen as observed by Jonathan Bernstein: You Couldn't Make This Stuff Up:
The hallmark of Mark Thiessen's defense of torture is that he's oblivious to criticism. Oh, and either deeply dishonest, deeply stupid, or both:
There’s a standard of torture in civil law,” he said, “which is severe mental pain and suffering. I also have a common-sense definition, which is, "If you’re willing to try it, it’s not torture." Thousands of American soldiers have been willing to undergo waterboarding as part of their resistance training, Mr. Thiessen notes; therefore, it stands to reason that it is not torture.
C'mon, Mark... resistance to what? Could it be... torture?
You just know that coming soon is the S&M defense. I mean, who needs law when we have Mark Thiessen's common sense?
Second and third, Rich Lowry and Ramesh Ponnuru as observed by Jonathan Bernstein: Read Stuff, You Should:
[W]hat's not worth reading. Today's item is the Lowry/Ponnuru National Review cover story, "An Exceptional Debate: The Obama Administration’s Assault on American Identity." The frustrating thing about it is that there are actually some worthwhile points in it; you could see a sensible conservatism emerging from some of the things that these gentlemen believe about America. Alas, as an essay, it's a mess, and not worth reading. Instead, turn to Damon Linker's fine take-down. One thing to add: Lowry & Ponnuru are wrong about Tocqueville, who not only devoted a large portion of his study of Democracy in America to the evils of slavery and the treatment of American Indians, but also was far more ambivalent about the rest of what he saw than they realize.
10) HOISTED FROM THE ARCHIVES: When Microsoft Word Attacks!:
Fontana Labs screams for help:
Unfogged: Section breaks in Word: Does anyone know how to get rid of these? I accidentally inserted one into a document (I wanted to set aside a block of text by using '*,' which autocorrrect irritatingly turned into a break), and my attempts to delete it just made it reproduce. Now my efforts (I highlight the text on either side of a break, then press 'delete') just move them somewhere else. A little whimsical music in the background and we'd have a charming children's movie about the alienation of modern life...
From Vernor Vinge's A Fire Upon the Deep:
And all the newborn [intelligence's] attention turned upon the fleeing [human] vessels. Microbes, but suddenly advanced. How could this happen? A million schedules were suddenly advanced. An orderly flowering was out of the question now, and so there was no more need for the humans left in the Lab. The change was small for all its cosmic significance. For the humans remaining aground, a moment of horror, staring at their displays, realizing that all their fears were true (not realizing how much worse than true). Five second, ten seconds, more change than ten thousand years of a human civilization. A billion trillion constructions, mold curling out of every wall, rebuilding what had been merely superhuman. This was as powerful as a proper flowering, but not quite so finely tuned...
In order to tame Microsoft Word, you need to know that hexapodia is the key insight--no, you need to know:
- Control-z undoes whatever abomination Word has just committed.
- Copy it into WordPerfect, turn on reveal codes, and fix it in a couple of seconds. As a matter of fact, always work in WP and then save as Word.
The last thing heard from Fontana Labs was:
Oh good Lord. Pasting an apparently clean section of text into a new document produces a row of these dots that wasn't in the original. I cannot believe this is happening...
Before the mighty Becks came to the rescue with:
What you're seeing is not a line of characters or even a drawing object. Rather, it's a border. By default, if you enter three or more hyphens (-), underscores (_), equal signs (=), or asterisks (*) followed by a carriage return, Word automatically gives the current paragraph a thin, thick, double, or dotted bottom border. You must have done this accidentally. To get rid of the line, put the cursor directly above it and select Borders and Shading from the Format menu. Click the None box and click OK. To prevent the automatic insertion of borders, select AutoCorrect Options from the Tools menu, click the AutoFormat As You Type tab, and uncheck Border lines. In Word 97, the menu item is AutoCorrect and the check box is labeled simply Borders...
February 27, 2010
Ten Pieces Worth Reading, Mostly Economics: February 27, 2010
1) David Leonhardt: Health Economists Urge Passage of Reform:
Obviously, not all economists are in favor of the current proposals in Congress. But a pretty impressive list of health economists and other policy experts has released a letter making the following argument:
We commend the President’s pursuit of bipartisan solutions. Yet the summit made plain that it is now time to move decisively and quickly to enact comprehensive reform. We believe that the only workable process at this point is to use the President’s proposal to finish the job. After long debate, the House and Senate have passed two similar bills that do crucial things to improve U.S. health care.
The signers include Daniel Kahneman, the Nobel laureate and behavioral economist; David Cutler and Len Nichols, who have advised Congress on health policy over the last year; Theda Skocpol, the political scientist; and Henry Aaron of the Brookings Institution.... Like many on this list (and like some opponents of the current bills), I wish the bills did more to reduce cost growth. But after watching the debate over the last year — and seeing just how bad the politics of cost control are — I wonder when we will next see a bill that goes even as far as these do...
After announcing his retirement last week, Sen. Evan Bayh (D-IN) mused about his future employment to CBS News, saying “if I could create one job in the private sector by helping to grow a business, that would be one more than Congress has created in the last six months.” Bayh’s comment about job creation has irked some of his Democratic colleagues. “I’ve got material on my desk that shows the jobs that have been created in Louisiana,” Sen. Mary Landrieu (D-LA) told Politico. “I don’t think that’s true; in fact, I know it’s not true.” In an interview with Politico, Bayh attempted to backtrack a little bit, though he maintained that his statement was “probably largely true” if limited to the past six months:
Bayh walked back his statement in an interview with POLITICO Tuesday, saying it was “hyperbole” and he “wouldn’t say it again.” Still, he said, the statement was “probably largely true” if limited to the past six months — even if what he really meant was “that we’re not doing enough.”
But Bayh’s new claim is discordant with the fact that the stimulus passed by Congress in Feb. 2009 has been creating jobs in the past six months. Yesterday, the Congressional Budget Office reported that the Recovery Act “added between 1.0 million and 2.1 million to the number of workers employed in the United States” in the fourth quarter of last year, which ranges from Oct. 2009 to Dec. 2009.
3) John Emerson: Does Brian Riedl of National Review Finally Get It?:
Not completely on topic, but close enough: when conservatives argue "The New Deal didn't end the depression, World War Two did", aren't they admitting the effectiveness of Keynesian spending and criticizing Roosevelt for not doing enough of it? (And rightly so, considering his Mellonist 1937 budget proposal, which he made as soon as the threat from his left had been eliminated in the 1936 election.)
4) Catherine Rampall Predicts That Her Colleagues in the Press Will Not Do Their Jobs:
[T]he February jobs report... will probably be very, very ugly.... The main culprit behind the expected jobs plunge is the blizzard, which closed businesses and kept people from going to work or even seeking work.... The Labor Department is of course well aware that the blizzard will distort its numbers... officials will... try to isolate the effects of the storm....
But even though everyone will know that “snowmageddon,” and not President Obama, is really at fault for the poor report, the headline number may still be shocking enough to sufficiently discredit economic policy of Democrats...
5) Tom Levenson: Great Read: MacFarquahar on Krugman in the current New Yorker:
[E]conomics as practiced in the academy is in possession, its practitioners believe (and I mostly do too, not that my opinion matters) of a body of methods and a growing number of results that suggest that it is a powerful way of analyzing certain kinds of human behavior, and for making useful predictions about some things. But it is far from as comprehensive in its explanatory power as some of its practitioners — and many more in the economic pundit class — would have one believe. What’s more, it’s important to remember that there is a difference between a valid result and an empirically valuable one. More bluntly: it’s not just possible, but common to come up with something that is absolutely “right” within the framework of economic thinking that is simply false in the real world. MacFarquar writes:
The most successful paper Krugman ever wrote was about target zones, and it was completely wrong. In the years before Europe adopted the euro, it was thought that establishing something between floating exchange rates and fixed ones—a “target zone” within which a currency would be allowed to float—might reap some of the advantages of each. He estimates that by the time the paper was officially published, in 1991, some hundred and fifty derivative papers had already appeared. “Empirically, it doesn’t work at all,” Krugman says. “People loved it as an academic thing, but it had some very strong predictions about interest rates inside target zones. Those predictions all turned out to be wrong. But nobody attacked me for that. I was showing that if target zones worked the way that people say they’re supposed to work, then this is how it would play out.”
Economics — academic economics — “knows” much more than it knows… and that’s perfectly alright for the development of a body of thought. The problem only surfaces either when economics results are given more credence than they deserve in the making of public policy and/or opinion. I’d blurt “supply side” here, except that this was explicitly controversial within the profession, and so the history of supply side policy is not simply a story of a consensus too confidently achieved, but rather of the catastrophic process by which bad ideas are transformed into political certainties…which leads directly to the second half of my diagnosis of pathologies…
…and that would be when economists — or political/ideological allies — present as settled conclusions that are either uncertain or false.
6) DELONG SMACKDOWN OF THE DAY: Eric Rauchway: DeLong Smackdown/Bottomsup:
I’m shocked that in his Keynes compendium, Brad DeLong left out the great economist’s sole regret: that he should have drunk more champagne. Wise words for dark times and advice to keep the season bright. Cheers.
7) GRAPH OF THE DAY:
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Michael Wolff: It’s Not Politics, It’s Bonkers:
Let’s make nuttiness in America the issue. Forget right or left or any matters of ideology. Why not make the pressing public issue about logic, perspective, rationality, proportion, and even humor? There ought to be a new political test: If you talk like a nut, if you act like a nut, if you associate with other nuts, you’re a nut. Joe Stack’s daughter, Samantha Bell, is, like her father, who flew his plane into the IRS office in Austin, Texas, last week, a nut. His suicide and murder of an innocent bystander was, according to Bell, her father’s way of speaking out against injustice. “Nothing will ever be accomplished,” she said, if there aren’t people like her father willing to strike a blow against big government (she also called him a hero, but then, as nuttily, thought better of that and retracted it)....
We think it’s unfair or incorrect or plainly not nice to call people cuckoo, daft, deficient, around the bend. Political debate, I’d argue, is quite often a way to avoid the real subject. The very impersonal and humorless nature of political discussions—so that even in the privacy of our own homes we can sound like talking heads—means we overlook the real emotional subtext: Many American are truly out-and-out over the edge. (Arguably, the more you talk about politics the more distant you are from your emotions and, hence, the nuttier you are.) And the problem keeps getting worse. I would have said the annual CPAC conference, held this past week in Washington, was a pretty estimable collection of people worked up in more or less scary and disproportionate ways. Now Mike Huckabee... says CPAC is way too reasonable for him. The Tea Party movement... is where the real soul of his party is.... Republicans, once the party of boring sobriety and solidness, are now the party of the kooky, the cracked, the unhinged. Republicans are not conservative in the least. Rather, they act out in the most deranged and dramatic ways.
