## Covering the Economy: February 28: International Trade

Covering the Economy: February 28, 2006: International Trade

Today's lecture is going to be much more like a standard economics lecture than our classes have been so far. I'm sorry. But I see no way of doing it otherwise.

Major points to be hit:

1. From 2% of GDP (1800) to 8% of GDP (1913) to 5% of GDP (1939) to 15% of GDP (today) to ????
1. Comparative advantage--each specializes in what it does best
2. Stolper-Samuelson: the "scarce" factor in each country loses from the opening-up of trade
3. Dynamic effects
1. Does manufacturing matter?
2. The political economy of protection
3. Extent of the market
4. Examples of countries that have gained lots of relative ground under free trade?
4. Political consequences: late nineteenth century Germany and the marriage of iron and rye

1. Not number of jobs, quality of jobs.
2. What if monetary factors mean that the exchange rate is wrong?
1. Reagan deficits and the high dollar of the 1980s
2. Bush deficits, Chinese dollar purchase program, and the trade deficits of the 20002.
3. Our current $1 trillion annual deficit 1. Balance up or balance down? 2. How long can this go on? Readings: Monthly Trade Release http://www.bea.gov/bea/newsrel/tradnewsrelease.htm U.S. INTERNATIONAL TRADE IN GOODS AND SERVICES December 2005 The U.S. Census Bureau and the U.S. Bureau of Economic Analysis, through the Department of Commerce, announced today that total December exports of$111.5 billion and imports of $177.2 billion resulted in a goods and services deficit of$65.7 billion, $1.0 billion more than the$64.7 billion in November, revised. December exports were $2.3 billion more than November exports of$109.2 billion. December imports were $3.3 billion more than November imports of$173.9 billion.

In December, the goods deficit increased $1.2 billion from November to$70.6 billion, and the services surplus increased $0.3 billion to$4.9 billion. Exports of goods increased $1.9 billion to$79.0 billion, and imports of goods increased $3.1 billion to$149.6 billion. Exports of services increased $0.5 billion to$32.5 billion, and imports of services increased $0.2 billion to$27.6 billion.

In December, the goods and services deficit was up $11.0 billion from December 2004. Exports were up$9.8 billion, or 9.6 percent, and imports were up $20.8 billion, or 13.3 percent. Commentators: From the Economists' Voice http://bepress.com/ev: ## Cultural Consumption and Identity in 18th Century Germany Gerry Feldman invited Michael North to come up from his temporary home base at the Getty Museum to talk: Cultural Consumption and Identity in 18th Century Germany : Monday, February 27, 2006 Time:4:00PM Speaker:Prof. Michael North (Professor of History Ernst-Moritz-Arndt University, Greifswald) Location:201 Moses: Description:The lecture will discuss culture and consumption and the issues of luxury and taste in Germany at the turn of the nineteenth century... Absolutely fascinating. The nugget that fascinated me the most was this. I think I understood it properly: If, in the late eighteenth century (if you were rich--solidly bourgeois) you wanted to get the score of a piano sonata by Karl Philip Emmanuel Bach, it was easy: C.P.E. Bach sold subscriptions and partnered with publishers to make money off of selling scores. He was, among other things, an intellectual property entrepreneur. On the other hand if, in the middle of the eighteenth century, you wanted to get the score of one of Johann Sebastian Bach's Brandenburg Concertos... you needed to know and be owed a favor by the Kapellmeister of some small princely state who knew and was owed a favor by the Kapellmeister of Frederick the Great and so had a copy of the score that could be recopied by hand. C.P.E. Bach was in lines of business that J.S. Bach was not. I suppose this explains why we have only the St. Matthew and St. John Passions. Surely J.S. Bach wrote St. Luke and St. Mark Passions too, didn't he? ## Graduates Versus Oligarchs Why is America becoming a land of oligarchs and the insecure? Paul Krugman writes: Graduates Versus Oligarchs - New York Times: What we're seeing isn't the rise of a fairly broad class of knowledge workers. Instead, we're seeing the rise of a narrow oligarchy: income and wealth are becoming increasingly concentrated in the hands of a small, privileged elite. I think of Mr. Bernanke's position, which one hears all the time, as the 80-20 fallacy. It's the notion that the winners in our increasingly unequal society are a fairly large group -- that the 20 percent or so of American workers who have the skills to take advantage of new technology and globalization are pulling away from the 80 percent who don't have these skills. The truth is quite different. Highly educated workers have done better than those with less education, but a college degree has hardly been a ticket to big income gains. The 2006 Economic Report of the President tells us that the real earnings of college graduates actually fell more than 5 percent between 2000 and 2004. Over the longer stretch from 1975 to 2004 the average earnings of college graduates rose, but by less than 1 percent per year. So who are the winners from rising inequality? It's not the top 20 percent, or even the top 10 percent. The big gains have gone to a much smaller, much richer group than that. A new research paper by Ian Dew-Becker and Robert Gordon of Northwestern University, "Where Did the Productivity Growth Go?," gives the details. Between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn't a ticket to big income gains. But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that's not a misprint. Just to give you a sense of who we're talking about: the nonpartisan Tax Policy Center estimates that this year the 99th percentile will correspond to an income of$402,306, and the 99.9th percentile to an income of $1,672,726. The center doesn't give a number for the 99.99th percentile, but it's probably well over$6 million a year.... The idea that we have a rising oligarchy is much more disturbing. It suggests that the growth of inequality may have as much to do with power relations as it does with market forces. Unfortunately, that's the real story. Should we be worried about the increasingly oligarchic nature of American society? Yes, and not just because a rising economic tide has failed to lift most boats. Both history and modern experience tell us that highly unequal societies also tend to be highly corrupt. There's an arrow of causation that runs from diverging income trends to Jack Abramoff and the K Street project. And I'm with Alan Greenspan, who... has repeatedly warned that growing inequality poses a threat to "democratic society."

