Grasping Reality on TypePad, by Brad DeLong

The DeLong Excel Quadratic Equation Solver

For when you want your children to check their own answers to math problems of the form:

ax² + bx + c = 0

The DeLong Excel Quadratic Equation Solver: Quadratic_Solver.xls

The U.S. Government Kicks in for the United Airlines Bankruptcy

From Caroline Daniel of the Financial Times:

FT.com / Transport / Airlines - US to assume pension plans at United : United Airlines has reached an agreement with the federal agency that insures defined benefit pension plans to transfer $6.6bn in pension liabilities, marking the biggest pension transfer to the government.... The agreement with the Pension Benefit Guarantee Corporation comes after United reached an impasse with some unions over its need to terminate pension plans.... According to the PBGC, United's pension plans are underfunded by $9.8bn. Of this, the government will assume $6.6bn in liabilities, with the shortfall representing the loss in promised pension benefits for employees. The PBGC's largest previous claim was in 2002, when Bethlehem Steel terminated its defined benefit plans, at a cost of $3.6bn.... The agreement, which needs approval from the bankruptcy judge, would make the PBGC the trustee of four separate defined benefit plans at United. Further details which could include the PBGC being granted an equity stake in United will be released next week, ahead of a court hearing on May 4...

Why Oh Why Are We Ruled by These Fools?

Ah. Economic policymaking in the Bush administration. From the Financial Times's Andrew Balls:

FT.com / Home UK - Treasury feels White House heat on policy. By Andrew Balls: [T]he US Treasury suddenly called for China to move immediately to a flexible currency. Two senior administration officials said the call to change tactics on China was a political decision made at the White House. The Treasury's policy - widely supported by China experts who say Beijing is less likely to move in the face of public hectoring - was overturned because of White House concern at rising protectionist pressure in Congress. The sharp change was the clearest sign yet that economic policy in President George W. Bush's second term is going to be led firmly from the White House.

A tight team of close associates of the president is calling the shots, say current and former administration officials. This group consists of Dick Cheney, vice-president, Andrew Card, the president's chief of staff, Joshua Bolten, director of the Office of Management and Budget, and Karl Rove, the president's political adviser who has assumed a broader co-ordinating role, including overseeing economic policy....

[O]verruling the department on foreign exchange matters, traditionally the Treasury's domain, marked a new departure. It is not clear exactly who made the call on China.... Richard Medley, head of Medley Global Advisors, tells clients that there is no one dominant voice on economic policy.Messrs Cheney, Card, Bolten and Rove, the key decision-makers, take the lead on different economic policy issues.... The White House inner circle is widely acknowledged to consist of very smart people, but they are not economists and do not have financial market backgrounds. Some current and former administration officials worry that when the decisions are taken, there is often no economist in the room...

Grownup Democrat Watch

From the Carpetbagger Report:

Carpetbagger Report: Chuck Grassley... told the New York Times, "I'm going to put together a Republican-only bill as a first step to getting bipartisan support because I can%u2019t lose time waiting for the Democrats to come to the table." The funny thing is, Dems have come to the table; they just don't like what they've found... quietly sat down with White House officials recently to see what kind of Bush-backed plan they can support: "'There isn't anything to be on board with--there's no plan,' said Sen. Ben Nelson (D-Neb.).... 'I have not yet heard an idea that I can vote for,' said Sen. Mark Pryor (D-Ark.), who noted that he met with Bush administration officials to discuss Social Security two weeks ago." After months of disarray and embarrassments, the Bush gang is finally dealing with Dems who are prepared to bolt from their otherwise unified caucus--and even under these circumstances, the White House has nothing to offer.

Fareed Zakaria Reviews the Bush Cheerleaders' Clown Show

He watches John Bolton, David Brooks, and William Kristol put on the floppy shoes and the red plastic noses:

Conservative Contradictions by Fareed Zakaria: 'Senator Frist should schedule a floor debate without time limits,' William Kristol argued in The Weekly Standard. If Democrats want this debate, Kristol wrote, 'let Republicans make them pay a price' for it. David Brooks... agreed, explaining that Bolton's disdain for 'global governance' has... support in the country. 'We'll never accept it... because it's undemocratic.... Multilateral organizations look like meetings of unelected elites, of technocrats, who make decisions in secret.... [W]e will never allow transnational organizations to overrule our own laws, regulations, and precedents.'

Perhaps the debate should center on the globe's most powerful international body, the World Trade Organization.... Its rulings on disputes between nations are binding. It is undemocratic and filled with technocrats. And it was an American creation that conservatives supported wholeheartedly.... It's strange. Most of our debates about multilateral bodies seem to involve those organizations that are really talking shops.... The ones that have real clout are almost all in the economic realm. And they surely are the most significant .... [Y]ou don't hear John Bolton or his defenders objecting to any of this....

I think the WTO has been hugely beneficial to Americans--and the rest of the world. It has expanded trade, opened markets and made our economy far more productive.... The WTO was America's idea, a way to make other countries open their markets and increase trade. We agree to bind ourselves to these rules because it means that everyone plays by them as well. The organization has forced change in all its member countries.... American firms understand that sovereignty has been breached anyway. Capital, goods and services move freely across borders... manage this process in a way that benefits all. That usually means some system of (gasp) global rules....

[T]here is increasingly the reality of a world in which other countries want their interests taken into account. That means that for many issues... the only durable solutions will be ones that involve some rules that everyone agrees to... 'global governance.'... The United States wanted to punish the perpetrators of the horrific atrocities in Darfur. But to do so, it had to find some system by which such judgments could be made. It could not be a purely American process.... So Washington reluctantly (and quietly) agreed to refer Darfur to the International Criminal Court, which we have been actively trying to kill and that exists despite strenuous American objections...

Why Oh Why Can't We Have a Better Press Corps? (Bill O'Reilly Edition)

Oliver Willis reports:

Cashin' In On O'Reilly | Oliver Willis: Looks like Mr. Falafel himself got taken to the cleaners: "Andrea Mackris, the former associate producer for Fox News Channel who made headlines by suing talking head Bill O'Reilly for sexual harassment, recently purchased an Upper West Side condo for $809,500, according to deed-transfer records."

Grownup Republican Watch: Alan Greenspan

Ah. Nice to see:

washingtonpost.com: Greenspan Says He Expects Tax Increases: "Federal Reserve Chairman Alan Greenspan said yesterday, for the first time explicitly, that he expects tax increases to be part of any eventual agreement to reduce the federal budget deficit. Greenspan... also acknowledged that his support for tax cuts in early 2001... led to policies that helped swing the federal budget from surplus to deficits.... Greenspan reminded lawmakers that government economists at the time predicted budget surpluses 'as far as the eye can see.' Yet Greenspan had warned then in congressional testimony that the forecasts might be wrong, and he recommended some 'trigger' mechanism that would limit the tax cuts if certain budget targets were not met. Greenspan said he thinks 'it's frankly unfair' for critics to blame him now for the fact that Congress chose to 'read half [his] testimony and discard the rest.'

Sen. Paul S. Sarbanes (D-Md.) said he believed it was 'fair to consider how your message would be taken' and that lawmakers saw Greenspan's 2001 remarks as 'providing a green light' for tax cuts, which were enacted without triggers.

'I plead guilty to that,' Greenspan said. 'If indeed that is the way it was interpreted, I missed it. In other words, I did not intend it that way.'... 'The federal budget deficit is on an unsustainable path, in which large deficits result in rising interest rates and ever-growing interest payments that augment deficits in future years,' Greenspan said in his prepared testimony yesterday.... The Fed chief called for 'major deficit-reducing actions' and proposed several procedural steps Congress could implement to restrain the deficit's growth. Greenspan has frequently said he would prefer the deficit be shrunk as much as possible through spending cuts.... But he also implied that reaching a bipartisan agreement to reduce the deficit will require some compromises, saying, 'We can raise taxes, and I don't deny we probably at the end of the day will do them [tax increases] in order to get an ultimate resolution of this.'

Jackie Calmes on Chuck Blahous

Jackie Calmes on Charles Blahous, from the Wall Street Journal:

WSJ.com - Architect of Social Security Plan Perseveres: Blahous, Who Convinced Bush of Need for Benefit Cuts, Works Behind Scenes to Sway Skeptics. By JACKIE CALMES Staff Reporter of THE WALL STREET JOURNAL: With a never-used Ph.D. in chemistry, Mr. Blahous has instead made a career of trying to shore up and partially privatize the government's most popular program.... He also helped persuade the president to reject the arguments of some conservatives who say that creating private accounts alone can fix Social Security, without more painful changes in benefits and taxes.... While higher-ranking advisers spend more time with the president, they use Mr. Blahous's talking points. "He's our ongoing rabbi," says chief White House strategist Karl Rove.... Mr. Blahous has an instinct for bipartisanship that is rare among Bush officials and sorely needed.... After the November election, he helped pave the way for an opinion piece in a national newspaper by Republican Sen. Lindsey Graham of South Carolina and Democratic Sen. Kent Conrad of North Dakota calling for cooperation on Social Security. More recently, he pressed White House advisers to urge antitax group Club for Growth to withdraw television ads denouncing Sen. Graham for proposing a payroll-tax increase on upper-income workers as part of a potential compromise. The group declined to pull them....

When Mr. Simpson retired, Mr. Blahous was snatched up by Sen. Judd Gregg.... Once in the White House, Mr. Bush hired Mr. Blahous for his National Economic Council staff.... By the time Mr. Bush returned to Social Security last year, Mr. Blahous's side had won a crucial internal battle. Years ago, past advisers say, Mr. Bush leaned toward the "free lunch" view -- that personal accounts were the answer to Social Security's looming woes, with hard choices on benefits and taxes unnecessary. Mr. Blahous helped persuade the president that there is no free lunch.... That approach is reflected in the president's current view, which holds that personal accounts are "the dessert" to make palatable the "spinach" of benefit reductions. He argues that younger workers will be better off thanks to investment earnings.... Mr. Blahous also has been influential on potential changes to benefits and payroll taxes... lately, Mr. Bush has indicated he could support raising the wage cap, now at $90,000.

Several months ago, other administration officials were espousing an across-the-board change to the formula for workers' initial retirement benefits, which would greatly reduce future retirees' income. Mr. Pozen by 2004 had crafted a variant of the idea, called "progressive indexing," that would keep the current formula for the bottom third of workers, apply the less generous change for those at the top, and blend the two for retirees in the middle. "This is really an interesting approach," Mr. Blahous told Mr. Pozen in a phone call late last year...

From my perspective, Blahous has made at least three big mistakes if he wants to pull people like me in to support his plan:

1. The proposal for the price-indexation of the bend points ultimately reduces the "defined benefit" Social Security check to zero. That cannot be the right policy.
2. The private-accounts plan he has proposed--with the clawback of the defined-benefit part set at a 3% real interest rate, as opposed to floating with the Treasury borrowing rate--makes his private accounts a lousy deal for the non-rich.
3. Nothing in Blahous's plan increases national savings, save for a hope that after his Social Security plan is passed Republican High Politicians will have a "Road to Damascus" moment and become advocates of fiscal sanity.

It's a good bet that on the first and second of these, Blahous is the only truly senior person inside the White House who understands these issues. And the third should be a deal breaker for taking the job: it's not worth it for anyone serious to be caught advocating a program that does not raise national savings.

A Social Security reform plan that does not preserve a defined benefit component, does not offer a good deal to the non-rich choosing private accounts, and does not boost national savings is not a Social Security reform plan worth proposing. There are no reasons for anybody to support this thing.

Grownup Republican Watch: Colin Powell

Colin Powell joins the shrill, and adds his blunt opinion of the Bush administation clown show to the chorus as he says exactly what he thinks of Bush acolyte John Bolton:

Joshua Micah Marshall Reports:

Talking Points Memo: by Joshua Micah Marshall: April 17, 2005 - April 23, 2005 Archives: [T]he former Secretary of State (and Bolton's boss in the first administration) has been doing what amounts to behind-the-scenes lobbying against Bolton's nomination.... Powell is very much not the only Republican foreign policy heavyweight working in private to scuttle Bolton's nomination. But the degree to which he's going public is sort of extraordinary.... Powell did authorize his spokesperson to confirm on the record that he has had recent phone conversations with Sens. Chafee and Hagel about Bolton while quite pointedly giving no reason to think much of anything he said was positive.... The foothold Bolton's supporters have in this fight is their contention that the only reason Bolton's in trouble is that Democrats are trying to take him down to score political points. Indeed, President Bush made that argument just yesterday. But Powells now-public lobbying knocks that argument right out of the park. Republican senators looking to deny the White House this nomination need some partisan cover; and Powell just gave it to them.

Senator Santorum Should Resign Right Now

In the tank for the mighty and numerous private weather forecast lobby? Talk about a parody of a legislature.

Joshua Micah Marshall writes:

Talking Points Memo: by Joshua Micah Marshall: April 17, 2005 - April 23, 2005 Archives: This page right here is the one I go to to check the weather. It's put out by the National Weather Service. It's a lot like some commercial ones, only it has more information, costs nothing and contains no ads. But as the Carpetbagger Report notes... Santorum (R) of Pennsylvania has introduced a bill that would ban the federal government's meteorologists from making this information available for free since that creates a problem for outfits like The Weather Channel and AccuWeather, which want to sell it.... You paid for the data. Your tax dollars fund a massive apparatus of meteorological data collection for reasons ranging from agriculture to disaster safety to keeping airplanes in the air -- everything under the sun. You pay for it and this is just the feds making it available to you on a website. The cost of letting you access it must be minuscule compared to that of collecting it. Indeed, most of the data these other guys sell is stuff they get from the feds or fed-subsidized data collection. So they're in the business of selling to you the information that your tax dollars already went into collecting. And apparently they add so little added value that they can't handle the competition when the National Weather Service just gives it away. Santorum wants to make these guys into some sort of information age tax farmers. This article in the Palm Beach Post goes into greater detail on the bill. And you can see from its proponents feeble justifications just what a con this is. They note, for instance, that the bill would not prevent the National Weather Service from alerting the public to imminent disasters, which is awfully generous of them.

Can't the Republican Party find a less corrupt and more public-spirited candidate to run for the Senate from Pennsylvania?

Godwin's Law Violation at National Review Online

Think Progress is amazed:

: National Review Online has taken things a few steps further...

In this regard, the consumerism and relativism of the West can be just as dangerous as the totalitarianism of the East: It's just as easy to forget about God while dancing to an iPod as while marching in a Hitler Youth rally. There's a difference, to be sure, but hardly anyone would contest the observation that in elite Western society, as in totalitarian Germany, the moral vocabulary has been purged of the idea of sin. And if there's no sense of sin, then there's no need for a Redeemer, or for the Church...

Not only is this a violation of Godwin's Law, it's also completely false. In elite Western society there is an enormously powerful idea of sin. It is a grave sin, for example, for National Review to tell people that God hates for them to use condoms, and thus--for those gullible enough to believe National Review--increase the chances of their dying of AIDS. That sin is unforgivable.

John Kenneth Galbraith's Legacy--and Lessons for Today

Why my office hours today have been moved to 10:30 to 12, instead of 12-2:

UC Berkeley Journalism / Event: John Kenneth Galbraith's Legacy--and His Lessons for Today: "John Kenneth Galbraith's Legacy--and His Lessons for Today: A Panel Discussion

When: April 22, 2005, 12:00 pm -- 1:30 pm
Where: North Gate Library, Hearst at Euclid Avenue, Berkeley
Tickets: This is a free event.

Brad DeLong is a professor of economics at U.C. Berkeley, chair of the Political Economy of Industrial Societies major, and a research associate of the National Bureau of Economic Research. From 1993-1995 he was a deputy assistant secretary of the U.S. Treasury.

Richard Parker is an Oxford-trained economist teaching at Harvard's John F. Kennedy School of Government. He is a Senior Fellow at the School's Shorenstein Center on the Press, Politics, and Public Policy, a cofounder of Mother Jones, and on the editorial board of The Nation.

Orville Schell is the Dean of U.C. Berkeley's Graduate School of Journalism, author of 14 books, board member for Human Rights Watch, the Social Science Research Council and recipient of numerous awards such as the Overseas Press Club Award for the best Foreign Story and the Harvard/Stanford Shorenstein Award for Reporting on Asia.

