## Fear the Influenza Virus!

Alex Tabarrok is terrified at the power of influenza:

Marginal Revolution: Modern Germs: I was surprised to learn from John M. Barry's excellent book The Great Influenza that germs continued to have a disproprtionate influence on the civilizations well into the twentieth century and perhaps even today. The great influenza of 1918 probably killed 100 million people, about five percent of the entire world's population. An even higher percentage of young people died and most shockingly all of this occured in about 12 weeks. Death was not evenly distributed:

The Western world suffered the least, not because its medicine was so advanced but because urbanization had exposed its population to influenza viruses so immune systems were not naked to it. In the United States, roughly 0.65 percent of the total population died, with roughly double that percentage of young adults killed. Of developed countries, Italy suffered the worst, losing approximately 1 percent of its total population....

The virus simply ravaged the less developed world. In Mexico the most conservative estimate of the death toll was 2.3 percent of the entire population, and other reasonable estimates put the death toll over 4 percent. That means between 5 and 9 percent of all young adults died.... One doctor visiting Inuit in Alaska found everyone dead in 3 villages and 7 other villages with a death toll of 85%. We don't know how many people died in India and China but the rates were certainly higher than in the more urban United States....

Addendum: Bill Johnson at UVA points me to, "Is the 1918 Influenza Pandemic Over?" (NBER), a very recent paper by Douglas Almond. From the abstract:

In the 1960-1980 Decennial U.S. Census data, cohorts in utero during the height of the Pandemic typically display reduced educational attainment, increased rates of physical disability, lower income, lower socioeconomic status, as well as accelerated adult mortality compared with other birth cohorts. In addition, persons born in states with more severe exposure to the Pandemic experienced worse outcomes than those born in states with less severe Pandemic exposures. These results demonstrate that investments aimed at improving fetal health can have substantial long-term effects on subsequent health and economic outcomes.

## A Moment of Terror

"Well, I gotta go get ready to teach tomorrow."

"What! Tomorrow?!"

"Yes. Tomorrow."

"But classes start next week. What are you teaching?"

"Economics 121. Classes start this week."

"If you're teaching the first class of Economics 121 tomorrow, then I missed teaching the first class of Economics 101b yesterday!"

[Pause]

"At least one of us is not in touch with reality."

## New Second Lieutenants

My brother went up to Boston last week for the commissioning of one of our cousins (headed for Aberdeen; ordnance; 82nd). That makes two cousins on active duty.

## Why Are There So Few Republican Scientists?

Once again, the question answers itself:

Frist becomes the latest Republican to encourage the corruption of education.

Frist, a Republican from Tennessee, spoke to a Rotary Club meeting Friday and told reporters afterward that students need to be exposed to different ideas, including intelligent design."I think today a pluralistic society should have access to a broad range of fact, of science, including faith," Frist said....

What did we do to deserve these fools?

I don't even understand what he's babbling about in that first sentence%u2014he's muddling together fact, science, and faith, and implying that faith is a subset of the first two. What does it mean to have a "wide range" of those things? Do facts have reasonable ranges, such that we can simultaneously argue that humans evolved, and humans were created? That science, the study of the observable, should encompass religion, the invention of the invisible?

## Menarche

Gertrude Himmelfarb once wrote dismissively of historians who believed that menarche was more important than monarchy. Ridiculous, she claimed.

She was wrong. Here we have Courtney Knapp with an extraordinary number calculated by Brown's excellent David Weil:

Menarche: Better health is causal factor behind the biological capability to become pregnant. Quick refresher course for those who slept through biology.... [H]ealthier girls have their first period at a younger age, and worldwide we have seen a decline in the age of menarche accompanying improved nutrition and sanitation. According to David Weil, in South Korea, the average age dropped from 16.8 to 12.7 between 1958 and 1998...

## Market Liquidity

Potential flaws in derivative markets:

FT.com / Home UK - On Wall Street: Derivatives cannot take the pressure: By John Dizard: The recent difficulties settling futures contracts in Chicago have highlighted a growing problem: there are big derivatives markets out there that aren't built to take the strain being put on them.... In June, some large holders of the June 10-year Treasury futures contract, including Pimco, demanded settlement -- taking delivery of actual bonds -- instead of, as usual, rolling their positions into the next contract. The scramble to find the necessary notes was made worse by the fact that one account, possibly the hedge fund Citadel, already held the bulk of the cheapest notes to deliver.

Whether or not Citadel, or Pimco's bond dealers, intended to make some extra money by squeezing out other bidders, it couldn't have happened if the structure of the futures contract had kept up with the times. The Chicago Board of Trade's 10-year T-note futures contract is one of the older financial derivatives around today. That's good, in that it has been tested through a range of crises and cycles, and it's bad because it was designed based on the classic requirements of grain dealers, rather than the current requirements of interest rate markets....

The 10-year futures contract is based on a theoretical Treasury note that doesn't exist... the CBOT have formulas to convert the value of existing Treasuries into the theoretical ones. For example, the cheapest bond to deliver to settle the current September contract is the August 2012 bond. So you are really getting delivery of, and contracts are priced from, the seven-year stuff rather than 10-year stuff.... There is now about eight times the number of outstanding futures contracts as bonds eligible and available to fulfil them.

The obvious solution is to go to cash settlement. That would mean the exchange changing the terms of the 10-year contract, so that actual bonds would not be delivered. Instead, those now obliged to deliver would make cash payments equal to the value of a reference price. That is how Fed funds futures contracts are settled....

The real problem is that the US economy is just too leveraged. Starting with the housing industry, the country is too dependent on derivatives markets to create the illusion that interest rate risk can be conjured away. The technical problems of the 10-year are just another early warning sign of this fundamental weakness.

I don't know enough to know whether this is a serious issue or not.

## Steven Bodzin Writes About the Repeal of the Public Utility Holding Companies Act

Steven Bodzin writes about the dismantling of another part of the New Deal: the PUHCA, the Third New Deal's attempt to diminish the potential for monopoly power in utilities. I've never been able to figure out whether the economies of scale the PUHCA's opponents claimed were there really were there in the 1930s. It's pretty clear to me, however, that today large-scale utility mergers would be "market power" mergers rather than "economic efficiency" mergers.

A Tiny Revolution reads the LA Times and summarizes:

A Tiny Revolution: Actual Journalism: The Los Angeles Times has been running some actual journalism, thanks to their reporter Steven Bodzin. One of Bodzin's most interesting recent stories is about the repeal of an obscure but genuinely important law regulating utilities:

What enabled the regulators to shield Portland General Electric from the Enron debacle was the Public Utility Holding Company Act, a New Deal-era federal law requiring companies that owned electric utilities either to incorporate in the state where they sell power or to accept tight regulation by the federal Securities and Exchange Commission...

But after more than 20 years of agitation from industry financiers and free-market advocates, the 1935 law will be repealed when President Bush signs the energy bill, which he is expected to do Monday at a ceremony in Albuquerque.

Wall Street analysts and energy industry observers expect the repeal to accelerate the industry's consolidation, with more utilities being bought by national -- and even foreign -- electricity companies and by oil, construction and service companies.

Basic utilities like electricity aren't commodities like apples or DVD players. People can choose to buy oranges instead of apples, or choose not to buy a DVD player. But hospitals can't choose not light their operating rooms, and grocery stores can't chose not to refrigerate meat. That's why, left to their own devices, corporations will use their leverage to gouge their customers as hard and long as they can. That's just good business.... Eventually, once enough billions have been stolen and enough people have died, we'll reregulate everything. Then we'll slowly forgot why we did it and deregulate everything again around 2075.

Yes: I am an old, grumpy man. But you should still read all of Steven Bodzin's article.

P.S.: Yes, Steven Bodzin made very welcome and lively contributions to my American Economic History course last spring.

## Le Grand Zombi

Unfortunately, we have missed this--until DVD at least. The closest it is playing anymore is Los Angeles:

Marginal Revolution: Land of the Dead: Land of the Dead is an excellent movie if you would enjoy a synthesis of cinematic Marxism, Mexican "Day of the Dead" folk religion, unmitigated cannibalistic gore, a critique of U.S. immigration policies, allusions to necrophilia (with the corpse as rapist), and a complete unwillingness to invert the usual racial and ethnic cliches. In other words, thumbs up. This movie creates its own world with panache, which is more than you can say for the mainstream Hollywood releases this year.

## Greenspan

Andrew Balls of the FT has a superb overview of Alan Greenspan's tenure at the Federal Reserve. It's so good that it would take me more time to cut summary quotes from it than I have this afternoon. So subscribe to the FT and read it:

FT.com / Comment & analysis / Analysis - The activist unafraid to depart from the rules: By Andrew Balls: The Fed chief is due to step down at the end of January, when his term on the central bank’s board of governors expires. At the end of this week, central bankers and economists from around the world will gather for the Fed’s summer retreat in Jackson Hole, Wyoming, to give their verdict.... Mr Greenspan took over at the Fed on August 11 1987 – less than two weeks before “Black Monday”, when the Dow Jones industrial average dropped 22.6 per cent; the largest daily fall in the history of the US stock market. Mr Greenspan’s immediate response, saying the Fed would pump money into the financial system to maintain liquidity, helped to put an end to worries about how the central bank would fare after the departure of Paul Volcker, his predecessor.