Say, rather, that five things are going on:

1. The rise of a very powerful, successful, exploitative upper class.
2. Further increases in inequality as the tax and transfer system becomes less progressive.
3. Increases in risk that threaten to move middle-class families sharply downward in the wealth distribution.
4. Skill-biased technical change that sharply raises the benefits to education.
5. Holes in the safety net--the fall in the value of the minimum wage, time-limited welfare, and so forth.

## Franklin Foer Is Named Top Editor of New Republic

Ah. A good choice:

Franklin Foer Is Named Top Editor of New Republic: Franklin Foer, a senior editor with the magazine, is quietly taking over the shop next week.... [T]he magazine that Mr. Foer, 31, takes over is hardly on a roll. The New Republic's circulation has dropped by almost 40 percent in four years; it cut its circulation and staff salaries after aggressively spending on the Web in 2002. Meanwhile, its historical role as a maypole for middle-way Democrats is under challenge from countless Web sites and bloggers.... But the magazine is financially stable, its owners say, in part because there are now four of them. Roger Hertog and Michael Steinhardt, successful New York financiers with an interest in policy and media, were enticed in 2002 to share in The New Republic's glories and seemingly inevitable losses with its longtime owner and editor in chief, Martin Peretz. More recently, CanWest, a Canadian media conglomerate bought a share as well.

To look at The New Republic, with a weekly circulation of 62,000 and a demure size of about 40 pages, the subject of who might be its editor would seem to be a game that is played in a very small parlor....

This is the question: can the New Republic remain a central place for center-left argument in the digital age? What are its edges?

## Wow. Abe Lincoln Would Be Proud

You can fool all of the people some of the time. But you can only fool 34% of the people all the time:

Poll: Bush Ratings At All-Time Low : (CBS) The latest CBS News poll finds President Bush's approval rating has fallen to an all-time low of 34 percent, while pessimism about the Iraq war has risen to a new high.... CBS News senior White House correspondent Jim Axelrod reports that now it turns out the Coast Guard had concerns about the ports deal, a disclosure that is no doubt troubling to a president who assured Americans there was no security risk from the deal.... In a separate poll, two out of three Americans said they do not think President Bush has responded adequately to the needs of Katrina victims. Only 32 percent approve of the way President Bush is responding to those needs, a drop of 12 points from last September’s poll, taken just two weeks after the storm made landfall.

Impeach George W. Bush. Impeach Richard Cheney. Do it now.

## What Are America's Intangible Exports?

RGE - Mandel v. Setser. Round two. More on intangible exports and dark matter : [Michael] Mandel makes two points in response to my argument. Both are worth a bit of further discussion. First, he challenges the conventional wisdom that the United States has taken out external debt to finance a surge in consumption... relative to income and a surge in investment in residential real estate.... [He says] we in the US are borrowing from China to invest in ourselves. We are borrowing to invest in our human capital.... Mandel thinks pessimists are wrong on a second count as well.... We are investing in assets that generate external revenues - revenue that can be used to pay the US import bill once we stop exporting so much debt.... No worries, according to Mandel. Starbucks China may pay rent to the Chinese communist party (and its well-connected friends), and employ Chinese labor to operate Italian expresso machines. But the (predominantly) American owners get most of the profits, and those future profits in China can pay for lots of low-end electronics assembly....

Is Mandel right? Are we in the US taking on external debt to ramp up our investment in ourselves... intangible assets - human capital, management training, R&D, brands - that will generate enough dark matter and intangible exports to allow the US pay for lots of imported Asian assembly?.... Mandel thinks the worry warts (i.e. the gloom and doom caucus, trade deficit division) pay too much attention to the United States' lack of "tangible" exports.... [M]anagerial genius ekes out higher returns on US investment abroad than foreigners get on their investment in the US....

Should our image of the US economy shift from a home equity line financed by the Chinese central bank -- OK, really, the Chinese central bank, the Saudi monetary authority, the Russian central bank, the Abu Dhabi investment authority and a few less visible central banks in the emerging world -- to a college loan and corporate bond issue to finance US firms R and D?... Mandel wants to compare the US today with the US in the 1950s, and argue that since the 1950s, investment in intangibles is way up, even if investment in tangibles is way down.... My baseline world is one where the US current account deficit expanded during the US investment boom (and Asian bust) of 98-00, but then comes down.... Redefining a lot of spending as investment in intangibles doesn't change the balance between corporate savings and investment unless firms are investing a lot in intangibles than at the peak of the .com bubble. That's unlikely....