The Democrats, being doggedly literal, in addition to scrupulously respectful about people’s mental health (a liberal issue), accept these barmy conservatives as having a bona fide, if objectionable, political view. Whereas, they might more effectively be arguing that the real issue isn’t taxes or big government or health care, but drugs, alcohol, loneliness, neglect, paranoia, grandiosity, obsessiveness, and so many other American creeds and conditions.
9) IF CLARK HOYT OF THE NEW YORK TIMES WERE NOT ALREADY STUPIDEST-MAN-ALIVE-FOR-LIFE, THIS MAN WOULD BE: University of Chicago Economics Professor Casey Mulligan, as observed by John Quiggin: Zombie economics gets a mulligan: or, how Obamacare caused the Global Financial Crisis:
I’m adding a little section to each of the chapters in my Zombie Economics book called “Reanimation”, about the attempts that are already under way to revive economic ideas killed (at least according to the standard rules of hypothesis refutation) by the global crisis. I wasn’t surprised to find plenty of examples for the efficient markets hypothesis (easy to render immune from any kind of refutation by an appropriate formulation) or for policy ideas that yield big benefits to the rich and powerful, such as privatisation and trickle-down economics. But I was surprised a little while ago to see the crisis described as a transitory blip in the continuing Great Moderation. Still that pales into insignificance compared to this piece by Casey Mulligan of Chicago (h/t commenter Daniel ), in which (I swear this is true!) the crisis is the result of financial markets correctly anticipating the adverse labour market impacts of possible legislation under Obama, such as a health plan that might include means tests....
There is one problem with Mulligan’s neat explanation. Writing in October 2008, when the crisis had already erupted and when Obama’s victory was virtually assured Mulligan had this to say about proposals for economic stimulus:
So, if you are not employed by the financial industry (94 percent of you are not), don’t worry. The current unemployment rate of 6.1 percent is not alarming, and we should reconsider whether it is worth it to spend $700 billion to bring it down to 5.9 percent.
This piece, which got the endorsement of his Chicago colleague, Freakonomist Steven Levitt, doesn’t even mention the possibility that a Democratic Congress might raise taxes, or that the health plan that was a central plank of candidate Obama’s platform might include means tests. Yet he now claims that these possibilities (still hypothetical as of 2010) caused a massive increase in unemployment, the anticipation of which caused the crash!
10) HOISTED FROM THE ARCHIVES: DeLong (March 10, 2007): Your One-Stop Shop for All Your 70th Anniversary Leftist Sectarian Polemic Blogging Needs:
In anticipation of the 70th anniversary of the bloody Stalinist suppression of the Partido Obrero de Unificación Marxista in the Barcelona May Days, we are--thanks to Jacob Levy--proud to bring you the latest in sectarian Marxist polemics blogging. First, we have Eric Hobsbawm declaring that George Orwell was a Traitor to Humanity by telling the truth about what he saw in Spain:
Eric Hobsbawm: Writers supported [the Republican cause in] Spain... Hemingway, Malraux, Bernanos and virtually all the notable contemporary young British poets - Auden, Spender, Day Lewis, MacNeice - did. Spain was the experience that was central to their lives between 1936 and 1939.... [P]olemics about the civil war [within the Left]... have never ceased since 1939. This was not so while the war was still continuing, although such incidents as the banning of the dissident Marxist Poum party and the murder of its leader Andrés Nin caused some international protest. Plainly a number of foreign volunteers... were shocked by... the behaviour of the Russians and much else.... And yet, during the war, the doubters remained silent... They did not want to give aid to the enemies of the great cause.... The exception proves the rule: George Orwell's Homage to Catalonia.... Orwell himself admitted after his return from Spain that "a number of people have said to me with varying degrees of frankness that one must not tell the truth about what is happening in Spain and the part played by the Communist Party because to do so would prejudice public opinion against the Spanish government and so aid Franco."... [P]olemics... are legitimate... only if we separate out debate on real issues from the parti pris of political sectarianism, cold-war propaganda and pure ignorance.... A serious war conducted by a government requires structure, discipline and a degree of centralisation. What characterises social revolutions like that of [Spain in] 1936 is local initiative, spontaneity, independence of, or even resistance to, higher authority.... In short, what was and remains at issue in these debates is what divided Marx and Bakunin. Polemics about the dissident Marxist Poum are irrelevant.... The conflict between libertarian enthusiasm and disciplined organisation... remains real.... Wars, however flexible the chains of command, cannot be fought, or war economies run, in a libertarian fashion. The Spanish civil war could not have been waged, let alone won, along Orwellian lines.... Moral revulsion against Stalinism and the behaviour of its agents in Spain is justified.... [Y]et... not central to the problem of the civil war. Marx would have had to confront Bakunin even if all on the republican side had been angels.... [A]mong those who fought for the republic as soldiers, most found Marx more relevant than Bakunin...
Second, we have a reply by Stephen Schwartz, whose affection for Eric Hobsbawm is far smaller than mine:
Eric Hobsbawm's Stalinist Homage to Catalonia | Jewcy.com: Eric Hobsbawm... political and pseudo-intellectual legacy of Stalinism... banal but repellent rehash... long-discredited clichés... fundamental lie of Stalinist propaganda, which holds that the Republicans would have won the war if they had submitted to dictation from Moscow.... Hobsbawm... contemptible exercise in pseudo-history... CNT militants in the uprising at Casas Viejas, a rural hamlet in Andalusia, in 1933.... Jerome Mintz... exposed Hobsbawm as a mendacious tourist.... “[H]is account is based primarily on a preconceived evolutionary model of political development rather than on data gathered in field research.” Mintz correctly states, “The model scales labor movements in accord with their progress toward mass parties and central authority... [Hobsbawm] explains how anarchosyndicalists were presumed to act rather than what actually took place... his evolutionary model misled him on virtually every point.”... In Spain today Mintz’s work, based on extensive and serious research and interviews, enjoys high esteem.... The Stalinist view of [George] Orwell put forward by... [Hobsbawm] dismisses Homage to Catalonia because it was turned down by a Soviet-lining publisher.... For Hobsbawm, Orwell is not only illegitimate because his book did not sell well, but because he was “an awkward, marginal figure.”... As to the POUM... Hobsbawm.. refers with something approaching disdain to “the murder of its leader Andrés Nin [having] caused some international protest.... Andreu Nin (1892-1937) was not simply... leader of an anti-Stalinist party.... To kill Nin was not the same as it would have been to murder, say, the American Trotskyist Max Shachtman, but would have been more like liquidating John Dos Passos....
Hobsbawm informs us “Wars, however flexible the chains of command, cannot be fought, or war economies run, in a libertarian fashion. The Spanish civil war could not have been waged, let alone won, along Orwellian lines.” Once again, the Stalin-nostalgia betrays his ignorance of Spanish reality.... [T]he militia units generally fought better than the militarized units.... [T]he Stalinist-controlled International Brigades and the militarized Republican soldiery with whom they were coordinated were known for incompetence in battle, desertion, and, in the case of many of the foreigners, their reassignment to special groups ordered by the Russians to kill leftist dissidents, since the Spanish would not carry out such duties.... The Spanish knew so many things that Hobsbawm will never know – and above all, they know that while Orwell’s methods might not have guaranteed the victory of the Spanish Republic, those of Stalin and his admirers assured its defeat.
February 26, 2010
Ten Pieces Worth Reading, Mostly Economics: February 26, 2010
1) Martin Feldstein: How Safe Are Your Dollars?:
[T]he big risk to any investor is the possibility that inflation will virtually annihilate a currency’s value. That happened in a number of countries in the 1970’s and 1980’s. In Mexico, for example, it took 150 pesos in 1990 to buy what one peso could buy in 1980. That is not going to happen in the US. Large budget deficits have led to high inflation in countries that are forced to create money to finance those deficits because they cannot sell longer-term government bonds. That is not a risk for the US. The rate of inflation actually fell in the US during the early 1980’s, when the US last experienced large fiscal deficits. Federal Reserve Chairman Ben Bernanke and his colleagues are determined to keep inflation low as the economy recovers....
Looking forward, investors can protect themselves against inflation in the US by buying Treasury Inflation-Protected Securities (TIPS), which index interest and principal payments to offset the rise in the consumer price level. The current small difference between the real interest rate on such bonds (2.1% for 30-year bonds) and the nominal interest rate on conventional 30-year Treasury bonds (now 4.6%) implies that the market expects only about 2.5% inflation over the next three decades. So the good news is that dollar investments are safe. But safe doesn’t mean the investment with the highest safe return. If the dollar is likely to fall against the euro over the next several years, investments in euro-denominated bonds issued by the German or French governments may provide higher safe returns. Even if the dollar is perfectly safe, investors are well advised to diversify their portfolios.
2) M.S.L The stimulus and jobs bills: Tax cuts can in fact create jobs:
SEE what you think of this argument: it's impossible for tax cuts to create jobs. When the government cuts taxes, it simply has to borrow more money to cover its spending. This sucks money out of capital markets, which means financial institutions have less money to lend to businesses. That means businesses can't start up or expand. Whatever jobs are created by tax cuts, an equal number will be destroyed by increased borrowing; all the government is doing when it cuts taxes is taking money from one place and giving it to another. Most people would agree that this is a silly argument. But it is nearly the same argument that the Heritage Foundation's Brian Riedl and University of Chicago economist John Cochrane are currently making against the effectiveness of last year's American Recovery and Reinvestment Act (the stimulus). The CBO thinks the ARRA, which included $288 billion of tax cuts and $499 billion of spending, added between 1m and 2.1m jobs to the American economy by the end of 2009. Moody's, IHS Global Insight, and Macroeconomic Advisers think it added between 1.6m and 1.8m jobs. Mr Riedl and Mr Cochrane don't just argue that this figure is too high. They argue that the ARRA has created no jobs whatsoever, and that, moreover, it is theoretically impossible for the government to reduce unemployment. Deficit spending, they say, simply soaks up capital which would otherwise have been spent by the private sector. They are thinking of deficits created by spending hikes rather than tax cuts, but there is no reason why this should make a difference to their argument: all government deficit spending does, to quote Mr Cochrane, is "take money from one place and give it to another," which cannot create jobs. This way of thinking about the economy makes no sense.... Indeed, the model seems to make it impossible for private borrowing and spending to create jobs, since this activity simply takes money from one place and gives it to another. No economists apart from Eugene Fama appear to agree with Messrs Riedl and Cochrane....