Since then US economic growth has averaged about 3 per cent a year and the annual rise in the consumer price index has also averaged about 3 per cent. Unemployment has averaged slightly more than 5½ per cent. Mr Greenspan has cemented the Fed’s anti-inflation credibility but his reputation has been built on the flexibility he has shown. The challenge for his successor will be to match Mr Greenspan’s record of getting the big calls right.

Mervyn King, governor of the Bank of England, points in an interview to his counterpart’s deep thinking, flexibility, communication skills and judgment. He refers to a piece of writing by John Maynard Keynes, the founder of macroeconomics, on another British economist, Alfred Marshall: “Keynes, in his obituary of Marshall, said that a great economist must possess a rare combination of gifts: mathematician, historian, statesman, philosopher. Alan Greenspan embodies that.”...

## Forecasting Oil Prices

Goldman Sachs gets worried about energy:

Goldman Sachs sees oil above $60 for five years: By Kevin Morriso: Goldman Sachs, one of the biggest financial traders in the commodities sector, expects US benchmark oil prices to remain above$60 a barrel for the rest of the decade.... [P]rices are not high enough to stimulate oil companies to invest more of their swelling cash reserves in new energy infrastructure... oil markets [have] entered a "super-spike" period that could see prices surge as high as $105 a barrel.... The latest estimate is now more than double the bank's long-term oil price forecast of two years ago. The series of increases since are a sign of a structural change in the oil market due to the lack of spare capacity in oil production and refining of petroleum products. With the revision, Goldman's forecast is now higher than that of its peers.... Jeffrey Currie, managing director of global investment research at Goldman Sachs, said the rise in long-dated oil prices reflected a significant increase in the industry's cost structure. The oil industry is moving into a phase of large-scale investment in new fields and refineries as the surge in demand has reduced companies' ability to absorb supply shocks. Mr Currie said the rise in demand for new investment in the oil sector came at a time when production costs were already rising because of limited access to oil reserves, a shortage of labour and insufficient equipment such as drilling rigs. More than half the world's oil reserves are in Saudi Arabia, Iran, Iraq, Kuwait and the United Arab Emirates, which are mostly off-limits to foreign oil companies. Oil companies are uncertain whether to continue to base long-term project planning on a price of$20-$30 a barrel, according to Mr Currie... ## "A Hell of a Parenthesis" Matthew Yglesias reads a report on Iraq from Barry McCaffrey, and his head explodes: TPMCafe || A Hell of a Parenthesis: I heard General McCaffrey speak one time shortly after he stepped down as Drug Czar and he said many eminently sensible things about that particular quagmire. Unfortunately, it was hard not to notice that those things were pretty sharply at odds with the line he'd been towing in his previous job. Such are the dilemmas facing political appointees, especially those who don't serve at the very highest levels of government. So sometimes it's a bit hard to know what to make of these kinds of official reports. On that note, this report seems to me to have put an upbeat gloss on an assessment that is, in fact, pretty relentlessly pessimissimistic. Take this, for example, from page three listing the number one CENTCOM vulnerability: Premature drawdown of U.S. ground forces driven by dwindling U.S. domestic political support and the progressive deterioration of Army and Marine manpower. (In particular, the expected melt-down of the Army National Guard and Army Reserve in the coming 36 months) If you ask me, an expected melt-down of the Army National Guard and Army Reserve seems like the sort of thing that's worth more than a parenthetic mention. Some would say this is kind of a big deal. Indeed, it raises in my mind some serious questions about this conclusion: We face some very difficult days in the coming 2-5 years. In my judgment, if we retain the support of the American people --we can achieve our objectives of creating a law-based Iraqi state which will be an influencing example on the entire region. How is it, exactly, that we're supposed to prevail over a five year timeline if the Reserve and Guard components of the Army "melt-down" over the next 36 months? That seems like a kind of basic issue that needs to be addressed here... It is a weird report. It says that the U.S. has the finest troops in the world, with the finest equipment in the world, with the highest morale in the world, with a senior command team that is the best possible senior command team. On the other hand the report says, the previous senior command team--Bremer and Sanchez--aren't to be trusted to dig latrines. There is a disconnect from reality here. In my experience, the lower ranks of the American officer corps--Lieutenants, Captains, Majors, Lt. Colonels--are very impressive people: highly competent, extremely energetic, well-trained, brutally realistic, and loyal to their troops to the death. But then something seems to happe. The winnowing to pick the ones who will get their stars proceeds, and the results do not look pretty. You get people--well, like Colin Powell's chief-of-staff, Colonel Wilkerson, who says that putting together the speech at which Colin Powell pretended to have access to solid intelligence of Saddam Hussein's WMD programs was "Wilkerson says, 'the lowest point of my life.' The unsourced materials the administration gave to Powell to present... 'were anything but an intelligence document'; rather, they were 'sort of a Chinese menu from which you could pick and choose'. You've got to treat statements by ex-General Powell or Colonel Wilkerson or their ilk--that the paint is dry, say--as you would treat statements by "Curveball." ## Notes: URAP Project 8: Fall 2005: Monetary Policy After the Bubble Was Alan Greenspan right to lower interest rates after the collapse of the dot-com bubble? Or did lowering interest rates push the economy out of whack and set the stage for bigger problems in the future? Here are my slides for a paper on this that I have not yet written: http://homepage.mac.com/jbdelong/AftertheBubble.html But I am looking for a URAP to help me write it. ## Notes: URAP Project 7: Fall 2005: Nanotech I'm looking for a research assistant to help me think about nanotechnology: Let me simply assert that a fruitful way to analyze the social and economic impact of every technological revolution that has taken place over the past two and a half centuries is to seek the answers to four different questions, and then to draw out the implications of those answers: 1. What commodities--what goods and services--become extraordinarily cheap as a result of the technological revolution? 2. What human activities--what jobs and skills--become key bottlenecks, and thus become remarkably valuable and well-paid? 3. What risks blindside the society as the technology spreads? 4. What risks do people guard against that turn out not to be risks at all? These are the four questions. Let me expand on my assertion, by applying them to the case of the original British Industrial Revolution, at the heart of which was the application of automatic machinery and steampower to the tasks of spinning and weaving--key handwork tasks for every human society since the domestication of the sheep. Over the forty years that were the heroic phase of the British Industrial Revolution, the price of spinning a cloud of cotton wool or wool wool into thread fell at an average of 5% per year. By 1830, the real cost of spinning thread was only 1/8 of what it had been 40 years before, and textiles--especially cotton textiles--became absurdly cheap. This was extremely good news for clothes-wearers in Britain and elsewhere. This was extremely bad news for first handspinners and then handweavers--whether in Scotland, Silesia, or Southeast Asia. As textile production prices fell, the volume produced in Britain expanded perhaps thirtyfold. And this huge leap in demand pulled up the earnings of engineers who designed and maintained the textile factories, the metalworkers who built the textile machinery, and the merchants and salesmen who distributed the finished products. For the first two generations, little gain accrued to the factory workers themselves: factory workers were unskilled, and population growth plus large scale migration from the countryside meant that unskilled workers were not in short supply. But for those with places in the division of labor that made them essential complements to factory production, the Industrial Revolution was a true bonanza. And there were other large-scale losers as well. Consider that in 1800 slavery in the United States was largely considered to be on the way out: few objected to Thomas Jefferson's prohibition of slavery in the Northwest Territories, or to his partial and anemic emancipation of his own slaves. But slaves could grow cotton. And as the Industrial Revolution took hold, the demand for cotton by British factories grew extraordinarily large. The value of what American slaves grew soared. The value of slaves soared. And in the American south emancipation became illegal, and unthinkable. This was a consequence of the British Industrial Revolution that nobody foresaw, and that nobody took any steps to guard against. On the other hand, Karl Marx and Friedrich Engels saw a risk that wasn't really there at all. They looked at the factories of Manchester. They saw stagnant real wages, and horrible public health conditions, accompanying the extraordinary boom in productivity. They concluded that there was something very wrong with the market economy: that it could not generate an acceptable distribution of income. And so they founded world communism and dedicated it to collective ownership of the means of production and to the abolition of use of the market as a social allocation and planning mechanism. In retrospect, however, we can see that they sought to guard against a danger that wasn't there: the share of total production paid to workers has been remarkably constant over the past two centuries--the predictions of the immiserization of the working class were completely wrong. That's how these four questions would guide an analysis of the original British Industrial Revolution. It seems a useful framework. Now, assuming it is a useful framework, how would it guide our thinking about nanotechnology? What's going to become absurdly cheap? What human activities are going to turn out to be bottlenecks, and become well-rewarded indeed? What risks are we failing to guard against? What risks that aren't really there will wind up warping our society? And how big will it be? The computer-and-communications technology revolution we have been living through transforms twice as large a share of the economy as did the British Industrial Revolution, looks to last three times as long, and proceeds at a pace three times faster than the revolution in spinning and weaving: it is, relative to the size of the economy, eighteen times a bigger deal than the original. Will nanotechnology be a set of tightly-focused technologies revolutionizing small discrete sectors of the economy, or will it be broad and long-lasting? I speculate that nanotechnology will come in three waves: a first--materials--wave over the next two technological generations, a second--biologicals--wave between one and four technological generations from now, and a final--Drexlerian--wave that may or may not ever come to be (for if engines of creation are possible, hasn't evolution had enough time to build them?). Things that know where they are, know what they are, can figure out where they need repair, and that for the first time ever possess macro strength and other properties that are the simple scaling-up of the strength of their covalent bonds--that is enough of a technological revolution in itself. The greater durability of "smart commodities" alone promises a halving of the size of the manufacturing workforce, coupled with the vanishing of large chunks of that part of the service sector that is concerned with diagnosis, maintenance, and repair. This is likely to give a further upward kick to income inequality: you don't need as many fence-painters when the paint is smart, you don't need as many warehouse workers when things can be programmed to tell their container to move them to where they need to be. The human specialties that are going to be in short supply are likely to be some sort of analogues to programming: how to modify and install the new materials, and how to program the smart materials will be tasks that require considerable technical knowledge and information-processing skills. Virtually the entire twentieth century was marked by an extraordinary pace of American investment in education, as documented by Goldin and Katz. This extraordinary educational effort kept the supply of skilled and educated workers in America well in front of the skill requirements of current technology. Now American politics has shifted: this extraordinary educational effort is flagging, and there are no signs of the political will to restore it. If information technology caused a sharp upward leap in the skill- and education requirements of the labor force that has caused a large chunk of our upward leap in income inequality, is not nanotechnology likely to do the same? And is not the pace of economic growth--the spread and use of nanotechnology-generated materials--likely to be constrained by a shortage of the highly educated and skilled materials technicians and programmers that we will need? In this context, it is worth thinking about the role of foreign educational institutions. We do believe that each extra person educated in America is a national asset--boosting average productivity, and also helping to improve the income distribution by reducing the skill- and education premiums. Is it not in the American--although perhaps not the world--interest to incorporate this belief into our immigration policy? One of the chief things that has made America great, after all, is that we are the only country in which enthnicity is not closely linked to nationhood. Within this framework, it seems possible that the coming of nanotechnology will act as a further wedge driving apart the American income distribution. In order to keep the income distribution tight, the premium on skilled and educated workers must fall--which means the supply of such workers must increase rapidly as nanotechnologies promise yet another shift of labor demand toward the highly-skilled and well-educated. Yet there are no signs in American politics of the renewal of the extraordinary educational effort which gave America such a huge edge over other advanced industrial economies in the twentieth century. If it is indeed in the national interest--both for equity and for growth reasons--to take steps to greatly increase the supply in America of highly-skilled and well-educated workers, then immigration policy may turn out to play a key role. America is, after all, the only society that does not define its citizens substantially in ethnic terms. About risks I will say nothing: I don't know enough yet... ## Notes: URAP Project 5: Fall 2005: Offshoring Steve Cohen and I are thinking about the "offshoring" of information-intensive service-sector jobs from the first world to the third. We are looking for a research assistant to help us survey the literature on this critically important long-run issue. For our initial thoughts, see: http://www.theatlantic.com/doc/print/200501/cohen ## Notes: URAP Project 6: Fall 2005: Long-Run World GDP Estimates I wrote a draft of this paper half a decade ago: Estimating World GDP: Angus Maddison (1995) has constructed estimates of real GDP per capita for the world from 1820 to 1992. His estimates are best thought of as Laspeyres purchasing power parity estimates in 1990 international dollars. That is, they: 1. Compare income levels across countries not using current exchange rates, but instead trying to change one currency into another at rates that keep purchasing power constant ("purchasing power parity"). 2. Value goods in relative terms using the prices found in a country in the middle of the world distribution of income ("international"). Calculate a value for 1990 GDP per capita in the United States equal to U.S. current-dollar GDP per capita in 1990 ("1990 dollars"). 3. Do not take explicit account of the benefits of the introduction of new goods and new types of goods, but instead calculate GDP per capita in the past by valuing the commodities produced in the past at recent prices--and not making any correction for the restricted range of choice enforced by limited production possibilities ("Laspeyres"). All of these save the last are reasonable--are in fact vastly preferable to the alternatives. I will return to the last of these later. But first I want to extend Maddison's estimates backward before 1820. If you plot the rates of world population growth against Maddison's estimates of world GDP per capita, you find a very high and significant correlation between the two from the early nineteenth century until roughly World War II. After World War II the demographic transition has begun to take hold in large parts of the world, but before World War II the higher is world GDP per capita, the faster is population growth--with a 1 percentage point per year increase in population growth associated with an increase in average world GDP per capita of$1,165 (with a t-statistic of 7.4 and an adjusted-R2 of 0.84).