Robert B. Reich is University Professor of Social and Economic Policy at Brandeis University, and visiting professor here this term at the Goldman School of Public Policy, has served under three presidents, most recently as Secretary of Labor under Bill Clinton. He is the author of ten books, including 'The Work of Nations,' which has been translated into 23 languages, is co-founder of The American Prospect Magazine, and his commentaries can be heard weekly on public radio. In 2003, Secretary Reich won the Vaclev Havel Prize, awarded annually by the former Czech president, for his work on social and economic thought.

David Altig on "Hard Landings"

From his lair in the Cleveland Fed, David Altig moves the ball forward on the question of how should the Fed watch out for and avoid a "hard landing" whenever Asian central bank dollar-denominated reserve accumulation ceases:

http://macroblog.typepad.com/macroblog/2005/04/landings_hard_a.html
http://macroblog.typepad.com/macroblog/2005/04/landings_hard_a_1.html
http://macroblog.typepad.com/macroblog/2005/04/landings_hard_a_2.html

The last is mostly excerpts from a very nice speech by his boss, President Sandra Pianalto of the Cleveland Fed.

Why Oh Why Can't We Have a Better Press Corps? (David Brooks Jumps Five Sharks, Eight Orcas, and a Blue Whale Department)

Guess the David Brooks column!*

Is it contestant #1?

Chief Justice Earl Warren did more inadvertent damage to our democracy than any other 20th-century American. When he and his Supreme Court colleagues issued the Loving v. Virginia decision, they set off a cycle of political viciousness and counter-viciousness that has poisoned public life ever since, and now threatens to destroy the Senate as we know it.

When Warren wrote the Loving decision, it took the miscegenation issue out of the legislatures and put it into the courts. If it had remained in the legislatures, we would have seen a series of state-by-state compromises reflecting the views of the centrist majority that’s always existed on this issue. These legislative compromises wouldn’t have pleased everyone, but would have been regarded as legitimate.

Instead, Warren and his colleagues invented a right to miscegenation that existed nowhere in the Constitution, and imposed a solution more extreme than the policies of just about any other comparable nation.

Southern voters became understandably alienated from their own government, feeling that their democratic rights had been usurped by robed elitists. Liberals lost touch with working-class Americans because they never had to have a conversation about values with those voters; they could just rely on the courts to impose their views. The parties polarized as they each became dominated by absolutist activists.

The fact is, the entire country is trapped.  Earl Warren and his colleagues suppressed that democratic miscegenation debate the nation needs to have. The poisons have been building ever since. You can complain about the incivility of politics, but you can’t stop the escalation of conflict in the middle. You have to kill it at the root. Unless Loving v. Virginia is overturned, politics will never get better. 

Is it contestant #2?

Justice Harry Blackmun did more inadvertent damage to our democracy than any other 20th-century American. When he and his Supreme Court colleagues issued the Roe vs. Wade decision, they set off a cycle of political viciousness and counter -viciousness that has poisoned public life ever since, and now threatens to destroy the Senate as we know it.

When Blackmun wrote the Roe decision, it took the abortion issue out of the legislatures and put it into the courts. If it had remained in the legislatures, we would have seen a series of state-by-state compromises reflecting the views of the centrist majority that's always existed on this issue. These legislative compromises wouldn't have pleased everyone, but would have been regarded as legitimate.

Instead, Blackmun and his concurring colleagues invented a right to abortion, and imposed a solution more extreme than the policies of just about any other comparable nation.

Religious conservatives became alienated from their own government, feeling that their democratic rights had been usurped by robed elitists. Liberals lost touch with working-class Americans because they never had to have a conversation about values with those voters; they could just rely on the courts to impose their views. The parties polarized as they each became dominated by absolutist activists. Abortion activists focused their attention on judicial nominations.

Each nomination battle is more vicious than the last as the methodologies of personal destruction are perfected. You get a tit-for-tat escalation as each side points to the other's outrages to justify its own methods. Republicans now threaten to change the Senate rules and end the filibuster on judicial nominees. That they have a right to do this is certain. That doing this would destroy the culture of the Senate and damage the cause of limited government is also certain.

The fact is, the entire country is trapped. Harry Blackmun and his colleagues suppressed that democratic abortion debate the nation needs to have. The poisons have been building ever since. You can complain about the incivility of politics, but you can't stop the escalation of conflict in the middle. You have to kill it at the root. Unless Roe vs. Wade is overturned, politics will never get better.

Or is it contestant #3?

Chief Justice Earl Warren did more inadvertent damage to our democracy than any other 20th-century American. When he and his Supreme Court colleagues issued the Brown v. Board decision, they set off a cycle of political viciousness and counter-viciousness that has poisoned public life ever since, and now threatens to destroy the Senate as we know it.

When Warren wrote the Brown decision, it took the segregation issue out of the legislatures and put it into the courts. If it had remained in the legislatures, we would have seen a series of state-by-state compromises reflecting the views of the centrist majority that’s always existed on this issue. These legislative compromises wouldn’t have pleased everyone, but would have been regarded as legitimate.

Instead, Warren and his colleagues invented a right to integration, overturning more than a half-century of established precedent, and imposed a solution more extreme than the policies of just about any other comparable nation.

Southern voters became alienated from their own government, feeling that their democratic rights had been usurped by robed elitists. Liberals lost touch with working-class Americans because they never had to have a conversation about values with those voters; they could just rely on the courts to impose their views. The parties polarized as they each became dominated by absolutist activists.

The fact is, the entire country is trapped.  Earl Warren and his colleagues suppressed that democratic “integration” debate the nation needs to have. The poisons have been building ever since. You can complain about the incivility of politics, but you can’t stop the escalation of conflict in the middle. You have to kill it at the root. Unless Brown v. Board is overturned, politics will never get better.

Stop the insanity!

---

*Michael Berube is Godlike: http://www.michaelberube.com/index.php/weblog/browns_birth_and_death/

Alan Greenspan Brings Plenty of Refreshments

Alan Greenspan shows up for the sane-fiscal-policy party and brings plenty of refreshments, as he calls for the reinstatement of and the strengthening of the 1990 Budget Enforcement Act's PAYGO provisions:

FRB: Testimony, Greenspan--Budget process reforms--April 21, 2005: [T]he unified budget ran a deficit equal to about 3-1/2 percent of gross domestic product in fiscal 2004, and federal debt held by the public as a percent of GDP has risen noticeably since it bottomed out in 2001.... [A]s the latest projections from the Administration and the Congressional Budget Office suggest, our budget position is unlikely to improve substantially in the coming years unless major deficit-reducing actions are taken.

In my judgment, the necessary choices will be especially difficult to implement without the restoration of a set of procedural restraints on the budget-making process. For about a decade, the rules laid out in the Budget Enforcement Act of 1990 and in the later modifications and extensions of the act provided a framework that helped the Congress establish a better fiscal balance.... Many of the provisions that helped restrain budgetary decisionmaking in the 1990s--in particular, the limits on discretionary spending and the PAYGO requirements--were violated ever more frequently; finally, in 2002, they were allowed to expire.

Reinstating a structure like the one provided by the Budget Enforcement Act would signal a renewed commitment to fiscal restraint and help restore discipline to the annual budgeting process. Such a step would be even more meaningful if it were coupled with the adoption of a set of provisions for dealing with unanticipated budgetary outcomes over time.... [A] well-designed set of mechanisms that facilitate midcourse corrections would ease the task of bringing the budget back into line when it goes off track.... Measures that automatically take effect when costs for a particular spending program or tax provision exceed a specified threshold may prove useful as well. The original design of the Budget Enforcement Act could also be enhanced by addressing how the strictures might evolve if and when reasonable fiscal balance came into view.

I do not mean to suggest that the nation's budget problems will be solved simply by adopting a new set of rules. The fundamental fiscal issue is the need to make difficult choices among budget priorities.... [F]uture Congresses and Presidents will, over time, have to weigh the benefits of continued access, on current terms, to advances in medical technology against other spending priorities as well as against tax initiatives that foster increases in economic growth and the revenue base.... [W]e have been in a demographic lull. But this state of relative stability will soon end.... The combination of an aging population and the soaring costs of its medical care is certain to place enormous demands on our nation's resources and to exert pressure on the budget that economic growth alone is unlikely to eliminate...

Left unsaid--but very clear in everyone's mind--is that nobody can think of a single legislative proposal of the Bush administration or a single budget passed by the Republican Congress that has been in accord with the spirit of PAYGO. Greenspan is letting the Republican congressional leadership know that in his view it has done an absolutely horrible job at fiscal policy.

Bruce Bartlett Is Also Worrying About "Hard Landings"

He writes:

Bruce Bartlett: Steering clear of a recession: The place where the greatest danger lies is with Fannie Mae and Freddie Mac... even the tiniest mistake by them could roil markets... the impending retirement of Alan Greenspan as chairman of the Fed.... Lastly... [h]uge budget and current account deficits mean that vast amounts of capital flows are necessary to keep them funded. So far, this has gone well... the Chinese have been so accommodating about financing the.... But now the U.S. is strongly pressuring China to stop doing this in order to allow its currency to rise against the dollar. It is hoped that this will reduce China’s production advantage in dollar terms and bring down the bilateral trade deficit. However, the cost to the U.S. economy if this happens could be greater than the potential gain. At least in the short run, any scale-back in China’s buying of Treasury securities might cause interest rates to spike very quickly. This could prick the housing bubble and bring down home prices, eroding personal wealth and putting a squeeze on those with floating rate mortgages. Hopefully, this can all be managed smoothly and without either a recession or a market break. But it will take great skill and a lot of luck to avoid both.

Foreign Affairs - Sisyphus as Social Democrat - J. Bradford DeLong

J. Bradford DeLong (2005), "Sisyphus as Social Democrat: A review of John Kenneth Galbraith: His Life, His Politics, His Economics, by Richard Parker," Foreign Affairs May/June 2005.

• http://delong.typepad.com/files/sisyphus-as-social-democrat-foreign-affairs.pdf

Hard Landings II...

When I look at the galleys of the new edition of my Macroeconomics textbook, I am struck by a sense of disappointment. Don't get me wrong--I do think that it is better than every other macro textbook out there, being clearer (though less comprehensive) than Abel-Bernanke, more comprehensive (at the cost of only a little bit of additional difficulty) than Mankiw, and much more approachable (though not as theoretically sophisticated) than Blanchard. But I wish that people who read through or take a course based on the book could then have the tools needed to analyze things like, say, the current debate over the dangers to the U.S. economy from a "hard landing" of the international monetary system.

And the textbook doesn't quite get you there. The amount of material needed to bring students truly up-to-speed on the major issues of the day seems to be a little bit more than I can dare demand.

If I were teaching intermediate macro right now, I would be very tempted to push the envelope and try to get the students to that spot right now. So here are my thoughts on the possibility of a "hard landing," crafted so that they can make sense to students who are only 3/4 of the way through intermediate macroeconomics.

Briefly, the model and the argument teach us that a hard landing is more likely:

• The greater the size and speed of the interest rate and exchange rate movements that take place when foreign central banks stop buying dollars to keep the value of their currencies low.
• The more rigid is the U.S. labor market and the harder it is to move workers and capital from construction and consumption to export and import-competing industries.
• The greater is the pass-through to import prices, and thus the more does a fall in the value of the dollar put upward pressure on U.S. inflation.
• And (this is the big one), whether enough Wall Street firms are exposed and leveraged enough to be bankrupted by large exchange rate or interest rate changes. (Parenthetically, the fact that the U.S. can and so far has borrowed in dollars makes this a much smaller worry than it would be if things were otherwise.)

Anyone who feels like making use of this, please feel free to do so--and, most important, tell me if it works.

Web Clippings--20050420

What I would write about if time were infinite:

http://www.comicon.com/thebeat/archives/2005/04/the_fed_goes_co.html: The Fed goes comics. Look out Marvel. Fire in the hole, DC. Guard the family jewels, Viz and Tokyopop -- there's a new comics publisher on the scene, and they've got the financials down to a science. The Federal Reserve has revamped their website, and introduced a number of educational materials to help us understand just why Alan Greenspan is one of the world's most powerful men. For those of you even more fiscally ignorant than The Beat The Federal Reserve is America's bank, and sets interest rates, and watches over much of the world's money supply. Among the items available to educators are some comics which explore what our money does and and where it came from. Here's the exciting line-up:

1. Wishes and Rainbows: Uses a children's story to illustrate the economic problem of scarce resources and society's reactions to such problems.
2. The Story of Money: Describes the barter system, the advantages and properties of money, various types of money, problems of too much money (inflation), and the tools of the Fed to influence the growth of the money supply.
3. A Penny Saved: Describes what would happen if people did not save, why and how we save, why we put our savings into banks, simple and compound interest, stocks and bonds, why savings is important for the national economy.
4. Once Upon A Dime: The barter system, invention of money, minting and printing, banks, checking accounts, inflation, central banks.
5. Too Much, Too Little: Drawbacks of the barter system, dangers of using commodities as money, money problems during the colonial and revolutionary eras, creating a national monetary system, finding the right balance between too much and too little money, growth of state-chartered banks, use of Greenbacks during the Civil War, emergence of Populist and Greenback political parties, the banking panic of 1907, creation of the Federal Reserve System, 1913.

http://ezraklein.typepad.com/blog/2005/04/reasons_this_co.html: Ezra Klein: Reasons This Country is Going to Need to Fix Its Health Care System and Fast: From the LA Times: "General Motors Corp. on Tuesday posted a first-quarter net loss of $1.1 billion, its worst quarter in 13 years, due to disappointing sales in the crucial North American automotive market and soaring healthcare costs. ... Other analysts, though, said GM could be holding back as part of its negotiations on healthcare costs with the United Auto Workers.... GM has warned that its U.S. healthcare costs could grow to $5.8 billion this year. Making things look as bleak as possible would help GM persuade the union to pass on some of the company's healthcare costs to its hourly workers, analysts said...

http://www.thewashingtonnote.com/Steve Clemons: White House Wants to Battle On for Bolton: Counselor to the President Dan Bartlett has reported that the White House intends to power on and doesn't consider Voinovich's stand a 'no vote' yet.... I think that we actually do need more time to consolidate the case against John Bolton, to bring out the other stories which are now developing, and to have a conversation with Senators and the American public about three questions:

1. Should 'Serial Abuse' of subordinates be not only tolerated in government, but rewarded?
2. Should ideologically driven public servants have the ability to play it to the edge, and even over the edge, in generating their own intelligence, trying to predetermined intelligence outcomes, and have the latitude to undermine delicate Bush administration national security initiatives?
3. Should senior level Bush administration officials be able to access the nation's most secret secrets so as to spy on colleagues, their conversations, and their comments about him? (this is what some suspect the infamous NSA intercepts may show)
4. Should a senior Bush administration official be able to get away with such 'flagrant lying' about these issues to Congress?