You can make all kinds of potentially valid arguments against stimulus... that government is exceptionally unwise in its spending decisions... that private actors will spend the money in ways that generate more employment... that government programmes generally take years to get underway.... What you can't really do is make a serious, extended argument that it is theoretically impossible for the government to create jobs. Yet that is what Messrs Cochrane and Riedl have been doing. It sounds vaguely logical, in a common-sense sort of way, and it might be convincing to many voters who lack a solid background understanding of how the economy works. It is, in other words, a politically useful argument. But it's hard to see how it can be made sincerely by people who do have a solid background understanding of how the economy works.
The problem with such arguments is a political one. They won't influence serious economists, because they don't make sense. But they can influence the political sphere, because they can gain currency among partisan voters. It's the responsibility of serious people to stay away from such arguments...
FIFTEEN BILLION DOLLARS: I'm honestly not sure why they bothered, as "looking like we're doing something about jobs" is not the same as actually doing something about jobs.
4) Jim Hamilton: Treasury Supplementary Financing Program (SFP):
The SFP, the U.S. Treasury's program for assisting with the balance sheet of the Federal Reserve, is making a sudden and dramatic comeback. First a little background. Whenever the Federal Reserve buys an asset or makes a loan, it simply credits new reserve deposits to the account that the receiving bank maintains with the Fed. The bank would then be entitled to convert those deposits into physical dollar bills that it could ask the Fed to deliver in armored trucks. Banks currently hold $1.2 trillion in such reserves, or more than a hundred times the average level of these balances in 2006, and more than the total cash the Fed has delivered since its inception a century ago. The traditional way the Fed would bring those reserves back in (and thus prevent them from ending up as circulating cash) would be to sell off some of its assets. The Treasury's Supplementary Financing Program was introduced in the fall of 2008 to assist the Fed in its massive operations to prop up the financial system at the time. The SFP represents an alternative device by which the Fed could reabsorb the reserves it created. Essentially the Treasury borrows on behalf of the Federal Reserve, and simply holds the funds in the Treasury's account with the Fed. When a bank delivers funds to the Treasury for purchase of a T-bill sold through the SFP, those reserve deposits move from the bank's account with the Fed to the Treasury's account with the Fed, where they now simply sit idle, and aren't going to be withdrawn as cash. In a traditional open market sale, the Fed would sell a T-bill out of its own portfolio, whereas with the SFP, the Fed is asking the Treasury to create a new T-bill expressly for the purpose. But in either case, the sale of the T-bill by the Fed or by the Treasury through the SFP results in reabsorbing previously created reserve deposits.
The Treasury's press release says only this: "Treasury anticipates that the balance in the Treasury's Supplementary Financing Account will increase from its current level of $5 billion to $200 billion. This will restore the SFP back to the level maintained between February and September 2009. This action will be completed over the next two months in the form of eight $25 billion, 56-day SFP bills. Starting tomorrow, SFP auctions will be held each Wednesday at 11:30 a.m. EST, unless otherwise noted." So this is going to be implemented immediately and on a large scale. But why? If the goal were indeed to drain reserves, the Fed could do this by selling some T-bills out of its own holdings, currently some 3/4 trillion, or could do this with reverse repos or the Term Deposit Facility, not to mention selling some of its trillion dollars worth of MBS. And just two weeks ago Fed Chair Ben Bernanke seemed to be saying that such steps were still far in the future, and did not even mention the possibility of a surge in the SFP.
5) Alexander Bolton: Brown helps Reid win on jobs bill:
Senate Majority Leader Harry Reid (D-Nev.) scored a victory Monday when Sen. Scott Brown and four other Republicans helped to advance his $15 billion jobs bill. The procedural vote was approved 62-30 and allowed Democrats to move toward passage.... Republican Sens. Olympia Snowe (Maine), Susan Collins (Maine), Kit Bond (Mo.) and George Voinovich (Ohio) joined Brown (Mass.) in voting with the bulk of Democrats to end debate. Sen. Ben Nelson (Neb.) was the lone Democrat to vote against the motion to end debate. Democrats are blocking any amendments to the bill, and final passage is expected as early as Wednesday.
Brown released a statement Monday that said he was disappointed with the way the process was handled, but acknowledged Republicans and Democrats have to work together to get the economy back on track. “I came to Washington to be an independent voice, to put politics aside, and to do everything in my power to help create jobs for Massachusetts families,” Brown said in the statement. “This Senate jobs bill is not perfect. I wish the tax cuts were deeper and broader, but I voted for it because it contains measures that will help put people back to work.”...
Lawrence Mishel, head of the union-affiliated Economic Policy Institute, called the Senate jobs bill “small, puny.” The jobs bill includes four components: a tax credit to employers who hire new workers; a provision giving small businesses more leeway to write off the cost of capital investments; the Build America Bonds, which would subsidize the borrowing costs of state and local governments; and a one-year extension of surface transportation authorization funding. Democratic lawmakers have tried to address the concerns of allies by promising to pass additional legislation. “This is not the end of our debate on creating jobs through legislation this year, it’s the beginning of that debate,” said Sen. Ben Cardin (D-Md.). “There will be another package a few weeks from now, and another package [after that],” said Sen. Jeff Merkley, a Democrat from Oregon, which has an 11 percent unemployment rate...
6) DELONG SMACKDOWN OF THE DAY: HTML Mencken::
When I hear the phrase “latte-sipping elitist,” I think of several things. Culturally, I think of scenesters or scenester wannabes, arbiters of taste, awful people very much on the make, navel-gazing yuppie scum… Fuck it; I could go on and on, but here’s a good shorthand: I think of people who write for Gawker. Politically, I think of people in the professions, some of them moving in and out of government, or otherwise involved in policy-making, who are very attuned to and conscientiously follow conventional liberal positions on cultural issues but are clueless — and often more than a little callous — when it comes to class issues. The shorthand here is “Brad DeLong.” I myself never use “latte-sipping elitist” but I have and do use “technocrat elitist,” in the exact same spirit I recognize in the former phrase, when describing such people who regard their poor countrymen with only a bit more humanity than Trevelyan and Lord John Russell had for the Irish.
7) GRAPH OF THE DAY:
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Ta-Nehisi Coates: The Meaning Of Newsweek's "Terrorism Debate":
I think Glenn Greenwald is right to be outraged by Newsweek's debate around whether the IRS bomber is a terrorist or not. Take this example from Michael Isikoff: "ok, just to weigh in on this -- I think some of the comments miss what I take to be the fundamental distinction. The underpants bomber, for all his ineptitude, was equipped and dispatched by a foreign enemy -- Al Qaeda in the Arabian Peninsula-- whose ultimate leader (bin Laden) has declared war on the United States and who has demonstrated his willingness and intent to inflict mass casualties on our civilian population. That makes underpants man a terrorist and had he been captured overseas, would have made him an enemy combatant-- and why the Obama administration dispatches the U.S. military and Predator drones to destroy the people who sent him here. Similarly, the Fort Hood shooter may have been a disturbed 'lone wolf' but he was in ideological alignment and in communication with a member of the same foreign enemy. That makes them both terrorists. The Austin tax protestor, the anthrax scientist wacko, the Unabomber-- all did heinous things that we can describe any way we want -- certainly what they did were terrorist acts-- but they all remain a very different kettle of fish, which is why Mr. underpants man gets more attention that Austin tax protestor flying plane into building."
I have a great respect for Isikoff as a reporter, but this strikes as really weak logic. Isikoff concedes that the "Austin Tax Protester" committed "terrorist acts," but then claims he's not a terrorist. Under what circumstances could one commit "murderous acts" and not be murderer? In what instance could one commit an act of rape but not be a rapist? How does one commit an act of burglary, and yet not be labeled a burglar? The implications are chilling. By Isikoff's lights--and by the lights of several of his colleagues--the Ku Klux Klan, an organization responsible for the murder of thousands of innocent people, the men who turned Birmingham into "Bombingham," who hurled molotov cocktails into the homes of Detroiters who dared moved west of Woodward, who lynched black men in the streets, who brought food, children and wives to the spectacle, who smiled next to smoking corpses in post-cards for far-off relatives, who displayed the knuckles and testicles of black men in pickle jars, were not terrorists, but "Ethnic Intrusion Protesters." This is not merely about semantics. I deeply suspect that our inability to grapple with and understand our own history of home-grown terror, indeed defining it as something else, inhibits our understanding of the very terror we now face and claim to be at war with. I wish I could claim that Newsweek reporters, in embracing a vocabulary wish allows a murderer to be transformed into "The Austin Tax Protester," were betraying an ancient trust. In fact, who knows the history of black people in this country, knows that that the white press crumbled, and was at times even complicit, the Klan's century-long reign of terror. This notion that the press has "fallen," that the news medium has reached a new singular low, is belied by black history. I guess I should be happy. At least the press is debating whether he's a terrorist. Fifty years ago they would have been looking the other way. No. They would have egged him on.
9) STUPIDEST THING I HAVE READ TODAY: Rich Lowry and Ramesh Ponnuru, as observed by The League of Ordinary Gentlemen:
As a fan of Rich Lowry and Ramesh Ponnuru, I was dismayed to read (in a piece that made some good points) their un-conservative and off-handed attack on mass transit: "The Left’s search for a foreign template to graft onto America grew more desperate. Why couldn’t we be more like them — like the French, like the Swedes, like the Danes? Like any people with a larger and busier government overawing the private sector and civil society? You can see it in Sicko, wherein Michael Moore extols the British national health-care system, the French way of life, and even the munificence of Cuba; you can hear it in all the admonitions from left-wing commentators that every other advanced society has government child care, or gun control, or mass transit, or whatever socialistic program or other infringement on our liberty we have had the wisdom to reject for decades..."
Can people please stop bringing forward Ramesh Ponnuru as a "reasonable conservative" now?