If you are enough of a Malthusian to believe that this tight relationship before World War II is not coincidence but instead reflects a near-linear dependence of the rate of human population growth on the margin between actual production and bio-cultural subsistence, then you can use the fitted relationship between population growth and Maddison-concept GDP per capita to backcast estimates of world GDP per capita before 1820....

Now I'm looking for a URAP to help me finish it for real.

## Notes: URAP Project 4: Fall 2005: Equipment Investment and Economic Growth

It's time to update

J. Bradford DeLong and Lawrence H. Summers (1991), "Equipment Investment and Economic Growth," Quarterly Journal of Economics 106:2 (May), pp. 445-502 http://links.jstor.org/sici?sici=0033-5533%28199105%29106%3A2%3C445%3AEIAEG%3E2.0.CO%3B2-A.

That paper was written in 1989-90, using data from 1960-1985. Twenty years have passed since then. Is the relationship between equipment investment and economic growth still strong in the data since 1985? And what does post-1985 history have to tell us about what is driving this correlation?

For this URAP, some statistical sophistication would be very helpful...

## Notes: URAP Project 3: Fall 2005: Analyzing the Cyclical State of the Labor Market

Looking at the unemployment rate, today's U.S. labor market looks relatively strong:

Looking at the fraction of people at work, today's U.S. labor market looks relatively weak:

If the U.S. labor market is relatively strong, it is appropriate for the Federal Reserve to keep raising interest rates in order to prevent the emergence of an inflationary spiral and the resulting creation of fear that the Federal Reserve is not an effective guardian of price stability. If the U.S. market is relatively weak, there is no need to fear wage-push inflation, and it is appropriate for the Federal Reserve to cut interest rates in order to stimulate demand and get the economy closer to full employment. But our two main indicators disagree.

One way to gain more information about what is "trend" and what is "cycle" is to take a look at other time series indicators that we believe have a similar cyclical component. When the labor market is cyclically strong, we believe that the unemployment rate will be lower than trend, that the employment-to-population ratio will be higher than trend, that average hours worked will be relatively high (since firms are likely to increase both bodies and hours when their demand for labor is strong), and that the average duration of unemployment will be relatively low (because more of the fluctuations in quits, firings, and hires that drive the employment side of the business cycle are on the hires side). We know what unemployment and the employment-to-population ratio look like. What do these other two series look like? Here they are:

The issue at stake is essentially whether the past five years have seen a stable value for the trend unemployment rate and a fall in the underlying trend for the employment-to-population ratio (meaning that our current employment-to-population ratio is actually close to, not far below, the long-run trend) or whether the past five years have seen a stable value for the trend employment-to-population ratio and a fall in the underlying trend value for the unemployment rate. The weekly hours series and the unemployment spell duration series seem to vote with the employment-to-population ratio: three series seem to say that the current cycle component is large, that there has been only a smell recovery from the business cycle trough levels, and that we are still pretty far away from full employment. Only one indicator--the unemployment rate--seems to say that recovery is well advanced and that the cyclical component has substantially shrunk.

This, however, doesn't resolve the mystery: why is the indicator that is the unemployment rate giving a different signal? What has happened to keep workers whom we would have expected--given the behavior of unemployment spell duration, hours, and the employment-to-population ratio--to say that they are unemployed from saying so when the CPS interviewers come to call?

Some serious quantitative work on this would be genuinely useful--and could easily be done within the framework of a URAP

## Why Oh Why Can't We Have a Better Press Corps? (Ostrich Edition)

The Downing Street Memo say:

The secret Downing Street memo - Sunday Times - Times Online: [Britain's equivalent of the CIA Director] reported on his recent talks in Washington. There was a perceptible shift in attitude. Military action was now seen as inevitable. Bush wanted to remove Saddam, through military action, justified by the conjunction of terrorism and WMD. But the intelligence and facts were being fixed around the policy. The NSC had no patience with the UN route, and no enthusiasm for publishing material on the Iraqi regime's record. There was little discussion in Washington of the aftermath after military action....

In spite of this there are many who claim that we don't *know* that Bush had decided on war with Iraq in the summer of 2002. For example, Michael Kinsley says that when Britain's intelligence head holds "talks" in Washington he does not talk to "actual administration decision makers," but instead merely learns the conventional wisdom of the chattering classes:

TomDispatch - Tomgram: Kinsley: ...the document... basically says that the conventional wisdom in Washington in July 2002 was that Bush had made up his mind and war was certain. "What," Danner asks, "could be said to establish 'truth' -- to 'prove it'?" I suggested in the column that it would have been nice if the memo had made clear that the people saying facts were fixed and war was certain were actual administration decision-makers...

Well, how about then Senate Majority Leader Trent Lott? Is he an "actual decision maker"? He certainly believes that George W. Bush had decided to use military force to overthrow Saddam Hussein as of the fall of 2001:

Trent Lott: [B]eginning in August [2001] and into the fall--in fact, beginning not too long after 9/11--as we had leadership meetings at breakfast with the president... it was clear to me that he thought Iraq was a destabilizing force, was a danger and a growing danger, and that we were going to have to deal with that problem... he felt like we were going to have to deal with the problem before some of the diplomatic efforts occurred, and I don't mean that critically...