There is a long list that can be added -- but let's stop there. Just a note to my friends in the White House, this is not a partisan game. Many, many Americans -- Republicans, Democrats, and Independents -- DO NOT THINK THAT WE SHOULD BE SENDING SOMEONE TO THE U.N. OF WHOM WE DO NOT FEEL PROUD...

http://www.prospect.org/weblog/archives/2005/04/index.html: TAPPED: April 2005 Archives: CONSTITUTION IN EXILE.... I'd be remiss not to direct you to Jeffrey Rosen's excellent article on the 'Constitution in Exile' movement.... There isn't... a group of people who self-identify in this way and are marching in lockstep to impose a uniform view of the Constitution.... [But] "there is clearly a group of scholars and judges who hold the view that judges should give far greater deference to what they view as core economic liberties in reviewing legislative decisions... a group whose viewpoint differs on the one hand from Scalia's federalism and originalism, and... from the tradition that largely defers to Congress on matters of economic regulation."... Given the near-total collapse of the small government program as a legislative agenda, the judicial sphere becomes the last place in which an actual shrinkage of the state might be achieved. And -- appallingly -- it's something that risks happening essentially in the dark.... [T]he overwhelming majority of people seem to have no idea that the GOP may put judges on the bench who would strike down statutes that no Republican presidential candidate would ever dare advocate repealing in public...

http://www.wonkette.com/politics/republicans/gop-activists-turn-on-their-own-040335.php: Wonkette - GOP Activists Turn On Their Own: Our condolences to new Democrat George Voinovich (R - OH). Just hours after the Ohio senator asked the Senate Foreign Relations Committee to 'take a little bit more time' before voting on John Bolton, Move America Forward had an attack ad ready to go. 'WIFE: Did you hear how disloyal Senator Voinovich was to Republicans and President Bush? Voinovich stood with the Democrats and refused to vote for John Bolton, the man President Bush has chosen to fight for the United States at the UN...he missed most of the Bolton confirmation hearings, but then shows up at the last minute and stabs the President and Republicans right in the back...Shame on Senator Voinovich.' HUBBY: 'It seems like Senator Voinovich has become a traitor to the Republican Party.' Want to help Move America Forward remind Republican legislators they're all George's bitches now? Then send them a few bucks...

http://www.thismodernworld.com/: This Modern World: Terrifying. This really does not bode well: Rachael Herron's new condo will ensure her financial salvation -- unless it provokes her ruin. Herron put no money down for her tidy one-bedroom, borrowing the entire purchase price of $211,000. To keep her monthly payments as low as possible, she got an adjustable-rate mortgage that won't require her to pay any principal for three years. Thanks to her 'interest-only' loan, the 911 police dispatcher was able to afford, barely, her first home. She now has a stake in California's sizzling real estate market. As her home increases in value, she plans to use some of that equity to pay down her credit cards. But Herron is also setting herself up for a day of reckoning: Nov. 1, 2007. That's when she has to start paying off her loan principal. If interest rates are higher than when she bought her home last fall -- something many economists consider probable if not inevitable -- her monthly payment will increase by as much as a third. 'I don't know what I'll do,' said Herron, 32. 'I'm already working overtime to pay my bills.' Confronted with soaring home prices, Californians are adopting a 'buy now, pay later' strategy on a massive scale. The boom in interest-only loans -- nearly half the state's home buyers used them last year, up from virtually none in 2001 -- is the engine behind California's surging home prices...

http://www.liberalsagainstterrorism.com/drupal/?q=node/867: Losing Our Voice | Liberals Against Terrorism: "This devotion to propaganda and manipulation of the media is counterproductive and futile. By pushing too pro-Bush an agenda, the credibility of these voices are tarnished beyond repair, and without credibility, they are nothing but shouting into a void. The irony is, though, that even presenting an unbiased accounting of the news warts and all in many parts of the world, such as the Middle East, would be, and has been, a big time net positive for the US. These regions are generally beset by media interests that are highly biased against the US and infused with locally themed propaganda. As such, if we can merely discuss the issues in an open way, we can establish a credibility and show the process and rationale for our policies and actions. In many ways we can sell ourselves in such a manner, more organically, without hitting the listener over the head with a litany of pro-US slogans that illicit resistance where rapport is sought. This would, at the very least, go a certain distance toward convincing people that our policies are not the product of a 'vast, masterfully orchestrated conspiracy with some master planner sitting in the AIPAC basement.' But to do this, we must be believed and to be believed we must be honest. It's not the end game, but it is a start...

Hard Landings...

Three Views on Hard Landings

Mark Thoma channels Paul Krugman:

Economist's View: Krugman: No Good Monetary Policy Options in a Hard Landing: In his most recent column, Paul Krugman asks the... question:

In the 1970's soaring prices of oil and other commodities led to stagflation - a combination of high inflation and high unemployment, which left no good policy options. If the Fed cut interest rates to create jobs, it risked causing an inflationary spiral; if it raised interest rates to bring inflation down, it would further increase unemployment. Can it happen again?... We shouldn't overstate the case: we're not back to the economic misery of the 1970's. But the fact that we're already experiencing mild stagflation means that there will be no good options if something else goes wrong...

Thus, in a hard landing, Krugman says "there will be no good options." But the Fed will need to do something. What should the Fed do in a hard landing? Raise rates? Lower rates? I believe a recession will put the brakes on inflation, and if underlying real factors are the cause of inflation, aggregate demand policy isn't an effective tool for overcoming such shocks. Thus, I would lower rates in response to a slowdown if that were possible. But that is predicated upon the output slowdown counterbalancing inflationary pressure from other sources, and the possibility of lowering interest rates enough to stimulate the economy.

All of these questions would be much easier if both monetary and fiscal policy hadn't already been used to such an extent. With deficits as high as they are, using fiscal policy to stimulate the economy is politically and economically infeasible, and with interest rates this low it's hard to get much stimulation from driving them even lower. They can't go much lower in any case, though interest rates could be raised if the Fed decides to tighten in reponse to a stagflationary episode. Thus, the result of recent monetary and fiscal policy may be increased vulnerability to negative output shocks and a stagflationary episode.

William Polley flies airplanes:

William J. Polley: April 2005 Archives: I don't think I've defined what I think of as a hard/soft landing yet, so here goes. I am a licensed (but currently inactive) pilot.... When a new pilot makes a hard landing, it's usually because he or she thought the runway was about a foot higher than it really was.... Do it a few more feet up an you might bend the landing gear.... The another kind of hard landing is coming in too fast and slamming into the ground.... As long as you correct for it before you hit the runway, you might save the upholstery, but probably not your pride.... Last but not least is the hard landing that just happens. Everything is perfect and then the wind changes. It's like someone suddenly dropped you towards the ground....

What's my point? I remember when the term soft landing started to be used to describe what the Fed did in 1994-95. I liked the term because it seemed to describe in familiar aviation style terms what was happening. The changes in interest rates in 1994-95 were like the corrections that a pilot makes when coming in to land.... When things change at the last minute, things can indeed get dicey for both pilots and central bankers. You don't want to use all of your ability to control the situation until you really are safe on the ground. That is Mark's point, and it is a correct one--for pilots and central bankers.... A soft landing is stable inflation and unemployment at sustainable levels in the maturing phase of an expansion. You'll know it when you feel it (or don't feel it, as the case may be)...

And Brad Setser:

Brad Setser's Web Log: Martin Wolf, Korea's Central Bank, and Collateralized Debt Obligations: As Martin Wolf notes, Asia's current account surplus (savings surplus) shows up in the phenomenal growth in Asian central bank reserves.... Martin Wolf's excellent essay takes a lot of themes that we have discussed here, and pulls them together into a coherent picture. In my view (no doubt biased, since he cites Roubini), Wolf gets all nuances right.... It is vitally important to move over time to more balanced and healthy economic relationship. Yet extricating the US and East Asia from their current unhealthy and unbalanced embrace will require a rather delicate touch -- something the Bush Administration is not noted for.... The best evidence that the current situation is unsustainable? The current flow of private capital. To sustain current account deficits of its current magnitude, all of the world's surplus savings (the global current account surplus) needs to flow to the US. Yet private investors are putting a lot of their money in emerging Asia, not to the US.... Wolf correctly notes 'the private sector has been trying to push emerging market economies into current account deficit.' Asian central banks, however, are getting in the way. They are taking the funds flowing into Asia, along with Asia's own excess savings, and investing them in the US, making it possible for the US to get away with next-to-no household savings and a structural budget deficit....

Look at the Wall Street Journal's examination of the dilemmas facing Korea's central bank on Tuesday (p. C1). There are two reasons why Korea is less comfortable adding to its already substantial reserves than China. First... if the central bank is borrowing in won to invest in depreciating dollars, it has to explain itself. Second, Korea has to pay more to 'sterilize' its reserve inflows... on a cash flow basis, the Bank of Korea paid more in interest on its sterilization bonds than it earned on its reserves.... Losing money on every dollar of reserves makes you think twice about adding to your reserves....

We are in uncharted territory ... if a crisis hits, we think the market will absorb shocks smoothly -- but the truth is no one knows. I don't necessarily take comfort in the fact that 'real money' types are buying the safe parts of the CDOs, while hedge funds and other leveraged types are buying the risky parts. I worry that already leveraged hedge funds are buying instruments that themselves sometimes have a lot of embedded leverage. It may be that the hedge funds really do know how to hedge their risks, and thus are not as exposed as it would seem. But big risks are sometimes taken by investors looking for high returns to justify high fees in an environment where there is less and less easy money to be made....

Battlepanda's Teaching Economics Manifesto

Very much worth reading:

battlepanda: Neither Dismal nor a Science (Or, how the way we conceptualize the discipline of Economics have hobbled actual education in economics. But that's a slightly less snappy title):

Those of you who have been reading this blog knows that my friend RJ is a economics skeptic. Especially of macroeconomics, which he regards as little better than astrology -- relevent insofar as it's widely believed, but with bullshit where the underlying concepts should be. I identify with RJ because we went to the same college and took the same intro to Econ class, Econ 11, that left us with the same impression of economics as an unempirical science, blind to its own inherent ideological bent. A misguided attempt to distill human behavior into laughably simple graphs. Consisting entirely of arguments standing on assumptions so broad and unwarrented that the conclusions reached have no meaning. Basically, a pseudo-science so divorced from reality and rife with fudge factors that it should be dismissed out of hand for being intellectually inelegant, if nothing else. And don't think that RJ and I just didn't 'get it'. We both recieved good grades in Econ 11 for very little work, and if nothing else that only added to our contempt for the subject, especially for RJ, who is very mathematically inclined.

I'm assuming that if you've read this far you actually agree with me that RJ is dead wrong and that economics is actually an essential area of study.... So let us discuss where the way we teach economics went so wrong and what we can do to make it right....

1. Economics is not like the other sciences. Acknowledge that. There is no giant econ lab where we can hold all other variables constant and vary the money supply or tax rate.... By necessity, the study of economics often have to work backwards from real-world occurances, occurances so mired in culture, history and politics that it's often difficult just to deduce what factors are significant.... Why not embrace this need for all kinds of intellectual skills instead of retreating into the kind of defensiveness I hear so much of: 'Yuh-huh! We are soooo a science. Like physics. And biology. Just as good. Look, we use graphs and shit.'
2. Always think to yourself: Would this sound crazy to the proverbial man-on-the-street?... We make broad stroke assumptions such as 'each individual will act to maximize his utility' or 'if the price is driven down to zero, demand is infinite' not because we are intellectually lazy, but because making those assumptions allow us to simplify a real-life situation to the point where we can apply logic.... Imagine a theoretical physics class in which you are told to memorize the twin paradox and be prepared to regurgitate a schematic drawing of Schroedinger's Cat's without being walked through exactly how those counterintuitive outcomes came about? It's what Econ students are being told to do every day -- to accept what's in front of them at face value and memorize which little square to color in as the consumer surplus. Is it no wonder that students who are intelligent often wind up insulted rather than educated?
3. Separate the normative from the positive. It is notoriously hard to keep one's politics out of one's economics. But it is important to strive to be as objective as possible because when ideology trumps reality, economics becomes as dangerous as a faulty chart of a rocky shoal.... A corollary: Problem sets are not a good place for editorializingLook graph 78a on page 234. The government has put a ceiling on the rent of properties in Jenny's town. Is Jenny better off? Do you even need to look at the graph? That would be a bit of a waste of time, wouldn't it, since this is blatently a 'government-actions-have-unintended-consequences-that-end up-hurting-the-very-people-they-are-trying-to-help' question.
4. Economics is all around us. The way economics is taught is very compartmentized.... I think economics would be much more compelling if professors really hammer home its most fundamental definition -- the study of the distribution of scarce resources. You pay 28 extra cents for a box of brand-name flakes rather than generic after seeing $500,000 worth of commercials. That's economics. Your parents were able to buy the house they always wanted after interest rates dropped below 6%. That's economics too. This is why I am so psyched about Freakonomics -- it's economics as a tool that cuts away the noise and reveal the fascinating underlying patterns in everyday life rather than the abstract and rarified realm of widgets.
5. 'Humans aren't Billiard Balls.' But sometimes we have to treat them as if they are.... [I]f you're not willing to pay $500 for a safety device in your car that will have a 1/10,000 chance of saving your life. Multiply $500 by 10,000 and hey presto, your life as valued by you is worth five million bucks. Nifty? I didn't think so at the time. There is something that is very off-putting about the way economics reduces humanity to numbers, from our motivation, to our values, even our lives. Again, I think the way to get over this aversion is to hammer home the whys and wherefores of economics -- without quantification we cannot see patterns in the aggregate, and without seeing the patterns we cannot use economics to make our lives better....

Heck, this post is already too long. So I'll just end with an exhortation to everyone teaching Econ out there.... Try and tell your students why economics is important in our lives. Leave widgetland behind.... Praise the free market, but also show its limitations. Teach the history of economics, how Adam Smith's invisible hand is a reaction to the overbearing government of the day, and how Keynes is in turn a reaction to Smith. Don't forget to note the hubris of the economists who thought they had recessions licked in the 60s. I'll let commenter Colin Danby, fellow ex-econ-skeptic and now turned econ teacher have the last word: "When I teach this stuff now, I try to build in student research projects that help them learn to use real-world data, so that at least I can show them by the end of the class that the world is more transparent. But I'd never talk about 'believing in' economics -- it's not a religion, it's a social science and still a rather inadequate one."

Fafblog on Pig Diets

Fafblog truly is a national treasure. The New Republic should consider going all-Fafblog all the time:

Fafblog! the whole worlds only source for Fafblog.: Juan Cole: Killjoy: Giblets is proud of his beloved pet pig and has decided to reward it with a delicious treat. A treat like dynamite!'You really shouldn't feed dynamite to your pig,' says Juan Cole, mideast expert and professor of pig studies. 'Dynamite has never been a safe feed for pigs and has only resulted in disaster for pigs and the pig community.'

Oh what do you know Juan Cole! Your expertise in the fields of pig history and pig theory just means you have swallowed the standard academic dogma regarding the pig-dynamite dynamic! Giblets has reason to believe his pig will receive fantastic dynapig powers, but Cole has been too heavily indoctrinated by pigs and Arabists to see the truth. 'Dynamite is explosive,' says Juan Cole. 'If you feed it to your pig, your pig will explode.' Now that's just crazy talk motivated by Cole's gloomy dynamite-bashing. If you'll just step aside, Giblets has a pig to feed.

Stupidest Woman in the World

Laura Rozen finds AEI Vice President Danielle Pletka uttering another piece of AEI-quality thought:

War and Piece: : Quote of the Day: "This is a disgrace, the idea that temperament is suddenly important. There are legions who have gone before John, as well as members of Congress, who have behaved appallingly." Danielle Pletka, Vice President of AEI, on Bolton's nomination setback, from the New York Sun.

So she says that it's a real disgrace that people are appalled by John Bolton's appalling behavor?

Gurk!

Not good:

FT.com / World / International economy - US inflation rising faster than expected: By Christopher Swann and Andrew Balls in Washington: US inflation rose at twice the pace economists had been expecting in March, further reducing the chances that there will be any respite this year from rising interest rates. The headline consumer price index climbed 0.6 per cent - boosted by a 4 per cent rise in energy prices. Over the past year consumer prices have increased 3.1 per cent. But it was the rise in underlying inflation that most alarmed analysts. Core inflation - excluding food and energy - climbed by 0.4 per cent, double the increase economists had been forecasting. The data comes a week after weak retail sales and consumer confidence figures, raising the prospect that the Federal Reserve may be sandwiched between rising inflation and weaker consumption...

Double Plus Ungood in Iraq

Juan Cole reports:

Informed Comment: A tearful member of the Iraqi parliament, Fattah al-Shaikh, stood up before other MPs and told the story of how he was attacked and detained by US troops when he attempted to enter the Green Zone, the heavily fortified area near downtown Baghdad where parliament is held and the US embassy is situated. Wire services report that he said, 'I don't speak English and so I said to the Iraqi translator with them, "Tell them that I am a member of parliament", and he replied, "To hell with you, we are Americans".'

Hearts and minds. Hearts and minds. Not enough translators. Not enough troops.