What of Mandel's second argument - one that parallels the argument of Hausmann and Sturzenegger. Will US investment in new intangible assets (the Starbucks brand, The Ipod's software, design and brand, and so on) allow the US to pay the bill for all its tangible imports?... There is no doubt that the US does better exporting intangibles than exporting tangibles. But that is a low bar for a country that imports twice as many tangible goods as it exports. The only question is does it all add up.... A point of clarification. The export of "intangibles" can come from foreign direct investment. Starbucks had the genius to marry Italian café culture with American drive-through (and walk-through) habits. The profit margins are higher if you take your tall skinny latte to go. In Mandel's vision, the profits from exporting the Starbucks experience -- the return on Starbucks investment in China -- will pay the US import bill. Coffee is a commodity. As is the labor required to make a tall skinny latte. Starbucks is an experience.... What matters... is the net external revenue.... The profits on Starbucks Beijing. The royalties on Microsoft's software.... Boeing's external sales.... The question is... whether [the US] can export enough intangibles to pay for all the tangible goods that enter US ports every month.... Mandel's argument is that the US right now is investing in ways that will generate future external revenues....

Why am I skeptical. Fist, the US will need to sell an awful lot of intangibles to make up for the exceptionally large gap between its (large) tangible imports and (small) tangible exports.... Second.... Third, I am not convinced that the US economy is gearing up to produce "intangible" goods that can readily be exported -- rather than just shifting into the production of domestic intangibles.... I don't see US firms doing a wonderful job building up the kind of intangible assets that easily translate into future exports. Like Calculated Risk, I see a lot of investment in housing, and lots of people training to be real estate brokers.

Fourth, I suspect that a lot of what Hausmann and Sturzenegger call dark matter - or what Mandel would call the gains from exporting "intangible" US expertise at financial and brand management - will turn out to be the product of exporting the Federal Reserves super-low US interest rates. I would be the first to concede the world has been -- and still is -- wiling to loan the US money at very generous terms. My big concern is that those terms are too generous to last....

Let me conclude by noting that in 2006, the US will export about one trillion less - counting both US exports of tangible goods and intangible services, including the service of financial intermediation - than it imports. It will - if all goes well - maybe borrow $1.2 trillion from the rest of the world. About$900 billion of that will go to pay for US impost of goods and services, and about $70 billion will go to pay interest on past US imports of goods and services (US debt).... About$200 billion will be used to finance US foreign direct investment abroad and US portfolio equity investment. Is there any plausible way that the $200 billion investment will generate sufficient investment income to pay for the interest on the$1 trillion the US takes on, let alone generate enough investment income in the future to let the US pay for its ongoing imports of tangible goods out of the returns on its past investment?

Try doing the math. It doesn't work.

## Crooked Timber's Brain Explodes

It writes:

Crooked Timeber: [Bush's] latest defense is, "I didn't know anything about it." Whaaaa? "The president is a sock-puppet moron" is supposed to be a snide criticism, not an exculpatory point. In general I am confused and await further information. Matthew Yglesias rightly notes that the alert citizen will have learned not to trust the administration to make S'mores without plunging half the nation into a sticky-sweet inferno of death. Death that's sandwiched between Graham crackers! Food for thought.

## Robert Shiller: U.S. Coastal Property Markets Are Overvalued

The Financial Times has lunch with Robert Shiller:

FT.com / Arts & Weekend - Lunch with the FT: The man and the bubble By Jim Pickard: The Yale professor correctly predicted the last stock market crash five years ago in his book, Irrational Exuberance. Now he is predicting a property meltdown.... for a 59-year-old - young features. He wears a blue jacket over a light blue shirt.... Shiller has sold truckloads of books by using plain English and eschewing more arcane economic theory. But he is not averse to more complicated words....

What I really want to know, not least as a homeowner, is when and how the property market will crash. So I ask him. For a man whose written predictions seem so definite - and dire - he appears loath to be nailed as an inveterate doomster. “I really don’t know what prices will do,” he says hesitantly, playing with his cutlery. But hasn’t he predicted a huge drop in US house prices? Only in some specific cities and states, he clarifies. The professor is no doubt aware that the history of economic forecasting is littered with the names of those who made the right forecasts at the wrong time.

He was already well respected before he became an author. Indeed, he may have been the one who lent Alan Greenspan the phrase “irrational exuberance.”... Shiller’s life has changed since Irrational Exuberance was published in 2000. He now gives a dozen speeches a year to business audiences across the world and makes frequent media appearances....

Alan Greenspan was praised for his handling of the economy during his interminable run as head of the Fed; in particular for his rapid cuts in interest rates to keep the economy afloat after the last stock market crash. Yet this has pumped up the housing bubble even more. I want to provoke mild-mannered Shiller into a little criticism. What, exactly, can Ben Bernanke, Greenspan’s successor, do to rescue the US economy if the property market crashes? Has the Fed already used up its one silver bullet - that of interest rate cuts?

“Bernanke thinks there is no housing bubble,” says Shiller. “According to the White House website, he said recently that the fundamentals explained house price movements except in some speculative markets.” The new chairman of the Fed is a “brilliant man”, Shiller continues, but he has not shown any interest in behavioural economics.... Here we come to the crux of Shiller’s theories about asset bubbles, whether tulips, shares or property: people get excited as they see the price of an asset rising, so they buy more, which pushes the prices up further until they are unsustainable. “The bubble is made by a ‘story’, by excitement and glamour,” he says. And then, once a market loses that momentum, it will experience negative feedback, where people rush to sell before things worsen further....