## Opinions on Shape of Earth Differ

When Paul Krugman said that if the Bush administration announced that the earth was flat newspaper headlines the next day would read "Opinions on Shape of Earth Differ," he thought he was joking:

In Explaining Life's Complexity, Darwinists and Doubters Clash - New York Times.

Darwinists have done a great deal to explain life's complexity. "Doubters" have done nothing at all to do so.

Shame on the New York Times.

## When ERISA Attacks

Kevin Drum, who gets the LA Times, reads yet another excellent Peter Gosselin story about the fraying safety net:

The Washington Monthly: Peter Gosselin... is back today with a story about a part of that fraying safety net that affects the middle class as well:

When middle-class Americans talk about safety nets, they usually mean such things as food stamps or housing subsidies -- public assistance on which generally only the poor depend.... But... a key component of working Americans' protective shield fails with unnerving regularity. Disability insurance -- now carried by more than 50 million Americans -- generally promises to replace at least half of a person's wages in case of illness or injury. However, in a substantial number of cases, especially those involving workers with long-term or permanent disabilities, it doesn't deliver.

The chief reason -- and one that affects not only disability but the whole universe of employer-provided benefits -- is a series of court decisions dealing with the federal benefits law known as ERISA. The decisions have prevented states from extending almost any form of consumer protection to these benefits, and have severely limited individuals' ability to successfully sue their insurers. "People who file disability claims today are worse off than they were two or three decades ago," said Judge William M. Acker Jr., who was appointed to the U.S. District Court in Alabama by President Reagan.

Basically, insurance companies are doing their best to move as many policies as possible under ERISA, which makes them virtually invulnerable to lawsuits for unfairly denying benefits. Even if you sue and win, you'll typically get only back payments, not punitive or compensatory damages -- or even legal fees. This means that insurance companies have plenty of incentive to aggressively deny benefits and virtually no incentive not to.

## Productivity: Nonfarm Business vs. Nonfinancial Corporations

What do we know about the pace of underlying productivity growth? Daniel Gross reports:

Productivity Is Up. Or Down. Pick Your Statistic. - New York Times: When the growth rate of productivity - the amount of output an hour the economy can produce - falls sharply, it's frequently a sign that dreaded inflation could be on the rise. When productivity growth rises smartly, it may indicate that companies are figuring out how to make more goods and services while keeping costs under control.... [I]n July, Mr. Greenspan acknowledged that he was a little puzzled by the recent productivity figures. "The traditional measure of the growth in output per hour," he said, "has slowed sharply in recent quarters." (Translation: productivity growth is way down, look out for inflation.) "But," he continued, "a conceptually equivalent measure that uses output measured from the income side has slowed far less." (Translation: maybe not.)

The "traditional measure" to which Mr. Greenspan referred is nonfarm business productivity.... The year-over-year growth rate of nonfarm business productivity fell from an impressive 4.2 percent in the second quarter of 2004 to a less impressive 2.3 percent in the second quarter of 2005. The "conceptually equivalent measure"... is... nonfinancial corporate businesses. This less broad measure excludes the gigantic financial sector and gauges productivity by examining the incomes of corporations, not their output.... [T]he year-over-year growth rate of nonfinancial corporate productivity has risen sharply, to 5.4 percent in the first quarter of 2005 (second quarter statistics for this measure are not yet available) from 3.2 percent in the second quarter of 2004.

In theory, the two measures of productivity should match up, even though they employ somewhat different methodology and data. And over the long term, they do.... In principle, economists say, the figure that represents the broadest possible swath of the economy is preferable.... [But] it's much easier to calculate productivity for companies that produce widgets than it is for companies that produce less tangible goods like insurance policies.... [I]t strikes some economists as strange that including the dynamic financial sector would somehow make the economy seem less productive. "If you see productivity being dragged down by the inclusion of the financial sector, you have to be a little suspicious," said David Altig....

[T]he tale of the two productivity figures isn't merely of academic interest. This conundrum has the potential to make the remaining months of Mr. Greenspan's tenure more difficult. "If productivity is in fact slowing, the Fed will have to be more aggressive in raising rates to slow growth," Mark Zandi, chief economist at Economy.com, said. Otherwise, inflationary forces will develop, especially if labor costs rise. On the other hand, if productivity growth is stronger, then the Fed doesn't need to be as hawkish.... "Given the divergence between these two readings," as Mr. Greenspan put it... "a reasonably accurate determination of the extent of the recent slowing in productivity growth and its parsing into cyclical and secular influences will require the accumulation of more evidence." (Translation: ask my successor about this next year.)

From Division of Labour:

Division of Labour: Academic productivity: From the Aug. 20, 1905 NYT is a report that Dr. Fred Wolle accepted the position of Chair of the Department of Music at California Berkley for $5000 per year. According to Historical Economic Services: In 2003,$5,000.00 from 1905 is worth:

$103,803.77 using the Consumer Price Index...$479,058.79 using the unskilled wage
$605,051.85 using the GDP per capita Today's UCB chair of Music is one Bonnie Wade. I don't know what she is making, but Donald Lowe, who is the chair of music at the University of Georgia, is paid$119,985.00 according to this database.... It seems that real wages in the music department haven't increased much over the past century. Does this mean that productivity hasn't improved in that area or is it that society doesn't value the music department any more (or perhaps less) than it did back then? What about in other disciplines on campus?

It means that all academics' relative salaries have crashed since the Gilded Age. I don't believe the CPI is accurate: American academics today do have higher real incomes than their predecessors of a century ago. A good deal of this is supply-and-demand: potential supply of college-level teachers was extremely small a century ago. A century ago college teachers were upper class. Now we are upper middle class (or middle class).

## Roger Lowenstein Praises Pietra Rivoli

He writes:

Travels With My Florida Parrot T-Shirt - New York Times: In The Travels of a T-Shirt in the Global Economy" (John Wiley & Sons, $29.95), Ms. Rivoli... ha... created an engaging and illuminating saga of the international textile trade.... [O]n "a cold day in February 1999," Ms. Rivoli was watching as students gathered at the gothic centerpiece of Georgetown to demonstrate against the International Monetary Fund.... The crowd, Ms. Rivoli noticed with characteristic acuity, had "a moral certainty, a unity of purpose" that permitted it to distinguish black from white and good from evil "with perfect clarity." One woman seized the microphone and asked: "Who made your T-shirt? Was it a child in Vietnam? Or a young girl from India earning 18 cents per hour? ... Did you know that she lives 12 to a room? That she shares her bed and has only gruel to eat?" Ms. Rivoli did not know these things, and she wondered how the woman at the microphone knew. But she decided to find out. In the rest of her narrative, the author tells the story of "her" T-shirt, which she purchased for$5.99 by the exit of a Walgreen's in Fort Lauderdale, Fla. "It was white and printed with a flamboyantly colored parrot, with the word 'Florida' scripted beneath." A company in Miami had engraved the front, after buying the shirt from a factory in China. The Chinese manufacturer had purchased the cotton used to make the shirt from Texas. Eventually it will end up as part of a large but little-known market for used clothing destined for resale in East African ports.

Ms. Rivoli follows her T-shirt.... In Texas, she plumbs the reasons for America's pre-eminence in the cotton trade. This leads to a fascinating inquiry into the pre-Civil War South and its use of African slaves, whose cheap labor was an early example of "the ability to suppress and avoid competition" that she finds at every stage - not least in today's Asian sweatshops - of her T-shirt's journey....

By looking across history to the shifting center of textile manufacturing from Manchester, England, to Lowell, Mass., to South Carolina to Japan and, finally, the developing nations of Asia, Ms. Rivoli discovers a universal truth. Without making light of the horrors experienced by workers, she asserts that their jobs were a little better than other available options (usually farm work) and, what's more, that textile factories led to advances in industrialization and, just as dependably, in living standards. It is not too much to say that she uses the T-shirt to tell the story of progress.... Ms. Rivoli does her best work at ground level, introducing us to a family farmer outside Lubbock, Tex.; a young woman on the assembly line in Shanghai; a reseller of shirts in Dar es Salaam, Tanzania; a K Street lobbyist in Washington; not to mention figures from history. We learn of an earlier generation's exploitation from an Alabama sharecropper; of the mangled limbs suffered by factory workers in 19th-century Manchester from Friedrich Engels; and of the hazards of sweatshops from a survivor of the infamous fire at the Triangle Shirtwaist Company in lower Manhattan in 1911 that killed 146 employees....

Ultimately, she concludes that the argument for free trade is as strong as ever, and it is a moral case as well as an economic one.... [H]er telescopic look through a single industry has all the makings of an economics classic.

