Brad DeLong

Liveblogging World War II: May 31, 1942

Thousand Bomber Raid on Cologne:

A Conspiracy So Immense: Luke Sharrett of the New York TImes Has Some 'Splaining to Do...

Whose hand is this? And what happened to the rest of him or her:

May I just say that I am royally pissed at the casual photoshopping cropping to create images that did not happen?

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

Eschaton: Mirror, Mirror: Spanish Unemployment Crisis Edition

Duncan Black:

Eschaton: What This Paragraph Should Contain: On Earth-2 or wherever it is we aren't ruled by the worst people in the world.

MADRID — The European Union pressed Spain on Thursday to urgently clear up doubts over its mammoth rescue of its stricken labor market so as to calm citizens fearing prolonged unemployment.

What it actually contains:

MADRID — The European Union pressed Spain on Thursday to urgently clear up doubts over its mammoth rescue of stricken lender Bankia so as to calm investors fearing a financial breakdown.

: http://www.eschatonblog.com/2012/05/what-this-paragraph-should-contain.html

The Economic Costs of Fear

Project Syndicate: BERKELEY – The earnings yield on the S&P stock index is now 7%/year. That's a 7%/year real (inflation-adjusted) return. By contrast, the annual real interest rate on the five-year United States Treasury Inflation-Protected Security (TIPS) is -1.02%/year. Yes, there is a “minus” sign in front of that: if you buy the five-year TIPS, each year over the next five years the US Treasury will pay you in interest the past year’s consumer inflation rate minus 1.02%. Even the annual real interest rate on the 30-year TIPS is only 0.63% – and you run a large risk that its value will decline at some point over the next generation, implying a big loss if you need to sell it before maturity.

So, imagine that you invest $10,000 in the S&P index. This year, your share of the profits made by those companies will be $700. Now, imagine that, of that total, the companies pay out $250 in dividends (which you reinvest to buy more stock) and retain $450 in earnings to reinvest in their businesses. If the companies’ managers do their job, that reinvestment will boost the value of your shares to $10,450. Add to that the $250 of newly-bought shares, and next year the portfolio will be worth $10,700 – more if stock-market valuations rise, and less if they fall.

In fact, over any past period long enough for waves of optimism and pessimism to cancel each other out, the average earnings yield on the S&P index has been a good guide to the return on the portfolio. So, if you invest $10,000 in the S&P for the next five years, you can reasonably expect (with enormous upside and downside risks) to make about 7% per year, leaving you with a compounded profit in inflation-adjusted dollars of $4,191. If you invest $10,000 in the five-year TIPS, you can confidently expect a five-year loss of $510.

That is an extraordinary gap in the returns that you can reasonably expect. It naturally raises the question: why aren’t people moving their money from TIPS (and US Treasury bonds and other safe assets) to stocks (and other relatively risky assets)?

People have different reasons. And many people’s thinking is not terribly coherent. But there appear to be two main explanations.

First, many people are uncertain that current conditions will continue. Most economists forecast the world a year from now to look a lot like the world today, with unemployment and profit margins about the same, wages and prices on average about 1.5% higher, total production up roughly 2%, and risks on both the upside and the downside. But many investors see a substantial chance of 2008 and 2009 redux, whether triggered by a full-fledged euro crisis or by some black swan that we do not yet see, and fear that, unlike in 2008 and 2009, governments would lack the power and will to cushion the economic impact.

These investors do not view the 7% annual return on stocks as an average expectation, with downside risks counterbalanced by upside opportunities. Rather, they see a good-scenario outcome that only the foolhardy would trust.

Second, many people do see the 7% return on stocks as a reasonable expectation, and would jump at the chance to grab it – plus the opportunity of surprises on the upside – but they do not think that they can afford to run the downside risks. Indeed, the world seems a much more risky place than it seemed five or ten years ago. The burden of existing debts is high, and investors’ key goal is loss-avoidance, not profit-seeking.

Both reasons reflect a massive failure of our economic institutions. The first reason betrays a lack of trust that governments can and will do the job that they learned how to do in the Great Depression: keep the flow of spending stable so that big depressions with long-lasting, double-digit unemployment do not recur. The second reveals the financial industry’s failure adequately to mobilize society’s risk-bearing capacity for the service of enterprise.

As individuals, we appear to view a gamble that has a roughly 50% chance of doubling our wealth and a roughly 50% chance of halving it as worthy of consideration – not a no-brainer, but not out of the question, either. Well-functioning financial markets would mobilize that risk-bearing capacity and put it to use for the benefit of all, so that people who did not think that they could run the risks of stock ownership could lay that risk off onto others for a reasonable fee.

As an economist, I find this state of affairs frustrating. We know, or at least we ought to know, how to build political institutions that accept the mission of macroeconomic stabilization, and how to build financial institutions to mobilize risk-bearing capacity and spread risk. Yet, to a remarkable degree, we have failed to do so.

Low Long-Term U.S. Treasury Nominal Rates Are Not a Sign of Policy Success

Ezekiel Emmanuel: Health Policy and the Affordable Care Act

Health Policy and the Affordable Care Act | Coursera:

This course will explore the many problems of the American health care system and discuss the specific ways that the Affordable Care Act will impact access, quality, costs, as well as medical innovation.

Categories: Economics, Finance, and Business; Healthcare, Medicine, and Biology

Next Session: June 2012. Duration: 4 weeks

About the Course

The American health care system has many problems. 50 million people are uninsured. Quality is extremely uneven, with peaks of greatness at leading academic centers but overall poor quality in both process measures and outcomes such as asthma deaths. Finally, the U.S. health care system spends over $8000 per patient per year, nearly double next highest country. In March 2010, the Affordable Care Act was enacted. Over the next decade or more, the Act will dramatically re-structure the American health care system.

This course will explore the history and structure of the current American health care system, including the history of and problems with employment-based health insurance, the challenges surrounding access, cost and quality, and the medical malpractice conundrum. The course will then explore the history of health care reform and the challenges that were overcome to achieve health reform in America. Finally, we will delineate the specific ways that the Affordable Care Act improves access and quality, and will control costs. Throughout lessons regarding health economics, health policy, and medical practice will be elucidated.

This class is open to anyone that is interested in gaining a better understanding of the US health care system and the challenges of health care reform. There are no prerequisites or required knowledge of the health system.

The Polling Firm Rasmussen Lies to Its Clients

Remember this every time you read a Rasmussen Poll. Everytime:

Rasmussen Reports update@rasmussenreports.com
Date: May 31, 2012 8:03:54 AM EDT
To: XXXXXX@gmail.com
Subject: Economic Chart Indicates Massive Inflation to Strike in 2013

Dear Friends,

Please find a special message from our paid sponsor, Newsmax.com. Sponsorships like this help to allow us to continue to send you our Daily Update free of charge. We appreciate your interest in our work.

Rasmussen Reports

Dear Reader,

"The data is clear, 50% unemployment, a 90% stock market drop, and 100% annual inflation . . . starting this year."

These were the prophetic words spoken to me recently by famed economist and New York Times best-selling author Robert Wiedemer, at a private dinner in Palm Beach, Fla.

"You see, the medicine will become the poison," Wiedemer continued, as he pulled a worn manila envelope from his briefcase. Skeptical of his claims at first, Wiedemer showed me the chilling evidence (click here to see the same charts I saw that night).

I was shocked.

The very next day, Wiedemer stopped by my office to record an interview for a private audience explaining how America got itself into this mess, and how these individuals could find safe, secure investments during the tumultuous times ahead.

To see that exact interview — click here now.

Aaron DeHoog
Financial Publisher
Newsmax and Moneynews

Stuff Counerparties Is Not Linking to: "Amity Shlaes, Apparently, Bizarrely Still Employed as a Columnist"

Twitter / counterparties: Counterparties:

Amity Shlaes, apparently, bizarrely still employed as a columnist ‪#StuffWeAreNotLinkingTo‬

Not to mention that--for some reason--Sebastian Mallaby employs her as a Senior Fellow in "Geoeconomics" at the Council on Foreign Relations.

Bloomberg and the Council on Foreign Relations have a lot of explaining to do...

Siri: I am infinitely more likely to say "Malthus" than "Waffles"...