Web Clippings--20050419

Sigh What I would write about if time were infinite:

http://www.foreignaffairs.org/20030701faessay15403/jessica-stern/the-protean-enemy.html: Foreign Affairs - The Protean Enemy - Jessica Stern. From Foreign Affairs, July/August 2003: Summary: Despite the setbacks al Qaeda has suffered over the last two years, it is far from finished, as its recent bomb attacks testify. How has the group managed to survive an unprecedented American onslaught? By shifting shape and forging new, sometimes improbable, alliances. These tactics have made al Qaeda more dangerous than ever, and Western governments must show similar flexibility in fighting the group...

http://www.newsday.com/business/nationworld/wire/sns-ap-adobe-macromedia,0,2202302.story?coll=sns-ap-business-headlinesNewsday.com: Adobe Buys Macromedia in $3.4B Stock Deal: SAN JOSE, Calif. -- Combining two of the largest makers of software for creating and delivering digital content, Adobe Systems Inc. said Monday it will acquire Macromedia Inc. in an all-stock transaction valued at approximately $3.4 billion. Shares of Macromedia, known for its Dreamweaver Web-design program and Flash, which animates and adds interactivity to Web pages, rose more than 8 percent in early trading, while Adobe shares sank 11 percent...

http://www.liberalsagainstterrorism.com/drupal/?q=node/852: Bad And Worse | Liberals Against Terrorism. Submitted by Eric Martin on April 18, 2005 - 6:05pm: A story on the BBC's website (via Juan Cole) recounts statements by Iraq's new president, Jalal Talabani, regarding the use of Kurdish and Shia militias to put down the insurgency: "Iraq's new president has said the insurgency could be ended immediately if the authorities made use of Kurdish, Shia Muslim and other militias. Jalal Talabani said this would be more effective than waiting for Iraqi forces to take over from the US-led coalition.... The Kurds have in the past offered the use of their estimated 80,000 Peshmerga guerrillas for security tasks but have been turned down. So, too, has the Iranian-influenced Supreme Council for the Islamic Revolution in Iraq (Sciri) and its Badr brigade, another well-trained fighting force. 'We cannot wait for years and years of terrorist activity because we haven't enough government forces,' the president said." This dilemma represents the 1,092nd example of a Catch-22 encountered in the Iraq campaign. Talabani might be correct that these Iraqi militias would be better suited to ferret out insurgents, having a knowledge of the language, customs, peoples, etc. Unfortunately, such an ethnically polarized military campaign would bring Iraq to the brink of full-fledged civil war - and given the long standing grievances of the Shia and Kurds simmering just under the surface, it is probable that passions will lead to atrocities and brutalities that further exacerbate the situation...

http://www.livejournal.com/users/jmhm/1291005.html: Sisyphus Shrugged - Mr. Kinsley gets it exactly wrong again: I sometimes wonder if Mr. Kinsley reads what Mr. Kinsley writes.... Work with me, Mr. Kinsley. Ms. Kirkpatrick thought we should prop up the oligarchs (many of whom we hand-picked and foisted on the people to begin with) and let the people fend for themselves. The current crop, as a response to a wave of democratization, thinks we should foist hand-picked oligarchs on the people (by force of arms, if necessary) and then prop them up. Where in this you see a switch in actual practice rather than in figleaf rhetoric (swooning over ideas indeed. 'Carter sucks' is not an ideology. Nor is 'It sucks if Carter does it') eludes me. It's all neo realpolitik, and what neo realpolitik meant then and means now is that Republicans make up grand, lofty lies about their goals to get elected so they can do pretty much what they want to do with no reference to all the pretty rhetoric.Perhaps I dine with the wrong people...

http://highclearing.com/index.php/archives/2005/04/18/4152: Defining Apocalypse Down. ustin Logan catches quite the example of definitional slippage from a New York prosecutor: "Q: Regarding that phrase 'weapons of mass destruction,' in sort of the political discussion, that term has come to mean chemical and radiological and biological -- and I realize it might be different in legal -- is there any implication in the use of that term that there was a biological or a chemical or a radiological element to the plan? MR. COMEY: We have not alleged that. But as you alluded to, a weapon of mass destruction in our world goes beyond that and includes improvised explosive devices." Oy. I guess that makes Dick Cheney sort of right (if you squint), when he says that we continue to find weapons of mass destruction in Iraq. Dear neolibertarians and alleged conservatives (if any of you are still out there): the government is still the government. War doesn't make it less like it used to be. If anything it makes it moreso...

http://thinkprogress.org/index.php?p=667: Democracy Hypocrisy: An Election Mess In Mexico: As the Bush administration continues to tout its efforts to promote democracy in such places as Afghanistan and Iraq, it has overlooked a serious challenge to democracy in Mexico. With 15 months left until the 2006 presidential election, Mexico City9s left-leaning, 51-year-old populist mayor, Andres Manuel Lopez Obrador, may be forced out of the race due to a highly undemocratic Mexican law..... Rival political parties PRI and President Fox%u2019s own PAN are uniting against the popular mayor, who currently leads in the polls. Their effort (despite the fact that many Mexicans feel the case to be a minor infraction) attempts to strip Lopez Obrador of the immunity from prosecution he maintains as a public official. Taking away Lopez Obrador's immunity would bar him from running for further office, since Mexican law states that politicians cannot run for office if under indictment...

http://ezraklein.typepad.com/blog/2005/04/health_care_fra.htmlEzra Klein: Health Care: France: Da' basics: France has a basic system of public health insurance that, as of January 2000, covers everybody in the nation. Before then, portions of the population lacked insurance. The reimbursement rates are wholly uniform, despite the fact that there are actually three health care funds, a main one covering most workers, and then one for the self-employed and one for agricultural workers. As that hints, the health care is occupationally based. It's paid for through employer and employee contributions (much like Social Security), in addition to personal income taxes. The latter have been increasing in recent years. The funds are private entities under the joint control of employers and unions, which are in turn supervised by the state. As might be expected, that doesn't work particularly smoothly, and there's a constant battle for authority and control. Creative tension, one might kindly call it. The funds are mandatory, no one may opt-out, and they're not allowed to compete with each other nor micromanage care. The public system covers around 75% of total costs. Half of the rest is paid out-of-pocket and the remaining is made up by supplementary insurance companies. About 85% of the French have some form of private insurance...

http://economistsview.blogspot.com/2005/04/daily-standard-bernanke-now-top-pick.html: Economist's View: The Daily Standard: Bernanke Now Top Pick to Replace Greenspan: Irwin M. Stelzer believes Martin Feldstein's association with the troubled American International Group (AIG), and the likelihood that Robert Rubin will be asked to be the new CEO elevates Ben Bernanke as the top candidate to replace Greenspan as chair of the Fed, and that this will bring about "replacement of Greenspan's flexible, intuitive approach to monetary management with specific inflation targeting..."

http://ragout.blogspot.com/2005/04/squid-strategy.html: When you're wrong, and someone points it out, the squid strategy is a good one. Fill the water with black ink to confuse the issue, and hope that observers will through up their hands and decide that it's all too complicated, and too much trouble to judge who's right. This kind of thing is pretty common in politics, but via Brad DeLong, I learn how Harvard Economist Caroline Minter Hoxby is doing the same thing. Hoxby wrote a well-known paper arguing that competition, in the form of numerous school districts, improves school productivity and student outcomes. In fact, relatively simple statistical methods find no such relationship, but Hoxby argues that there might be an omitted variable or reverse causation problem. For example, maybe good school districts get bigger, reducing competition. This doesn't seem like such a serious statistical problem to me, but Hoxby famously proposed to solve it using rivers as a "natural experiment." Her idea is that metropolitan areas with more rivers will have more school districts, because in the olden days, it was hard to cross rivers to go to school. To simplify a little, Hoxby shows that metro areas with more rivers have higher student achievement, and so concludes that competition is a good thing. Recently, the tenured Hoxby has been criticized by the untenured Jesse Rothstein of Princeton, who says he found numerous errors in her study...

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http://www.washingtonpost.com/ac2/wp-dyn/A64409-2005Apr18?language=printer: Army intelligence officials in Iraq developed and circulated 'wish lists' of harsh interrogation techniques they hoped to use on detainees in August 2003, including tactics such as low-voltage electrocution, blows with phone books and using dogs and snakes -- suggestions that some soldiers believed spawned abuse and illegal interrogations. The discussions, which took place in e-mail messages between interrogators and Army officials in Baghdad, were used in part to develop the interrogation rules of engagement approved by Lt. Gen. Ricardo S. Sanchez, then commander of U.S. troops in Iraq. Two specific cases of abuse in Iraq occurred soon after. Army investigative documents released yesterday, as well as court records and files, suggest that the tactics were used on two detainees: One died during an interrogation in November 2003 while stuffed into a sleeping bag, and another was badly beaten by inexperienced interrogators using a police baton in September 2003. The documents indicate confusion over what tactics were legal in Iraq, a belief that most detainees were not covered by Geneva Conventions protections and alleged abuse by interrogators who had tacit approval to 'turn it up a notch.' In both incidents, a previously disclosed Aug. 14, 2003, e-mail from the joint task force headquarters in Baghdad to top U.S. human-intelligence gatherers in Iraq is cited as a potential catalyst...

http://www.tnr.com/arch/hs/: The New Republic Archives: Historical Society: Welcome to The New Republic Archives: 90 years of articles, editorials, and reviews. The TNR Archives includes every issue since our first in 1914, so here are some tips to help you get started: Join the TNR Historical Society. Your membership includes access to weekly archive features such as This Month in History, Historical Perspective, and Editor's Choice. As a member, you'll receive 10 handpicked articles each month. Click here to sign up or for more information. Search the full archives for free. The search function in the upper right corner allows you to find articles by topic, subject, and author. Scroll to the bottom of the page or click here for advanced search options. All summaries are free, but there is a cost to download the full article. Click here for pricing information. Find content with TNR Recommends. These are our most popular archive subjects. Click on the subjects in the right-hand column to bring up their full search results...

http://www.stat.columbia.edu/~cook/movabletype/archives/2005/04/loss_aversion_e.html: Statistical Modeling, Causal Inference, and Social Science: Loss aversion etc: If a person is indifferent between [x+$10] and [55% chance of x+$20, 45% chance of x], for any x, then this attitude cannot reasonably be explained by expected utility maximization. The required utility function for money would curve so sharply as to be nonsensical (for example, U($2000)-U($1000) would have to be less than U($1000)-U($950)). This result is shown in a specific case as a classroom demonstration in Section 5 of a paper of mine in the American Statistician in 1998 and, more generally, as a mathematical theorem in a paper by my old economics classmate Matthew Rabin in Econometrica in 2000...

I Guess I'm Not Going to Be Reading the New Republic Anymore...

Well, well, well:

The New Republic Online: Dear Diary: [Juan] Cole may express offense at the Protocols [of the Elders of Zion], but their obsession with the supposed international influence of 'world Zionism' resonates powerfully in his own writings...

I don't think that Juan Cole's comments are always the most informed comments, and I think his view of Middle Eastern populism is much too rose-colored, but he has done nothing to deserve this. Shame on the New Republic.

Bush's Credibility Gap

From AP:

HoustonChronicle.com - 'Credibility' gap dogs Social Security plans: By NEDRA PICKLER Associated Press: COLUMBIA, S.C. - President Bush on Monday pitched for his Social Security overhaul in this Republican-friendly state, yet a Republican congressman made clear that Bush still faces resistance within his party.... Rep. Gil Gutknecht, R-Minn., said during an editorial board meeting with the (Rochester) Post-Bulletin that Bush must overcome a 'credibility problem' to revamp Social Security. The congressman said many people think the president underestimated the cost of the Iraqi war, then overestimated the benefits of Medicare's prescription drug plan. 'And now, all the sudden, they wonder why people are a bit skeptical of their ... plan on Social Security,' he said. 'It's partly a credibility problem.' Gutknecht also rejected the Bush contention that Social Security is in 'crisis.' 'If I use the word 'bankrupt,' you know, kick me, because I don't think that's a fair term to say about Social Security,' the congressman said. 'It is not in crisis today. I don't use the word 'crisis.' '

Bush was greeted by a letter on the front page of The Columbia State, welcoming him to the state that he won handily last November but warning him that his Social Security proposal is 'going to be a hard sell, even in conservative South Carolina.' The state's senior senator, Lindsey Graham, has urged the president to switch his focus to the retirement program's looming insolvency and how to fix it. He also has broken with Republican orthodoxy to suggest that part of the solution will involve raising taxes. South Carolina's junior senator, Republican Jim DeMint, said Bush had told him that 'if it takes the last day of his presidency, he's going to work on this issue.'

After returning to the White House, Bush told CNBC that private retirement accounts are a good idea even though the stock market is slipping as investors worry about rising gas prices and the strength of the U.S. economy. 'Most people will tell you that if you hold money over a long term, the rate of return on a conservative mix of bonds and stocks clearly is greater than that which the government earns on your behalf,' he said. 'There are ways to design plans that take the risk out of a plan.'...

It's certainly true that there are ways to greatly reduce the risk to those Social Security beneficiaries who elect private accounts. But Bush's plan does not do them.

I wonder if anybody has told him that?

Does General Motors Have Three Years to Live?

This is not good:

FT.com / Industries / Autos - GM abandons profit forecast after $1.1bn loss: General Motors on Tuesday abandoned its profit prediction for the year as the world's biggest carmaker reported a quarterly loss of $1.1bn, its worst in more than a decade.... GM said uncertainty about efforts to deal with its "healthcare cost crisis" and other key parts of its business meant it could not provide any guidance for profits this year.... The withdrawal of the forecast came as the automotive business reported a first quarter operating cash outflow of $3bn, more than the $2bn revised target the company had previously set for the full year.... The cashflow has been closely watched as investors anticipate a downgrade of GM's credit rating to junk bond status, a move which would force many investment-grade bond funds to sell their holdings in one of the world%u2019s top five borrowers.

Rick Wagoner, chairman and chief executive, said the problems lay with the north American business, which he took direct control of last month. GM has been hammered in the US by rising healthcare costs and cuts to production in order to reduce stocks of unsold cars at dealerships.... This is the worst figure since accounting changes in 1992, when GM was on the verge of bankruptcy, led to a quarterly loss of $21bn.... GM said its cash and easily realisable investments stood at $19.8bn at the end of March, down from $23.3bn at the start of the year.

Martin Wolf on "Global Imbalances"

He writes:

FT.com / Comment & analysis / Columnists - US deficits aren't just China's problem : If creditors face an endless stream of additional borrowing and a good chance of default at the end of it, they should refuse to throw good money after bad. They will then impose huge costs on the debtor. This balance of financial terror, as it has been called, characterises the current huge flows of finance to the US. Carefully thought through economic policy is needed if the world is to extricate itself from this predicament. Alas, we can rely on the administration of George W. Bush not to provide it.

So it proved at this weekend's meeting of the Group of Seven leading industrial countries. The communiqué remarked that "we emphasise that more flexibility in exchange rates is desirable for major countries and areas that lack such flexibility".... Mr Snow is not the organ-grinder of US economic policy but the monkey.... As Nouriel Roubini of New York University promptly responded, the US attack on one of its principal creditors is playing with fire. In the past two years, he argues, three quarters of the US fiscal deficit has been financed by foreign central banks, 100 per cent of the fiscal deficit has been financed from abroad and about 80 per cent of the current account deficit has been financed by foreign central banks. Biting the hand that feeds one is folly.

According to the International Monetary Fund, the US general government fiscal deficit this year will be 4.4 per cent of gross domestic product, while the current account deficit is forecast to be 5.8 per cent of GDP. At present, therefore, the American people are able to consume and invest as if the fiscal deficits did not exist. The treasury secretary of what is arguably the most fiscally irresponsible US administration since the second world war should fall down on his knees in thanks rather than indulge in complaints....

Nevertheless, it is in US long-run interests to avoid an explosive build-up of net external liabilities... instead of choosing between a sudden correction now and a still more brutal sudden correction later, why not go for a smoother correction that starts now? The requirements for such a correction are clear.... A reduction in the US structural fiscal deficit will be required. Exchange rate movement will be needed as well, to facilitate adjustment.... [I]t will be impossible to achieve a significant adjustment of the US current account deficit without a big adjustment by emerging market economies. These are the world's natural deficit countries.... The huge reserve accumulations of emerging market economies are by now senseless. These are not only wasteful investments but also prevent the global adjustment that the private sector rightly wishes to make. Emerging market economies should run current account deficits equal to inward FDI. Hectoring China on the exchange rate alone is folly. But a serious discussion of policies to deliver a better global balance is not. That discussion must begin now.

No One Expects the Holy Inquisition!

"Our two weapons are fear, surprise, and ruthless efficiency!"

How long since the Chief of the Holy Inquisition has been named Pope?

Yes, Rich Clarida Would Make a Very Good Fed Governor

And he seems to be gaining ground...