## Repairing Market Failure in Used Cars

Tom Bozzo writes:

Marginal Utility: Some Notes On The Economics Of The Used Car Market: The biggest recent innovation in the used car market, manufacturer certification of used cars, can be seen as an effort to provide a credible (and valuable) signal of quality. The promise of the more rigorous certification programs is a more extensive inspection than the $30 checkup from one's favorite mechanic (plus, items flagged in the inspection are supposed to be corrected, or the car can't be certified), backed up with a sometimes substantial warranty extension from the manufacturer. Since certified used cars can bear a premium of a couple thousand dollars over an equivalent non-certified car -- which includes relatively useless dealer certifications, which are often little more informative than a "cream puff" sign in the windshield -- this also doesn't alter Oscar's conclusion that you get what you pay for.... ## Sir Gawan and the Grene Knicht Teresa Nielsen Hayden does a fell and cruel deed. She does not tell the story of Sir Gawain and the Green Knight: Making Light: Introduction to New Magics: The Green Knight gave him the axe and knelt down, baring his neck. Gawain took a deep breath, hefted the axe (it's heavy), took one huge swing, and wham! He cut the Green Knight's head clean off. The head went rolling and skittering across the floor like a bowling ball, bumping into the guests' feet, getting blood all over everything. Then the Green Knight's body stood up from where it was kneeling, walked over to the head, picked it up by the hair, and got back on the horse, holding his head up like a lantern. The head's eyes opened. "See you in a year, Gawain," he said, and rode away. It's been almost a year since then, getting close to Christmas. That's why Gawain is off in the wilderness, looking for the Green Knight's castle. He knows it wasn't a fair challenge. He figures he's going to die. But he's Sir Gawain, most honorable of knights, and he said he'd do it; so here he is. This is not a story in which "just anything" can happen. It's a story in which a very few things can happen, and so far only one of them has been magical. By the time Gawain comes riding down that forest path, the story's down to a handful of possible outcomes. Gawain may or may not find the castle. The Green Knight may or may not cut off his head. And Gawain may or may not continue to be the most honorable knight in the world, which for him is the really important part. And how about us, the invisible readers, standing there watching him ride through the forest? It's time for a test. If I'm right about how fantasy works, you're going to feel a little bit ticked at me for not telling you how the story comes out. There are a lot of different ways a story can mean something to us. Caring how it comes out is one of them. (I'm not going to tell you. Sorry about that. It's a good story. You'll have to read it for yourself someday.) ## Robin! To the CulturalStudiesMobile! Barry Nalebuff defends his company's tea-sweetening policies as those of an honest agent making tea in accordance with what the rational utility-maximizing choices of its principals (the tea-drinkers) would be if its pricipals thought hard about the tradeoff of sweetness of taste versus inches on the wasteline: Marginal Revolution: HonestTea: Barry Nalebuff responds : In May an MR reader alleged that the graph on Barry Nalebuff's tea (NB: Nalebuff is both an economist and entrepreneur) involved an elementary economics mistake. Nalebuff asked if I would publish his response: I'm afraid Randy Goldstein would have trouble in our freshman economics course at Yale where the Honest Tea label has become an assignment problem. It is true that we at Honest Tea don't put in sugar to maximize taste even by our own standards. That's because the peak of the taste profile is flat -- like most maxima. Cutting back the sugar costs you very little in flavor but still save you a whole lot of calories. In technical terms, it is a second-order loss of flavor but a first-order savings in calories. We like to think that we maximize the flavor-calorie tradeoff, which is not the same thing as maximizing flavor ignoring calories. To say this one more time. Each additional teaspoon of sugar adds 17 calories. But each additional teaspoon of sugar has a declining additional benefit in terms of taste. We stop before the incremental value is zero (the maximum) and only add sugar where its value is worth the 17 calories. See what you think: try Honest Tea for yourself: learn more at http://www.honesttea.com. I think that there is much more going on here than rational utility maximization over characteristics of sweet taste and calories. Here is what it says on the Honest Tea label: Around the world Chai (chi) means tea. In Kashmir, people have mixed spices into their chai for generations. Our recipe features cardamom, a memer of the ginger family which grows wild in tropical forests. We brew our tea in spring water and add just a hint of sugar cane juice. The result is a spicy, aromatic flavor and a sixth of the carlories of the super-sweet tea-flavored drinks. Barry and Seth think that it is important to tell potential drinkers that Honest Tea contains "sugar cane juice," that one of their spices--cardamom--"grows wild in tropical forests," and that their recipe is derived from one that has been made in Kashmir "for generations." They somehow miss saying that tea has been grown in India for less than two centuries, that the cardamom that goes into Honest Tea has not been gathered wild from the forest, and that "sugar cane juice" is just a way of saying "sugar" that gets the S-word into the position of being a secondary adjective rather than a noun. The tea is excellent. And the limeade was the only high-yuppie product we could find in the Kings Canyon general store, and was excellent as well. Nevertheless: "Robin! To the CulturalStudiesMobile!" ## Brrrr... August 19, and too cold to go to the pool after work. We have two ranges of hills between us and San Francisco Bay, which almost always shields us from the afternoon fog and makes it warm enough to go swimming. Not today. In Berkeley proper, however, they broke out the hooded sweatshirts and the gloves today as the fog spit drizzle. ## Meme Watch: "East African Plains Ape" I am no longer the only person on the Internets talking about the East African Plains Ape: Achenblog: Daily Humor and Observations from Joel Achenbach : ...I am happy knowing that some of my fellow East African Plains Apes are making that trip into space... (comment by md) And: crshalizi: ...the primate visual cortex is a remarkable thing, and does a marvelous job of analyzing the kinds of patterns needed to get East African Plains Apes through their natural life-cycles, but it was never supposed to cope with massive collections of high-dimensional multi-variate data... Far may the meme spread! ## John Roberts's Judicial Temperament When John Roberts worked for the Justice Department: Roberts on Woman Lawyers: ...in reply to a suggestion from Linda Chavez, then the White House's director of public liaison. Chavez had proposed entering her deputy, Linda Arey, in a contest sponsored by the Clairol shampoo company to honor women who had changed their lives after age 30.... Roberts noted that... Arey had "encouraged many former homemakers to enter law school and become lawyers." Roberts said in his memo that he saw no legal objection to her taking part in the Clairol contest. Then he added a personal aside: "Some might question whether encouraging homemakers to become lawyers contributes to the common good, but I suppose that is for the judges to decide"... Roberts on the Kickapoo Indians: In a January 1982 memo he wrote about legislation that he said would "heap benefits" on the Texas Band of Kickapoo Indians. Explaining their history, Roberts wrote, "The Kickapoos, originally from the Great Lakes area, did not stop running from their encounter with Europeans until they reached Mexico, where they now hold 17,000 acres of land" and "provide migrant labor in the U.S." Roberts said he had no legal objections to the bill, which he said was consistent with administration policy, but added that its "provisions seem overly generous -- particularly in light of the fact that these are, generally speaking, Mexican Indians and not American Indians"... Roberts on the Religious Right: John Lofton... editor of the Conservative Digest... "I was to meet with the Attorney General William French Smith," Lofton notes, but before that happened, he says John Roberts wrote Smith a memo, instructing him "as to how to obfuscate the issue, basically -- how to answer the questions that I would raise." In the memo, Roberts advised the administration to distance itself from the Religious Right, and he went on to say that Christian leader Paul Weyrich was "no friend of ours," Lofton adds. However, he protests, "All Weyrich was trying to do, and myself and many other conservatives, was to make Reagan and his administration keep the promises they made when they were elected. That's all"... Roberts on National ID Cards: As a legal aide in the Reagan administration in 1983, Supreme Court nominee John G. Roberts Jr. declared that he would support creating a national identification card in order to combat "the real threat to our social fabric posed by uncontrolled immigration"... Roberts on Girl Scouts: May 7, 1985, Roberts addressed the ethics of allowing a Falls Church Girl Scout to meet the president in the midst of the annual cookie drive. "Elizabeth . . . has sold some 10,000 boxes and would like to sell one to the President. The little huckster thinks the President would like the Samoas," he wrote... Roberts on Temperature Measurement: In reviewing a proposed economic message in 1986 in which Mr. Reagan was to say, "I just turned 75 today, but remember that's only 30 Celsius," Mr. Roberts noted that 75 Fahrenheit is actually 23.9 Celsius... Just who in the Reagan White House thought that 75F was 30C? C = (5/9)(F-32): there's no plausible arithmetic mistake you can make to get from 75 to 30. And we have ultra-conservative Eagle Forum President Phyllis Schlafly saying that in 1985 Roberts was "a young bachelor" who "hadn't seen a whole lot of life at that point." Schlafly goes on to say, "I knew Lyn Arey. She is a fine woman." But on Roberts's contempt for Arey: "I don't think that disqualifies [Roberts]. I think he got married to a feminist; he's learned a lot." He was then 32. When do right-wing Republican women think men grow up (if they ever do grow up)? It appears that Phyllis Schlafly doesn't endorse Roberts any more (but doesn't think him "disqualified"). Linda Chavez and Linda Arey appear to be slent. ## A Scot in Texas in the Summer A Scot in Texas in the summer seems like an alien on an alien planet, without his environment suit. Hey guys--this is cruel and unusual punishment. Invite him to conferences in November or February instead: Charlie Stross - Downside: On the downside: the hotel has a swimming pool and a hot tub. But the pool is, at most, ten metres long -- it's so bloody short that swimming lengths is just not feasible. (To get my muscles working I need enough room to go in a straight line for more than about two strokes.) Moreover, the outside environment is not conducive to my #2 exercise strategy, going for a brisk walk; it's flat (no hills to get the blood moving) and the temperature's oscillating between 30 and 40 degrees (several degrees above my melting point). I guess I'll just have to watch my food intake, and hole up in the hot tub with some beer. Swimming can wait until I go home. I feel his pain. When we were in the Central Valley I was very tempted by the Sequoia Brewing Company's homemade "log-splitter"--a 20 proof beer. I've found that if one gets up at 3 AM and drives straight in any direction for 30 miles, it's below 80F and you can see the stars. I've never figured out why humans don't turn nocturnal in Texas (or in the Central Valley) in the summer. ## Wingnut Authoritarian Law Professors on the March! Ah. Ann Althouse of Madison writes that the London police's shoot-to-kill policy should not be revised or rethought, but continued: Althouse: How dangerous is that shoot-to-kill policy of the London police?: It's terrible that the poor man [Jean Charles de Menezes] was shot to death yesterday by the London police who had reason to think he was a terrorist. But should we worry that the shoot-to-kill policy will result in more deaths?... [E]veryone -- at least in London -- now knows not to run from the police, especially not onto a train and while wearing bulky clothing. Is it not true that yesterday's sad mistake has already solved the problem it represents? In fact, a further good has been created: as ordinary persons change their behavior and drop the bulky clothing and unnecessary running, the real terrorists will stand out more. Indeed, if anyone ever behaves like Jean Charles de Menezes again, the presumption that he is a terrorist will be so overwhelmingly strong that the police really must kill him.... If I understand her argument, is is that: 1. It's a bad thing that Jean Charles de Menzies acted suspiciously and was shot. 2. Given the mortal danger you put yourself in by acting suspiciously, no one who is innocent in London will ever act suspiciously again. 3. Therefore calm down: there's nothing wrong that will happen in the future as a result of the kill-suspicious-people-on-sight policy of the London police. 4. In fact, the London police not only should but must continue their kill-suspicious-people-on-sight policy--because in the future the only people they shoot and kill will be terrorists. Wingnut. Idiot. Jimmy Madison is spinning in his grave. Attach magnets to him and we could power Chicago! ## More On Labor Market Slack Macroblog argues: macroblog: More On Labor Market Slack: But even excepting the legitimacy of identifying the cyclical part of a time-series representation with slack, there is the inevitable ambiguity in exactly how that representation ought to be constructed. I'm not sure exactly how STAMP works, but let me try another cycle/trend decomposition, based on a statistical tool known as the "Hodrick-Prescott filter"... And produces a graph to argue that today's labor force participation rate is actually higher than the "trend" value that we would associate with full employment: Here is a graph of the actual time-series of the total labor-force participation rate (men and women, all ages) along with the secular trend estimated by the Hodrick-Prescott filter. The analog to Max's measure of slack in this picture would be the difference between the trend line and the actual series.... [T]his particular time-series calculation suggests that the current overall labor force participation rate is actually somewhat above its estimated trend... Look at the what the figure tells us about the end of 1982. It tells us that at the end of 1982--in the middle of the deepest recession of the post-WWII period--after three years during which labor force participation had hardly grown at all after growing by 0.4% per year throughout the 1970s--labor force participation was not depressed below its long-term trend. If macroblog is going to say that the slowdown in growth in labor force participation between 1979 and 1982 is not a sign of a slack labor market but of "efficient changes in labor force participation" due to factors analogous to "summer vacations... winter holidays... every weekend" that cause fluctuations in labor force participation that we "would never think of calling... 