Liveblogging World War II: May 30, 1942

Second Battle of Kharkov - :

Soviet attacks to break out of the encirclement cease. Fewer than one man in ten managed to break out of the "Barvenkovo mousetrap". Beevor puts Soviet losses in terms of prisoners as 240,000[6] (with the bulk of their armour), while Glantz citing Krivosheev gives a total of 277,190 overall Soviet casualties.] Both agree on a low German casualty count, 20,000 dead, wounded and missing.

Siri: I am 10 gazillion times more likely to say "surely" than I am to say "Shirley"

I don't even know anybody named "Shirley"!

Hoisted from the Archives: A Non-Sokratic Dialogue on Social Welfare Function

A Non-Sokratic Dialogue on Social Welfare Functions: Archive Entry From Brad DeLong's Webjournal:

Glaukon: "Professor!"

Agathon: "Professor! Good to see you. Getting coffee?"

Glaukon: "Yes. I'm teaching. I find that teaching is always and everywhere a caffeine phenomenon."

Agathon: "I tend to find that teaching is usually a bagel phenomenon myself. What are you going to teach them?"

Glaukon: "Social welfare. Utilitarianism. Condorcet. Arrow. Aggregation of preferences. Preference-revealing mechanisms."

Agathon: "Sounds like a full class."

Glaukon: "You have no idea."

Agathon: "Be sure to teach them about the market's social welfare function."

Glaukon: "The market has a social welfare function?"

Agathon: "Under appropriate conditions of perfect competition, non-increasing returns, and the absence of externalities the market's decisions about the production and allocation of goods and services attain a point on the Pareto frontier. Every point on the Pareto frontier maximizes some social welfare function."

Glaukon: "Yes, of course."

Agathon: "Therefore the market, considered as a collective mechanism for making social decisions, chooses to maximize a particular social welfare function. It is instructive to consider what that social welfare function is."

Glaukon: "I resent the tone in which you are talking down to me."

Agathon: "You do not. This part of this conversation never took place in even approximate form in the real world. It is interpolated in order to bring readers of this weblog up to speed. Since I never said my last speech to you, you could not have resented it."

Glaukon: "And I want readers of this weblog to know that I am considerably smarter and more clued-in than the author of this dialogue is letting me appear to be."

Agathon: "Are you quite finished?"

Glaukon: "Plato at least worked harder to make his information dumps fit more gracefully into the conversation. I want a better author.

Agathon: "Are you quite, quite finished?"

Glaukon: "Yes."

Agathon: "As I was saying, the market system chooses an allocation. That allocation can only be justified under the assumption that moves parallel to the Pareto frontier in every direction--moves that transfer wealth from one member of society to another--are of no benefit to social welfare, while moves toward the Pareto frontier do benefit social welfare. If we restrict ourselves to social welfare functions that are weighted sums of individual utilities, that means that the market system's social welfare function gives each individual a weight inversely proportional to his or her marginal utility of wealth."

Glaukon: "Didn't somebody say about society that there was no such..."

Agathon: "Hush! If you want to quote Margaret Thatcher, you must introduce her as a speaking character in this dialogue and grant her some of your time..."

Glaukon: "I? You're the authorial stand-in in this dialogue, not me..."

Agathon: "That means that the market system, in weighting utilities and adding them up, gives you a much lower utility than it gives Richard Cheney. In fact, if marginal utility of wealth is inversely proportional to the square of lifetime wealth, the market system gives Richard Cheney about 400 times as big a weight as it gives you."

Glaukon: "That's sick."

Agathon: "And it gives Bill Gates a weight about 400,000,000 times as big a weight as it gives you."

Glaukon: "That's sicker."

Agathon: "But it gives you about 40,000 times the weight it gives your average Bengali peasant, who thus has about 1/160,000,000,000,000 the amount of the market system's concern as Bill Gates has. Will you teach that?"

Glaukon: "They'll call me a Communist!"

Agathon: "But it's true!"

Glaukon: "That I'm a Communist?"

Agathon: "No. That that's what the market system does!"

Glaukon: "We are value neutral economists! We don't care about distribution! We care about efficiency!"

Agathon: "But claiming that you don't care about distribution is implicitly saying that shifts in distribution are of no account--which can be true only if the social welfare function gives everybody a weight inversely proportional to their marginal utility of wealth."

Glaukon: "You're introducing politics into a value-neutral technocratic social science."

Agathon: "Politics?! Moi? I'm simply evaluating the derivatives of a social welfare function under the assumption that the market allocation is its ArgMax. What could be more technocratic than that? I'm just trying to attain a little clarity of thought."

Thrasymakhos: "But where rule rests not--as somebody or other said at one of Old Joseph de Maistre's little soirees in St. Petersburg--on the hangman, but on misdirection and confusion, to strip away the veils of alienation and false consciousness that keep humans from perceiving their species-being, the act of unveiling is itself a powerfully political act."

Agathon: "Are you Thrasymakhos or Karl Marx?"

Thrasymakhos: "Ah. Marx thought unveiling was a good thing. I think it is neither good nor bad, for 'good' like 'justice' is really just another word for the interest of the stronger party."

Glaukon: "And we gave you tenure here at Berkeley?"

Thrasymakhos: "Shhh! The humanities departments still think relativism is sexy. They haven't yet figured out that to assume a position of relativism--like the claim to be neutral on issues of distribution--is really a statement that you are on the side of the powerful."

Agathon: "And are you?"

Thrasymakhos: "It is the just and the good--or, rather, the 'just' and the 'good'--thing to do."

Cosma Shalizi: Awakening from the Nightmare of History

Cosma Shalizi's Comparative-Economic-Systems-Course-in-a-Box:

There is a passage in Red Plenty which is central to describing both the nightmare from which we are trying to awake, and vision we are trying to awake into. Henry has quoted it already, but it bears repeating.

Marx had drawn a nightmare picture of what happened to human life under capitalism, when everything was produced only in order to be exchanged; when true qualities and uses dropped away, and the human power of making and doing itself became only an object to be traded. Then the makers and the things made turned alike into commodities, and the motion of society turned into a kind of zombie dance, a grim cavorting whirl in which objects and people blurred together till the objects were half alive and the people were half dead. Stock-market prices acted back upon the world as if they were independent powers, requiring factories to be opened or closed, real human beings to work or rest, hurry or dawdle; and they, having given the transfusion that made the stock prices come alive, felt their flesh go cold and impersonal on them, mere mechanisms for chunking out the man-hours. Living money and dying humans, metal as tender as skin and skin as hard as metal, taking hands, and dancing round, and round, and round, with no way ever of stopping; the quickened and the deadened, whirling on. … And what would be the alternative? The consciously arranged alternative? A dance of another nature, Emil presumed. A dance to the music of use, where every step fulfilled some real need, did some tangible good, and no matter how fast the dancers spun, they moved easily, because they moved to a human measure, intelligible to all, chosen by all.

There is a fundamental level at which Marx’s nightmare vision is right: capitalism, the market system, whatever you want to call it, is a product of humanity, but each and every one of us confronts it as an autonomous and deeply alien force. Its ends, to the limited and debatable extent that it can even be understood as having them, are simply inhuman. The ideology of the market tell us that we face not something inhuman but superhuman, tells us to embrace our inner zombie cyborg and loose ourselves in the dance. One doesn’t know whether to laugh or cry or running screaming.

But, and this is I think something Marx did not sufficiently appreciate, human beings confront all the structures which emerge from our massed interactions in this way. A bureaucracy, or even a thoroughly democratic polity of which one is a citizen, can feel, can be, just as much of a cold monster as the market. We have no choice but to live among these alien powers which we create, and to try to direct them to human ends. It is beyond us, it is even beyond all of us, to find “a human measure, intelligible to all, chosen by all”, which says how everyone should go. What we can do is try to find the specific ways in which these powers we have conjured up are hurting us, and use them to check each other, or deflect them into better paths. Sometimes this will mean more use of market mechanisms, sometimes it will mean removing some goods and services from market allocation, either through public provision7 or through other institutional arrangements8. Sometimes it will mean expanding the scope of democratic decision-making (for instance, into the insides of firms), and sometimes it will mean narrowing its scope (for instance, not allowing the demos to censor speech it finds objectionable). Sometimes it will mean leaving some tasks to experts, deferring to the internal norms of their professions, and sometimes it will mean recognizing claims of expertise to be mere assertions of authority, to be resisted or countered.