First, I ask, is he underestimating the role of low interest rates in fuelling the global property bubble? Prices may seem ridiculously high but if the cost of servicing property debt is low, why should it matter? Shiller’s reply seems well-rehearsed: interest rates are not so low in a historical context and in the US they are rising. An unprecedented number of variable rate mortgages... spells danger.... My second criticism is that it is not enough for an academic to point out when a market has over-heated. It’s only really useful to know when a market is so over-heated it will implode. In other words: timing. It is a point that he concedes....

Later, as Shiller eats a poached pear with cinnamon ice cream - which he declares delicious - we discuss his own investment approach. If the professor thinks that property and shares are both overheated, then where would he invest? Under a bed in cardboard boxes? Shiller’s advice is to diversify and to keep plenty of money in the bank or in “boring” inflation-proofed bonds....

Launceston Place Restaurant, Kensington, W8, London

1 x cauliflower soup with blue cheese croutons
1 x pan-fried black pudding with apple sauce
2 x roast cod with parsnip puree and curry cream
1 x poached pear with cinnamon
1 x coffee
1 x bottle mineral water
1 x cranberry and apple juice
Total: £52.75

## Outsourcing Torture

Hilzoy of Obsidian Wings writes:

Obsidian Wings: Maher Arar's Case Dismissed : Maher Arar's case has been dismissed.... [I] do not feel competent to address the legal issues it raises.... However, there is one point on which I disagree strongly with the Court. Apparently, one of the counts could have proceeded had the Court not found that the national security questions it raises require that it be deferred to Congress or the executive.... I think this is just wrong. Article VI of the Constitution states that "all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land; and the Judges in every State shall be bound thereby". We have entered into the Convention Against Torture. Article III of that Convention states that "No State Party shall expel, return ("refouler") or extradite a person to another State where there are substantial grounds for believing that he would be in danger of being subjected to torture." There are very substantial grounds for believing that someone rendered to Syria, as Arar was, would be tortured, even leaving aside the possibility that we asked the Syrians to torture him. We have therefore violated one of those treaties which are, according to the Constitution, the law of the land.

This means that the extradition of Maher Arar is a violation of the law. It may also have foreign policy implications, but it does not thereby cease to be a violation of the law. And while conducting foreign policy may not fall within normal judicial expertise, reading laws, and determining whether the facts in evidence warrant conviction under them, is exactly what judges do. If determining when conduct violates a law and when it does not does not fall within their purview, I have no idea why on earth we bother to have them.

Moreover, while the Court argues that Congress has not addressed the issue of extraordinary rendition, I would have thought that it did so by ratifying the Convention Against Torture, thereby making it the law of the land.

The only way I can see of holding that Maher Arar's detention should not be justiciable is to say that when something is both (a) a violation of law and (b) significant for foreign policy, its foreign policy significance should trump its illegality. But this would be crazy. Do we really want to say that whenever foreign policy is in any way involved, our laws cease to apply? That whatever our officials do that relates to foreign policy is therefore immune to legal scrutiny? I don't.

## I Don't Understand This

I don't understand this. I may never understand this.

Uncertain Principles :You Can't Get There From Here: Category: Quantum Optics: Buried beneath some unseemly but justified squee-ing, Scalzi links to an article about "counterfactal computation", an experiment in which the group of Paul Kwiat group at Illinois managed to find the results of a quantum computation without running the computer at all. Really, there's not much to say to that other than "Whoa." The article describing the experiment is slated to be published in Nature, so I don't have access to it yet, but I'll try to put together an explanation when I get a copy. The experiment involves a phenomenon know as the "Quantum Zeno Effect".... [M]ake the measurement a much shorter time after the excitation-- a tenth of a second, say. The probability that the atom has already decayed is really, really small-- 0.002%-- so you're really likely to find it in the excited state, after which the atom is entirely in the excited state again, and the decay clock starts over.... If you keep making measurements at short intervals, you can keep the atom in the excited state basically forever.

The cool thing is, you can do this sort of thing with passive measurements. You don't have to bounce a photon off the atom to prove that it's in the excited state-- instead, you can send in a photon that will only be absorbed by a ground-state atom, and see what happens. If it isn't absorbed (and it most likely won't be), that's just as effective at keeping the atom in the excited state as if you'd done something more active to detect the excited-state atom.... If you're really clever about it (and Paul Kwiat is a really clever guy)... computing without running a computer should come as no surprise...

## Class, Status, Vehicular Manslaughter

An excellent, sad, and awful story from Bitch, Ph.D., who finds two young American men's roads diverging on a wet slippery night:

Bitch Ph.D. : Mi familia; or, visiting the iniquity of the fathers on the children: Two stories about two different young men.

1. J. immigrated with his family from Russia. In Russia, his family was wealthy, and after they arrived in the States, they quickly re-established themselves, using their education and business acumen, so that they are now quite comfortably upper middle class. J. was a student of mine and is now a friend to whom I am something of a mentor. I wrote him recommendations for several law schools, and he is now enrolled at one of the better ones in this country.