10) HOISTED FROM THE ARCHIVES: DeLong (2003): And They Say the FAA Has No Sense of Humor:
The following items must not be used on this aircraft:
- Portable radios
- Portable televisions
- Cellular telephones
- Remote radio-controlled toy cars
February 25, 2010
This Is So Depressing to See...
Jeffry Bartash:
Weekly jobless claims increase 22,000 to 496,000: WASHINGTON (MarketWatch) -- The number of people filing initial claims for state unemployment benefits jumped 22,000 to a seasonally adjusted 496,000 in the week ended Feb. 20, the Labor Department reported Thursday...
Ten Pieces Worth Reading, Mostly Economics: February 25, 2010
1) SPECIAL BONUS STUPIDEST MAN ALIVE EVER CONTEST: The Stupidest Man Alive contest is now closed for all time. The winner--who should make his apologies to the Emperor immediately--is Clark Hoyt of the New York Times for saying:
The story says O’Keefe dressed up as a pimp and trained his hidden camera on Acorn counselors. It does not say he did those two things at the same time.
Neddy Merrill comments:
The Edge of the American West: This nonsense from Clark Hoyt cracked me up.... Really brings me back. In grad school, I taught introductory logic courses, and one of the standard things we did was cover basic propositional logic and natural deduction. The idea is to teach formal logic by showing students how to work in an artificial language made of up of atomic propositions (symbolized with p, q, etc.) and truth-functional connectives (&, v, -, etc.). A connective is truth-functional just in case the truth value of a compound sentence made with this connective is determined entirely by the truth values of the component sentences and the way the connective works. For example, suppose we’re dealing with “&” in our artificial language. p&q is true just in case p is true and q is true: that is, all you need to know is the truth values of p and q, and you’ll know what the truth value of p&q is.
And here the Hoyt-type examples come in. I used to use examples where temporal relations mattered to suggest that the artificial language “&” is not really the same as the ordinary-language “and.” It’s kind of like a crude approximation. A classic:
(i) John and Mary got married and had a baby
is different from
(ii) John and Mary had a baby and got married
The natural language version either says or suggests that the events happened in that order, while our “&” doesn’t care about that--all that matters is the truth values of “John and Mary got married” and “John and Mary had a baby.” The lesson to take from this is that our artificial language is different from spoken English in just this way: only the artificial connectives are truth-functional. It’s great to see this old chestnut of a point in the news. Next: Clark Hoyt wonders about justified true belief!
(There are some debates about whether the ordering is just an implicature or part of the truth conditions of the ordinary language sentence. Some people will die in the last ditch arguing for the the truth-functionality of the English “and,” but, if the best the public editor can do is to say “we didn’t print something false; we printed something that was, strictly speaking, true, that we knew ordinary readers would misunderstand,” well, he’s still lousy.)
2) Larry Mishel and David Walker: Address jobs now and deficits later :
President Barack Obama is in a difficult position when it comes to deficits. Today's high deficits will have to go even higher to help address unemployment. At the same time, many Americans are increasingly concerned about escalating deficits and debt. What's a president to do? The answer, from a policy perspective, is not that hard: A focus on jobs now is consistent with addressing our deficit problems ahead. The difficulty is that many politicians and news organizations often cast deficit debates as a dichotomy: You either care about them or you don’t. But this is rarely accurate....
With more than a fifth of the work force expected to be unemployed or underemployed in 2010, there is an economic and a moral imperative to take action. Persistently high unemployment drives poverty up, makes it harder for families to find decent housing, increases family stress and, ultimately, harms children’s educational achievement. For young workers entering the workforce, the current jobs crisis reduces the amount they will earn over their lifetime. In deep recessions, businesses tend to make fewer critical investments in research and development that can improve our economy’s productive capacity over the long term. Entrepreneurs usually find credit hard to obtain if they want to start a new business. These factors hurt U.S. global competitiveness and growth potential. That’s why we agree that job creation must be a short-term priority. Job creation plans must be targeted so we can get the greatest return on investment. They must be timely, creating jobs this year and next. And they must be big enough to substantially fill the enormous jobs hole we’re in. They must also be temporary — affecting the deficit only in the next couple of years, without exacerbating our large and growing structural deficits in later years....
For all the disagreement in Washington, we both know that, like us, there are many who see the critical importance of addressing these challenges. We must accept higher deficits in the short-term in order to put people back to work.
At the same time, we must take immediate steps to agree on a path and a process for reducing the structural deficits that lie ahead.
2) Jennifer Couzin-Frankel: The Latest Buzz: Orszag Budgets for Caffeine Genetic Marker:
Peter Orszag, the high-energy director of the White House Office of Management and Budget, recently shared some good news with Politico. No, he hasn't solved the country's economic problems. But he's learned that his genetics won't be crimping a caffeine habit that fuels 80-hour work weeks spent trying to erase a trillion-dollar deficit. While attending a conference, Orszag learned from biologist Craig Venter that he could get screened for a genetic marker that can raise the risk of heart disease when lots of caffeine is consumed. Orszag, who drinks vast amounts of Diet Coke, went ahead with the test. Luckily for him he's in the clear. "If that test had come out the wrong way, you would not have wanted to be around me afterwards, because to give up caffeine would have been very painful," Orszag told Politico reporter Mike Allen. The Office of Managament and Budget said that Orszag was traveling today and couldn't provide additional details-including whether he'd learned anything about his genetic predisposition to other diseases. But ScienceInsider guesses that he was referring to a single nucleotide polymorphism (SNP) called rs762551 that modulates a caffeine metabolizing enzyme in the liver. Those with a "slow" metabolizing version who drink a few cups of coffee a day are at a higher risk of heart attacks.
3) Barbara Kiviat: The limits of the job-creation bill:
I am thrilled, as are many others, that Congress has found a way to actually move forward on an issue. I refer to the apparent progress of the $15-billion job-creation bill. Unfortunately, as I've explained before, I'm pretty sure the legislation won't have as much of an impact as we're hoping for.... Seems what businesses really want is more demand for their products and services. Duh, right? Government spending would drum up demand in plenty of industries, but I guess more government spending creates a political problem....
Here's another idea. What about funneling more money to state and local governments? A whole lot of police officers and teachers didn't lose their jobs this past year because of the stimulus bill of early 2009. Maybe those would be some good jobs to save...
In Kentucky, GOP establishment candidate and secretary of state Trey Grayson is running against insurgent challenger Rand Paul, the son of Rep. Ron Paul (R-TX), in a contentious GOP Senate primary. With the margin between the two closing, and some polls even showing Paul leading Grayson, the secretary of state issued a desperate attack ad this week, taking aim at Paul for a speech he made in 2008. Grayson’s complaint? Paul acknowledged to the assembled crowd that coal “is a very dirty form of energy,” and thus, “one of the least favorable types of energy.” Watch it: Of course, Paul is right. According to the American Lung Association, nearly 24,000 Americans die every year from illnesses directly related to pollution from coal-fired plants, and coal is the largest source of human-generated mercury pollution. By challenging the myth of “clean coal,” Paul joins Sen. Lamar Alexander (R-TN), who last year admitted that coal “is a dirty business.”
5) James Politi: Bernanke defends Fed’s actions:
Ben Bernanke, Federal Reserve chairman, on Wednesday told Congress that although the US was experiencing a “nascent economic recovery”, interest rates would remain at their extremely low current levels. “The Federal Open Market Committee continues to anticipate that economic conditions...are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” Mr Bernanke told the House financial services committee. Mr Bernanke was testifying on Capitol Hill for the first time since his confirmation last month to a second term as Fed chairman. “A sustained recovery will depend on continued growth in private-sector final demand for goods and services,” Mr Bernanke said, highlighting a recent pick up in consumer spending and “tentative signs of stabilisation” in the US labour market, which is still suffering from an unemployment rate of 9.7 per cent.... Mr Bernanke’s insistence that rate hikes were still far away will dampen fears that last week’s increase in the discount rate - at which commercial banks can borrow emergency cash from the central bank - from 0.5 per cent to 0.75 per cent - is a precursor to a swifter tightening of monetary policy. “These adjustments [to liquidity policies put in place during the crisis] are not expected to lead to tighter financial conditions for households and businesses and should not be interpreted as signalling any change in the outlook for monetary policy, which remains about the same as it was at the time of the January meeting of the FOMC,” Mr Bernanke said.
Mr Bernanke said that “at some point” the Fed would have to tighten monetary policy in order to avert a spike in inflation, which he described as “subdued”. The Fed has this month laid out its vision for the sequence of measures it expects to take in order to shrink the money supply. “We are confident that we have the tools we need to firm the stance of monetary policy at the appropriate time,” Mr Bernanke said...
6) DELONG SMACKDOWN OF THE DAY: wcw, on my claim that Cowgirl Creamery Red Hawk Is the Best Cheese in the World:
No, it isn't. It may not even be the best in Petaluma (try Bellwether Farms). It is, however, very good cheese, and it may well be the best triple-cream made in Petaluma. In the world. Sheesh. You have heard of this place called 'Europe', right?
7) GRAPH OF THE DAY: Via Paul Krugman, who got it somewhere else:
Note: I think O'Brien (1982) is more right than Maddison (1995).
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Matthew Yglesias: Coleman & Holtz-Eakin on the Need for the American Action Network:
With regard to my question of why existing right-wing think tanks aren’t good enough and there’s a need instead to create a new American Action Network, my colleague Victor Zapanta actually went to the launch event today and asked.... The main theme seems to be the idea that ANA will have a kind of rapid-response capability that existing outfits lack. But the Heritage Foundation does a lot of this stuff on its blog where you can find, e.g., lots of quick reactions to the White House health care bill. At any rate, Holtz-Eakin has historically taken some unorthodox policy positions. He thinks global warming is real and should be combatted with a cap-and-trade policy, for example, though he succeeded in making up some rationalization for opposing Waxman-Markey. Is he going to stick with those views, or will he follow his old boss into incoherent efforts to fall into line with the orthodoxy?
And some dude comments:
This is one of the least credible displays of disingenuousness ever seen on this blog, which is saying something. Do you seriously expect these people to answer, “AEI and Heritage are so discredited by their association with failed, unpopular ideas that we see a space for a new organization that can rebrand these the way CAP temporarily rebranded warmed over neoliberalism as something new and appealing”?