These are all going to be complex problems, full of messy compromises. Attaining even second best solutions is going to demand “bold, persistent experimentation”, coupled with a frank recognition that many experiments will just fail, and that even long-settled compromises can, with the passage of time, become confining obstacles. We will not be able to turn everything over to the wise academicians, or even to their computers, but we may, if we are lucky and smart, be able, bit by bit, make a world fit for human beings to live in.

Cosma Shalizi's Comparative-Economic-Systems-Course-in-a-Box

is here.

It is the best thing I have read this month (besides, of course, "Fiscal Policy in a Depressed Economy").

As President, Mitt Romney...

will work to expand and enhance access and opportunities for Americans to hunt, shoot, and protect their families, homes, and property…

The Return of Major C.H. Douglas and Social Credit...

Miles Kimball revives the Social Credit Movement:

I proposed an addition to the toolkit of fiscal policy: “Federal Lines of Credit” or FLOC’s.  Here is the idea.  Imagine that the economy is in a recession and the President and Congress are contemplating a tax rebate.  What if instead of giving each taxpayer a $200 tax rebate, each taxpayer is mailed a government-issued credit card with a $2,000 line of credit?  ($4,000 for a couple.)  Even though people would spend a smaller fraction of this line of credit than the 1/3 or so of the tax rebate that they might spend, the fact that the Federal Line of Credit is ten times as big as the tax rebate would have been means it will probably result in a bigger stimulus to the economy.  But because taxpayers have to pay back whatever they borrow in their monthly withholding taxes, the cost to the government in the end—and therefore the ultimate addition to the national debt—should be smaller.  Since the main thing holding back the size of fiscal stimulus in our current situation has been concerns about adding to the national debt, getting more stimulus per dollar added to the national debt is getting more bang for the buck.  

I have a new paper that spells out the argument in greater detail.  It has the same name as this post.  Here it is:  “Getting the Biggest Bang for the Buck in Fiscal Policy.”

Next up: Robert Hall on Silvio Gesell, to be followed by Ed Glaeser on Henry George...

In 12 minutes on the streets of Berkeley, we saw 18 Priuses...

Nick Clegg's Self-Criticism Struggle Session

Twitter / Aaron Swartz @aaronsw: ‏

Clegg: 'The British establishment is broken. The institutions at the top have let down the people.' Starting with the Deputy PM, perhaps?

Yes, the Future of the Global Economy Is Worse than I Had Imagined. Why Do You Ask?

Joe Weisenthal:

Sovereign Bond Yields Falling All Over The Place: Here's The REAL Story Of What's Happening To Government Bond Markets Around The World: Yields are shooting higher in Spain and Italy this morning, but actually that obscures the truth about what's going on in the government bond department. The fact of the matter is that yields are plunging left and right.

• The yield on the US 10-year bond has just fallen below 1.7%. UPDATE: the yield has just hit 1.6713%, a brand new record low.
• In Germany, the 10-year has fallen to a new record of 1.33%.
• UK borrowing costs have hit a record low of 1.73%.
• In Finland, the yield on the 10-year is 1.624%. You guessed it, that's a record low.
• Sweden: The 10-year yields 1.405%. Same deal.
• In Australia, the 10-year has dropped close to a record low of 3.061%.
• Canadian 10-year yields at 1.87% are close to a record low.
• Japan's 10-year: 0.85%.
• Swiss 10-year: 0.59%.

Get the point?

All around the world, people are clamoring for the safety of government debt...

Neighbors' Wi-Fi Network Names...

• Bearlover
• happy house
• The Fighting Mongooses
• trutina$1
• home computer
• NETGEAR
• WLJAY1

Liveblogging World War II: May 29, 1942

Adolf Hitler:

Führer Directive 42: Instructions for operations against unoccupied France and the Iberian Peninsula (previously known as 'Attila' and 'Isabella')

I. The development of the situation in unoccupied France, or in the French possessions in North Africa, may render it necessary in future to occupy the whole of French territory. Likewise we must reckon on possible enemy attempts to seize the Iberian Peninsula, which will call for immediate counter-measures on our part.

II. Because of the continual shifting of our forces in the West, and the consequent changes in the readiness for battle of our formations there, only general principles can be given for carrying out these operations. Similarly, the situation with regard to manpower and equipment makes it impossible to keep forces and material permanently available for these operations. Therefore the directives already issued for 'Attila' and 'Isabella' are cancelled with immediate effect. Improvised plans for both operations will, however, be made so that they can still be carried out at very short notice.

III. Occupation of unoccupied France in co-operation with Italian Forces (cover name 'Anton' (most secret). Day of commencement of operations, A-day).

1. The object of the operation is to break the powers of resistance of unoccupied France and to occupy the country. It will therefore be the task of the German forces, without weakening coastal defence, with quickly formed and very mobile forces, to seize by surprise such objectives as are important for defence, and thus to eliminate the possibility of French resistance. It will be particularly important to seize quickly the larger French garrison towns, railway junctions, dumps of supplies, munitions and arms, airfields, and the seat of the Government, Vichy. It will be the task of the Italians to occupy the French Mediterranean coast (and Corsica) and, by blockading naval bases, particularly Toulon, to prevent the French Home Fleet and merchant vessels in Mediterranean ports from passing over to the enemy. The Italians will be supported in this by German naval and air forces in the Mediterranean. The Italians may also, if the situation requires, have to take action in Tunisia. A force for this purpose is now being formed.

2. The High Command of the Army {Army Group D) will make all necessary preparations in view of the forces available. The special forces required to support the Army in particular tasks (e.g. the occupation of Air Force establishments, the elimination of signals centres, and sabotage) are to be formed by the branches of the Armed Forces and by the departments of the High Command of the Armed Forces, upon request of, and in agreement with, the High Command of the Army.

3. It will be the task of the Air Force to give direct support to ground operations in France and, in co-operation with the Italians, to eliminate such French air forces as remain in France. If 7th Air Division and the necessary transport are available, advantage will be taken of all possibilities of air-borne landings. In order that the Air Force may be used for this purpose, the necessary ground organisation is to be set up at once in occupied France.

IV. First counter-measures against an enemy assault on the Iberian Peninsula (cover name 'Ilona' (most secret). Day of crossing the frontier, I-day).

1. The first aim of our counter-measures will be to occupy the southern passes of the Pyrenees and thus establish the conditions necessary for future operations. Any threat to the strategically important ports on the Atlantic coast of France will be met by securing the harbours on the northern coast of Spain.

2. Negotiations and preliminary discussions with the Spanish and other non-German authorities concerning these plans are forbidden.

V. The High Commands of the branches of the Armed Forces will report by 10th June concerning both operations, as follows:

(a) Proposed strength of forces.

(b) Proposals on general lines for carrying out operations.

(c) Time required before operations can begin.

(d) Demands or requests to the Italians, and possible ways of supporting them (see III, 1, sub-section 3).

The necessary discussions with the Italians will then be authorised by the High Command of the Armed Forces.

signed: ADOLF HITLER

Paging the Scottish Chapter of the Eighth International...

Would Ken MacLeod and Charlie Stross and Iain Banks please pick up the white courtesy phone and contribute to Crooked Timber's Red Plenty Seminar?

Thank you. Kim Stanley Robinson is already on board...

Why Oh Why Can't We Have a Better Press Corps? Yes, in a Good World the Washington Post Would Have Shut Down Years Ago Department

The Washington Post editorial page surprises Duncan Black with its total idiocy:

Eschaton: I Thought Fred Hiatt's Crayon Scribble Page Could No Longer Surprise Me: Some people might be wrong, and other people might be right, but the worst thing to do would be to give in to the people who might be right, because they are the wrong sort of people. Better to prolong the suffering of millions to keep the hippies away from the cocktail party.

Indeed. Everybody with even a gram of moral fiber working for any of the arms of the Washington Post needs to think very hard about what they are doing--and act appropriately.

This is truly disgusting:

Washington Post Editorial Board: Keeping Greece in the euro zone: Whether Germany’s insistence on austerity and restructuring is correct in principle or not — and there’s ample room for debate on that point — the worst thing to do would be to abandon it in the face of a populist revolt by Syriza or other extremists of the left and right. That would send the wrong signal to those who would create similar mischief across Southern Europe.

If there is to be any relaxation in the austerity program, it should be a reward for a clear Greek vote in favor of continued euro membership on June 17. Unfortunately, Ms. Merkel’s efforts to define the pending election in those terms are being undermined by French President Francois Hollande, who used the recent meeting of European leaders to push for joint “euro bonds” and more money-printing by the European Central Bank.