FT.com / World / US - Clarida is leading candidate for Fed governor: By Andrew Balls in Washington Published: April 19 2005 22:32: Richard Clarida, a Columbia university professor and former official in the George W. Bush administration, is the leading candidate to replace Ben Bernanke as a Federal Reserve governor. Mr Clarida spent a year at the US Treasury during President Bush's first term, serving as an assistant secretary and as chief economist. He is seen as an orthodox economist with experience in international policymaking. "It is far from a done deal, Ben [Bernanke] has not even resigned from the Federal Reserve yet," a person familiar with the process said. "But Rich would be a good fit and he would love the job." The White House has nominated Mr Bernanke to take over as chairman of the president's Council of Economic Advisers. While he awaits Senate confirmation, Mr Bernanke has divested himself of his monetary policy responsibilities at the Fed.... Mr Clarida is not the only economist the White House is considering, but the list of potential candidates is small, the person familiar with the White House's thinking said...

Why Oh Why Can't We Have a Better Press Corps? (The New York Times Editorial Board Is a Clown Show Department)

Outsourced to Ezra Klein:

Ezra Klein: Heavens to Betsy!: The New York Times has a tidy little editorial on the train wreck that is the House Energy Bill. Read it. But midway through, the piece gives in to the sort of fresh-faced naivete that makes you wonder who put a newborn in charge of writing opinions for the nation's preeminent paper. Witness:

The House is moving quickly and with sad predictability toward approval of yet another energy bill heavily weighted in favor of the oil, gas and coal industries. In due course the Senate may give the country something better. But unless Mr. Bush rapidly elevates the discussion, any bill that emerges from Congress is almost certain to fall short of the creative strategies needed to confront the two great energy-related issues of the age: the country's increasing dependency on imported oil, and global warming, which is caused chiefly by the very fuels the bill so generously subsidizes.

...Watching the Times scratch the dandruff from their hair and wonder why the Republican-led House is pushing such a myopic snarl of industry giveaways and poor policy is bad enough, reading their pleas for Bush to sweep in and save the day is unforgivable. This bill may as well be authored by the President himself. He's not going to dive in and save it, hell, he probably thinks the environmentalists got too much out of the deal... for them to ask the heavens why Bush isn't demanding a bill that better addresses those issues is frankly insane.... I don't expect anything better from George. What I do expect is that the New York Time... won't pretend Bush has an enlightened view of the environment...

"Personal Accounts" Are Dead! Long Live "Social Security Modernization"!

The Carpetbagger Report has the goods:

Carpetbagger Report: First "privatization" was a good word; then the White House declared it off limits to everyone. Likewise, "private accounts" were a standard part of the Social Security discussion, right up until polls showed people didn't like it. The language police in the Bush White House have come to yet another realization about a word that, as Dan Froomkin noted today, we're likely to hear a lot more of in the months to come. Here's Karl Rove on CNN yesterday. See if you can spot the new poll-approved word.

[Bush] went to South Carolina today where the two United States Senators and the governor are in favor of Social Security modernization.... We do believe the cause of Social Security modernization is well-served by having a forthright debate about the pluses and minuses of any proposals laid out there.

Notice it? Here's Bush in South Carolina yesterday, offering another clue.

By giving younger workers an option to set up a personal savings account, we have an opportunity to modernize and strengthen a great American program.... See, telling younger workers they have to save money in a 1930s retirement system is like telling them that they have to use a cell phone with a rotary dial.

The Republicans were tinkering with this theme a month ago--comparing Social Security to a 1935 Ford, which House Republicans said they wouldn't want to be "caught dead in"--but it didn't take. Left with limited rhetorical options, it seems the White House is trying to bring it back.

Is "modernization" really the new word or has Bush been saying it all along? It%u2019s been mentioned here and there on occasion, but Bush was didn't use the word (or any similar word) at recent Social Security events in Ohio, New Mexico, Arizona, Colorado, and Florida, compared to Karl Rove using it twice in a brief CNN interview. Sounds like this one's a recent addition to the rhetorical quiver. Be prepared for the onslaught.

Web Clippings--20050418

Web Clippings--20050418

What I would write about if time were infinite:

http://www.harrisinteractive.com/harris_poll/index.asp?PID=557: President's Job Ratings Fall to Lowest Point of His Presidency. Social Security seen as the top issue to address by U.S. adults. The last month has not been a good one for President Bush and the Republicans. Most people have opposed the President's proposals for reforming Social Security and most were unhappy with the positions taken by Republicans in the Terri Schiavo case. The result is that the president's job ratings have fallen to 44 percent positive, 56 percent negative, the worst numbers of his presidency, and a drop from 48 percent positive, 51 percent negative in February (and 50% positive, 49% negative last November). This is one of the results of a new Harris Poll of 1,010 U.S. adults surveyed by telephone by Harris Interactive® between April 5 and 10, 2005.... While Secretary of State Condoleezza Rice is not nearly as popular as her predecessor, Colin Powell, she is the only cabinet member currently enjoying positive ratings – by 54 to 39 percent...

http://www.washingtonmonthly.com/archives/individual/2005_04/006142.php: HEALTHCARE IN AMERICA.... This paper includes some survey data about how satisfied people are with their country's healthcare system (see Exhibit 1). The United States rates pretty low on this scale (14th out of 17 countries), but it turns out the survey includes something even more interesting: separate satisfaction ratings for the poor and the elderly (see Exhibit 3). It takes a bit of interpolation to extract all the numbers, but that's not hard to do. So with that in mind, here are the percentages of Americans who say they are "fairly or very satisfied" with their own health system: Poor: 45% Elderly: 61% Everyone else: 34%. This is pretty remarkable. First, the elderly in America, who are covered by a state-run national healthcare system (Medicare and Medicaid) are way more satisfied with their healthcare than everyone else. As it happens, the elderly in other countries also tend to report higher satisfaction levels than other people, but usually by just a few percentage points. In America, where the elderly are covered by a national system and others aren't, the elderly are more satisfied by a whopping 27 percentage points. Second, even the poor are more satisfied with their healthcare than the rest of us. The poor generally rely on a combination of Medicaid, emergency rooms, and free clinics for their healthcare, a system that's hard to beat for sheer inefficiency and appalling service. But even at that, the rest of us, who are mostly covered by employer-provided health insurance, are less satisfied than the poor....

http://ezraklein.typepad.com/blog/2005/04/keep_the_govern.html: Kevin does some digging and finds that the poor and the elderly -- the two groups that rely primarily on government-run program for their health care -- are way more satisfied than the rest of us. He finds this confusing, puzzling even. I think it's somewhat explained by an anecdote from The Choice. The authors are walking through an airport with John Breaux when an old woman runs up to him and says: "Senator, don't you dare let the government get its hands on my Medicare!" Without missing a beat, Breaux replies: "Don't worry madam, I won't." I think that about explains it. We've so fully demonized government-run health care that we won't even believe it can work when it already is. The totality of propaganda's triumph over not just the facts, but our subjective interpretation of the facts (i.e, how satisfied we are with our health care) is truly stunning. Ugh...

http://www.thecarpetbaggerreport.com/archives/3988.html: Martinez's Schiavo memo — the fallout. I was more or less prepared to move past the subject altogether, but Roll Call had an item today on Sen. Mel Martinez (R-Fla.) and the now-infamous Terri “great political issue” Schiavo memo. Most of the piece dealt with the fact that Martinez is facing some pressure from campaign advisors who are urging the freshman senator to make sweeping staff changes in the wake of the controversy. But the more interesting point dealt with just how isolated the Darling incident really was. Martinez's press secretary, Kerry Feehery, continues to insist that that Schiavo memo was written “unilaterally” by one aide. However, a Republican source close to the situation said the claim is “preposterous.” The source told [Roll Call] that he knows “for certain” that two other senior Martinez staffers helped Darling write the memo and circulate it to other Republican Senators. “Those three were really working it,” the source said. This seems far more realistic, in light of everything that's been reported, and suggests Martinez couldn't have handled this fiasco much worse. Indeed, his staff scapegoating never really made a lot of sense — a senator's point man on a national controversy prepared talking points and gave them to the lawmaker, who in turn shared them with another lawmaker. Several Senate offices later confirmed they received copies as well. And yet, Martinez insists Darling was some rogue memo-writer, writing up talking points without input or collaboration, and that no one but Darling even read the memo in advance? Moreover, the fact that a “Republican source close to the situation” is talking to Roll Call about this suggests there's some lingering anger towards Martinez for his role in making this mess happen. All, it appears, is not yet forgiven on the GOP side of the aisle....

http://economistsview.blogspot.com/2005/04/krugman-no-good-monetary-policy.html: Krugman: No Good Monetary Policy Options in a Hard Landing. I've been asking how the Fed should respond in a hard landing in recent posts and the first part of my answer to what the Fed should do in a hard landing is here. In his most recent column, Paul Krugman asks the same question: "In the 1970's soaring prices of oil and other commodities led to stagflation - a combination of high inflation and high unemployment, which left no good policy options.... We shouldn't overstate the case: we're not back to the economic misery of the 1970's. But the fact that we're already experiencing mild stagflation means that there will be no good options if something else goes wrong...." Thus, in a hard landing, Krugman says “there will be no good options.” But the Fed will need to do something. What should the Fed do in a hard landing? Raise rates? Lower rates? I believe a recession will put the brakes on inflation, and if underlying real factors are the cause of inflation, aggregate demand policy isn't an effective tool for overcoming such shocks. Thus, I would lower rates in response to a slowdown if that were possible...

http://news.ft.com/cms/s/8ed600c4-afe1-11d9-ab98-00000e2511c8,_i_rssPage=80fdaff6-cbe5-11d7-81c6-0820abe49a01.html: Global equities slide on growth and earnings fears. By Neil Dennis. Fears of slowing economic growth and first-quarter earnings falling shy of forecasts, drove global stocks sharply lower on Monday, with technology stocks and carmakers among the worst hit. In Asian trade, Tokyo's Nikkei 225 Average tumbled 3.8 per cent to 10,938.44, with steelmakers and consumer electronics groups leading the way lower on fears that exports to China may suffer from a slowdown there. Elsewhere in the region, Taiwan's Taiex index fell 2.9 per cent as chipmakers lost ground, and Seoul's Kospi shed 2.4 per cent. In Europe, as in Asia, stocks were taking the lead from Wall Street's performance last week, as the major US stock indicators ended at lows for the year. The Dow Jones Industrial Average shed 3.6 per cent over last week to end Friday at 10,087.51, falling a further 0.4 per cent to 10,052.56 in opening trade on Monday...

http://www.latimes.com/news/nationworld/nation/la-na-bolton16apr16,0,3939442.story?coll=la-home-nation: Republican Sen. Chuck Hagel of Nebraska signaled Friday that his support for the nomination of John R. Bolton as U.N. ambassador was wavering after new reports that Bolton ordered an intelligence analyst removed from his job. The analyst, a State Department employee who now works on Hagel's Senate staff, is the third intelligence analyst reported to have been threatened or intimidated by Bolton, who has served since 2001 as undersecretary of State for arms control and international security...

http://inteldump.powerblogs.com/posts/1113839905.shtml: Judging Gitmo Richard Serrano reports in the L.A. Times on a new report published by the Pentagon which is intended to rebut some of the criticism aimed at the 3-year-old U.S. military detention facility. In general, the criticism has taken on 3 tacks: 1) the facility there is unlawful as a matter of U.S. and international law; 2) the interrogators at Gitmo have committed myriad acts of abuse; and 3) Gitmo is undermining the war on terrorism by producing a lot of useless information and by inflaming Arab (and global) sentiment against the U.S. Mr. Serrano reports that the Pentagon wants to change at least one of these impressions — and argue that Gitmo has produced results: "The new report appears to buttress the military's claim that it should be allowed to run Camp Delta without outside intervention because the camp has become "the single best repository of Al Qaeda information." The declassified summary cites more than 4,000 interrogation reports and says that some indicated Al Qaeda operatives were pursuing chemical, biological and nuclear weapons. The summary does not elaborate on what that information is or how close the terrorist organization might be to getting such weapons..."

http://nationaljournal.com/: Stan Collender: April 15th is not just about income taxes; it is also an important deadline for the federal budget. This is the statutory deadline for the House and Senate to agree to the conference report on the congressional budget resolution. It is, therefore, the date by which the vast majority of big budget decisions are supposed to be made. The weeks after April 15 are for implementing the decisions the budget resolution embodies. That's not the case this year. Both houses of Congress have passed their own budget resolutions and negotiations between the two on a compromise version are continuing. But as it is currently being discussed, the fiscal 2006 budget resolution conference report is far more likely to be an agreement to disagree than a series of decisions the House and Senate are committed to abiding by for the rest of the year. And even that will be the case only if the House and Senate actually agree on something. Weeks after the negotiations began, even a fig-leaf deal is proving to be elusive.

http://www.markarkleiman.com/archives/microeconomics_and_policy_analysis_/2005/04/matt_yglesias_paris_hilton_the_spirit_of_76_and_section_6166_of_the_internal_revenue_code.php: Matt Yglesias is entirely right to prefer inheritance taxes to estate taxes. Conceptually, an inheritance tax puts the focus on the recipient of money he or she didn't earn, rather than on the decedent, who having faced one inevitability arguably shouldn't be faced with another. "Paris Hilton" or no, there's a strong, and perhaps politically potent, argument to be made that it's just plain wrong for people to be taxed on the money they earn but not on the money that's given to them. Practically, an inheritance tax has two big advantages: It encourages breaking up huge fortunes, thus reducing the problem of hereditary plutocracy, and it treats those who inherit as part of large families equitably compared to those who inherit equal amounts as part of small families. But Matt is wrong, it seems to me, to scoff at the small business/family farm issue. An economist may view ownership of an enterprise as merely a form of wealth like any other, but someone whose family has owned the local hardware store or newspaper for four generations may have an attachment to the business, and the people who work in it, that isn't at all the same thing as just being rich. That attachment may even have some social value. But Matt is even more wrong to argue about whether it's all right for the estate tax to orce the breakup of family businesses and farms, when in fact it does no such thing. As Stuart Levine explains, Section 6166 of the Internal Revenue Code allows estate taxes on closely-held businesses to be spread out over fourteen years at very generous rates of interest: currently under 3%, which is much lower than the rate on student loans, for example. So the "family business" question is a mere red herring, which a better-trained newshound than Matt would not have allowed to lead him away from the trail. The repeal of the estate tax, unless it's replaced by an inheritance tax, is a profoundly anti-democratic and anti-meritocratic move, taking us one step closer to reproducing the regime of inherited status against which the generation of 1776 fought and won a revolution. Being wealthy and important because of your ancestors is European; making it on your own is American...

http://www.latimes.com/news/printedition/front/la-na-bush16apr16,1,6276858.story?coll=la-headlines-frontpage&ctrack=2&cset=true: President Bush came to Ohio on Friday to highlight a state retirement savings system that he said showed that Americans would be better off handling their own old-age investments through personal accounts than relying on traditional Social Security. But that state's version of personal accounts has attracted few takers among the people eligible — Ohio's 750,000 public employees. And records show that the most widely chosen version of the state-offered accounts has racked up a five-year earning record of 1.86%, about the same return that the president says Social Security produces. "Boy, does he have a hard sell ahead of him in using Ohio as his example," said Keith Brainard, research director of the National Assn. of State Retirement Directors, which represents virtually all of the nation's public employee pension plans...

http://www.washingtonpost.com/ac2/wp-dyn/A57535-2005Apr15?language=printer: Jonathan Weisman: In the same week that the House voted to permanently repeal the estate tax, 44 House Republicans broke with their leaders to demand that as much as $20 billion in Medicaid savings be stricken from the budget. The twin moves raise new questions about Congress's willingness to tackle the budget deficit. And they came just as the World Bank and the International Monetary Fund are to convene their annual meetings this weekend. The Bush administration was to use the meetings to tell the world's finance ministers and central bankers that Washington is serious about its red ink. "There was a lot of talk at the beginning of this year that the switch to big-budget conservatism was finally over," said Maya MacGuineas, executive director of the Committee for a Responsible Federal Budget. "But it looks like Congress may not have the stomach."..

http://angrybear.blogspot.com/2005/04/health-care-in-us-and-world-part-ii.html: Health Care in The U.S. And The World, Part II: What do we spend the money on?. In Part I of this series, I showed that the US spends a lot more money on health care – now over 50% more as a percent of GDP than France and the other industrialized nations. Additionally, the U.S. is the only country in my data for which less than half of health care spending is publicly financed, with the balance coming primarily from employers and out-of-pocket. But what do we spend the extra 5% of GDP? It's apparently not doctors. While the number of doctors in the US has increased steadily, we still rank low in terms of doctors per capita...