J. loved car racing and driving fast. For his 16th birthday, his parents leased him a new sporty car. He did some modifications on it and, unknown to them, used the money that was amply provided to him to take racing classes at a local track, and to occasionally race there. He liked to speed, and had an accident (which pissed his parents off), but he generally avoided street races because he did not want to run afoul of the law, since he had aspirations to go to law school.

Continue reading "Class, Status, Vehicular Manslaughter" »

## Demand for American Treasury Securities

Barry Ritholtz meditates on the conundrum:

The Big Picture: In Long-Term American Treasury Securities They Trust : What does it mean when so many overseas investors -- governmental, corporate, and institutional -- are hungry for US paper? There are a variety of potential explanations: Yield is relatively attractive here, its a safe investment for those looking to move cash away from their native countries. For exporters, buying US Treasuries helps pressure rates down, thus financing additional consumer spending. Floyd Norris writes: "The vast majority of foreign Treasury purchases came from private foreign investors, who presumably were attracted by the yields and by the fact that the dollar gained in 2005 against the Japanese yen, the euro and the British pound, while falling less than 3 percent against the Chinese yuan."

The United States is politically stable (despite red/blue divisions); Nor does it hurt that we have an unblemished track record of paying our sovereign debts -- even with all of the economic imbalances of recent years or the past....

Here's the details, via Norris: "GUESS who's financing the budget deficit of the United States? Hint: Very few Treasury securities are being purchased by American consumers or businesses. The federal government released its calculations this week on net investments in United States long-term securities, and found that foreigners had invested $350.8 billion in Treasury bonds and notes in 2005. They were net sellers of short-term Treasury bills, so their total Treasury holdings grew by just$290.9 billion.... Treasury securities held by the public — that is, by everyone except the Federal Reserve System and other arms of the government — rose by $306.4 billion. That means that 95 percent of the deficit was financed overseas.... The gain last year showed increasing foreign trust in American corporations. While United States government and agency securities got most of the money, the increase largely came from a greater willingness to buy corporate bonds and stocks. Foreigners put a net$391.7 billion into corporate bonds, 27 percent more than they had invested the previous year and the largest amount for any year on record."

Let's hope they don't change their collective minds anytime soon . . .

## Ka Ching! Ka Ching! Ka Ching!

Roubini Global Economics (RGE) Monitor : The 2006 US current account deficit looks to be a bit under $1 trillion.... So it is not at all unreasonable to say that financing the US current account deficit requires that the US raise$20 billion a week, whether by selling debt, selling stocks or selling off real US assets. 52 * $20b =$1040. That is equal to selling one Unocal a week to China (CNOOC was willing to pay $20 billion). Or selling three companies the size of P&O to the Emirates a week. P&O is a bad example though. It is British company, so its sale finances the UK's current account deficit, not the United States' deficit. And most of the value of the$6.8 billion deal doesn't come from the P&O's American assets. But the broader point still stands. If the US was financing its current account deficit with equity not debt, the Committee on Foreign Investment in the US (CFIUS) - the group that approved the port deal - would be very, very busy. Moreover, if foreigners who already hold dollar-denominated bonds ever decided they wanted to shift into equities, the potential sale of physical US assets would be even larger.

So far the US has financed its deficits with debt - and debt doesn't carry with it the right of control. Though countries that are hooked on debt do sometimes find that their creditors have a bit of influence over their policies. But fundamentally, there is no way the US can sustain $1 trillion deficits - the 2006 deficit is not going away in 2007 or 2008 barring a catastrophe, at best, the deficit won't keep getting bigger - without selling off large pieces of itself to the rest of the world. Wysocki, Phillips and Schroeder got this -- and much more -- right in their page 1 Wall Street Journal article. My only real quibble with their article: by relying on the US TIC data, they vastly understate the capability of the oil sheiks to acquire US assets. The TIC data shows total Middle Eastern oil exporters hold$121 billion in US securities. That almost certainly understates their dollar holdings....

One thing is pretty clear: the US isn't ready to accept the consequences of sustained $1 trillion deficit. Even if the current account deficit stops rising in nominal terms and starts to fall in real terms,$1 trillion annual deficits imply that the US will sell $10 trillion of US financial assets to foreigners over the next ten years. And unless something changes, the foreigners with cash to spare will in the Middle East and East Asia.$10 trillion can buy a lot of ports, oil companies, computer companies, consumer brands - you name it. But only if the US allows it. My personal guess is that the US won't. We in the US are willing to sell tons of IOUs to the world, but not tons of US companies. At the same time, there is no evidence the US is ready to take the policy steps needed to reduce its need for financing from China and the world's oil exporters...

## Fair Harvard...

Larry Summers's critic J. Lorand Matory speaks:

The Harvard Crimson: "This university is more mine than Larry Summers'," says J. Lorand Matory '1982, professor of Anthropology and of African and African American studies. "I will not let Larry Summers determine that this will become a place where social Darwinism is the leading ideology or leading practice." Matory this semester emerged as one of University President Lawrence H. Summers' most outspoken critics, filing the motion that led to the successful vote of no confidence in the president and becoming one of only three Harvard professors to call publicly for Summers' resignation.