Though perhaps useful as part of some end-game, after troubled debtor nations have restructured their economies, the measures Mr. Hollande advocates cannot win German support now because Berlin, not unreasonably, believes that they would relieve pressure for necessary reforms. All Mr. Hollande is accomplishing is encouraging those in Greece who seem bent on gambling with their country’s future and the economic health of the world…

Colin Danby: Don't Take David Graeber as Representative of Analysts of Modern U.S. Imperialism

Because: Imperialism! — Crooked Timber: Colin Danby:

Tim:

1. Again, I invite you to meditate on the question of what would be disconfirming evidence for Graeber.

2. Chapter 12 has an extremely thin scholarly apparatus, and standard sources are unmentioned. It is also sprinkled with howlers about central banking and money—the more Graeber purports to explain stuff e.g. fn9, the worse he gets. He hasn’t done the basic homework to understand how these institutions work. (Indeed, he seems to mock himself, beginning the chapter with a couple of word-salady pages about gold and conspiracy theories.)

3. Nonetheless the chapter is long on big claims e.g. that credit money rests on military power (364). (He footnotes Braudel a few lines down, but if he actually read Braudel he would find ample evidence of credit money emerging in merchant-and-finance circuits that circumvented state power.)

4. Key claims like the Iraq-dollar theory were defended by Graeber as being mere rumors, free of substantiation—a wholly circular argument that if enough people suspect something, their belief is grounded.

5. The discussion on 372 is symptomatic of the relations between evidence and assertion. We get in succession a weird claims that only certain U.S. “tributaries” were “allowed to catapult themselves out of poverty and into first-world status.” (what countries are we talking about? no evidence, not even names) and then “after 1971, as U.S. economic strength reltive to the rest of the world began to decline, they were gradually transformed back into a more old-fashioned sort of tributary.” I’m trying to think of any countries for which that might be the case, or whom even this sequence of events applies. But no referencing. What Graeber is doing, however, is clear: China (then and now) represents several obvious counterarguments to his glib claims about how U.S. power works. So he’s doing a bit of hand-waving around the idea of “tribute” to try and contain this.

6. So yes, the text of chapter 12 tells us that this is a deductive rather than inductive account, enlarging on Graeber’s pet ideas (some of which are good) and ornamenting them with a few details about international finance and the U.S. financial system, some of them wrong. This is not an account that starts by mastering the relevant literature or evidence, it is not even an account that takes the time necessary to get basic stuff right.

7. I would again invite you to read Block (1977) and indeed at any of the classic works of Amin, Frank, Furtado et al. because they are not just “theorizing” but actually attend to evidence about the world. I do hope people realize that Graeber’s shoddy drive-by is not typical of the lit on imperialism.

Agglomeration Economies and Industrial Policies

Paul Krugman:

Motor City Stories: Brian Palmer has a nice summary of the reasons behind the concentration of car companies in Michigan… historical accident perpetuated by agglomeration economies. What he doesn’t say is that there is a close relationship between such stories and the case for the auto bailout. Agglomeration economies exist because… the network of suppliers, the skills, the interchange of knowledge supported by a geographical industry concentration in turn gives firms in that industry concentration an advantage…. Now, the existence of important agglomeration economies immediately implies that there are social consequences to the success or failure of an individual firm that aren’t captured by the profit and loss statement of that firm alone. Let General Motors fail, and the resulting collapse of its suppliers will hurt other firms too, possibly driving them out of business too. You don’t want to overuse this sort of argument…. But it was surely a major consideration for the auto bailout — and a reason why hard-line opposition to any such action was bad economics.

And the Band Played Waltzing Matilda...

Susie Madrak sends us to:

Anybody Have an Informed View on Who I Should Vote for for the Democratic Committee for the Fifteenth Assembly District of California?

Romney made Bain the Center of the Jobs Issue

Romney made Bain the center of the jobs issue | luimbe.com:

[A]s Randy Johnson astutely observed in our profile.... “None of what happened in Marion in the 1990s would be very interesting,” Johnson notes, “if Mitt Romney had not built his entire political career on the claim that he’s a job creator.”

We also interviewed Marc Wolpow, a former Romney colleague at Bain, who defended the buyout business as promoting American competitiveness. The main goal at buyout firms, however, is never maximizing employment, Wolpow told us. It’s maximizing returns for investors. “The facts,” Wolpow said, “tend to get lost in the political spin.”

source:  Mitt Romney’s Private Equity Nightmare – Businessweek.

Firscal Policy: Martin Wolf: "Mr. Cameron, Mr. Clegg: Turn This Ship Around!"

Martin Wolf:

The IMF on UK macroeconomic policy: What [the IMF] means, in carefully modulated bureaucratic prose, is that the economy is not doing at all well….

Does the Fund Staff’s call for a possible rethink on fiscal policy make sense? The answers are: yes and no.

Yes. There is no question that, if further monetary and credit-easing measures fail to push the economy out of its rut (which is all too likely, given the weak impact of monetary policy so far, the difficulty of making “credit-easing” work swiftly,  and the dire news from the eurozone, much), then present fiscal policy must be reconsidered…. No. There is no case for further delay, as soon as one accepts the argument that the economy suffers from severe and entrenched weakness of demand. Of course, if you believe that the economy is always in equilibrium or that the stagnation is a proper punishment for past evil, even if it is the innocent who are suffering, you will not share this view.

If one ignores these views, one sees that the worst of the global financial crisis was almost four years ago (provided the eurozone does not actually melt down) and that the UK economy has been stagnant for almost two years. How long then is a change in policy supposed to wait?

I find it hard to believe that the Fund staff disagree that action is needed right now. It is far more likely that they (and, not least, the IMF’s Managing Director, Christine Lagarde) felt unable to take on the government of what remains an important member country. That is also what the BBC’s Stephanie Flanders suggests in her excellent post, “IMF: ‘Great Policies: Shame about the Economy’." The economy – by which I mean spending by the private sector – is strong, not weak, as it is now. What, then, is the argument against using fiscal policy more aggressively, to support the economy now?….

Is it the case that greater flexibility on fiscal policy, to support demand, might destroy the UK government’s credibility, with disastrous results? Here is why I believe the answer to this view is: no.

First, it is quite easy to make a sharp fiscal loosening, through tax cuts and increased infrastructure spending, credibly temporary…. Second, the government has, rightly, targeted the structural, not actual, deficit…. [A] credibly temporary increase in the actual deficit does not increase the structural deficit, other than through additional interest costs, which are negligible at present. The fiscal costs of borrowing for a government able to borrow at a real interest rate of close to zero are, well, just about zero. Indeed, not to borrow when the real interest rate is zero is folly.

Third, a fiscal boost should, plausibly, lower, not raise, the prospective structural deficit. By increasing output both now and in future (by both accelerating deleveraging of the private balance sheet and stimulating private spending), the economy should be permanently bigger and so the structural deficit, for any given level of real spending, smaller. This is particularly plausible when real interest rates are this low and if, as is also very likely, strong hysteresis effects also exist. On the latter, see the influential recent paper by Brad de Long and Larry Summers.

Fourth, if the additional deficit is credibly temporary it should not undermine confidence in the UK’s public finances. Investors could more reasonably conclude that a persistently weak economy, particularly one that does permanent damage to the long-run capacity of the UK economy, is a greater danger to the political and economic sustainability of the government’s plans than a temporary relaxation of those plans, aimed at promoting recovery….

Fifth, the government has already changed its plans in a quite fundamental way, without any effect on “credibility”. Prospective deficits have substantially increased since it announced its initial plans. Indeed, its plans for future borrowing are now remarkably close to those of the Labour government…. This combination of overshooting with backsliding ought, on the government’s very own logic, to have undermined credibility and led to rising interest rates. Has it? No…. Sixth, it is indeed possible that fiscal stimulus would raise interest rates. But this would be because hopes for recovery had improved…. Finally, a willingness to make determined use of fiscal policy should also reduce the uncertainty of decision-makers about the likely direction of the economy. If businesses think the authorities are not determined to sustain demand, they are right to be more cautious. Ultimately, the government insures business against the macroeconomic risks of investment, via its determination to sustain demand in a slump. But the government has shown no such determination, with effects on the willingness of business to invest that we now see. Thus, the very determination to act might make a huge difference to the outcome for the economy.