9) STUPIDEST THING I HAVE READ TODAY: Ron Fournier of the Washington Post, as observed by Digby: Lies And Damned Bloggers:
Ron Fournier wrote in yesterday's WaPo about the lying rightwingers at CPAC and the equally dishonest liberal activists who hate them. His theme is that Real Americans are sick of all this lying by the partisans of both sides and just want the truth. He then takes an example of each side's lies to illustrate this. The first is Mitt Romney... front runner for the Republican nomination, at CPAC. He points out that Romney lied about the Democrats' policies on taxes, jobs, deficits, tort reform, and the treatment of terrorist suspects....
For the Democrats he used as an example an anonymous diarist at DKos who wrote that Dick Cheney was a "self-confessed war criminal," insisting that's a lie because Cheney has not been charged with a war crime, nor has he confessed to one. Aside from the bizarre asymmetry of a top tier presidential candidate and an anonymous blogger being used as equal examples of bipartisan lying, he didn't even get it right. It's true that Cheney has never been formally charged with a war crime, but Dick Cheney did go on national television just a week ago and blithely admit, “I signed off on it; others did, as well, too,” when he was asked about waterboarding. Waterboarding is a war crime. Here's just one example out of many that have been prosecuted:
Chase J. Nielsen, one of the U.S. airmen who flew in the Doolittle raid following the attack on Pearl Harbor, was subjected to waterboarding by his Japanese captors. At their trial for war crimes following the war, he testified "Well, I was put on my back on the floor with my arms and legs stretched out, one guard holding each limb. The towel was wrapped around my face and put across my face and water poured on. They poured water on this towel until I was almost unconscious from strangulation, then they would let up until I'd get my breath, then they'd start over again... I felt more or less like I was drowning, just gasping between life and death." Cheney can say that he doesn't believe that waterboarding should be a war crime but that doesn't mean it isn't one.... But hey, by all means, let's pretend that Mitt Romney's lies and this anonymous blogger's truth are both to blame for the fact that the country has no faith in politicians. Luckily we have the village arbiters of reality to help us work our way through it.
10) HOISTED FROM THE ARCHIVES: DeLong (2006): The Indian Economy Blog » Nick Kristof on India Vs China:
English will remain the most widely spoken language of the world, not because of a larger American population, but because of rising numbers of Indians who use it.
February 24, 2010
Ten Pieces Worth Reading, Mostly Economics: February 24, 2010
1) Andy Sullivan: US stimulus added up to 2.1 mln jobs in Q4 2009:
WASHINGTON, Feb 23 (Reuters) - The massive stimulus package passed last year to blunt the impact of the worst U.S. recession in 70 years created up to 2.1 million jobs in the last three months of 2009, the non-partisan Congressional Budget Office said on Tuesday. The package boosted the economy by up to 3.5 percent and lowered the unemployment rate by up to 2.1 percent during that period, CBO said. The report comes as President Barack Obama and his fellow Democrats are pushing further measures to bring down the 9.7 percent unemployment rate before the November congressional elections.... CBO's new report closely resembles its initial estimates from March 2009, shortly after Obama signed the bill into law. Though the economy performed more poorly than predicted, that was not due to the ineffectiveness of the stimulus package, CBO said. "In CBO's judgment, that outcome reflects greater-than-projected weakness in the underlying economy rather than lower-than-expected effects" of the stimulus, the research office said.
The package is likely to have the greatest impact this year, according to CBO. It is expected to boost GDP by between 1.4 percent and 4 percent and bring down the unemployment rate by between 0.7 percent and 1.8 percent in 2010, higher figures than last year when many of its programs were being set up. The impact is expected to trail off over the next two years. Direct purchasing of goods and services by the federal government and states have been the most effective provision of the act, CBO said. Among the least effective: a tax credit for first-time homebuyers and a tax cut for the wealthy. Since the start of the recession in December 2007, 8.4 million jobs have been lost. Though the economy started growing again last year, CBO chief Doug Elmendorf said at a congressional hearing that any recovery was likely to be slow.
2) Ben Armbruster: Santorum to GOP: Stimulus hypocrisy ‘does undermine your credibility.’:
Last weekend on ABC’s This Week, Gov. Arnold Schwarzenegger (R-CA) called out Republicans in Congress who voted against the Recovery Act, but then promote the money that it delivered to their districts. “I find it interesting that you have a lot of the Republicans running around pushing back on the stimulus,” he said. “Then they go out and they do the photo ops and they’re posing with the big check and they say, ‘Isn’t this great?’” Last night on Fox News, former GOP senator Rick Santorum agreed with Schwarzenegger’s comment:
SANTORUM: I would be very cautious if I were a Republican to do that. … I think the facts of the matter of what has happened after the stimulus package passed proved it hasn’t created a whole lot of jobs. But then to take money from that package and go out and do photo-ops talking about how many jobs it creates does undermine your credibility. [...] Members of Congress having opposed this plan then running out and saying here’s money I brought home to the district — that’s not to say your district doesn’t get the money. They would whether you do the photo- op or not. But I wouldn’t be out promoting it.
3) Ben Frumin: Jobs Bill Passes Major Hurdle After 5 GOPers Join Dems:
Five Republicans joined Democrats in a key cloture vote moments ago, allowing debate on a jobs package to move forward. After overcoming this hurdle, debate on the bill can begin. Sen. Scott Brown (R-MA) broke with his party and voted with the Democrats. So did Sens. Olympia Snowe (R-ME), Susan Collins (R-ME), Kit Bond (R-MO) and George Voinovich (R-OH). Sen. Ben Nelson (D-NE) was the only Democrat to break with his party. The final vote tally was 62-30.
It had been uncertain earlier in the day whether any Republicans would help Democrats reach 60 votes and overcome the threat of a GOP filibuster. With Sen. Frank Lautenberg (D-NJ) out of the Senate after being diagnosed with stomach cancer, Democrats needed at least two Republican votes to overcome a GOP filibuster threat. "Work with us on this," Senate Majority Leader Harry Reid said moments before the vote. "Show us you're serious about legislating." Reid also warned Republicans: Fail to support this bill, and the minority would "confirm their reputation as the 'Party of No.'" And after the vote? "I hope this is the beginning of a new day here in the Senate," Reid said. The bill, which is much smaller than some original proposals, would exempt businesses from paying Social Security payroll taxes this year after hiring from the nation's pool of millions of unemployed. The Build-America Bonds Act of 2009 would be renewed by the jobs bill. The scaled-down bill would also extend some tax breaks for small businesses, renew highway programs through December, and put $20 billion in the highway trust fund.
Brown issued the following statement about his vote: "I came to Washington to be an independent voice, to put politics aside, and to do everything in my power to help create jobs for Massachusetts families. This Senate jobs bill is not perfect. I wish the tax cuts were deeper and broader, but I voted for it because it contains measures that will help put people back to work. I was disappointed with the continuation of politics-as-usual in the drafting of this bill, as it was crafted behind closed doors, without transparency and accountability. I hope for improvements in that process going forward. All of us, Republicans and Democrats, have to work together to get our economy back on track. I hope my vote today is a strong step toward restoring bipartisanship in Washington."
4) Bruce Bartlett: On Starving the Beast:
The idea of using budget deficits as cover to cut spending that couldn’t otherwise be cut—a concept known as starving the beast—seems to be resurfacing (see here and here). This is a view I once held back in the 1970s. Just cut taxes, I thought, and pressure to balance the budget will manifest itself in the form of spending cuts that will reduce the size of government and increase growth, which would further reduce the size of government as a share of GDP. The problem is that this idea presupposed that there was significant support in Congress to reduce the deficit. Unfortunately, there has been no serious concern about the deficit in either party since the end of the Clinton administration. While both parties share some blame in this regard, there’s no question that more of it belongs to Republicans.... [T]he whole premise of starve-the-beast theory has gone straight down the toilet. Yet, to my amazement, Republicans and Republican lackeys continue to talk about cutting taxes with no corresponding spending cuts as if it is the height of fiscal responsibility. (See this silly Larry Kudlow column and Diane Rogers’ evisceration of it here.) When pressed, they fall back on "starving the beast" even though there is not one iota of evidence giving it operational meaning since at least 1996.... It has become, in fact, nothing but a license for Republican fiscal irresponsibility...
5) MOST EXTRAORDINARY DISPLAY OF DISINGENUOUSNESS EVAR!!!!:
The Washington Post:
Editorial: The earth is warming. A chief cause is the increase in greenhouse gases accumulating in the atmosphere. Humans are at least in part responsible, because the oil, gas and coal that we burn releases these gases. If current trends persist, it’s likely that in coming decades the globe’s climate will change with potentially devastating effects for billions of people. Contrary to what you may have read lately, there are few reputable scientists who would disagree with anything in that first paragraph. Yet suddenly we’re hearing that climate change is in doubt and that action to combat it is unlikely. What’s going on?
Matthew Yglesias explains:
Shockingly, however, in their discussion of “what’s going on” they completely neglect to mention the fact that The Washington Post—home of one of the most influential op-ed pages in America—consistently publishes climate denialist tracts that seek to deliberately mislead the paper’s audience. Something the world certainly won’t miss when the Post and the vast majority of its fellow big city dailies are out of business is this kind of prissy evasion. If the rationale for publishing liars in the Post’s opinion section is that it’s important for the opinion section to represent the full range of the debate, then the Post needs to take into account the fact that this editorial stance is part of “what’s going on” in the climate debate. Alternatively, if they want to take the stance that accuracy matters to the owners and editors of the Washington Post, then they need to stand up to inaccurate and misleading writing in their own pages.
6) DELONG SMACKDOWN OF THE DAY: Paul Krugman: Brad DeLong’s Foolishness:
Brad looks at John Cochrane asserting that fiscal expansion does nothing but shift money around, and tries to figure out Cochrane’s model. It’s a hopeless quest. Ever since I got into this fight, I’ve been trying to explain that there isn’t any model there. Eugene Fama, at least, and perhaps Cochrane too, began this debate from a position of complete ignorance — not understanding at all the logic of Keynesian models (even for the purposes of debunking), and imagining that the savings-investment identity necessarily implies 100-percent crowding out. There was no deeper logic. And since then, what we’ve been witnessing is a simple matter of digging in, refusing to admit a mistake. I do not believe that Cochrane has, in his head or on the back of his envelope, a maximization-and-equilibrium model that justifies what he’s saying, or explains why, for example, Mike Woodford’s all i’s dotted and t’s crossed analysis is nonsense.