This struck me as odd: A professor who thinks Larry is a social darwinist really has no idea what a 'social darwinist' is at all--and has certainly never met a real one. What's he doing with his time to know so little about social darwinism and other topics in intellectual history?

A quick sweep through the Harvard catalog reveals that this year he is teaching:

African and African American Studies 140z. The Other African Americans Catalog Number: 0300 J. Lorand Matory Half course (spring term). W., 4-6. EXAM GROUP: 9: We survey the history and contemporary experiences of self-identified “mixed-race” groups, as well as voluntary immigrant groups from Africa and the Caribbean, such as Cape Verdeans, Nigerians, Jamaicans, Afro-Puerto Ricans, and Haitains [sic] in the US. Students are introduced to arguments central to the social scientific study of modern societies generally, such as the invention of ethnicity, and negotiation of identity, and the social constructedness of race.

Anthropology 1600 (formerly Anthropology 110). Introduction to Social Anthropology Catalog Number: 8296 J. Lorand Matory (spring term) Tu., Th., at 11. EXAM GROUP: Spring: 13: Introductory exploration of anthropological approaches to society, culture, language, and history. Lectures, readings, and ethnographic films focus on global social and cultural diversity, and the intellectualand ethical challenges of anthropological research on human difference, experience, and complexity, across a wide range of theoretical perspectives and social/cultural topics, including kinship, social and political hierarchy, exchange, gender, language, ideology, religion, and global political economic systems.

Also: Foreign Cultures 86

They do look like interesting courses. They put J. Roland Matory in the classroom, teaching, for about 55 79 hours total for the 2005-2006 academic yeqar.

JSTOR reports two articles since 1995: J. Lorand Matory (1999), "The English Professors of Brazil: On the Diasporic Roots of the Yoruba Nation," Comparative Studies in Society and History Vol. 41, No. 1 (which I read a couple of years ago: it is quite good); and J. Lorand Matory (1996), "Review: Revisiting the African Diaspora," American Anthropologist New Series, Vol. 98, No. 1 (Mar., 1996), pp. 167-170.

There is also a Princeton University Press book from 2005: Black Atlantic Religion: Tradition, Transnationalism, and Matriarchy in the Afro-Brazilian Candomblé, which describes itself as:

Black Atlantic Religion illuminates the mutual transformation of African and African-American cultures, highlighting the example of the Afro-Brazilian Candomblé religion. This book contests both the recent conviction that transnationalism is new and the long-held supposition that African culture endures in the Americas only among the poorest and most isolated of black populations. In fact, African culture in the Americas has most flourished among the urban and the prosperous, who, through travel, commerce, and literacy, were well exposed to other cultures. Their embrace of African religion is less a "survival," or inert residue of the African past, than a strategic choice in their circum-Atlantic, multicultural world.

With counterparts in Nigeria, the Benin Republic, Haiti, Cuba, Trinidad, and the United States, Candomblé is a religion of spirit possession, dance, healing, and blood sacrifice. Most surprising to those who imagine Candomblé and other such religions as the products of anonymous folk memory is the fact that some of this religion's towering leaders and priests have been either well-traveled writers or merchants, whose stake in African-inspired religion was as much commercial as spiritual. Morever, they influenced Africa as much as Brazil. Thus, for centuries, Candomblé and its counterparts have stood at the crux of enormous transnational forces.

Vividly combining history and ethnography, Matory spotlights a so-called "folk" religion defined not by its closure or internal homogeneity but by the diversity of its connections to classes and places often far away. Black Atlantic Religion sets a new standard for the study of transnationalism in its subaltern and often ancient manifestations.

Google Scholar reports 198 hits for "Lorand Matory." Google proper reports 927 hits for "Lorand Matory".

Matory writes that his next book will be:

Matory: a collaborative effort with my wife, a presidential protocol officer during the rule of Nigerian president Ibrahim Babangida. We have planned it as a culturally sensitive account of the inner workings of the dictatorship that ruled Africa's largest nation from 1985 to 1993. It is intended both as a corrective to standardized journalistic and political science cliches about the nature of autocracy and corruption in Africa and as a historical study of the genesis of Nigeria's current political crisis.

Wikipedia reports:

## Dan Drezner Defends the Peninsular and Oriental Steam Navigation Company

Dan Drezner defends the Bush administration's willingness to allow the UAE-OWNED P&O to buy U.S. ports: the FBI and CFIUS have approved it--and they to err on the side of preventing foreigners from buying U.S. businesses where national security is concerned. This is one of the few occasions where the Bush administration appears to be on the side of the angels:

danieldrezner.com :: Daniel W. Drezner :: What's the big deal about the port deal? : I can certainly see why there's some political controversy about a firm owned by the government of the United Arab Emirates helping to run ports on the Eastern seaboard -- but after reading this Christian Science Monitor story by Alexandra Marks, I don't think there's any real basis for the kind of outrage I'm seeing....

P&O is not commenting on the political uproar over the deal. But a source within the company worries that the media and politicians are misrepresenting the arrangements. Other who work within the port communities agree. They note that P&O will not be "managing" the ports, as many news organizations have reported. Instead, the company is one of many that leases terminals at the port. "I've never quite seen a story so distorted so quickly," says Esther de Ipolyi, a public-relations executive who works with the port of Houston. "It's like I go to an apartment building that has 50 apartments, and I rent an apartment. This does not mean I took over the management of the whole building."...