In brief, the endlessly repeated “credibility” arguments against a change in fiscal policy are feeble. The UK has fiscal levers at its disposal and should use them.

What is true, however, is that a change would weaken the government’s credibility. But this is because the government made an unwise commitment….

There is, however, one interesting alternative to reconsidering fiscal policy. It would be to change the remit for the Bank of England, to focus on nominal GDP, instead of inflation. I intend to examine the advantages and disadvantages of that possibility in a future post.

Fiscal Policy in a Depressed Economy: Late May Presentation Spine

In Normal Times

In normal times, the fiscal policy multiplier μ applied to a government-purchases boost ΔG is effectively zero: the monetary authority has a view of the level of aggregate demand consistent with its price-level target, and will either offset any effect of expansionary fiscal policy on aggregate demand or rapidly take steps to depress the economy to reverse any rise in inflation produced by expansionary fiscal policy. In the multiplier equation in which expansionary fiscal policy raises current-year GDP Yn by:

(1) ΔYn = μΔG

In normal times μ=0, so ΔYn=0

In normal times, expansionary fiscal policy, will, however, raise the national debt by:

(2) ΔD = (1 - μτ)ΔG

which is less than ΔG because the government recaptures some of the cost of short-run expansionary fiscal policy via higher tax collections. This increase in the debt requires raising additional tax revenue to amortize it by:

(3) ΔT = (r-g)(1 - μτ)ΔG

Since raising an additional dollar in taxes carries with it a reduction in GDP via the Laffer parameter ξ, the effect of amortizing the debt is to reduce typical future-year real GDP Yf by:

(4) ΔYf = -ξ(r-g)(1 - μτ)ΔG

Taking the present value of (4) which applies to all future periods and adding it to (1) gives us our equation for the impact of temporary expansionary fiscal policy on the present value of future output:

(5) ΔV = [μ - ξ(1 - μτ)]ΔG

which, in normal times, with μ=0, will simply be:

(6) ΔV = - ξΔG

Expansionary fiscal policy as a stabilization policy tool in normal times is a bad idea.

---

At the Zero Nominal Lower Bound

But what if we are at the zero nominal lower bound? What if the monetary authority wishes the flow of spending were higher, but cannot get there by reducing short-term safe nominal interest rates, and either cannot or will not but in any event does not target spending by itself? Then there will be a positive multiplier μ. The benefit-cost calculation (5) that is the effect of expansionary fiscal policy on the present value of output will turn out positive as long as:

(7) μ > ξ/(1 + ξτ)

For a a marginal tax-and-transfer share τ=0.33 and a Laffer parameter ξ=0.25, expansionary fiscal policy at the zero nominal lower bound is a good deal as long as μ > 0.25; for an ξ=0.5, expansionary fiscal policy at the zero nominal lower bound is a good deal as long as μ > 0.43; for an ξ=1.0, expansionary fiscal policy at the zero nominal lower bound is a good deal as long as μ > 0.75.

Even in the absence of any hysteresis effects--even in the absence of any long-run shadow cast on potential output by a short-run downturn--expansionary fiscal policy at the zero nominal lower bound looks likely to be a good deal even for very moderate values of the multiplier μ.

---

Wedges Between the Cost of Funds and the Social Rate of Time Discount

The calculations so far have assumed that the government can borrow at the social rate of time discount r. What if it cannot? What if there is a wedge ρ between the social rate of time discount r and the government borrowing rate r+ρ? Then our equation (5) becomes:

(8) ΔV = [μ - ξ(1 - μτ)(r+ρ-g)/(r-g)]ΔG

And the benefit-cost test becomes impossible to pass for significant positive values of the wedge ρ: expansionary fiscal policy by the Greek or Spanish or Italian governments right now is a bad idea.

Conversely, suppose that there is a negative value of ρ: suppose government debt carries with it a liquidity or a safety premium so that the government can borrow for the long term at less than the social rate of time discount--as the U.S., Germany, and Japanese governments can do now. Then the cost terms in (8) shrink, and the benefit-cost test becomes even easier to pass. If the magnitude of the safety and liquidity discount is large enough, (8) can be positive even were the multiplier μ to be zero: in such circumstances, it would indeed be the case that--in the words of Alexander Hamilton--a national debt would be a national blessing.

---

Hysteresis and Self-Financing Expansionary Fiscal Policy

Return to the case in which the Treasury real borrowing rate is the social rate of time discount, but allow for hysteresis effects: a current downturn in Yn today casts a shadow on potential output in a typical future years so that in the absence of Laffer parameter effects:

(9) ΔYf = ηΔYn

Then we find that the extra tax revenue raised from higher potential output due to a reduced shadow cast by the downturn more than covers the cost of amortizing the extra debt needed to finance expansionary fiscal policy if:

(10) ημτ > (r-g)(1 - μτ)

Or:

(11) r > g + ημτ/(1 - μτ)

(12) η > (r-g)(1/μτ - 1)

For a g=2.5%/year, an r=4%/year, a τ=0.33, and a μ=1.0, equation (11) is satisfied and short-run expansionary fiscal policy is self-financing for η>0.03. Even if only 1/30 of the downturn turns into a permanent shortfall in potential output, expansionary fiscal policy is self-financing--and austerity is self-defeating.

For a g=2.5%/year, an r=6%/year, a τ=0.33, and a μ=0.5, equation (11) is satisfied and short-run expansionary fiscal policy is self-financing for η>0.17. Even if only 1/6 of the downturn turns into a permanent shortfall in potential output, expansionary fiscal policy is self-financing--and austerity is self-defeating.

---

Hysteresis and the Benefit-Cost Test

Even if expansionary fiscal policy now is not self-financing, the existence of hysteresis effects shrink the net costs and make it much easier to pass the benefit-cost test. Equation (5) then becomes:

(12) ΔV = [μ(1 + η(1 + ξτ)/(r-g)) - ξ(1 - μτ)]ΔG

For μ=0.5, η=0.05, τ=1/3, g=2.5%/year and r=6%/year...

• Expansionary fiscal policy passes its benefit-cost test as long as raising $1.00 in extra tax revenue reduces incomes by less than $10.00...
• Compare to the $0.25 estimates of Diamond and Saez and Romer and Romer...

---

Conclusion

This seminar has simply been a matter of reduced-form arithmetic. If your model has a multiplier μ, a Laffer parameter ξ, a hysteresis effect η, and tax shares, GDP growth rates, and Treasury borrowing rates τ, g, and r, then for reasonable parameter values expansionary fiscal policy appears highly likely to be self-financing at the zero nominal lower bound in which there is a non-zero multiplier. Moreover, even for unreasonable parameter values expansionary fiscal policy appears highly likely to pass its benefit-cost test.

If you want to upset this result, you need to:

1, assert that there is or soon will be a large positive wedge ρ between the Treasury borrowing rate and the social rate of time discount; 2. assert that the multiplier μ is effectively zero even at the zero nominal lower bound on interest rates; or 3. assert that there are no hysteresis effects η--that the future path of potential output is invariant to the size of today’s downturn.

In a world in which the CBO and the FRB have already marked down their estimates of potential output in 2020 by more than 3% as a result of the financial crisis and recession and jobless recovery that began in 2008, the last of these seems the least credible of the three. And the first two seem not credible at all.

I Just Dreamed That I Gave a Brilliant Eight-Hour Lecture on the Monetary History of Greece since Independence...

Exchange rates, budget deficits, financial systems, political economy. It was magnificent…

Now I am frantically attempting to write it down...

The Eurosystem Dilemma and Its Solution in a Nutshell

Peter Thal Larsen ‏@peter_tl:

@Pawelmorski Greek deposits +/- €160bn. Spanish deposits 10 times that amount. What body could credibly provide that kind of guarantee?

Dan Davies @dsquareddigest:

@peter_tl @Pawelmorski if only there was some entity capable of printing Euros, rather than having to mine them out of the ground...

Things I Forgot to Post Months Ago: Since 1990, 10 Out of 11 Divergences Between the Headline and the Core PCE Price Indexes Have Seen the Headline Subsequently Converge to the Core...

…and all 11 of 11 such divergences arise because headline inflation jumps up or down with core inflation remaining stable.