7) GRAPH OF THE DAY: We Don't Have an Excess of Home Builders Any More. We Haven't for Two Years:
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Arnold Schwarzenegger: GOP engaging in 'bogus talk' on health care:
While Republican leaders in Washington are urging President Barack Obama to start from scratch on a health care bill, California Gov. Arnold Schwarzenegger on Monday dismissed the idea as "bogus talk." It marked the second day in a row that Schwarzenegger strayed from his party's positions. On Sunday, he defended Obama's economic stimulus plan and chided elected officials, most of them Republicans, who oppose the overall stimulus but are quick to trumpet individual projects in their states that are paid for by the stimulus.
Standing outside the White House after meeting privately with Obama on Monday, Schwarzenegger touted the economic stimulus plan yet again. "I think the stimulus package has been very successful so far, and I think California has benefited tremendously," he said.
Schwarzenegger also said it's good that the president is reaching out to Republicans as he prepares for this week's health care summit with congressional leaders. "Since half of the people are Republicans, why would you exclude Republicans?" he asked. "Then half of the people hate you for having done health care reform." He sided with Obama on the question of the starting point for the talks, saying it would be wrong to begin all over in preparing health care legislation for Congress to consider. "I think any Republican that says you should start from scratch, I think that's bogus talk, and that's partisan talk," the governor told reporters.
9) STUPIDEST THING I HAVE READ TODAY: John McCain, as observed by Barney Frank:
Rep. Barney Frank (D-Mass.) completely unloaded on John McCain last night, blasting the Arizona Republican for making "pathetically untrue" and "cowardly" statements about TARP. McCain made a stir yesterday when he told the Arizona Republic that he voted for TARP because he had been misled by then-Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke. He also said that President Bush had asked him to suspend his campaign and come back to Washington for negotiations. Democrats ridiculed the move as a political stunt.
Appearing on MSNBC last night, Frank said both of those claims were dishonest. Addressing McCain's claim that Bush asked the nominee to come back to Washington, Frank was blunt: "This is such a pathetically, obviously untrue statement. Those of us who were there know it." Frank said it was clearly McCain's own decision to insert himself into the negotiations because he wanted to play the hero. "He reminded me of kind of Andy Kaufman as Mighty Mouse: 'Here I come to save the day,'" Frank quipped. Frank then took on McCain's claim that Paulson and Bernanke had misled him about the proposal. "For him to blame Paulson or Bernanke is cowardly," Frank said. "This was Bush. Paul and Bernanke were acting for George Bush." He added: "I've gone beyond being disappointed for John McCain to feeling sorry for him."
10) HOISTED FROM THE ARCHIVES: Brad DeLong (December 2007): Three Cures for Three Crises:
A full-scale financial crisis is triggered by a sharp fall in the prices of a large set of assets that banks and other financial institutions own, or that make up their borrowers' financial reserves. The cure depends on which of three modes define the fall in asset prices.
The first -- and "easiest" -- mode is when investors refuse to buy at normal prices not because they know that economic fundamentals are suspect, but because they fear that others will panic, forcing everybody to sell at fire-sale prices. The cure for this mode -- a liquidity crisis caused by declining confidence in the financial system -- is to ensure that banks and other financial institutions with cash liabilities can raise what they need by borrowing from others or from central banks. This is the rule set out by Walter Bagehot more than a century ago: Calming the markets requires central banks to lend at a penalty rate to every distressed institution that would be able to put up reasonable collateral in normal times....
In the second mode, asset prices fall because investors recognize that they should never have been as high as they were, or that future productivity growth is likely to be lower and interest rates higher. Either way, current asset prices are no longer warranted. This kind of crisis cannot be solved simply by ensuring that solvent borrowers can borrow, because the problem is that banks aren't solvent at prevailing interest rates... applying the Bagehot rule would be wrong. The problem is not illiquidity but insolvency at prevailing interest rates. But if the central bank reduces interest rates and credibly commits to keeping them low in the future, asset prices will rise. Thus, low interest rates make the problem go away, while the Bagehot rule -- with its high lending rate for banks -- would make matters worse....
The third mode is like the second: A bursting bubble or bad news about future productivity or interest rates drives the fall in asset prices. But the fall is larger. Easing monetary policy won't solve this kind of crisis, because even moderately lower interest rates cannot boost asset prices enough to restore the financial system to solvency. When this happens, governments have two options. First, they can simply nationalize the broken financial system and have the Treasury sort things out -- and reprivatize the functioning and solvent parts as rapidly as possible. Government is not the best form of organization of a financial system in the long term, and even in the short term it is not very good. It is merely the best organization available. The second option is simply inflation. Yes, the financial system is insolvent, but it has nominal liabilities and either it or its borrowers have some real assets. Print enough money and boost the price level enough, and the insolvency problem goes away without the risks entailed by putting the government in the investment and commercial banking business...
February 23, 2010
Does Brian Riedl of National Review Finally Get It?
I think he does. I think he finally understands why expansionary fiscal policy can be effective. And so National Review, for the first time in the memory of living man, publishes an explanation of why expansionary fiscal policy is likely to be effective right now.
Riedl writes:
Answering DeLong, Yglesias, and Collender - Brian Riedl: Income... results from productive activity. When productivity increases (thus increasing employment and eventually wages), income increases and demand increases, all in tandem...
Game, set, and match.
When--in conditions in which there are masses of unemployed--the government spends money to hire people who were previously among the involuntarily unemployed, their productivity increases. It goes from zero to whatever the value of what the government hires them to do is. This increases income and demand, all in tandem.
Well done, Brian! I knew you would get it! Quite a change from the days when Whittaker Chambers used to rave about how John Maynard Keynes (and Knut Wicksell, and John Hicks, and Dwight D. Eisenhower) were as red as Karl Marx.
It is important to note that effective expansionary fiscal policy requires two things:
Lots of people need to be involuntarily unemployed--to have a productivity of zero--so that when the government hires people to do things, a substantial chunk of the people it hires do have their productivity go up by a lot. Otherwise--if there aren't a lot of involuntarily unemployed people--you are going to boost the flow of nominal spending but not production (or employment).
The bonds that the government sells to finance its hiring program need to have only a small effect on interest rates--if they have a large effect on interest rates, then private businesses that were hiring people to expand their productive capacity will lay them off, their productivity will drop to zero, and we won't have gotten anywhere.
That lots of people are involuntarily unemployed--would welcome a steady job at the prevailing wage but cannot right now find one--seems to be something that not even the cretins of National Review are denying right now.d
That the passage of the ARRA has not led to a substantial increase in interest rates crowding-out private investment spending--well, look at the Treasury yield curve right now:
Ten Pieces Worth Reading, Mostly Economics: February 23, 2010
1) Paul Krugman: How Did Economists Get It So Wrong?:
[Y]ou might have thought that the differing worldviews of freshwater and saltwater economists would have put them constantly at loggerheads over economic policy. Somewhat surprisingly, however, between around 1985 and 2007 the disputes between freshwater and saltwater economists were mainly about theory, not action. The reason, I believe, is that New Keynesians... didn’t think fiscal policy... was needed.... They believed that monetary policy, administered by the technocrats at the Fed, could provide whatever remedies the economy needed... all you need to avoid depressions is a smarter Fed. And as long as macroeconomic policy was left in the hands of the maestro Greenspan, without Keynesian-type stimulus programs, freshwater economists found little to complain about. (They didn’t believe that monetary policy did any good, but they didn’t believe it did any harm, either.) It would take a crisis to reveal both how little common ground there was and how Panglossian even New Keynesian economics had become.
In recent, rueful economics discussions, an all-purpose punch line has become “nobody could have predicted. . . .” It’s what you say with regard to disasters that could have been predicted, should have been predicted and actually were predicted.... Take, for example, the precipitous rise and fall of housing prices. Some economists, notably Robert Shiller, did identify the bubble and warn of painful consequences if it were to burst. Yet key policy makers failed to see the obvious. In 2004, Alan Greenspan dismissed talk of a housing bubble: “a national severe price distortion,” he declared, was “most unlikely.” Home-price increases, Ben Bernanke said in 2005, “largely reflect strong economic fundamentals.” How did they miss the bubble? To be fair, interest rates were unusually low, possibly explaining part of the price rise. It may be that Greenspan and Bernanke also wanted to celebrate the Fed’s success in pulling the economy out of the 2001 recession; conceding that much of that success rested on the creation of a monstrous bubble would have placed a damper on the festivities. But there was something else going on: a general belief that bubbles just don’t happen. What’s striking, when you reread Greenspan’s assurances, is that they weren’t based on evidence — they were based on the a priori assertion that there simply can’t be a bubble in housing. And the finance theorists were even more adamant on this point. In a 2007 interview, Eugene Fama, the father of the efficient-market hypothesis, declared that “the word ‘bubble’ drives me nuts,” and went on to explain why we can trust the housing market: “Housing markets are less liquid, but people are very careful when they buy houses. It’s typically the biggest investment they’re going to make, so they look around very carefully and they compare prices. The bidding process is very detailed”... the belief in efficient financial markets blinded many if not most economists to the emergence of the biggest financial bubble in history. And efficient-market theory also played a significant role in inflating that bubble in the first place. Now that the undiagnosed bubble has burst, the true riskiness of supposedly safe assets has been revealed and the financial system has demonstrated its fragility. U.S. households have seen $13 trillion in wealth evaporate. More than six million jobs have been lost, and the unemployment rate appears headed for its highest level since 1940. So what guidance does modern economics have to offer in our current predicament? And should we trust it?