'gaps'--well, then, I wish it luck out there in the Gamma Quadrant. ## Gasoline Shortages in China Sun Bin has a picture: Sun Bin: China's oil price (ii) - and transition of SOE: As predicted in my earlier post, China anti-market pricing policy is running into crisis. Gas stations in Guangdong refuse to sell and Sinopec/CNPC are not supplying the retail stations. Long lines make fueling wait into hour-long ordeal, or sold out when you reach the pump. Even People's Daily is admitting it now... ## Friday Schroedinger's Cat Blogging, or Arcane Gazebo Has a Day Job He reports on it. It's really very impressive. Macroscopic quantum systems with decoherence times on the order of 0.1 microseconds--that's enough time for light to travel 100 feet. It is, however, necessary to cool the apparatus to 0.04 degrees Kelvin above absolute zero. Don't expect to see this in your home--unless your home is a sleeping bag under a desk in BirgeBirch Hall, that is. Arcane Gazebo: Publication: Flux qubits and readout device with two independent flux lines: I'm posting something closer to a layman's explanation.... "Flux qubits and readout device with two independent flux lines," B. L. T. Plourde, T. L. Robertson, P. A. Reichardt, T. Hime, S. Linzen, C.-E. Wu, and John Clarke, Phys. Rev. B 72, 060506(R) (2005) Sort-of non-technical explanation: Many of the weirder effects of quantum mechanics don't show up in macroscopic objects due to a kind of averaging out that occurs when large numbers of atoms are involved. One of these... is [that]... if a physical system has several possible states, mathematical combinations of these states are also available to it.... [H]owever, the superposition state... [rapidly] disappear[s] due to the averaging-out process I mentioned, which is referred to as decoherence. The time required for decoherence to take place for a system like a Schrödinger's cat would be vastly shorter than any observable time. What we did in our experiments was to build a macroscopic electrical circuit that behaved like a quantum object, with decoherence times long enough that we were able to see quantum effects... a loop of aluminum, broken in three places by thin layers of aluminum oxide (which in crystal form is sapphire)... cooled to a temperature 0.04 degrees Kelvin... aluminum becomes superconducting.... Two basic states of the circuit are currents travelling around the loop, either clockwise or counterclockwise. By adjusting the magnetic field... we can make one type of current flow energetically favorable.... But we can also balance the flux so that clockwise and counterclockwise currents have the same energy... the system will naturally form coherent superposition states like CW + CCW and CW - CCW. It turns out that, while the CW and CCW states have the same energy, the combinations have different energies.... This allows us to detect the superposition by applying microwave radiation with energy equal to the energy difference between the two states; when the circuit is in the lower energy state it will absorb the radiation and switch to the higher energy. We looked at the radiation absorbed by the circuit as the magnetic flux was varied across the degeneracy point: on a plot of radiation frequency vs. magnetic flux, an incoherent system will show straight lines going down to zero when the current flows are balanced, but a coherent system will bend away from zero frequency as it forms superposition states.... Not only did we see the bending of the curve away from zero, we were able to measure the energy difference between the two coherent superposition states, based on the observation that the lowest radiation absorbed was at a frequency of 4 GHz.... [T]he [Rabi] oscillations... are significantly smaller after about 80 nanoseconds. We'd like this time to be a lot longer.... This connects to quantum computing, a hot topic in physics based on the idea that computers can do certain calculations much faster if they can manipulate quantum superpositions of numbers.... The circuit I've described here is... a flux qubit.... Several groups around the world are currently working on flux qubits, and we are not the first to achieve results like these. Our qubit is distinct from the others in a few ways: it is quite a bit larger... the magnetic field is applied to it from a coil integrated onto the chip, which is important for scalability. Whether this route will be practical for quantum computation has yet to be determined, of course, but that's more of a problem for the engineers. (Feynman would say that we are already doing engineering...) Feynman would also say that engineering is a very good thing to do, yes? ## Send Lawyers, Guns, and Zombies... Lindsay Beyerstein's mom has an interesting new job: Majikthise : Schlepping zombie coffins, soon, guns: Dear Lindsay, I am about to start day 3. So far it has been mostly hard work. Carrying zombie coffins, and furniture & props or setting things up or unloading trucks... I spent one 1/2 day on the truck picking up orders at the various dealers. That was great. Now I know where they are located and what kinds of stuff they rent.... I have to take fire arms safety on the weekend in Deep Cove... xoxo Mom ## George W. Bush Is First! George Washington was first in war, first in peace, and first in the hearts of his countrymen. George W. Bush is first... Rising Hegemon: An Overachiever at Underachieving: Today is the day that George Bush sets the record for vacation days for an American President, 336. Breaking the record in 4 years and 7 months... ...in vacations. Nearly twice the pace of the previous first, Ronald Reagan. ## Why Oh Why Are We Ruled by These Idiots? (Attorney General Ashcroft Edition) Mark A. R. Kleiman writes: Mark A. R. Kleiman: More support for the troops: A story from Friday's New York Times leaves me undecided: I can't figure out whether to laugh, cry, or throw up. A sailor's wife was pregnant with an anencephalic child, whose probability of surviving or of ever being conscious was zero. She, reasonably, wanted an abortion. But the Congress had decided that no federal funds should be used to pay for abortions except where the life of the mother was at stake.... The family sued, and a federal court ordered Tricare to pay, and the abortion went forward. Then the Justice Department (with John Ashcroft as Attorney General) sued the family to recover the$3000, out of the sailor's pay of less than $20,000 a year. The Justice Department just won.... It's worth asking who is, and who is not, morally culpable for bringing about this disgusting result. 1. The gravest onus of responsibility lies, of course, the Republican majority in Congress, and the lunatic fringe of the anti-abortion movement to whose tune it dances. The statute clearly applies to just this situation: its framers desired that the woman in question go through all the pains of pregnancy and labor facing a two-thirds chance of stillbirth and the certainty that she would never see her baby smile. As the court recited: Anencephaly is a neural tube defect that occurs when the cephalic end of the neural tube fails to close. Closure usually completes between the third and fourth week of pregnancy. The tube’s failure to fully close results in a fetus that develops without a forebrain or a cerebellum. Anencephaly is an ultimately and unequivocally fatal birth defect. Approximately one-third of anencephalic fetuses carried to term are born alive. Fewer than two percent that are born alive survive more than seven days. There is no cure for anencephaly and even extensive medical intervention and continuous life support will not prolong the life of an anencephalic infant more than two months. No doubt Sen. Frist and Randall Terry will assure us that a being with no forebrain and no cerebellum is in fact aware, but anyone in minimal touch with reality knows otherwise. (And yes, that such beings come into existence is one of the stronger arguments against the existence of an all-powerful and loving deity.) So the Congress, in its wisdom, decided that those who risk their lives to preserve ours should be treated like paupers when it comes to medical care, with their needs completely subordinated to the prejudices of the most unreasonable of those who call themselves "right-to-lifers." (I don't say that everyone who wants to restrict access to abortion is unreasonable, but I can't think of a reasonable basis for opposing an early and merciful end to this particular pregnancy. And in fact I very much doubt that more than a tiny proportion of "right-to-life" voters or leaders would want themselves or women they cared about to bring such a monster to term.) If anyone says that the Congress did not intend this particular result, I say: Then let them change the law now. But of course no such change would have a snowball's chance in Hell of making it to the floor of either House of Congress, or of receiving the President's signature.... The Justice Department can't be faulted for fighting the original lawsuit.... DoJ doesn't get to decide which of Congress's enactments are just too awful to defend.... [But e]ven assuming, as seems to be the case, that the order was issued in error, was it really necessary to sue to get the money back? It seems to me that either DoD as the client or DoJ as the lawyer -- or, of course, the President of the United States as the head of the Executive Branch that includes both of them -- could reasonably have said "Enough is enough; we don't accept this case as binding on our future actions, but we're going to let it drop now" rather than trying to impoverish a military family that had already been put through an emotional wringer... ## Oil Price Controls in China Mark Thoma tells us to read the excellent articles Keith Bradsher has been writing about the effects of energy price controls in China: Fuel Shortages Put Pressure on Price Controls in China - New York Times: Sudden shortages of gasoline and diesel in Southeastern China are reigniting a debate here: Is pressure from state companies, coupled with freely available information on oil prices, driving China to accept market forces faster than it may have wanted? Dozens of service stations in Southeastern China, notably in cities near Hong Kong, abruptly ran out of fuel this week just as officials in Beijing were debating requests from domestic oil companies to charge more for diesel and gasoline. The shortages have produced long lines of angry motorists... disrupted some freight shipments.... Sinopec, the state-controlled oil company that dominates the refining of fuel in China, especially in Southeastern China, said late Wednesday that the shortages were a result of people stockpiling fuel now that they have enough information to bet on the direction of oil prices.... People in China today have much greater access to information about world prices than ever before, and as they see high world oil prices, they are topping off fuel tanks in expectation that China will soon raise domestic prices, Mr. Jia said. "They buy inventory for their own tank in the hope the price will be changing," Mr. Jia said. "People think the trend in China should be toward a price increase." While there are no good figures on the private storage capacity for fuel in China, oil experts say it is probably considerable as years of electricity shortages have prompted factories across the country to install backup diesel generators with large fuel tanks.... [T]he timing of the latest shortages, coinciding with an active debate in the government-controlled news media over whether China should liberalize retail energy prices, has made many energy analysts suspicious of these rationales. Sam Dale, an Asian oil analyst in Singapore with Energy Intelligence, a newsletter-publishing company based in New York, said oil companies appeared to be putting pressure on the Chinese government to free retail prices, by... holding back supplies from the market.... Sinopec's refineries are operating at 89 to 90 percent of capacity, compared with past rates as high as 97 to 98 percent, Mr. Jia said. There is a shortfall mainly because some refineries are closed for maintenance, but some refinery managers are also reluctant to produce at full tilt when retail prices are low, he added... ## Oil Prices and Federal Funds Rates Oil price rises lead Jim Hamilton to plead for easier monetary policy: Econbrowser: Talk of recession: Developments of the last couple of weeks make me a little more concerned. Expenditures on energy are a sufficiently small share of GDP that if the only thing that changes is the price of oil, we really shouldn't expect to see that big a change in total output. The way that previous oil spikes seem to have contributed to broad economic downturns was by helping to precipitate sudden shifts in the pattern of spending by consumers and firms, which demand shifts led to underutilization of labor and capital by the suppliers in those secondary markets. In my opinion, the reason that the oil price increases of the last two years have not caused a recession yet is that they have built up gradually, and resulted not from a drop in supply but instead from strong global demand. Faced with a gradual price increase and rising incomes, most people have been able to adapt to the higher prices and make adjustments in an orderly way that does not cause serious economic dislocations. On the other hand, just within the last couple of weeks, I've been hearing a lot more expressions of anxiety and concern-- the sort of psychological factors that produce abrupt spending changes.... Is there a rational basis for new anxiety? The price of gasoline in much of the U.S. has gone up 30 cents a gallon over the last month. For somebody who plans on driving a 15 mpg gas-guzzler 12,000 miles over the next year, that's$240 they thought they had available to spend but now realize they don't. It's more than twice as bad if you want to make the comparison with a point earlier this year rather than just the last month, and of course would only get worse if gas prices keep climbing. That's more than enough to make somebody on a tight budget anxious, particularly if they've already stretched with an adjustable rate mortgage on a house and now see those monthly payments about to shoot up.