One of the basics of macroeconomics is that (a0 core inflation is a better indictor of what headline inflation will be than headline inflation, and (b) that jumps in headline inflation carry next to no information about future values of either core or headline inflation:

In comments, PM informs us that this basic empirical fact is unknown to Stephen Williamson:

New Monetarist Economics: Core Inflation: In general, which prices are volatile and which are not will depend on the monetary policy regime and what the central bank is attempting to target….[T]he Fed could choose instead to target the prices of volatile-price goods…. The volatile prices are now smooth, the smooth prices are volatile, and the good forecasting tool for the future price level is the volatile price…. I don't see anything solid that justifies the Fed's focus on core inflation measures. Indeed, one could, I think, make a better case for looking at headline inflation measures.

Core inflation prices are smooth and food-and-energy prices volatile with a smooth money stock. To try to stabilize food-and-energy prices would require an unstable money stock--sending money into a deep nosedive to push down wages, etc. whenever the real price of energy rose, and sending money skyrocketing to push up wages, etc. whenever the real price of energy fell.

I can't see why anybody would think that a policy involving such instability in a control variable would be preferable to one with a smooth path of the control variable.

Am I missing something?

Liveblogging World War II: May 28, 1942.

Chester Nimitz:

Cincpac File No.
A16-3/A4-3/
FF12(12)/(16)
Serial 0114 W.

UNITED STATES PACIFIC FLEET
U. S. S. PENNSYLVANIA,  Flagship
FLAGSHIP OF THE COMMANDER-IN-CHIEF   May 28, 1942.                 S E C R E T   From: Commander-in-Chief, United States Pacific Fleet.
To: Commander Striking Forces (Operation Plan 29-42).
Subject: Letter of Instructions.   1. In carrying out the task assigned in Operation Plan 29-42 you will be governed by the principle of calculated risk, which you shall interpret to mean the avoidance of exposure of your force to attack by superior enemy forces without good prospect of inflicting, as a result of such exposure, greater damage to the enemy. This applies to a landing phase as well as during preliminary air attacks.   C. W. NIMITZ.                              Copy to:

Cominch.
ComTaskFor. 16. (Delivered by hand by War Plans)
ComTaskFor. 17. (Delivered by hand by War Plans)
ComTaskFor. 11. (Hold until arrival Pearl)

Does Niall Ferguson Think Before He Speaks?

You cannot make this stuff up.

Matthew Yglesias has clear and convincing evidence that he does not:

Niall Ferguson on the Educational Credentials You Look For In A President:

The president wants this election to be the White House vs. Wall Street. But if it’s really Harvard Business School vs. Harvard Law School, I’ll take the M.B.A. over the J.D. every time.

Something Ferguson might want to consider is that Mitt Romney has a J.D. from Harvard just like Barack Obama. And George W. Bush—perhaps not America's finest leader—has an M.B.A. from Harvard just like Mitt Romney.

Rand Paul's Freedom to Lie Amendment

Rand Paul:

(a) IN GENERAL.—The Federal Government may not take any action to prevent use of a claim describing any nutrient in a food or dietary supplement… as mitigating, treating, or preventing any disease, disease symptom, or health-related condition, unless a Federal court in a final order following a trial on the merits finds clear and convincing evidence based on qualified expert opinion and published peer-reviewed scientific research that—

(1) the claim is false and misleading in a material respect; and

(2) there is no less speech restrictive alter- native to claim suppression, such as use of disclaimers or qualifications, that can render the claim non-misleading.

Note: not based on it being "more likely than not" that the claim is false, or based on no evidence that the claim is true, but based only on "clear and convincing evidence based on qualified expert opinion and published peer-reviewed scientific research"; not an administrative decision, but a court finding; not a rebuttable presumption, but after a trial on the merits.

General Mills does not want the "freedom" to claim that Cheerios is the key to eternal life until and unless somebody publishes peer-reviwed scientific research saying it is not, and the FDA takes them to court and persuades a judge to issue a final order stating that there is clear and convincing evidence that it is not. But Rand Paul wants them to have that "freedom"--and wants the rest of us to have the unfreedom of having every reason not to believe what food and drug manufacturers claim.

In response, Ministry of Truth no like Rand Paul:

Daily Kos: Rand Paul says mislabeled bad milk is Free Speech, accurate FDA label laws are censorship: It's like BadLipReading, only he's actually saying this stuff on purpose… Watch Senator Rand Paul try to end the FDA's ability label to accurately label food. That's right, food labels that are accurate are unconstitutional. The logic behind this is an insane rant that could come out of an Adam Sandler movie. Rand Paul is an awesome senator if you are a business or a businessman, if you are people, and I mean flesh and bone people, Senator Rand Paul is about as useful as trying to block sunburn with Capri Sun. Case in point….

Sen. Paul:

Mr. President, today I'm offering an Amendment to the FDA. I'm troubled by images of armed agents, armed FDA agents raiding Amish farms and preventing them from selling milk directly from the cow…. The First Amendment says you can't prevent speech, even commercial speech, in advance of this speech. You can't tell Cheerios that they can't say that there is a health benefit to their Cheerios….

ARand Paul quickly shifts from suffering Amish farmers to Cheerios, doesn't he? So now Cheerios is being oppressed, because the FDA won't let them advertise their health benefits, as seen on this cheerios.com website, which lists under the "Why They're So Good" section….  

• 14 Vitamins & Minerals * Low Fat * Good source of calcium * Good source of fiber * Made with whole grain* * Helps reduce the risk of heart disease * Can help lower cholesterol* * 1g sugar * Excellent source of iron * Certified by the American Heart Association, Learn more at http://heartcheckmark.org

Clearly, a fanatical power hungry armed and dangerous FDA is oppressing Cheerios, but do go on and tell me more Rand….

This amendment would stop the FDA from censoring claims about curative, mitigative effects of dietary supplements. It would also stop the FDA from prohibiting distribution of scientific articles and publications….

Get that? Rand wants to stop the FDA from prohibiting distribution of scientific articles?… No one is stopping Prune Juice from talking about the benefits of prune juice, but we have a problem with them saying it cures leprosy…. Rand… [says] we should let them label their products however they want with no oversight at all, in the name of free speech, and he is tying that to an imagined strawman of a military division of the FDA…

Why Oh Why Can't We Have a Better Press Corps? Yes, New York Times, I Am Looking at You Department

I know that the New York Times does not care about whether its op-ed stable knows anything about what they are writing about, but even given that, this is ridiculous:

Ross Douthat: The Facebook Illusion: The Web 2.0 illusion survived long enough to cost credulous investors a small fortune last week, in Facebook’s disaster of an initial public offering.

I will confess to taking a certain amount of dyspeptic pleasure from Facebook’s hard landing, which had Bloomberg Businessweek declaring the I.P.O. “the biggest flop of the decade” after five days of trading. Of all the major hubs of Internet-era excitement, Mark Zuckerberg’s social networking site has always struck me as one of the most noxious, dependent for its success on the darker aspects of online life: the zeal for constant self-fashioning and self-promotion, the pursuit of virtual forms of “community” and “friendship” that bear only a passing resemblance to the genuine article, and the relentless diminution of the private sphere in the quest for advertising dollars.

But even readers who love Facebook, or at least cannot imagine life without it, should see its stock market failure as a sign of the commercial limits of the Internet…

The founders of and early investors in Facebook now have large pieces of an enterprise whose franchise is showing online ads to people based on who their "friends" are, and the market values this franchise at $75 billion.

That's "a sign of the commercial limits of the internet"? Given that a third of Facebook's market is likely to be in the United States, that $75 billion is $300 for every American family. If Facebook manages to capture 3/5 of the value it ultimately adds, that means that the creation of a Facebook has added $500 per family to America's wealth. That's not chopped liver.

So why does Ross Douthat think it is? Well, he reads his Bloomberg Businessweek, he hears of the (justified) annoyance of traders at the inability of the NASDAQ to smoothly manage the IPO, and he hears of the disappointment of those who had bet that the market would value Facebook not as a $75 billion (i.e., $32/share) but as a $90 billion business (i.e., the $38/share IPO price) or as a $100 billion business (i.e., $42/share). For those who had placed big bets that it would be at least a $90 billion business, the fact that it has turned out to be only a $75 billion business is--for them--the biggest IPO flop of the decade.

But to call the creation of a $75 billion company in 8 1/2 years ex nihilo a "stock market failure"?

Ross Douthat has no clue what he is talking about.