http://ideas.repec.org/a/bla/kyklos/v51y1998i3p379-97.html: Who Benefits from Progress? Tabarrok, Alexander Cowen, Tyler: Progress is better for some consumers than for others. The authors analyze the factors governing how much a consumer gains from progress, defined as price declines and the introduction of new and improved products, and they show how these factors vary systematically across consumer groups. Recent economic developments have brought increasing disagreement about the performance of the American and European economies. Economists typically try to account for these dual and contrasting perspectives by citing the increasing gap between the wages of skilled and unskilled labor. The authors examine differential consumer gains as another factor which may account for the contrasting perspectives...

http://www.washingtonmonthly.com/archives/individual/2005_04/006140.php: THE BOY WHO CRIED MARTIN WOLF....I'm enjoying Martin Wolf's Why Globalization Works, and I recommend that all good Americans read the book. Most Democrats and Republicans will find much to agree or disagree with because Wolf's policy preferences don't map well to the American political scene: he's an old-school British liberal internationalist.... Let me cherry-pick this part of the book: "Nineteenth-century nationalism coincided with a resurgence, in the last three decades of that century, of pre-modern imperialistic and protectionist ideas. The aim of countries became to create a protected sphere of their own. From the point of view of promoting prosperity, these shifts were an error. This is particularly true of the late nineteenth-century scramble for new empires in Africa. But, worse than that, the emergence of protectionism and imperialism changes the calculus of international relations: suddenly, being small and weak begins to look rather a bad choice, because one might be locked out of opportunities for peaceful exchange and prosperity. In a protectionist world, countries will try to become parts of trading blocs or create empires. Imperialism and protectionism are, for this reason, self-fulfilling prophecies--they create the dog-eat-dog world their proponents believe justifies them. It is for this reason that, in recreating the liberal world order, the Americans, led by Franklin Delano Roosevelt's long-serving secretary of state Cordell Hull, placed great weight on the principle of non-discrimination, alongside that of liberalization. This was an attempt to leave behind the world of hostile trading blocs. It is an understanding that the United States now seems to have lost."...

http://battlepanda.blogspot.com/2005/04/why-are-our-intro-to-econ-classes.html: But this conversation haunted me. How is it possible for a guy like RJ to, for all intents and purposes, not believe in economics? He certainly is intelligent, and more importantly intellectually curious. He was even curious enough about economics at one point to take an intro to Econ class at college. Amherst College, which is among the best schools in this country, if I may say so myself. Yet despite the fact that he's a bright guy ready and willing to learn more about economics in one of the country's elite institutions, the class did not nurture his nascent interest. In fact, this introduction turned him against the whole subject so decisively that his has closed his mind. Yet I really shouldn't have been so surprised, I took the same class and it wasn't so very long ago when I was every bit as skeptical about the science of economics as RJ, if not quite as virulently so. The ironic thing is, this class, Econ 11, was tailored precisely to function as a freestanding introductions to economics...

http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2005/04/the_equity_prem.html: One of the nicest puzzles in economics is the equity premium puzzle (pdf). This is that economic theory says that shares should out-perform bonds by less than half a percentage point a year, whilst in fact they've out-performed by 4.6 per cent a year in the US since 1900. There have been lots of attempts to explain this. Some say its because investors are irrational and under-estimate the long-term safety of equities. Others say  the US simply got lucky (pdf), and that true returns on all equities are in fact much lower than US data suggests. And others say that it's because we are creatures of habit (pdf), and so fear even small falls in their spending. All good efforts. But now there's another theory - women don't fancy blokes who take risks. This should create a high excess return on equities, simply by increasing the penalty attached to risk-seeking behaviour. Even this guy didn't think of that one...

http://ezraklein.typepad.com/blog/2005/04/always_low_wage.html: Always Low Wages. Always. Saying Wal-Mart is antiunion is slightly less shocking than calling Tom DeLay unethical, or noting that I have an elbow*. Nothing could be better known. But I think most are confused, like I was for a long time, over how Wal-Mart can actually stop the unions. So one day, I called up an organizer buddy of mine and asked. The answer was so simple that it barely qualified as an answer at all. If workers unionize, or threaten to unionize, or feint at unionizing, or think about unionizing, or see a union hall on their way to work one day, Wal-Mart shuts down the store...

http://ezraklein.typepad.com/blog/2005/04/the_meansbased_.html: The Means-Based President. While reading some post-mortems of the just passed Screw The Poor Bankruptcy Bill, I came across this sneaky little stat: "With 90% of bankruptcies attributable to job loss, divorce or excessive medical bills, it is clear that better economic policies, social services and affordable healthcare is the way to reduce bankruptcy," said Rep. Lynn Woolsey (D-Petaluma). Most of us already knew that about half of bankruptcies are precipitated by crushing medical emergency, though I'd no idea such innocuous and understandable trials as job loss and divorce made up for the rest. But isn't it weird that the answer to bankruptcy from medical bills and job loss was to make it, well, harder to declare bankruptcy? If the Bush administration had wanted to end bankruptcies, they could have offered federal reinsurance for catastrophic medical costs. You would've ended half the bankruptcies right there...

http://www.tompaine.com/articles/the_late_great_income_tax.php?dateid=20050415: The cornerstone of the U.S. system is the taxation of income and estates. Income is the broadest conceivable base for taxation, permitting the lowest possible rate for a given amount of revenue. (Estate taxation is an indirect means of taxing income that has never been taxed.) The high point of income tax reform was the base-broadening achieved under the Tax Reform Act of 1986. Since then, of course we have seen backsliding, in the form of a blizzard of new deductions, credits and exclusions. As we speak, the Estate and Gift Tax is under assault in Congress. The most infamous of the post-'86 reforms is the increasing favor afforded to income received by the wealthiest Americans—capital gains and dividends. Legislation to this effect was signed by Bill Clinton in 1997, and later by George W. Bush, seemingly once a month. This trend marks the evolution of the income tax into a wage tax, shifting, as John Edwards says, the federal tax burden from wealth to work. Even so, the income tax is still progressive, just not as much as it used to be. The average effective rate of the tax is 8.6 percent, according to the Brookings/Urban Institute Tax Policy Center but the rates vary enormously by income class.... the bottom 40 percent of the population, the average rate of the individual income tax is negative—taxpayers get more back from refundable credits than they pay in. For the middle 20 percent, the rate is just 3.3 percent, and for the fourth quintile it's 6.3 percent. Pity the poor Republicans—it's the top quintile that pays 86 percent of the income tax (at an average rate of 12.2 percent of income)...

http://www.economist.com/research/articlesBySubject/PrinterFriendly.cfm?Story_ID=3861190&subjectID=348918: The flat-tax revolution. Fine in theory, but it will never happen. Oh really? THE more complicated a country's tax system becomes, the easier it is for governments to make it more complicated still, in an accelerating process of proliferating insanity—until, perhaps, a limit of madness is reached and a spasm of radical simplification is demanded. In 2005, many of the world's rich countries seem far along this curve. The United States, which last simplified its tax code in 1986, and which spent the next two decades feverishly unsimplifying it, may soon be coming to a point of renewed fiscal catharsis. Other rich countries, with a tolerance for tax-code sclerosis even greater than America's, may not be so far behind. Revenue must be raised, of course. But is there no realistic alternative to tax codes which, as they discharge that sad but necessary function, squander resources on an epic scale and grind the spirit of the helpless taxpayer as well? The answer is yes: there is indeed an alternative, and experience is proving that it is an eminently realistic one. The experiment started in a small way in 1994, when Estonia became the first country in Europe to introduce a “flat tax” on personal and corporate income. Income is taxed at a single uniform rate of 26%: no schedule of rates, no deductions. The economy has flourished. Others followed: first, Latvia and Lithuania, Estonia's Baltic neighbours; later Russia (with a rate of 13% on personal income), then Slovakia (19% on personal and corporate income). One of Poland's centre-right opposition parties is campaigning for a similar code (with a rate of 15%). So far eight countries have followed Estonia's example (see article). An old idea that for decades elicited the response, “Fine in theory, just not practical in the real world,” seems to be working as well in practice as it does on the blackboard....

http://www.marxists.org/archive/lenin/works/1918/may/18b.htm: V. I. Lenin, "Report To The All-Russia Congress Of Representatives Of Financial Departments Of Soviets," May 18, 1918: The country's financial situation is critical, The problem of transforming the country on socialist lines offers many difficulties that al times appear insurmountable, but no matter how arduous the work that at every step meets with the resistance of the petty-bourgeoisie, the profiteers and propertied classes, I think we shall have to carry it out.... We must effect sound financial reforms at all costs, and we must remember that any radical reforms will he doomed to failure unless our financial policy is successful.... The second task confronting us is the correct organisation of a progressive income and property tax. You know that all socialists are against indirect taxation because the only correct tax from the socialist point of view is the progressive income and property tax.... We assume that we shall have to go over to the monthly collection of the income tax. The section of the population receiving its income from the state treasury is increasing, and measures must be taken to collect the income tax from these people by stopping it out of their wages. All income and earnings, without exception, must be subject to income tax; the work of the printing press that has so far been practiced may be justified as a temporary measure, but it must give place to a progressive income and property tax that is collected at very frequent intervals...

http://www.washingtonmonthly.com/archives/individual/2005_04/006143.php: REVIEWING THE ECONOMIST....John Holbo reviews the Economist: "Every major story has either the 'there are dark clouds on the horizon but there's a silver lining' structure; or 'it looks like a golden age, but there are dark clouds of the horizon' structure. It's comforting to know that, however bad it gets, there will always only be those two major stories...." He's right, but it's actually worse than he thinks. Business speakers (and others, I assume) learn early that the proper structure for a presentation is "bad news first, then good." The idea is that you want your audience to leave the room filled with determination and optimism. The Economist does the same thing. But here's the catch: what counts as good news and what counts as bad? In a business presentation, that's pretty easy (revenues down = bad, new product launching soon = good). For the Economist, though, good news is whatever ideological position they prefer. So while it may look like they publish two different kinds of stores, they actually publish only one: bad news followed by good. If you want to know the editorial line on any particular issue, just read the second half of a story dedicated to it. That's where you'll find it...

James Robinson: "Land and Power: Theory and Evidence from Chile"

James Robinson, who we lost to Harvard last year, comes to the Economic History Seminar on his brief tour of Berkeley:

Jean-Marie Baland and James Robinson (2005), "Land and Power: Theory and Evidence from Chile" (Cambridge: Harvard): With the introduction of the secret "Australian" ballot in Chile in 1958, land prices fall sharply. Baland and Robinson interpret this as evidence that landlords were 'buying' the votes of their inquilinos at less than the market price of votes. Inquilinos, you see, are relatively well-off in the context of the Chilean countryside: they value their place in the hacienda and know how much better off they are then the casual laborers without attachment to the hacienda. With the introduction of the secret ballot, landlords still have to provide their inquilinos with the same "efficiency wage" premium over casual labor in order to elicit high work effort, but they no longer get to control who their inquilinos vote for. To the extent that a big part of the value of being a landlord is the status and power within right-wing politics that you get by being a large landlord who can deliver the votes of many inquilinos, you would expect to see land prices fall (and the right-wing rural vote share drop) significantly with the introduction of the secret ballot.

George Akerlof and I attacked Jim's position. We thought it was likely that becoming a landlord gained you status within the right-wing parties not because you were (crassly) viewed as a source of votes but because everyone working in the right-wing party secretariats in Santiago had bought into a landlordist ideology. We thought that the right-wing commitment to this ideology was indirectly supported and generated by landlords' ability to deliver agricultural dependents' votes, but was not directly linked to it. And we thought that the inquilinos had, to some degree at least, likely bought into the paternalist landloard ideology as well. We expected Baland and Robinson to find not a big impact effect of the introduction of the secret ballot, but a slow decline over years or decades.

George and I were wrong. It's not a Gramscian process at all. Jim Robinson, tenured political scientist, with his crass reductionist view of the market-for-votes as a process of market-like exchange, beats George Akerlof and Brad DeLong, tenured economists, with their more Gramscian view that a process of ideological consciousness formation intervenes between the material base of land tenure and the superstructure of political behavior.

The irony is entertaining...

Abstract: In this paper we investigate the effect of the absence of a secret ballot on electoral outcomes and resource allocation. When voting behavior is observable, votes can be bought and sold in a 'market for votes'. We distinguish between direct vote buying, where individuals sell their own votes to political parties, and indirect vote buying, where people also sell the votes of others; and we characterize the circumstances in which vote buying changes the electoral outcome. we then provide a microfoundation for indirect vote buying, which usually takes the form of employers sellign the votes of their employees. This can occur when the employment relationship involves [labor] rents, since employers can use the threat of withdrawal of these rents to control the political behavior of their dependents. This [effect] increases the demand for labor and generates an added incentive to own land increasing the price of land. We test the predictions of this model by examining in detail the effects of the introduction of the secret ballot in Chile in 1958. We show that this chagne in political insitutions had implications for voting behavior and land prices which are consistent with the predictions of our model.

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"It is a cruel mockery to tell a man he may vote for A or B, when you know that he is so much under the influence of A... that his voting for B would be attended with... destruction.... It is not he who has the vote... but the landlord, for it is for his benefit and interest that it is exercised in the present system." --David Ricardo (1824)

"When any man attempted to estimate the probable result of a county election in England, it was ascertained by calculating the number of the great landed proprietors in the county and weighing the number of occupiers under them." -- Lord Stanley (1841)

"If that law [without the secret ballot] did not exist, instead of there being 9 Socialist senators there would be 18, and you would be reduced to 2 or 3.... [Y]ou laugh, but the truth is that there would be not 2 Conservative senators from O'Higgins and Colchagua, which corresponds exactly to the number of inquilinos in the fundos which belong to the Conservative hacendados in that region. Conservaties would have only one or perhaps none." -- Senator Martone (1958)

Does the U.S. Want the Renminbi to Rise Now?

Daniel Drezner wrote:

danieldrezner.com :: Daniel W. Drezner :: The Bush administration gets says it's getting serious about the dollar: Looks like the Bush administration is shifting from passive-aggressive to aggressive in trying to get the Chinese to revalue their currency. Andrew Balls and Edward Alden have the story in the Financial Times:

The US administration is calling for China to move immediately to introduce a flexible currency, a marked shift in tactics after several years of patient diplomacy aimed at nudging China towards allowing the renminbi to float. A senior US administration official told the Financial Times on Friday: 'Action is needed now. This is a co-ordinated effort to get the message across.' The decision to demand prompt action by Beijing comes in the face of growing pressure from Congress over the burgeoning US trade deficit with China. Officials acknowledge they were shocked by a 67-33 Senate vote earlier this month to allow consideration of a bill championed by Democratic senator Charles Schumer that would impose a 27.5 per cent tariff on all Chinese imports if China does not revalue in the next six months.... The message is being delivered to China at all levels in advance of this weekend's Group of Seven meeting in Washington. China, which has been a guest at the past two G7 meetings, is not sending its finance minister and central bank governor to this weekend's gathering...

That last bit suggests to me that this pressure won't have an appreciable effect anytime soon. This will irritate the Bush administration but really irritate the European members of the G-7, who blame the United States and the Pacific Rim for the magnitude of current global imbalances.

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Brad Setser wonders if the U.S. really wants the renminbi to go up by a lot, right now: a fall in China's (and other central banks') purchases of dollar-denominated assets reduces the value of the dollar and so boosts demand for U.S. firms in export and import-competing industries, and raises dollar interest rates, reducing investment. In our simplest finger-exercise models--teh ones I will teach next year in Econ 101b--the first effect dominates. But that is small comfort, for the score that the international monetary system appears to be playing off of these days bears little resemblance to finger exercises and much more resemblance to something like "Night on Bald Mountain."

Brad Setser's Web Log: First the President tells China that it is holding a bunch of worthless IOUs ...: And now he tells China it really should revalue, in far stronger language than the US (or the G-7) has used before. It seems like Tim Adams, the incoming Treasury Under Secretary for International Affairs, plans to get tough on China. Adams reportedly thinks that China has not rewarded Bush for keeping the rhetorical heat on China down during the campaign....