[A]ll the facts were reviewed by the Committee on Foreign Investments in the United States (CFIUS) earlier in the month. People aren't upset that there's been a review -- they're upset because there's been a review and the outcome is one they disagree with on a gut level.... There's been a lot of hot air in the blogosphere on this -- and even hotter air from the United States Senate and local politicians -- but I haven't seen anything approaching a rational, reality-based argument against this deal.

## Some Highlights from Larry Summers's Resignation Letter

Some highlights from Larry Summers's resignation letter:

Letter to the Harvard Community: I have reluctantly concluded that the rifts between me and segments of the Arts and Sciences faculty make it infeasible for me to advance the agenda of renewal that I see as crucial to Harvard's future. I believe, therefore, that it is best for the University to have new leadership....

[T]he quality of the experience we provide our students is not fully commensurate with their quality or the quality of the Harvard faculty... student-faculty contact... international opportunities... a start on bringing space for student activities and social life up to the standard of peer institutions....

At a time when the median age of our tenured professoriate is approaching 60, the renewal of the faculty has to be a central concern.... [I]t [is] essential that the University do much better than it has done traditionally to ensure that we are doing everything we can to attract, develop, and retain the most promising emerging scholars...

[E]xtend to all parts of the University the promise that talent, and not ability to pay, is the key to a Harvard education.... We are extending the same philosophy to our graduate and professional schools by making sure that students who choose academic or public service careers are well supported while at Harvard so that they are not unduly burdened if they choose careers whose chief rewards do not come in financial terms... much more... can and should be done to sustain a University-level commitment to financial aid....

[T]he University is in the midst of unprecedented commitments to science and technology. The success of these investments will be crucial over the next several decades to the University's global standing.... We cannot maintain pre-eminence in intellectual fields if we remain constrained by artificial boundaries of departments and Schools. "Each Tub On Its Own Bottom" is a vivid, but limiting, metaphor.... We will not escape its limits unless our Schools and Faculties increase their willingness to transcend parochial interests...

Sixty as the median age of tenured non-emeritus faculty?

## Dan Ziblatt Has Finished His Book

Dan Ziblatt did a wonderful job teaching for us here at Berkeley before he managed to grow legs and scramble ashore from the nourishing sea of graduate school onto the dry land of the quest for tenure. His book is now out, and so the pile grows bigger:

Daniel Ziblatt (2006), Structuring the State: The Formation of Italy and Germany and the Puzzle of Federalism (Princeton: Princeton University Press: 0691121672).

## Dark Matter

The late Rudi Dornbusch said that one of the infallible warning signs that we are near the collapse of an overvalued currency associated with an unsustainable trade deficit is when highly intelligent and respected economists begin evolving plausible theories that--this time--the trade deficit is sustainable.

Now come Hausmann and Sturzenegger (2005), "U.S. and Global Imbalances: Can Dark Matter Prevent a Big Bang?" (Cambridge: Harvard CID Working Paper) with a theory that the U.S. trade deficit is not so big and not so unsustainable after all.

What is their theory? The best way I have found to explain it is to look at the spreadsheet immediately below, which presents what we think will happen on the U.S. capital account side in 2006 in two ways. In column 1 it presents what the Commerce Department's Bureau of Economic Analysis will record as the book value of assets created across countries in 2006. In column 2 it presents what Hausmann and Sturzenegger think should be recorded as the income-producing value of those assets.

In the BEA's book-value accounting, in 2006 U.S. companies will invest $600 billion in foreign direct investment elsewhere in the world--building factories, establishing links in value chains, taking over existing foreign-owned businesses, and so forth. In HS's accounting, that$600 billion in visible FDI will be accompanied by $300 billion worth of "dark matter" organizational and technological know-how that American firms carry to their operations abroad. The FDI flow will thereafter generate as much income as would a pure$900 billion bricks-and-mortar FDI flow.

In the BEA's book-value accounting, U.S. residents will also purchase $600 billion in foreign securities, and U.S. banks and other corporations will acquire$400 billion in loans payable and other credits. The gross overseas asset accumulation of Americans will thus amount to about $1,600 billion (in the BEA's book-value accounting) and to about$1,900 billion of income-producing assets (including the $300 billion of "dark matter" that boosts the income-producing potential of U.S. FDI). Now let's look at the liabilities side. In the BEA's book-value accounting, in 2006 foreign governments will invest$800 billion acquiring U.S. securities--Treasuries, Fannie Maes, and others. Because the U.S. is at the center of the world monetary system it has the "exorbitant" privilege of being offer to sell its securities at lower interest rates. In HS's accounting, that $800 billion consists of the U.S. providing foreign governments and central banks seeking foreign exchange reserves with$600 billion of income-producing potential and an extra $200 billion of "dark matter" liquidity. Similarly, foreign private investors will spend$700 billion acquiring U.S. securities, which HS assess as consisting of $600 billion of income-producing potential and$100 billion of extra security--insurance because whatever happens to foreigners' assets in their home countries, their U.S.-housed assets will still be there.