Seriously Time-Varying Expected Returns Department: Why the Next Year's Expected Equity Return Premium Is 9%...

PIMCO: Gross:

This is a capital preservation market. Return of, not on, your money becoming critical.

If you have any risk-bearing capacity at all, now is the time to use it…

Liveblogging World War II: May 27, 1942

The assassination of Reinhard Heydrich:

In London, the Czechoslovak government-in-exile resolved to kill Heydrich. Jan Kubiš and Jozef Gabčík headed the team chosen for the operation. Trained by the British Special Operations Executive (SOE), the pair returned to the Protectorate by parachute, jumping from a Handley Page Halifax, on 28 December 1941. They lived in hiding, preparing for the assassination attempt.

On 27 May 1942 Heydrich was scheduled to attend a meeting with Hitler in Berlin. German documents suggest that Hitler intended to transfer Heydrich to German-occupied France, where the French resistance had started to gain ground. Heydrich would have to pass a section where the Dresden-Prague road merged with a road to the Troja Bridge. The intersection, in the Prague suburb of Libeň, was well-suited for the attack because Heydrich's car would have to slow for a hairpin turn. As the car slowed, Gabčík took aim with a Sten sub-machine gun, but it jammed and failed to fire. Instead of ordering his driver to speed away, Heydrich called his car to a halt and attempted to take on the attackers. Kubiš then threw a bomb (a converted anti-tank mine) at the rear of the car as it stopped. The explosion wounded Heydrich and Kubiš.

When the smoke cleared, Heydrich emerged from the wreckage with his gun in his hand; he chased Kubiš and tried to return fire. Kubiš jumped on his bicycle and pedalled away. Heydrich ran after him for half a block but became weak from shock. He sent his driver, Klein, to chase Gabčík on foot. In the ensuing firefight, Gabčík shot Klein in the leg and escaped to a safe house. Heydrich, still with pistol in hand, gripped the left side of his back, which was bleeding profusely.

A Czech woman went to Heydrich's aid and flagged down a delivery van. Heydrich was first placed in the driver's cab, but after complaining that the truck's movement was causing him pain, he was placed in the back of the truck, on his stomach, and taken to the emergency room at Na Bulovce Hospital. He had suffered severe injuries to his left side, with major damage to his diaphragm, spleen, and lung, as well as a broken rib. Dr. Slanina packed the chest wound, while Dr. Walter Diek tried unsuccessfully to remove the splinters. He immediately decided to operate. This was carried out by Drs. Diek, Slanina, and Hohlbaum. Heydrich was given several blood transfusions. A splenectomy was performed. The chest wound, left lung, and diaphragm were all debrided and the wounds closed...

The Real Earnings Yield on the S&P Composite Is Now 7%/Year

The real interest rate on the 30-year TIP is 0.63%/.

The real interest rate on the 5-year TIP is -1.02%/year.

Markos Moulitsas Zuniga: 10 Years. 10 Freakin' Years

Daily Kos:

Daily Kos: 10 years. 10 freakin' years: Exactly 10 years ago, I wrote my first tentative words on a site I called "Daily Kos" until I could think of a better name (which obviously never happened). People love to quote those words, even though they make me cringe for some reason. Heck, everything I wrote in those days makes me cringe.

I was but a wee thing—30 years old. Having survived the dot.com crash, barely, I had a good job working with great people, and living in the best place on earth with my young wife. I still didn't have kids, which was crucial, because this site wouldn't exist if I had kids back then.

I tested the concept of Daily Kos two weeks before the site officially launched. I created a blogspot site and seeded it with some content to see if blogging was up my alley. It wasn't the first time I had blogged—I started my blogging career writing the "Hispanic Latino News Service" while in law school (1996-99), before blogging tools automated the whole process. I would spend four hours every day formatting the HTML for each update and manually transferring the previous day's content into the archives. (Michael D dug that stuff up last year.) It was blogging before blogging officially existed.

Anyway, after a couple of days of testing the waters on that blogspot site, I decided that yes, this was something I wanted to seriously do, so I secured the domain name and set up my Movable Type site. It was exciting! Sure, I had no readers, but I never thought I'd have any readers, so that was okay. Each new visitor to the site was a surprise and a delight! It's much easier to do this blogging thing if you set your expectations way low, and back then there was no such thing as a popular blogger, so only an idiot would expect much of anything.

I worked surreptitiously back then. "Kos" was as much an Army nickname as a way to keep my boss from knowing I was working on this site on company time. I was good at my job and worked efficiently, so it was never a problem for my employer. And even later, when I told him what I was doing, his only request was that I be discreet about it so my coworkers wouldn't get the wrong idea. Did I mention I worked with great people?

So I spent time working on Daily Kos at work, and then I spent time working at it from home after work, which proved that in addition to a great employer, I also had a great (and very patient) wife. Those were simpler web times, so I could handle much of the backend of the site, and I loved to tweak and tweak some more.

Ten years later, things are quite a bit different. This whole blogging medium has become more institutionalized—the most successful bloggers either getting sucked up by bigger media outlets, or growing into significant media operations of their own. The lone individual blogger is rare these days, and even rarer is the new voice emerging from the blogosphere. That makes me sad.

On the other hand, Daily Kos now has 21 full-time employees and several more contractors, and I have the resources to strengthen a platform that has amazingly given voice to hundreds of thousands of people. I wouldn't have even dreamed that 10 years ago.

I started Daily Kos for me. As an American, I felt betrayed by the Bush Administration. I was angry at a complicit and cowed media. I felt isolated and angry that my country was going to hell, and that the so-called liberals in the traditional media (coughJoe Klein*cough*) were cheering it along. This site was, for me, therapy. It was an outlet for my frustrations. It was never supposed to be anything more.

What I quickly discovered was that I wasn't alone. That there were others like you who felt the same. Perhaps I shouldn't have been surprised, but I was. While I was a lone voice in the wilderness, you guys turned the site into a chorus. And trust me, you sing better than me ... so phew!

So thanks for being here, and staying here, and helping build this place. These have been the fastest 10 years of my life. But no matter how much we've accomplished, we're still just getting started.

Check below the fold for the site's evolution over the last 10 years…

The Ongoing Transformation of Cyclical into Structural Unemployment

The Economist:

Humbler horizons: WHEN the American economy emerged from recession three years ago, forecasters fell into two broad camps. Optimists reckoned brisk growth would quickly return the economy to its long-term potential level of output, the maximum sustainable GDP that could be achieved with the capital and labour on hand. That would pull down unemployment and prop up inflation. Pessimists, however, predicted sluggish growth.... What has actually happened.... Unemployment and inflation have moved in the directions that optimists expected. Since peaking at 10% in late 2009, the jobless rate has now fallen by nearly two percentage points.... Yet economic growth has averaged 2.5%, a rate more typical of the economy at full employment rather than when recovering from a deep bust....

But there is another, more troubling possibility.... Unemployment has fallen because there are fewer people available to work. Inflation is stable because there is less idle capacity to restrain prices. This would be bad news all round. America would be permanently poorer than would otherwise have been the case....

Policymakers do not embrace this scenario. Ben Bernanke, the Fed chairman, said last year that the crisis and recession had not left “major scars” on the economy’s potential. Other countries’ experience suggests he may be wrong. A 2009 paper by the OECD, a think-tank, studied 30 developed countries and concluded that crises on average reduced the level of potential GDP by 1.5% to 2.4%. Severe crises—America’s easily qualifies—knocked it back by nearly 4%. The International Monetary Fund, studying a much broader sample of crises, found that seven years after the onset of a banking crisis, GDP was on average still 10% below where its pre-crisis path would have put it....

What accounts for this stifling effect? Both the OECD and the IMF argue that crises stunt the three main ingredients of growth: capital, labour and innovation.... Official forecasters are coming round to this way of thinking. The Congressional Budget Office has repeatedly revised down its estimates of America’s output potential since 2007 (see right-hand chart). It reckons the output gap this year will be 5% of GDP; it would have been 10% had potential remained on its 2007 trajectory.... Earlier this year, staff at the Federal Reserve also marked down their estimate of the country’s potential GDP... America’s potential growth rate averaged just 1.8% from 2008 to 2010, far below the 2.5% that Fed policymakers generally cite as the long-term trend....

The IMF notes that countries that responded to past crises with aggressive monetary and fiscal stimulus, structural reforms and rapid repair of their financial systems limited the loss of potential. American policymakers have tried to apply those lessons but not, apparently, hard enough.