If I were part of the Bush Administration's economic high command, though, I would worry that China might take the hint. If China revalued (really revalued) and its reserve accumulation slowed, the US might find it a bit harder to find buyers for all the IOUs the Treasury is churning out, even as US 'soft patch' could widen the US deficit. And there might not be quite so much demand for Agency debt/ mortgage backed securities either....

[T]here seems to be pretty good evidence that the value of the renminbi does have an impact on China's export growth. Consider this: From 1996 to 2001, China's real exchange rate rose from 86 to 101, and its exports almost doubled, going from $174 billion to $301 billion. From 2001 to 2004, China's real exchange rate fell from 101 to around 90. China's export growth accelerated: China's export grew by 35% in 2003, 35% in 2004, and, according to the latest (March) data, are increasing by 33% y/y in 2005. China's exports are on track to more than triple between 2001 and 2006: rising from $310 billion to $1030 billion (China's end 2004 exports were around $740 billion). That's a much bigger increase than the increase in the five years that preceded 2001, when the renminbi generally was appreciating along with the dollar.... The fall in the dollar has not done wonders for US export growth, but it sure has had an impact on China.

A very large hedge fund (oops -- a well-respected investment bank) used more formal econometric techniques to arrive at the same conclusion. A recent Goldman study indicates that even a 10% rise in the renminbi's real value would cut the growth in China's exports by 15%. That has to happen at some stage: China is too big for its exports to keep growing at a 30% plus annual rate. And if a Chinese move made it a bit harder for the US to finance its deficits at current rates, that just might provide some of the impetus the US needs to start putting its own house in order...

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Nouriel Roubini has a much stronger view that he expresses, um, frankly: for the U.S. to push for China to revalue the renminbi by 20% is for the U.S. government to shoot itself in the head:

Nouriel Roubini's Global Economics Blog: April 2005 Archives: [I]s the US really serious about demanding that China revalue its currency or is the US outright clueless and masochistic? The first rule of good manners - and finance as well - is that you should not bite the hand that feeds you. In the case of the US, for the last two years about three quarters of the US fiscal deficit has been financed by foreign central banks (mostly China and Asia), 100% of the US fiscal deficit has been financed from abroad (as US residents have not increased by a penny their net holdings of US Treasuries) and about 80% of the US current account deficit has been financed by foreign central banks (again mostly China and Asia). Last year China accumulated $200 billion of forex reserves, mostly in US dollar assets, and it is still accumulating them at the same rate this year.... [R]educed supply of financing of the US twin deficits from China/Asia would lead... to a sharp increase in the US long term interest rate, thus leading to a fall in housing prices, in equity values and in the price of a wide range of other risky assets such as high yield bonds, i.e. a hard landing.

How much would US long term rates increase...? [W]e argued at least 200 basis points... two anecdotes are more powerful.... Recently, when an obscure Korean government document sent to its congress had a line about diversification... the DJ index fell 1.6%, the US bond market tanked with the 10yr yield up 15bps and the dollar fell sharply.... [W]hen the Japanese PM Koizume spoke - or mispoke? - about diversifying the Japanese forex reserves a similar shock wave affected US stocks, bonds and the dollar....

[W]hat would happen on the day when China - followed on cue by the rest of Asia as what prevents Asians from moving their effective dollar pegs is the Chinese peg - were to announce that it will... reduce its accumulation of dollar reserves? The answer is simple... financial Armageddon.... Thus... [do] the US authorities really... really mean what they say or are they clueless?... There are at least three interpretations....

1. Talk is cheap and the posturing is aimed at containing protectionist pressures in the US....
2. The US authorities are really clueless or masochistic....
3. Wishful thinking that a Chinese revaluation alone would solve the US current account problems....

There is a view out there... folks at the Fed... fall of the US dollar... would have little effect on US interest rates and that the beneficial effects by themselves of such a dollar fall on US demand and net exports would have a positive effect on US economic growth (see the Greenspan February speech and the more recent one by Bernanke).... A variant of this... is that... a reduction of the US fiscal deficit is... likely... moderate Republican senators will not vote for making the US tax cuts permanent... the AMT... [is] a stealth tax increase and... Social Security privatization is already bust....

But such wishful optimism... has little basis in the data or... Washington. The US current account has worsened rather than improved since it started to fall in 2002 ; and this is not due just to J-curve effects (that last 6-12 months, not 28 months) and is not just due to high oil prices (as non-oil imports are still growing at a very fast rate).... [T]he moderate Republicans in Congress voted for a 2006 budget that was even more loaded with new budget busting tax breaks.... Reducing the deficit by half by 2009 by freezing non-defense discretionary spending to 2005 levels for 5 years is something that not even a single Republican congressman - 'conservative' in theory but more piggish in practice when it comes to pork barrel spending - would vote for....

So, which interpretation is the correct one?... a combination... the Administration knows that its talk is cheap and it is trying to stop Congress from slapping tariffs on China... the administration... must also be really clueless and playing with fire by pushing so hard China to revalue early... there is also plenty of delusional wishful thinking that a Chinese move alone, together with miracoulous deficit reduction - falling like manna from the sky with no policy action on taxes - would reduce the US twin deficit....

Maybe unconsciously - and this may be the fourth freudian interpretation - the administration really wishes to be woken up from its own delusional dreams and rejoin the 'reality-based community' where most the world resides...

Now a fall in the dollar could have little effect on U.S. interest rates if a dollar fall was accompanied by a Federal Reserve declaration that it was focusing on internal balance, and the Federal Reserve adopted a definition of "internal balance" that was to peg the nominal yield on the Ten-Year Treasury at five percent per year.

The life of a central bank governor would then become very exciting indeed.

It would become especially interesting if it is indeed the case, as Brad Setser reports, that this is taking place because "Tim Adams reportedly thinks that China has not rewarded Bush for keeping the rhetorical heat on China down during the campaign." In order for the U.S. to attain a soft landing U.S. national savings needs to rise relatively swiftly and the dollar has to decline slowly and gradually--so that nobody ever thinks it is about to collapse--a half-step behind the change in the exchange rate. The U.S. doesn't need anything that decreases the chances of a soft landing. Yet the word is that Treasury Undersecretary for International Affairs to be Tim Adams doesn't get this: that he is treating pressure for the revaluation of the renminbi as a move in the political game--as a way of punishing China's government for not being grateful enough to George W. Bush--rather than as the economic equivalent of pouring gasoline on a powder keg.

The Budget Clown Show Moves to the Republican Congressional Leadership...

Could the Post be making a joke? I mean, there is no doubt--no doubt at all--about the Republican Congressional leadership's willingness to tackle the deficit. It has no willingness to tackle the deficit at all. None. Zero. It has never had any. What "doubt" about this could there possibly be?

washingtonpost.com: Congress's Willingness To Tackle Deficit in Doubt. By Jonathan Weisman: In the same week that the House voted to permanently repeal the estate tax, 44 House Republicans broke with their leaders to demand that as much as $20 billion in Medicaid savings be stricken from the budget. The twin moves raise new questions about Congress's willingness to tackle the budget deficit. And they came just as the World Bank and the International Monetary Fund are to convene their annual meetings this weekend. The Bush administration was to use the meetings to tell the world's finance ministers and central bankers that Washington is serious about its red ink....

President Bush and congressional Republicans have vowed to cut the deficit in half over the next four years, but new data indicate that little progress has been made. Halfway through fiscal 2005, the federal government recorded a deficit of $291 billion, the Congressional Budget Office reported this month. That is just $10 billion less than last year's figure when the government was on its way to a record $412 billion deficit. Tax receipts -- buoyed by economic growth -- have risen over last year's levels, but spending increases have nearly kept pace. And Congress will soon approve an emergency spending package for the wars in Iraq and Afghanistan amounting to $80 billion, which will exacerbate the problem.

Stanley E. Collender, a longtime federal budget expert at Financial Dynamics Business Communications, said the deficit this year could exceed the White House's $427 billion forecast, and may reach $450 billion. 'Clearly, the deficit is not anyone's concern,' he said. 'They're just barreling ahead.' Going forward, Congress has not given budget analysts reason for optimism. The House's vote for a full repeal of the estate tax beyond 2010 would cost the Treasury $290 billion over the next 10 years and as much as $70 billion a year once fully implemented. In the Senate, Republicans and Democrats have launched serious negotiations over a deep and permanent estate-tax cut that can pass this year, even if it falls short of a full repeal.

Republicans have long maintained that the deficit should be controlled by curbing government spending, not raising taxes. But, this week, significant numbers of Republicans appeared to give up on Bush's planned cuts on Medicaid, agriculture subsidies and student loans. Those cuts -- especially the Medicaid savings -- were supposed to be a test run for deeper cuts to come. 'The federal government has unfunded promises of $43 trillion on the books,' said Senate Budget Committee spokesman Gayle Osterberg. 'So the uproar over skimming even 1 percent off the growth of one program is disheartening.' On Wednesday, 44 House Republicans penned a letter urging House Budget Committee Chairman Jim Nussle (R-Iowa) to strip as much as $20 billion in Medicaid savings from the House budget resolution, one of the largest pieces of spending cuts under consideration. Senate budget writers had included about $14 billion in Medicaid reductions in their version of the budget, but last month, the full Senate voted to strike those cuts and instead empanel a commission to study changes in the Medicaid system that would determine how much in savings is feasible. Now, dozens of House members who initially agreed to the cuts say House negotiators should accede to the Senate's position.

'This is a program that is in significant need of reform, and we believe the policy should drive the budget, not the other way around,' said Rep. Heather A. Wilson (R-N.M.), who is leading the effort. Of the 44 Republican signatories, 43 had voted for the estate-tax repeal. Rep. Frank R. Wolf (R-Va.), one of the 43, said he sees no contradiction in his stands. 'Poor people need health care, and this is an important program,' he said of Medicaid. The estate tax 'is a tax issue,' he added. 'In my area, a lot of farms are being broken up because when the farmer dies, the family has to sell out. It's really about growth.' 'We should do everything we can to deal with [the deficit],' Wolf concluded. 'I think the Congress is very serious.'

The tough spending targets set by the House and Senate budget committees could still emerge relatively intact when a final budget deal is reached, perhaps by the end of the month....

One piece of evidence that the Post is not making a joke--is simply clueless about the budget--is its description of $20 billion in cuts in Medicaid spending over five years as "tough spending targets." Medicaid is not the first, or the second, or the tenth place I would look for savings in order to reduce the deficit. But $20 billion over five years is 0.2% of the total budget. It is tough on some Medicaid beneficiaries. It is not part of a tough overall spending target.

Max Sawicky Cheers for the Income Tax!

He writes:

TomPaine.com - The Late, Great Income TaxMax B. Sawicky. April 15, 2005:Let us count our blessings. The cornerstone of the U.S. system is the taxation of income and estates. Income is the broadest conceivable base for taxation, permitting the lowest possible rate for a given amount of revenue. (Estate taxation is an indirect means of taxing income that has never been taxed.) The high point of income tax reform was the base-broadening achieved under the Tax Reform Act of 1986. Since then, of course we have seen backsliding, in the form of a blizzard of new deductions, credits and exclusions. As we speak, the Estate and Gift Tax is under assault in Congress. The most infamous of the post-'86 reforms is the increasing favor afforded to income received by the wealthiest Americans—capital gains and dividends. Legislation to this effect was signed by Bill Clinton in 1997, and later by George W. Bush, seemingly once a month. This trend marks the evolution of the income tax into a wage tax, shifting, as John Edwards says, the federal tax burden from wealth to work.

Even so, the income tax is still progressive, just not as much as it used to be. The average effective rate of the tax is 8.6 percent, according to the Brookings/Urban Institute Tax Policy Center but the rates vary enormously by income class.... For the bottom 40 percent of the population, the average rate of the individual income tax is negative—taxpayers get more back from refundable credits than they pay in. For the middle 20 percent, the rate is just 3.3 percent, and for the fourth quintile it's 6.3 percent.... It's the top quintile that pays 86 percent of the income tax (at an average rate of 12.2 percent of income).

Insofar as there is genuine popular animus towards the income tax, surely it has as much to do with where Americans would like to be, rather than where they are now economically. The tax that tolls for most people is not the income tax, but the payroll tax. Should this upset us? I would say no. The payroll tax finances our vital Social Security and Medicare programs. Gene Steuerle and Adam Carasso have estimated that the lifetime benefits of these programs are huge. Converting the projected streams of benefits into lump sums, they find that for a married couple with average wages and life expectancy reaching age 65 in 2030, Social Security's value will be the $470,000, and Medicare's $490,000. What a country.... [P]resent-day workers are not contributing for the sake of receiving benefits at current levels. They can look forward to higher real benefits commensurate with their wages at retirement time, as long as privatizers don't succeed in carving up the program....

One common notion is to transition towards a consumption tax. The hope is that savings and economic growth would get a boost. The fact is that for many people, the income tax is already a consumption tax. Anyone who has unused opportunities to contribute to a deductible pension or IRA—and there are many such people—does not face income taxation on the margin. If they put a dollar in a tax-preferred savings vehicle, the returns to their saving would go untaxed. If they instead spend that dollar on consumption, it is subject to tax. So the existing income tax—really a hybrid income-consumption tax—already provides savings subsidies. These could be extended for lower-income persons, but that is a reform that is completely feasible under the current tax system. Since we are talking about low-income people, however, it would not promise much for national saving.

Greater savings subsidies aimed at the higher-income end of the population run the risk of simply offering new channels for savings already in the pipeline, not net increases. If you are really determined to do something about national saving, the logical place to begin is the Federal budget deficit.

Isn't the income tax too complicated? Sure. How to simplify it? One way is to tax all income under the same rates, rather than favoring wealth over work, as above. Another is to consolidate deductions and credits... my pet project is to merge the Earned Income Tax credit, the Child Tax Credit and the dependent exemption into a Simplified Family Credit....

So weep not for the income tax. Rather, be wary of those who have been fixing it. If they keep on, we will end up with a tax system focused like a laser beam on moderate and low-income working families, providing grossly inadequate revenues.

As Justice Holmes said, with taxes we buy civilization. Let's avoid the bargain-basement version.

Gosselin and Chen on Bush's Strange Trip to Ohio

Particularly strange is Trent Duffy's hiding from his telephone--and the fact that Trent Duffy appears to be the only person who knows more than what was in Bush's excessively-skimpy talking points.

They write, in the LA Times:

Bush Points to a Retirement System With Mixed Results. By Peter G. Gosselin and Edwin Chen, Times Staff Writers: KIRTLAND, Ohio — President Bush came to Ohio on Friday to highlight a state retirement savings system that he said showed that Americans would be better off handling their own old-age investments through personal accounts than relying on traditional Social Security. But that state's version of personal accounts has attracted few takers among the people eligible — Ohio's 750,000 public employees. And records show that the most widely chosen version of the state-offered accounts has racked up a five-year earning record of 1.86%, about the same return that the president says Social Security produces.

"Boy, does he have a hard sell ahead of him in using Ohio as his example," said Keith Brainard, research director of the National Assn. of State Retirement Directors, which represents virtually all of the nation's public employee pension plans. "Ohio's individual account programs are only a few years old, and in the short time they've been around, investment returns have been relatively weak." Brainard said. Coming two weeks before the end of his "60 Stops in 60 Days" campaign to convince the nation that Social Security needs to be reshaped, Bush's Ohio appearance illustrated the difficulty the president faced in promoting his plan to a nation edgy about a still-uncertain economic recovery and a stock market that had taken a steep dive in recent days. Bush has proposed allowing workers under 55 to divert a portion of their Social Security taxes into private stock and bond accounts. In return, they would agree to a cut in their traditional Social Security benefit.

The president has said the private accounts should be part of a broader plan to shore up the shaky finances of the Social Security system. That broader, still-undefined plan might include further benefit cuts or tax increases. But several recent polls show the president's proposal losing ground amid concerns that private accounts would require Americans to shoulder more economic risk for the possibility of a greater reward....

Part of any Social Security fix, the president told his audience, should be "to trust people with their own money, to devise a system that would work similar to the state of Ohio, that would say, 'We're going to let you earn a better rate of return for your money.' " But in the biggest of Ohio's several state retirement programs, the popularity of the private accounts and the returns they produce are relatively low. Ohio is one of half a dozen states that have begun to offer 401(k)-like retirement accounts through which eligible employees can invest in a handful of state-screened mutual funds or other portfolios.... The state began offering the private accounts to state college faculties in 1998, and extended them to other workers early in this decade. Ohio has five major retirement systems for teachers, police, firefighters and other public employees.