Between 1985 and 2007 a false peace settled over the field of macroeconomics.... But the crisis ended the phony peace. Suddenly the narrow, technocratic policies both sides were willing to accept were no longer sufficient — and the need for a broader policy response brought the old conflicts out into the open, fiercer than ever. Why weren’t those narrow, technocratic policies sufficient? The answer, in a word, is zero.... The Fed dealt with the recession that began in 1990 by driving short-term interest rates from 9 percent down to 3 percent. It dealt with the recession that began in 2001 by driving rates from 6.5 percent to 1 percent. And it tried to deal with the current recession by driving rates down from 5.25 percent to zero. But zero, it turned out, isn’t low enough.... Now what? This is the second time America has been up against the zero lower bound, the previous occasion being the Great Depression. And it was precisely the observation that there’s a lower bound to interest rates that led Keynes to advocate higher government spending.... Such Keynesian thinking underlies the Obama administration’s economic policies — and the freshwater economists are furious. For 25 or so years they tolerated the Fed’s efforts to manage the economy, but a full-blown Keynesian resurgence was something entirely different. Back in 1980, Lucas, of the University of Chicago, wrote that Keynesian economics was so ludicrous that “at research seminars, people don’t take Keynesian theorizing seriously anymore; the audience starts to whisper and giggle to one another.” Admitting that Keynes was largely right, after all, would be too humiliating a comedown. And so Chicago’s Cochrane, outraged at the idea that government spending could mitigate the latest recession, declared: “It’s not part of what anybody has taught graduate students since the 1960s. They [Keynesian ideas] are fairy tales that have been proved false. It is very comforting in times of stress to go back to the fairy tales we heard as children, but it doesn’t make them less false.” (It’s a mark of how deep the division between saltwater and freshwater runs that Cochrane doesn’t believe that “anybody” teaches ideas that are, in fact, taught in places like Princeton, M.I.T. and Harvard.)
Meanwhile, saltwater economists, who had comforted themselves with the belief that the great divide in macroeconomics was narrowing, were shocked to realize that freshwater economists hadn’t been listening at all. Freshwater economists who inveighed against the stimulus didn’t sound like scholars who had weighed Keynesian arguments and found them wanting. Rather, they sounded like people who had no idea what Keynesian economics was about, who were resurrecting pre-1930 fallacies in the belief that they were saying something new and profound.... [T]he Chicago school’s... current stance amounts to a wholesale rejection of Milton Friedman’s ideas, as well. Friedman believed that Fed policy rather than changes in government spending should be used to stabilize the economy, but he never asserted that an increase in government spending cannot... increase employment.... And Friedman certainly never bought into the idea that mass unemployment represents a voluntary reduction in work effort or the idea that recessions are actually good for the economy.... Personally, I think this is crazy. Why should it take mass unemployment across the whole nation to get carpenters to move out of Nevada? Can anyone seriously claim that we’ve lost 6.7 million jobs because fewer Americans want to work? But it was inevitable that freshwater economists would find themselves trapped in this cul-de-sac: if you start from the assumption that people are perfectly rational and markets are perfectly efficient, you have to conclude that unemployment is voluntary and recessions are desirable.
Yet... the crisis... has also created a lot of soul-searching among saltwater economists. Their framework, unlike that of the Chicago School, both allows for the possibility of involuntary unemployment and considers it a bad thing. But the New Keynesian models... get anything like the current slump... [only by] some kind of fudge factor.... And if the analysis of where we are now rests on this fudge factor, how much confidence can we have in the models’ predictions about where we are going?... Economics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system. If the profession is to redeem itself, it will have to reconcile itself to a less alluring vision — that of a market economy that has many virtues but that is also shot through with flaws and frictions. The good news is that we don’t have to start from scratch....
Probably the most influential paper in this vein was a 1997 publication by Andrei Shleifer of Harvard and Robert Vishny of Chicago, which amounted to a formalization of the old line that “the market can stay irrational longer than you can stay solvent.” As they pointed out, arbitrageurs — the people who are supposed to buy low and sell high — need capital to do their jobs. And a severe plunge in asset prices, even if it makes no sense in terms of fundamentals, tends to deplete that capital. As a result, the smart money is forced out of the market, and prices may go into a downward spiral. The spread of the current financial crisis seemed almost like an object lesson in the perils of financial instability. And the general ideas underlying models of financial instability have proved highly relevant to economic policy: a focus on the depleted capital of financial institutions helped guide policy actions taken after the fall of Lehman, and it looks (cross your fingers) as if these actions successfully headed off an even bigger financial collapse.
Meanwhile, what about macroeconomics? Recent events have pretty decisively refuted the idea that recessions are an optimal response to fluctuations in the rate of technological progress; a more or less Keynesian view is the only plausible game in town. Yet standard New Keynesian models left no room for a crisis like the one we’re having, because those models generally accepted the efficient-market view of the financial sector. There were some exceptions. One line of work, pioneered by none other than Ben Bernanke working with Mark Gertler of New York University, emphasized the way the lack of sufficient collateral can hinder the ability of businesses to raise funds and pursue investment opportunities. A related line of work, largely established by my Princeton colleague Nobuhiro Kiyotaki and John Moore of the London School of Economics, argued that prices of assets such as real estate can suffer self-reinforcing plunges that in turn depress the economy as a whole. But until now the impact of dysfunctional finance hasn’t been at the core even of Keynesian economics. Clearly, that has to change...
2) James Politi: Stripped-down US jobs bill limps to vote:
When senators return to Washington on Monday after a short recess, they will be facing their first vote on a jobs bill worth $15bn, proposed by Harry Reid, leader of the Democratic majority in the Senate. But even aides on Capitol Hill working for lawmakers supporting the measure privately concede that it is a modest package in terms of its economic impact – in stark contrast to the pledge only a few weeks ago by Barack Obama, US president, to make job creation his top domestic priority this year...
3) Dean Baker: Thomas Friedman Competes for the Nobel in Ignorance:
Thomas Friedman told readers that: "But now it feels as if we are entering a new era, 'where the great task of government and of leadership is going to be about taking things away from people,' said the Johns Hopkins University foreign policy expert Michael Mandelbaum." Unfortunately, Mr. Friedman apparently doesn't talk to anyone who has ever taken any economics. There are no serious forecasts that do not project that productivity will continue to grow for the indefinite future, and many project that productivity will grow at a more rapid pace than it did in the years from 1973-1995. This means that there is no reason, except incompetent economic management and/or the continuing upward redistribution of income, why the vast majority of the population should not experience improvements in living standards. This would mean an increase in both public and private services.
4) Sebastian Edwards: Defining Neoliberalism Down:
Left Behind: Latin America and the False Promise of Populism: The political and economic history of Latin America has been marked by great hopes and even greater disappointments. Despite abundant resources—and a history of productivity and wealth—in recent decades the region has fallen further and further behind developed nations, surpassed even by other developing economies in Southeast Asia and elsewhere.... Sebastian Edwards explains why the nations of Latin America have failed to share in the fruits of globalization and forcefully highlights the dangers of the recent turn to economic populism.... He begins by detailing the many ways Latin American governments have stifled economic development over the years through excessive regulation, currency manipulation, and thoroughgoing corruption. He then turns to the neoliberal reforms of the early 1990s, which called for the elimination of deficits, lowering of trade barriers, and privatization of inefficient public enterprises—and which, Edwards argues, held the promise of freeing Latin America from the burdens of the past. Flawed implementation, however, meant the promised gains of globalization were never felt by the mass of citizens.... [H]e argues, the way forward for Latin America lies in further market reforms, more honestly pursued and fairly implemented. As an example of the promise of that approach, Edwards points to Latin America's giant, Brazil, which under the successful administration of President Luis Inácio da Silva (Lula) has finally begun to show signs of reaching its true economic potential.
5) Jeff Ely: Jeff’s Intermediate Micro Course « Cheap Talk:
Week 1.5: Utilitarianism: After the showstopper that is Arrow’s Theorem, we could just throw in the towel. The motivation for studying social welfare functions was to find a coherent standard by which to judge institutions and to propose policies. Now we see that there is no coherent standard. Well, sorry students we are not getting away so easily here in the second week of the class. We will accept that we must violate one of the axioms. Which one do we choose? A lot of normative economic theory is implicitly built upon one of two welfare criteria, either Pareto efficiency or utilitarianism. While it is standard to formally define Pareto efficiency in an undergraduate micro class, utilitarianism is often invoked without explicit mention. For example, we are implicitly using some form of utilitarianism when we talk about consumer and producer surplus. And to argue that a monopoly is inefficient in a partial equilibrium framework is a utilitarian judgment (absent compensating transfers.) So I make it explicit. And I take the time to formally define utilitarianism, explain where it applies and what justifies it and I point out its limitations. In terms of Arrow’s theorem I tell the students that we are dropping the axiom of universal domain (UD.) That is, we are not requiring our social welfare function to apply in all situations, only in those situations in which there is a valid measure of welfare that can be transferred and/or compared inter-personally. In this class, that measure of welfare is willingness to pay, and it applies when there are monetary transfers available and all agents value money in equal terms, i.e. quasi-linear utility.
These lectures contain one important formal result. In the quasi-linear world with monetary transfers utilitarianism coincides with Pareto efficiency. So these two common welfare standards are the same. (Any utilitarian improvement can be made into a Pareto improvement with judiciously chosen transfers and any Pareto improvement is a utilitarian improvement.)
6) DELONG SMACKDOWN OF THE DAY: John Emerson: DeLong / Krugman smackdown:
How flawed is economics? How deep does the problem go? I can’t prove anything, but we need to consider the possibility that the problem goes all the way down. Everyone except Eugene Fama knows that there’s a serious problem, but they’re mostly trying small tweaks and trying to make sure that their faction comes out on top. I’m suggesting that the larger claims of the science of economics are fundamentally unjustified. One comparison is with alchemy and astrology. There was a great deal of truth in those sciences and they provided the foundations for chemistry and astronomy, but their largest claims were flatly wrong.... The second problem with economics is related to the first. Even within the orthodox schools (after excluding Austrians, Marxists, and other alleged fossils) there’s incredibly wide disagreement about critically important questions. You can always get an economist to say what you want them to say. (No, this is not true of climatologists). They don’t have to be fake economists, and no one is ever disbarred, defrocked, or expelled. When economics is being taught in the schools there are definite right and wrong answers, and economics is made to seem like a coherent system. But the minute that something important and real is discussed, economists start mumbling around and arguing. In a science you have a large area of agreement and small areas in dispute, mostly at the frontiers of the discipline. But in economics almost everything is up for grabs. It’s like the days when naturopaths, homeopaths, osteopaths, chiropractors, herbalists, allopaths, and Christian Scientists all contended on equal terms.
What economics really is is a form of expert advocacy.... No one says lawyers don’t know anything. They’re very bright and knowledgeable and, in the context of our society, necessary and powerful. They do know a lot, but no one calls them scientists..... Economists are highly skilled mercenary advocates within an sloppy, open system which is always in the process of redefining itself. And like most mercenaries, economists are most sympathetic to those who can afford them. (“The Magnificent Seven” was a myth. The samurai never protected the peasants, any more than economists or lawyers work for you and me).