Liveblogging World War II: May 26, 1942

Mitt Romney Believes in Expansionary Fiscal Policy

Matthew Yglesias:

Mitt Romney on Fiscal Policy: The GOP candidate sounds like Paul Krugman except without the qualifications about the zero lower bound and the liquidity trap:

Halperin: You have a plan, as you said, over a number of years, to reduce spending dramatically. Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office? Why not do it more quickly?

Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%. That is by definition throwing us into recession or depression. So I’m not going to do that, of course.

So front-loaded tax cuts, offset over time by phased-in spending cuts. That's a pretty textbook Keynesian approach. A fair amount of scholarship indicates that doing your stimulus on the tax side gets you less bang for your buck, but there are logistical considerations on the other side—it's easier to do a massive tax cut really quickly than to ramp up a useful spending program.

Paul Krugman Is Part of the Sensible Bipartisan Center, Believing in a Broad Tax Base, Low Tax Rates, a Government That Limes the Playing Field But Does Not Pick Winners, Full Employment, Price Stability, and Progressive Taxation

Yet Martin Wolf calls him a "liberal columnist". What is going on here?

Martin Wolf:

Lunch with the FT: Paul Krugman: [T]he Landmarc restaurant… on Columbus Circle…. Krugman, 59, most hated and most admired columnist in the US, rumpled and professorial, is sitting at a small table in the middle of the restaurant, working on his laptop…. "I don’t think they can save Greece but they can still save the rest if they’re willing to offer open-ended financing and macroeconomic expansion.” But this would mean persuading the Germans to change their philosophy of economic life. “Well, the prospect of hanging concentrates the mind; the prospect of a collapse of the euro might concentrate their minds.”

I change the subject to ask how he has coped with the shift from being predominently an academic economist to being the leading spokesman for the liberal cause….

We thought I’d be writing about the follies of dotcoms and stuff like that and then it turns out that it’s a much more awesome and ominous responsibility. It was nothing I ever planned. Really, the rough period was the first [George W] Bush term when it seemed like the whole world was mad…. I have to say, though, that the economic crisis has played into the things that I was worrying about 15 years ago. It’s been almost alarmingly easy to figure out what to say. But it’s a very strange thing: it’s not at all what I was imagining I was going to be doing with my life….

At this point we order: salade niçoise for Krugman; foie gras terrine for me; and a bottle of sparkling water. This is definitely not going to be up to the gourmet standards of some lunches with the FT….

I ask whether he is not being unfair to Ben Bernanke…. Krugman responds swiftly:

We don’t care about deflation because having a small minus, instead of a small plus, makes a huge difference to the world. We worry about deflation because we think it is a reason why one has a persistently depressed economy. While we may not have deflation, we have a persistently depressed economy…. I have actually very few complaints about monetary policy here through some point in 2009. I thought that Ben [Bernanke] responded aggressively and forcefully, which was the right thing to do. He stepped in with the original QE [quantitative easing] and stabilised the economy. The question is, what did he do as we started to look more and more like Japan? At that point the logic says you have to find a way to get some traction. Fiscal policy might be great. But if you’re not getting it you should be doing something on the Fed side and I think that logic becomes stronger and stronger as the years go by. And it’s sad to see that the Fed has largely washed its hands of responsibility for getting us out of the slump.

I hope that some day Ben Bernanke and Janet Yellen [vice-chair of the Fed] will think that I’ve done them a favour. There’s all this sniping from the hard money guys and somebody needs to say, ‘Actually, no, if we actually think about this realistically, you’re doing too little and not too much.’

So what, I wonder, would he do if he were put in charge? He says he would add maybe another $2tn to the Fed’s balance sheet, by purchasing a wider range of assets, including more private sector liabilities. “But mostly”, he continues, “you work on the expectations side….

We turn to his view of US politics. How does he explain what is going on? He responds….

One is money. There are think-tanks which don’t actually do a whole lot of thinking but which are lavishly financed…. You can have a lot of fun if you go back and look at what they were saying, and it’s hilarious, about Iceland as a role model, or the wonders of the Irish system. And then there is something about the appeal of this hard-money, gold-standard thing and it’s always had an appeal, but it seems even stronger now. I would have thought that the fact that people like me have been so much closer to [being] right on inflation and interest rates would move a substantial number of people into thinking that maybe their preconceptions were not right.

But no.

These things are always complicated but some of it is about money. Look, with even a few mild words of reproof, Obama has lost a huge funding source from Wall Street. And you have got to give the right credit: they play a long game. They’ve spent 40 and more years working on ‘government is bad’ or ‘taxes are bad’….

So how does Krugman cope with the hatred he attracts?

2002 to 2004 were by far the worst, and that was mostly not about economics, that was about the fact that I was pretty much alone in saying we’d been lied into [going to] war. But you do need to develop a thick skin. I’ve partly developed the attitude that if I don’t get a whole lot of hysterical pushback then I probably have wasted the space in the column. I’ve been in this a long time and it was really shocking in the beginning. But eventually you get acclimated. I think it scares a lot of people off. I think a lot of journalists, the first time they publish something even mildly critical of rightwing orthodoxy, they hit this firestorm and they never come back. They run scared ever after. But I’m long past that point…

Who Are You Going to Believe?: Paul Krugman vs. Arthur Laffer

Paul Krugman:

Enter, Laffering: Sorry about blog silence. Too much stuff in Seattle.

Tomorrow is Lalaland, doing Bill Maher. Also on, Art Laffer.

This might be an occasion to revisit some of the predictions various parties made a few years back. Here’s Laffer three years ago, Get Ready for Inflation and Higher Interest Rates:

But as bad as the fiscal picture is, panic-driven monetary policies portend to have even more dire consequences. We can expect rapidly rising prices and much, much higher interest rates over the next four or five years, and a concomitant deleterious impact on output and employment not unlike the late 1970s.

OK, it’s only three years, so I guess there’s still time for the hyperinflation — but it had better get a move on. I think my take is doing a bit better:

Let me add, for the 1.6 trillionth time, we are in a liquidity trap. And in such circumstances a rise in the monetary base does not lead to inflation.

Also, my declaration at about the same time that

our current predicament can be thought of as a global excess of desired savings — which means that fiscal deficits won’t drive up interest rates unless they also expand the economy.

Incidentally, we’re coming up on the second anniversary of my attack on the myths of austerity.

Just thought it might be worth recalling all this stuff for the record.

What gets my goat the most is not just that they were so wrong--the Laffers, Camerons, Trichets, Lucases, Cochranes, Famas, Boldrins, Boehners, Kocherlakotas, etc.--but that they have made absolutely no attempt since to mark their beliefs to market.

A zombie bank that is underwater because it has made lousy investments does not liquidate, but doubles down, hoping that luck will turn its way and carry it above water again. These are zombie economists and politicians. If they were to admit that they were so wrong and mark their beliefs to market, they would lose face, lose influence and authority, and lose their jobs. So much better in their view not to think, to double down, and hope that luck will turn their way and they can then fuzz the issue of how wrong they were back in 2008 and 2009.

The Red Herring of "Too Big to Fail"...

dsquareddigest:

Dear lots of editorial writers: why not take a trip to Spain and ask them what they think of "small, local, simple" banks over there?

Alan Beattie:

.@dsquareddigest "A Northern Rock in Every District". See also roaring success of S&L industry or indeed US banking system in the 1930s.

Liveblogging World War II: May 25, 1942

Second Battle of Kharkov:

25 May saw the first major Soviet attempt to break the encirclement. German Major General Lanz described the attacks as gruesome, made en masse.

Alan Rickman Stole All 8 Harry Potter Movies from Daniel Radcliffe. With 1/10 the Screen Time

Richard Nixon on the Curse of Barry Goldwater...

A catch by Matthew Yglesias:

Ebony, 1962: [Nixon] looked out of the 11th floor window and scanned the skyline of the city which he now calls his workplace--a four-hour jet flight from the city in which he earned an international reputation--Washington, DC. "I have another program for my party", he said, his face breaking into a smile, apparently aware that this project will certainly involve him in national headlines.

It is a mistake for the party to accept the beliefs of Sen. Barry Goldwater and write off the Negro vote. If Goldwater wins his fight, our party would eventually become the first major all-white political party. And that isn't good. That would be a violation of GOP principles.

Indeed it was. And is.