Could concerns like that produce other significant changes in spending? Wal-Mart and other retail chains think they already have. In most historical recessions, changes in auto sales have been a big factor in the downturn. That's been avoided this go-round in part because of the big dealer incentive programs. But GM's North American division posted a $1.2 billion loss in the second quarter, so something's got to give.... Airlines are certainly also struggling with higher fuel costs. Delta Airlines remains worried that it will be forced into bankruptcy, a reasonable enough concern for anybody who's lost$10 billion in the last five years....

[E=ven though the market seems to expect the Fed to push the funds rate up to 4.25% by early next year, the folks in Washington don't really have to do that, do they?...

## The Economist on the Budget Deficit

The Economist reminds me of how good it can be in a short space, as it pities the poor fools who write for the Wall Street Journal editorial page:

The budget deficit | Cocktail-bar calculations | Economist.com: [T]he latest projections from the legislature's non-partisan budget-watcher have excited a few of Mr Laffer's fans. The federal budget deficit, the CBO reckons, will narrow to $331 billion this fiscal year (which ends on September 30th), from$412 billion the year before. Tom DeLay, the Republican majority leader in the House of Representatives, was quick to offer a Laffer-like explanation: "Lower taxes and spending discipline spur economic growth, which in turn cuts the deficit," he opined.