7) GRAPH OF THE DAY: Convergence in the OECD Over the Thirty Glorious Years:
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Zbigniew Brzezinski: How Jimmy Carter and I Started the Mujahideen: Interview of Zbigniew Brzezinski, Le Nouvel Observateur (France), Jan 15-21, 1998, p. 76:
Q: The former director of the CIA, Robert Gates, stated in his memoirs ["From the Shadows"], that American intelligence services began to aid the Mujahadeen in Afghanistan 6 months before the Soviet intervention. In this period you were the national security adviser to President Carter. You therefore played a role in this affair. Is that correct?
Brzezinski: Yes. According to the official version of history, CIA aid to the Mujahadeen began during 1980, that is to say, after the Soviet army invaded Afghanistan, 24 Dec 1979. But the reality, secretly guarded until now, is completely otherwise: Indeed, it was July 3, 1979 that President Carter signed the first directive for secret aid to the opponents of the pro-Soviet regime in Kabul. And that very day, I wrote a note to the president in which I explained to him that in my opinion this aid was going to induce a Soviet military intervention.
Q: Despite this risk, you were an advocate of this covert action. But perhaps you yourself desired this Soviet entry into war and looked to provoke it?
Brzezinski: It isn't quite that. We didn't push the Russians to intervene, but we knowingly increased the probability that they would.
Q: When the Soviets justified their intervention by asserting that they intended to fight against a secret involvement of the United States in Afghanistan, people didn't believe them. However, there was a basis of truth. You don't regret anything today?
Brzezinski: Regret what? That secret operation was an excellent idea. It had the effect of drawing the Russians into the Afghan trap and you want me to regret it? The day that the Soviets officially crossed the border, I wrote to President Carter: We now have the opportunity of giving to the USSR its Vietnam war. Indeed, for almost 10 years, Moscow had to carry on a war unsupportable by the government, a conflict that brought about the demoralization and finally the breakup of the Soviet empire.
Q: And neither do you regret having supported the Islamic [integrisme], having given arms and advice to future terrorists?
Brzezinski: What is most important to the history of the world? The Taliban or the collapse of the Soviet empire? Some stirred-up Moslems or the liberation of Central Europe and the end of the cold war?
Q: Some stirred-up Moslems? But it has been said and repeated: Islamic fundamentalism represents a world menace today.
Brzezinski: Nonsense! It is said that the West had a global policy in regard to Islam. That is stupid. There isn't a global Islam. Look at Islam in a rational manner and without demagoguery or emotion. It is the leading religion of the world with 1.5 billion followers. But what is there in common among Saudi Arabian fundamentalism, moderate Morocco, Pakistan militarism, Egyptian pro-Western or Central Asian secularism? Nothing more than what unites the Christian countries.
9) STUPIDEST THING I HAVE READ TODAY: Jackson Diehl of the Washington Post, as observed by Brad of "Sadly, No!":
The Washington Post has many, many bad columnists. Jackson Diehl often gets overlooked among the Krauthammers, Samuelsons, Gersons, Wills and Kagans, but he’s still very, very bad....
Two Americans who understand how big the stakes are — U.S. Ambassador Christopher Hill and top commander Gen. Raymond Odierno — were in Washington last week to explain. Iraq’s March 7 election and what follows it, Hill said, will “determine the future of Iraq... and also the future of the U.S. relationship with Iraq.”... The survival of Iraq’s democratic system, Odierno said, could have a far-reaching impact on regimes across the Middle East. “Some of them,” he added, “don’t really want the democratic process to succeed because of the pressure it might put on their own government.”... First among these is Iran, which has a simple strategy for the coming months: Turn the elections into a bitter sectarian battle — and thereby ensure that the next government will be led by its hard-line Shiite allies. To an alarming extent, the campaign is succeeding. Tehran’s leading agent, as both Hill and Odierno noted, is Ahmed Chalabi...
So wait. Wuh-wuh-wait.
We now have to stay indefinitely in Iraq in order to thwart the guy who convinced us to occupy Iraq in the first place? This brings new meaning to “clusterf---,” people. We might as well rename everyone in the United States military “K” and send them on a serious of vague, ill-defined missions in Eastern European villages where their objectives are wholly revised by soulless bureaucrats on a daily basis and where they are constantly thwarted by their failures to properly fill out confusing paperwork. I don’t think it could be any crazier than asking them to put their lives on the line just to stop Ahmed Chalabi.
Chalabi aims to become prime minister of the next government, which would be a disaster for Iraq and for Washington.
The kicker will be if Chalabi does get elected prime minister and Diehl then says we have to remain in the country to prevent him from getting weapons of mass destruction. Only then will the circle be complete!...
10) HOISTED FROM THE ARCHIVES: DeLong (August 2002) Fog of Wargames: A Cautionary Tale:
British Admiral Sandy Woodward -- commander of the Falklands naval battle group during Britain's war with Argentina in the 1980s -- tells the story of a pre-Falklands naval exercise in which he, with one British destroyer, three frigates, and four Exocet missiles, 'sank' the US fleet carrier Coral Sea. A cautionary tale:
I was clear in my mind what I wanted to practise: the US battle group, with all its escorts and aircraft, was to take up positions well out to sea. Their job was to stop my force from getting through their guard to 'sink' their carrier before they 'sank' us. Admiral Brown was happy enough with that -- if you had been in his position, you would have been too. He could spot an enemy surface ship more than two hundred miles away, track it at his leisure, and strike it at a comfortable range with any six of his missile-launching attack aircraft. And that was only the first layer of his defence. By any modern military standard, he was well-nigh impregnable. I had Glamorgan and three frigates, plus three Royal Fleet Auxiliary ships, two of which were tankers and the third, a stores ship. The frigates were all anti-submarine ships and not capable of doing serious harm to an aircraft carrier, short of ramming it. Only Glamorgan, with her four Exocets and effetive range of twenty miles, could inflict real damage on the Coral Sea, and Admiral Brown knew this.... We were due to start not a moment before twelve noon and not a mile less than 200 from the American carrier. She sat in the middle of this vast stretch of clear blue water, under clear blue skies -- effective visibility: two hundred and fifty miles. Admiral Brown was, so to speak, at the centre of a well-defended exclusion zone and I did not even have the benefit of a cloud bank, let alone fog or rain or heavy seas. No cover. No hiding place. No air support of my own either.
I ordered my ships to split up and take positions all around the two-hundred-mile perimeter by 1200 and then to hurry in as best they could -- a sort of maritime Charge of the Light Brigade from all directions. Three-quarters of an hour before we were due to start, bless my soul if a US fighter didn't appear, spot us, identify us and hurry home to tell the boss what he had found, where it was and where it was going. We couldn't 'shoot it down' -- the exercise had not yet begun! But we may just have lost this one before the starting gates were open. Stand by for a decisive American airstrike against Glamorgan, just as soon as they can lay it on. However, you have to keep on trying.... This basically involved reversing course.... Three hours later, we heard the US strike aircraft go in 100 miles west of us. They found nothing and went home....
[T]he sun set over the Arabian Sea and night began to stream in, Glamorgan turned into the two-hundred-mile zone. The dusk faded to darkness and I ordered every light in the ship to be switched on, plus as many extras as we could find. I intended that from any distance we should look like a cruise liner.... We barrelled on through the tense night, in toward the USS Coral Sea, listening all the time to the International Voice radio frequencies. Sure enough, eventually one of the American destroyer captains came on line, asking us to identify ourselves. My in-house Peter Sellers imitator, already primed for the job, replied in his best Anglo-Indian: 'This is the liner Rawalpindi, bound from Bombay to the port of Dubai. Good night, and jolly good luck!' He sounded like the head waiter at the Surbiton Tandoori. But it was good enough. The Americans, who were conducting a 'limited war', were rather obliged to believe us and let us through while they thought about it. Vital minutes slipped by until we were eleven miles from their carrier, with our Exocet system locked on to her. They still thought are splendid display of lights was the Rawalpindi on her innocent business.
Doubt, however, began to enter their minds... two of their big destroyers managed to 'open fire' on each other.... Then one of my officers calmly called the carrier to break the appalling news to Tom Brown that we were now in a position to put his ship on the bottom of the Indian Ocean and there was nothing he could do about it. 'We fired four Exocets twenty seconds ago,' he added for good measure, knowing this gave them about forty-five seconds to hit the deck... the American knew as well as we did that he was effectively non-operational. He has lost his 'mission critical' unit and with it his air force.
Understandably, we were all elated, but also a little embarrassed.... Tom Brown had a serious and proper preoccupation with the real world, and that our own particular brand of carefree 'cheekiness' was undoubtedly born of the unarguable fact that we knew that we weren't really going to be sunk no matter what happened, were we? A debriefing along these lines very soon restored our sense of proportion....
It was nonetheless an important exercise for me because it taught me two vital lessons. The first was to beware of becoming over-engrossed in one area of operations at the risk of ignoring another. The second was that, in a limited war, in perfect weather, under the cover of darkness, one fairly old destroyer or crusier, or whatever, is capable of getting right up to within eleven miles of a modern strike carrier in a full battle group.... Six months on, I was to face a very similar sort of situation, this time for real. And thanks to those few hours with the Coral Sea, I would have a clearer idea of how to proceed...
From Sandy Woodward (with Patrick Robinson) (1992), One Hundred Days: The Memoirs of the Falklands Battle Group Commander (Annapolis: Naval Institute Press), pp. 64-66.
Addenda: Two things come to mind. The first is that this passage has one of those 'there will always be an England' qualities. I mean, embarrassment as your emotional reaction... 'Frightfully sorry, chap. I don't know what to say. I'm so embarrassed. I didn't mean to sink your carrier in the midst of its sea and air escorts with one destroyer and three frigates...'
The second is something that my brother knew (and I did not) and that he pointed out to me: the name Rawalpindi has significance: the British auxiliary merchant cruiser Rawalpindi took on and was destroyed by the Nazi battlecruiser Scharnhorst southeast of Iceland in November 1939. Anyone in the Coral Sea's Combat Information Center who had been marinated in naval history (more than I have been) would have heard alarm bells ringing in his head at the name 'Rawalpindi'. Woodward and his people gave the Coral Sea and its battle group extra clues as to what was going on.
February 22, 2010
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