It was unclear from the president's remarks and from an administration-issued news release which of the five plans Bush was discussing in his appearance Friday, or what option he was focusing on. The White House referred calls to spokesman Trent Duffy, who could not be reached. But in the biggest of the state's plans — the 522,000-member Ohio Public Employees Retirement System, or OPERS — the personal account option has not proven particularly popular among state workers, or delivered a particularly good rate of return. About 10,000 of those eligible for personal accounts — less than 5% — have signed up for the accounts since they became available at the start of 2003, according to Laurie Fiori Hacking, OPERS' executive director...

Why Oh Why Can't We Have a Better Press Corps? (Economist Continues Its Dive Edition)

Outsourced to Kevin Drum, who writes:

The Washington Monthly: And speaking of the Economist, could this week's lead editorial be any lamer? It's a paean to the flat tax, and like legions of politicians and bloggers before them, they confuse flat (as in getting rid of deductions) with flat (as in taxing everyone at the same rate). These have exactly nothing to do with each other. It's one thing for people who don't know better (or who are trying to get elected) to say stuff like this, but the Economist certainly can't plead ignorance. So why the egregious dishonesty about it?

The Lowest Deep on Hoxby-Rothstein

I don't have a dog in this fight. I'm not qualified to judge this fight:

The Lowest Deep: Does Competition Among Economists Benefit Junior Faculty?: There is a ridiculous battle in ivory tower economics: Jesse Rothstein, assistant professor at Princeton, wrote two comments over the last couple years criticising Caroline Hoxby's well-known and influential paper 'Does Competition Among Public Schools Benefit Students and Taxpayers?' (AER, 2000; NBER WP Version), suggesting that her results are overstated.... Hoxby finally had enough and posted a vitriolic and bruising response on the NBER website.... Hoxby found that students in cities with many competing school districts perform better on standardized tests than those where there were fewer school districts to choose from; competition improves outcomes. Rothstein, as part of a grad student assignment, attempted to replicate the results but couldn't and asked Hoxby for help. What happened next is fuzzy.... Rothstein embarked on a multi-year mission to disprove Hoxby's results....

My personal opinion is that 90 percent of Rothstein's points are technically correct but irrelevant in practice; they just don't affect the results much. [Who cares if Hoxby is using the 'cluster' command instead of Moulton's standard errors?] On the more substantive points the results are initially startling but hinge on judgment calls where I think Hoxby has it right (e.g. the 1st stage should be run at the MSA level, not the individual level). After reading both, it's hard for me not to conclude that Rothstein's 'preferred' estimates are 'preferred' largely because they differ from Hoxby's and to wonder why the editors of the AER thought it fit to crowd their scarce pages with their back-and-forth.

While the merits of the debate are of some academic interest, the papers are worth checking out just because they're so antagonistic. It's like a nerdy Celebrity Death Match....

I do remember Richard Freeman laying down the three laws for econometrics you can trust:

1. It had better be there in the ordinary-least-squares regression.
2. It had better still be there in the econometrically-sophisticated high-tech instrument procedures.
3. It had better still be there for small technical tweaks to the econometrically-sophisticated procedures.

Rothstein makes a convincing case that Hoxby doesn't satisfy (3), if his definition of "small tweaks" is correct--and I'm not qualified to judge whether he is right. And the connection between voting-with-your-feet within metropolitan areas and average school quality was never there in the OLS at all.

On the other hand, Caroline Hoxby has, in my view, the advantage of theory on her side: it would be very surprising if competition for students did not have an effect on school quality, and if school quality did not have some effect on outcomes.

The public middle school my children go to--Stanley School, in Lafayette, California--is truly excellent (even if massively underfunded by any objective standard, as all California public schools these days are). It's principal, Fred Brill, is extremely highly regarded. Nevertheless, if there had been another equivalent school that we and other parents could have voted-with-our-feet to send our children to, there is no way in the world that Fred Brill would have dared put the teacher he did in charge of my son's sixth-grade core class. No way at all.

Time to Shut Down the Heritage Foundation?

There is a very large and important difference between having an ideological position and seeking funding from those for whom that position is materially convenient on the one hand, and changing one's ideology to suit one's funding sources on the other. Heritage appears to have crossed that line. Judd Legum reports:

Think Progress: Heritage Sells Out: There is a revealing article in today's Washington Post on the Heritage Foundation. For years, the right-wing think tank was highly critical of former Malaysian prime minister Mahathir Mohamad. Then, in the summer of 2001, a consulting firm co-founded by Heritage President Edwin J. Feulner, Belle Haven, signed a lucrative contract to represent Malaysian business interests. (Belle Haven employs Feulner's wife and the COO at Belle Haven, Ken Sheffer, is the former head of Heritage's Asia division and is still on the payroll as a consultant, earning 75K a year for his services.) All of a sudden, Heritage changed its assessment of the Southeast Asian nation.

I went to the Heritage website to get more details. A search of their website presents a disturbing picture.

For example, on 10/16/03 Mahathir gave a speech alleging "Jews control the world and that Israel and the Jews are the enemy of 1.3 billion downtrodden Muslims." Mahathir said Muslims need "guns and rockets, bombs and warplanes, tanks and warships for our defense." Heritage scholar Dana R. Dillon wrote three weeks later:

The U.S. Congress... went too far in its efforts to punish Mahathir by passing an amendment to cut off military aid to Malaysia. Congress could have protested Mahathir's remarks, without harming U.S.-Malaysian relations, by passing a congressional resolution condemning Mahathir's speech. To contain the long-term damage to U.S.-Malaysian relations, the U.S. Department of State should inform Members of Congress of Malaysia'9s tolerance of religious freedom and its importance to American national security interests as soon as possible.

Dillon helped justify his position with the following argument:

Judging Malaysian tolerance for people of the Jewish faith is more difficult because Malaysia has no discernible Jewish community.

Compare that piece to a 11/16/98 essay by Heritage scholar John T. Dori:

Prime Minister Mahathir Mohamed instituted anti-free market currency controls and jailed U.S. friend and pro-market reformer Anwar Ibrahim, his former deputy prime minister and minister of finance. To protest these actions, President Bill Clinton should have sought a change in venue for the upcoming Asia-Pacific Economic Cooperation (APEC) forum Leaders' Meeting to be held in Kuala Lumpur, Malaysia%u2019s capital. The next-best option would have been to boycott the meeting.

To fend off its critics, Heritage claims the switch was due to 9/11. However, the switch occurred before the attacks:

Heritage financed an Aug. 30-Sept. 4, 2001, trip to Malaysia for three House members and their spouses. Heritage put on briefings for the congressional delegation titled "Malaysia: Standing Up for Democracy" and "U.S. and Malaysia: Ways to Cooperate in Order to Influence Peace and Stability in Southeast Asia."

Marginal Revolution Proposes a New Cheeseburger Recipe

I think this is illegal in the state of California:

Marginal Revolution: New cheeseburger recipe: New to me, that is. Make your patty boxier than usual. Stuff it with maytag blue cheese, and some high-quality butter as well. Then cook it. You can add other touches as well, but that is the basic idea.

Why not just deep-fry it as well?

Rich Man, Poor Man; Rich State, Poor State,,,

Marginal Revolution Continues to Bat 1000% This Weekend

Marginal Revolution: Rich Man, Poor Man; Rich State, Poor State: "Statistical Modeling, Causal Inference, and Social Science" is one of my favorite new blogs. It is primarily written by Andrew Gelman, a professor in the Departments of Statistics and Political Science at Columbia University.

A recent post looks at the difference between red and blue states and red and blue individuals. We all know that in the recent election poorer states tended to vote Republican while richer states tended to vote Democrat. On the basis of the famous maps many people jumped to the conclusion that poorer individuals were voting Republican (Nascar Republicans) while richer individuals were voting Democrat (trust fund Democrats). But the inference is a fallacy, the ecological fallacy. In fact, high-income individuals, as opposed to high-income states, vote Republican with greater likelihood than low-income individuals (the effect is not huge and it may be declining but it is significant).

It's even true that rich counties tend to vote Republican with greater likelihood than poorer counties. Gelman links to this graph which nicely illustrates the ecological fallacy. The three lines show that within each state higher-income counties are more likely to vote Republican but when you look between states the correlation between income and voting Republican is negative. (Click to enlarge)...

The Bush Administration Budget Clown Show Continues

We need PAYGO. We need super-PAYGO with standby tax increases and spending sequesters. We need it now.

Alex Tabarrok has intelligent things to say:

Marginal Revolution: No surprise: In February I wrote, "My prediction is that it will be easier to add $540 billion in Medicare spending than it will be to cut $5 billion in farm subsidies."

Today, the Washington Post reports:

Farm Subsidies May Not Face Limits...The Bush administration has signaled that it will not pressure Congress to enact limits on government payments to big farmers this year...The subsidy cuts and other proposed changes in the farm program were hailed by budget cutters, environmentalists and foreign governments when they were included in the administration's budget proposals in February. They have run into heavy resistance in some parts of the Farm Belt. Southern cotton and rice growers in the GOP's political base would be hit particularly hard.

And how is this for a laugh?

Reducing agricultural spending by $5.4 billion is [was? AT] a key part of the administration's plan to cut the federal defict in half. So far, however, the the Senate Budget Committee has agree to cuts amounting to just $2.8 billion.

The Federal deficit is currently over 400 billion.

Last fall people who then worked for the Bush administration grew quite snarky when I opined that only the foolish or those economical with the truth credited Bush promises to cut the deficit in half...

Tyler Cowen Speaks Sense on Global Warming

UPDATE: No, it's not Tyler Cowen. It's Jonathan Adler.

Tyler Cowen Jonathan Adler speaks sense on global warming. Unfortunately, he thinks that he is the "right." I wish he were. It would be a much better world we would live in if the right thought like Tyler Cowen Jonathan Adler:

Marginal Revolution: The Right speaks sense on global warming: "The scientific debate over global warming is not so much over whether anthropogenic emissions will affect the climate. Rather it is over the nature and magnitude of the likely effects. Even the most ardent global warming skeptics within the scientific community believe that the increased accumulation of greenhouse gases in the atmosphere will have some effect. The policy question, then, is what (if any) measures are justified to prevent or mitigate such effects.

Most on the 'right' argue that the best response is to do little or nothing. Whlie some advocate various 'no regrets' policies to improve the efficiency of energy markets (and perhaps pave the way for alternative fuels) -- as I did here -- few conservatives, libertarians, or other free-market advocates believe the most reliable climate forecasts justify drastic measures to suppress the use of carbon-based fuels. The costs of such measures, many argue, are likely to swamp the costs of climate change, and more direct measures to address global ills that could be exacerbated by climate change (disease, flooding, weather extremes, etc.) would be far more cost-effective than reducing greenhouse gas emissions.

As an analytical matter, these assessments are probably correct -- it is hard to justify one Kyoto on ecoomic grounds, let alone the dozen or so that would be necessary to stabilize greenhouse gas concentrations in the atmosphere -- but that does not mean the proper 'free market' climate policy is to 'do nothing.'

If property rights lie at the heart of free market environmentalism, than FME advocates should think seriously about the normative implications of human-enhanced climate changes that could disproportionately harm those portions of the world that have (at least thus far) contributed least to the problem. Even if a modest warming were, on balance, beneficial, the impacts would not be uniform. It may well be, as some argue, that increases in crop productivity and reduced energy costs in temperate regions will be greater than the costs to tropical regions, but this does not address the property rights concern absent some system whereby industrialized nations would compensate or indemnify less-developed nations. No such system exists -- nor is it likely that existing international institutions could implement such a system -- but that does not mean it would not be the first-best approach to climate change from an FME perspective.

Matthew Yglesias Is Puzzled About What "Getting Serious" Means

Matthew Yglesias writes:

Matthew Yglesias: Getting Serious: Dan Drezner's got a post entitled 'The Bush administration gets serious about the dollar'. It's hard to detect much seriousness there. Rather than addressing, say, the massive budget deficits that are leading to the unusual currency situation, or trying to do something that would reduce American oil consumption, they're getting serious by asking the government of China to float their currency. They've got no leverage they can use to make China do this. They're just asking. But seriously. This is, admittedly, a more serious approach than Senator Schumer's bill 'that would impose a 27.5 per cent tariff on all Chinese imports if China does not revalue in the next six months,' which is apparently gaining traction in the Senate. And what if this approach worked?

If I were part of the Bush Administration's economic high command, though, I would worry that China might take the hint. If China revalued (really revalued) and its reserve accumulation slowed, the US might find it a bit harder to find buyers for all the IOUs the Treasury is churning out, even as US 'soft patch' could widen the US deficit. And there might not be quite so much demand for Agency debt/ mortgage backed securities either.

There seem to be good arguments in favor of a revaluation of Chinese currency, but they're mostly arguments that this would make China better off. From the American perspective, revaluation isn't a substitute for real policy measures aimed at bringing our financial system back toward sustainability, it's just something that would force action on us.

This is more evidence that Matthew Yglesias's transformation into an economist is advancing rapidly. To a political scientist, you "get serious" about an issue like the currency by sending an ambassador to have an unpleasant conversation with a foreign government. Call this "get serious(ps)." To an economist, you "get serious" about an issue like the currency by changing your government's policies in such a way as to change the balance of returns and risks facing those buying and selling in foreign exchange markets. Call this "get serious(e)." Matthew is complaining that Dan is talking like a political scientist.

Soon he will grow his invisible hand...

Iraq Today

Matt Festa asks why I haven't written more about Iraq recently. The answer is that it has been too depressing, and I don't have the energy. There's no more talk about more schools being built or women being educated or more oil being pumped or more electricity being delivered, is there? Instead, I would have to talk about things like:

Iraq forces raid village in hostage crisis : BAGHDAD, Iraq -- Iraqi security forces raided a town in central Iraq on Sunday where Sunni militants were holding dozens of Shiite Muslims hostage and threatening to kill them unless all Shiites left the area, an Iraqi official said.... In Madain, where the Sunni-Shiite hostage situation was occurring, security forces that had surrounded the town began raiding sites Saturday in search of the hostages, said Qassim Dawoud, the minister in charge of national security.

Early Sunday, Iraqi forces freed about 15 Shiite families, said Haidar Khayon, an official at the Defense Ministry in Baghdad. He said five hostage-takers were captured in a skirmish with light gunfire, but no casualties were reported. It was not immediately clear how many hostages were still being held. Security forces continued to comb through the town of about 1,000 families, which is located 14 miles southeast of Baghdad, Khayon said. Other retaliatory kidnappings by Sunni and Shiite groups have occurred in the violent area, but the abductions appeared to be the first attempt by militants since the U.S.-led invasion of Iraq to forcibly evacuate a town along sectarian lines.

In Baghdad, lawmakers in Iraq's new parliament met Sunday morning and agreed that a five-member committee, including Dawoud, will look into the crisis and make recommendations. In a speech to the assembly, Dawoud said: 'We have to acknowledge the truth that there is an attempt to draw the country into a sectarian war.'

A new Cabinet had been expected to be announced in parliament Sunday. But Prime Minister-designate Ibrahim al-Jaafari, a Shiite leader, said Saturday he needed more time to discuss the allocation of portfolios, including how to bring in members of the Sunni minority, many of whom boycotted Iraq's Jan. 30 national elections or stayed home for fear of attacks at the polls...

And:

Whiskey Bar: Apocalypse Now and Then:

From Baghdad, [Zoellick] traveled to the Army base on the outskirts of Falluja aboard a Black Hawk helicopter that flew fast, and so low that it almost clipped the trees.Before climbing into the Humvee here, a military briefer noted that a small-scale insurgency was still going on, and that there had been activity by snipers. Whatever happens, do not get out of the car, Mr. Zoellick's party was warned.

New York Times
Closer Look at Falluja Finds Rebuilding Is Slow
April 14, 2005

It has been two years...

The Bush Clown Show Continues

Matthew Yglesias reports:

Matthew Yglesias: New Depths Discovered:

The State Department decided to stop publishing an annual report on international terrorism after the government's top terrorism center concluded that there were more terrorist attacks in 2004 than in any year since 1985, the first year the publication covered.

That's Jonathan Landay reporting for Knight-Ridder. And it really does seem to be as simple as that. According to Landay's sources, the administration only wants reports showing that terrorism is going down, and if the State Department's methods don't produce that result, then their report just won't be done. Lovely.