In fact, spending discipline is still rather lacking. Government outlays will increase by $181 billion (or 8%) this year, a figure that does not include the cost of the pork-stuffed highway bill, signed by the president on August 10th.... Is Mr DeLay right to attribute any of these gains to the seductive curves of supply-side economics? In December, Gregory Mankiw, who used to be chairman of Mr Bush's Council of Economic Advisers, and Matthew Weinzierl, a colleague at Harvard University, published a "back-of-the-envelope guide" to tax rates and revenues.... [B]y their reckoning cutting taxes on labour would generate enough growth to recoup about 17 cents on the dollar, and a tax cut on capital could pay for more than half of itself. The government would take a thinner slice of a bigger pie. Left out of these calculations is any guide to what happens when taxes are cut but spending is not. The budget deficits that ensue will tend to "crowd out" investment, slowing growth. The CBO calculates that every extra dollar of federal borrowing reduces investment in the economy by 36 cents. The White House['s]... latest forecast... assumes (absurdly) that Congress will not add a single dollar to its discretionary spending on anything except defence and homeland security from 2006 to 2010. It also leaves out of its projections any extra money for Iraq, Afghanistan or the war on terror... The failure to take account of what happens "when taxes are cut but spending is not" makes Mankiw and Weinzierl a bad guide to the likely future effects of the Bush tax cuts. ## Republican Goals for Social Security MediaMatters reminds us what they are: "Kill Social Security!": Promotions for the August 13 edition of Fox News' Forbes on Fox included on-screen text exclaiming "Kill Social Security!" and featuring a Social Security card with "R.I.P." superimposed over it. The Forbes on Fox segment, hosted by David Asman, featured a panel of editors and writers from Forbes magazine discussing the merits of abolishing Social Security... Republican economists talk about bringing Social Security's commitments into balance with funding, and with providing incentive-compatible retirement insurance. But the Republican activists have a very different view of what the goal is. ## Why Oh Why Can't We Have a Better Press Corps? (Chris Matthews Calls B---s--- on His Own Show Edition) If Chris Matthews says that what pro-administration right-wingers say--unchallenged--on his show is b---s---: Hardball with Chris Matthews - MSNBC.com: MATTHEWS: What I keep doing here is asking people on and off camera who come on this program, high-ranking officers, enlisted, former officers. I get sometimes, not all the time, two different versions, the version they give me on the air and the version they give me the minute when we‘re off the air. The version they give me when we‘re on the air is gung-ho, we‘re doing the right thing, everything is moving along. The version they give me off the air is, Rumsfeld is crazy. There aren‘t enough troops over there. We‘re not taking this seriously enough, or, we shouldn‘t be there, sometimes.... It isn‘t always a straight scoop when you go on television with people... who am I to argue? Still, shouldn't he have told this to all of us years ago? ## A Tight Labor Market! Ah. The tight labor market of the Bush boom! Calculated Risk writes: Calculated Risk: More on Labor Slack: Ken Melvin directs us to some comments in an article in the SF Gate: Want a Wal-Mart job? Join the crowd 11,000 apply for 400 openings at retailer's new Oakland store. "It's not about Wal-Mart -- it's about the rest of the labor market," [Stephen Levy, an economist for the Center for Continuing Study of the California Economy] said. "If the rest of the labor market was strong, you wouldn't have 11, 000 people applying for 400 jobs." During the dot-com boom, Levy said, businesses like Starbucks bumped up wages to recruit employees in the middle of a hot job market. But now the situation has reversed, and more people are willing to take whatever they can get. That sure sounds like slack in the labor market. ## The Onion Is a Priceless National Treasure It has the latest bulletin from Kansas: The Onion | Evangelical Scientists Refute Gravity With New 'Intelligent Falling' Theory: Scientists from the Evangelical Center For Faith-Based Reasoning are now asserting that the long-held "theory of gravity" is flawed, and they have responded to it with a new theory of Intelligent Falling. "Things fall not because they are acted upon by some gravitational force, but because a higher intelligence, 'God' if you will, is pushing them down," said Gabriel Burdett, who holds degrees in education, applied Scripture, and physics from Oral Roberts University. Burdett added: "Gravity--which is taught to our children as a law--is founded on great gaps in understanding. The laws predict the mutual force between all bodies of mass, but they cannot explain that force."... The ECFR, in conjunction with the Christian Coalition and other Christian conservative action groups, is calling for public-school curriculums to give equal time to the Intelligent Falling theory. They insist they are not asking that the theory of gravity be banned from schools, but only that students be offered both sides of the issue "so they can make an informed decision." "We just want the best possible education for Kansas' kids," Burdett said. Proponents of Intelligent Falling assert that the different theories used by secular physicists to explain gravity are not internally consistent. Even critics of Intelligent Falling admit that Einstein's ideas about gravity are mathematically irreconcilable with quantum mechanics... gravity is a theory in crisis.... "Closed-minded gravitists cannot find a way to make Einstein's general relativity match up with the subatomic quantum world," said Dr. Ellen Carson, a leading Intelligent Falling expert known for her work with the Kansan Youth Ministry. "They've been trying to do it for the better part of a century now, and despite all their empirical observation and carefully compiled data, they still don't know how." ## Clueless in Gaza For more than thirty years Ariel Sharon has worked tirelessly to raise these demons. Now he is trying to deal with them. FT.com - Israeli pull-out inflames passions: Harvey Morris in Neve Dekalim, Gaza: Settlers comparing Mr Sharon to Adolf Hitler, or the police and soldiers who have come to evict them to Jewish death camp collaborators, appeared to have lost all sense of history.... Their perspective may have been skewed... by years of being feted as Isral's new pioneers, particularly after the right-wing Likud party came to power for the first time in 1977.... [T]he settlers could in the past always count on political allies, not least Mr Sharon, to advance their cause.... "There's a crack in the people and that's what this government wants," said Yehuda Glick, head of the Temple Institute in Jerusalem that looks forward to the rebuilding of the Jewish Temple on the site of the al-Aqsa mosque complex in Jerusalem.... "The true Zionists are the people who hang tough here," said a former Wall Street tax attorney, who would only give his first name, Michael.... "I stand here as a Zionist with full faith in God that this will not happen."... Jabotinsky's Zionist Revisionists, spiritual forerunners of Mr Sharon's Likud, whose territorial aspirations once even included what is now Jordan.... As a poster alongside the burning barricades outside the Neve Dekalim synagogue read: "Bush and Sharon have declared war on God and his Bible." We wish him luck. ## Gross Domestic Product and Gross Domestic Income Everyone should read Daniel Gross's "Economic View" column this forthcoming Sunday: he's trying to make sense of the fact that estimates of National Product show productivity growth reverting to its average post-1995 pace, while estimates of National Income continue to show more rapid productivity growth. It's an important topic, and it's bound to be a good column. Meanwhile, here's a short squib from Business Week on the issue: On Aug. 9, the Bureau of Labor Statistics said that in the second quarter, the most widely followed measure of productivity, output per hour in the nonfarm business sector, grew at a 2.2.% annual rate from the first quarter. Over the past year, productivity increased just 2.3%, down sharply from the 5% yearly pace seen at the end of 2003.... [B]ut the BLS actually calculates a second broad measure of productivity, one that shows a more robust trend... covers only the nonfinancial corporate sector... shows productivity in the first quarter grew 5.4% from a year ago... faster than the 4.5% yearly clip recorded at the end of 2003.... Neither set of data is necessarily better.... They just use different measures... gross domestic product... [and] gross domestic income. Theoretically, the value of products and the income they generate should be the same.... What raises this debate into the realm of policy importance is that, in the past, Greenspan has tracked this second set of productivity data closely.... In the nonfarm business measure, smaller gains in efficiency are no longer offsetting increases in labor compensation. As a result, it now costs businesses far more to make and sell one unit of their product. Last quarter, nonfarm unit labor costs... were up 4.3% from a year ago, the fastest yearly clip in nearly five years.... But within the nonfinancial [corporate] sector... unit labor costs are up by just 1.4% from a year ago.... Which is right?.... [O]ne advantage of the nonfinancial corporate numbers is that... they give more of an "apples and apples" comparison between compensation and output.... [T]he surprising strength of profits so far this year suggests that the more sanguine reading of unit labor costs from the nonfinancial sector may well be closer to the truth.... And here's a graph showing the ratio of (measured) national product to (measured) national income: From 1995 to 2000 the ratio of product to income shrank as measures of product grew more slowly than measures of income. This was important: for five years measures of productivity on the income side grew 0.8% per year faster than measures of productivity on the product side. Then for three years measures of product grew 0.9% per year faster than measures of income. And in the past four quarters it looks like it has turned around again, with income growing 0.6% per year faster than product. It's a data issue I don't understand. It's a vitally important data issue--especially if you have a view of the world that gives some weight to what's going on with unit labor costs as a look into the guts of the inflation-unemployment relationship and to the current level of the natural rate of unemployment. I am not a happy camper. ## Why Oh Why Can't We Have a Better Press Corps? (Yet Another WSJ Editorial Edition) Brendan Nyhan reads the WSJ editorial page so the rest of us don't have to: Brendan Nyhan: WSJ agitprop on CBO report: The WSJ continues A second fact you won't see in many other newspapers is that the federal budget deficit has also declined to close to its modern average. CBO says the deficit will fall to 2.7% of national output in the fiscal year that ends at the end of next month. It is expected to continue to fall to 2.4% of GDP next year and 2.0% in 2010, even if the Bush tax rates stay in place. But... the Journal's 2010 date is cherrypicked -- the effects of extending President Bush's tax cuts... explode over the next five [years]. Once again, the lesson here is simple: never trust the Wall Street Journal editorial page. A lesson to place alongside "never get involved in a land war in Asia," "never play poker with a man named 'Doc'," and "never accept a battle of wits where iocane powder is a factor." ## The Deficit Outlook The Economist writes: The not-so-incredible shrinking deficit | Economist.com: GEORGE BUSH has the dubious distinction of presiding over the largest negative budget swing in American history: from a surplus of$236 billion in 2000, the year he was elected, to a deficit of $412 billion, or 3.6% of GDP, when he stood again in 2004. Even in an economy with output of around$12 trillion, $648 billion is a lot of money to misplace. Analysts were aghast when the Bush administration's Office of Management and Budget (OMB) projected [in February] that the fiscal year to September 2005 would bring bigger deficits still:$427 billion.... The more cynical observers suggested that the administration was simply releasing a gargantuan number for the pleasure of later telling voters that the budget deficit was closing faster than expected. In support of their argument, figures released by the Congressional Budget Office (CBO) in March projected a deficit of only $365 billion. When the OMB revised its numbers sharply downward in July, to$333 billion, the doubting Thomases seemed to have a good case. Now, however, the CBO, which is generally seen as more level-headed, has followed suit. In its Budget and Economic Outlook, released on Monday August 15th, the CBO's projections moved roughly into line with the administration's, forecasting a shortfall of $331 billion, or roughly 2.7% of GDP. Say not that the CBO has followed the administration's suit but that the administration has come back in line with reality. There has been about$34 billion of good budgetary news since February. That would have led a--normal--administration to lower its deficit forecast by $34 billion. But the administration lowered its deficit forecast by$94 billion. There's an extra \$60 billion of fudge factor here.

The Economist's interpretation contained in its "however"--that the fact that OMB agrees with CBO now means that the OMB estimates last February that didn't agree with CBO's estimates were in fact on the level--simply doesn't follow.

Where the Economist does good is in pointing out that the this-year's deficit number is not where attention should be focused:

Douglas Holtz-Eakin, the CBO’s director, gave a warning that the improvement, while welcome, seemed to be largely temporary... an unexpected surge in corporate income tax receipts... stem[ming] from short-lived changes to the tax code. Further out into the forecast period, the CBO says its outlook is largely unchanged....

[M]any of the assumptions that the CBO makes, or is forced [by law] to make, seem rather far-fetched... that discretionary spending grows only at the rate of inflation... as if all of Mr Bush’s tax cuts were destined to expire on schedule, when in fact there is considerable interest in making them permanent.

But there’s one prediction it is making with a high degree of confidence: Social Security and Medicare... will eat up an increasing share of federal spending.... Social Security, Medicare and Medicaid, America’s health-care programme for the poor, will together account for more than half of federal spending by 2015....

And that Bushist economic policy is lousy:

[E]ven Mr Bernanke has stressed that deficit-reduction should still be a priority. “Not catastrophic” seems a poor guideline for fiscal policy, government or personal. For now, however, it appears to suit America’s politicians and consumers just fine.