In addition, foreign companies will make $300 billion of FDI investments in America, and foreign banks and companies will acquire$600 billion in loans payable and other credits from U.S. residents. The gross accumulation by foreigners of assets in America will thus amount to about $2,400 billion (in the BEA's book-value accounting), and to about$2,100 billion of incomes-producing potential (plus an extra $200 billion of liquidity and an extra$100 billion of security provided by the superior qualities of ).

Look at this pattern of asset position changes through the BEA's eyes, and you see the U.S. becoming indebted to the rest of the world to the tune of an extra $800 billion every year: a staggering figure that we cannot imagine going on for even a decade. Look at this pattern of asset position changes through HS's eyes, on the other hand, and you see the U.S. becoming indebted to the rest of the world to the tune of an extra$200 billion of income-producing potential every year. That's not a big deal. That's sustainable: the flow of real profits and interest owed on an extra $200 billion is approximately$10 billion a year, and that is only 1/40 of the approximately $400 billion by which U.S. incomes grow every year. The way that HS see it, U.S. trade is nearly balanced. We are importing some$2,000 billion and exporting some $1,200 billion of regular goods-and-services every year, but we are also exporting (a)$300 billion of technological and organizational knowledge via FDI, (b) $200 billion of liquidity services by serving as reserve banker to the world's central banks and governments, and (c)$100 billion of security services by giving foreign private investors a safer place to plant their wealth. Properly evaluated, HS argue, U.S. trade is nearly balanced.

The debate over HS's "dark matter" claims is rolling around the internet, with Willem Buiter and Ricardo Hausmann exchanging views at Martin Wolf's distressingly ovary-free Martin Wolf's Financial Times Economic Forum, Brad Setser harassing Hausmann and Business Week's Michael Mandel from his perch at Roubini Global Economics, and Michael Mandel parrying at his Economics Unbound.

Do I believe in Hausmann and Sturzenegger's "Dark Matter"? No. This post is in the interest of explicating an interesting line of argument only.

I believe what Rudi Dornbusch said: that when highly intelligent and respected economists begin evolving plausible theories that--this time--the trade deficit is sustainable, that is the time to start running for the hills, because the crash is near.

## On Think "Tanks"

The Reality-Based Community: On "think tanks" : A question, in the wake of the latest Heritage Foundation scandal (part of a pattern unearthed by Tom Edsall more than a year ago):

Is there any hope of getting the press to distinguish between (1) the original "think tank" — the RAND Corporation — and comparably respectable universities-without-students (Brookings, the Urban Institute) where real social scientists (and real natural scientists, engineers, mathematicians, historians, and policy analysts) do real research and analysis looking for real answers to real questions and (2) faux "think tanks" (Heritage, Cato, the Institute for Policy Studies, the Center on Addiction and Substance Abuse) set up for the purpose of providing "studies" in support of pre-determined ideological points?

The distinction isn't hard to make. If you have to read the report to know the conclusion, it's a real think tank. If you know the conclusion as soon as you know the topic and where it was written, you're dealing with a phony. (And yes, that's precisely like the distinction between an actual news outlet and Fox News or the Washington Times.)

So is there any hope of getting to the press to stop calling Heritage and its ilk "think tanks"?

No, I didn't think so. But it never hurts to ask.

## Ryszard Kapuscinski, "The Shadow of the Sun"

Very much worth reading. Ryszard Kapuscinski loves Africa and Africans and hates their governments (and ours too):

Ryszard Kapuscinski (2001), The Shadow of the Sun(New York: Vintage: 0679779078.

## And a Pony!

Zalmay Khalilzad may be the only--the only--person to emerge from the George W. Bush administration with his reputation enhanced. But even he is prone to wishful thinking of "and let's all get free ponies!" type. Here's Matthew Yglesias:

If Wishes Were Ponies | TPMCafe: "The United States is investing billions of dollars" in Iraq's police and army, said the ambassador, Zalmay Khalilzad. "We are not going to invest the resources of the American people to build forces run by people who are sectarian." This is an appropriate sentiment, except that the record of the past indicates that we have, in fact, been investing the resources of the American people to build forces run by people who are sectarian.

Now it would seem that insofar as we insist on linking our aid to a modicum of restraint, the Iraqi government will probably find a way to accommodate us to some extent. But it also seems to me that this doesn't resolve the underlying issue. What's wanted is an Iraqi leadership that genuinely doesn't desire to advance sectarian aims, not a sectarian leadership we're kinda sorta restraining and that's always looking for ways to push the envelop.

But barring some dramatic and unmotivated change of heart on the part of the United Iraqi Alliance, that just isn't the kind of leadership that Iraq is going to have and we're past the point where Khalizad could just conjure one up. So why not look to start moving away from a situation where we're investing the American people's resources into a bad situation? Do the words "permanent bases" ring a bell?

## David Irving

Sebastian Holsclaw is right: Holocust denier and Nazi sympathizer David Irving should not be sent to jail:

Obsidian Wings: Free Speech and Other Stuff : David Irving was recently sentenced to three years in prison for Holocaust denial. The man is a moral idiot. He is a Holocaust denier, racist and a modern Nazi sympathizer. But he ought not be in jail. I say that not because I respect his views in any way--they are intellectually and morally bankrupt. I say that not out of any personal sympathy for him--he is loathsome. I say that he ought not be in prison because speaking loathsome thoughts should not be a legal offense in a free society. The government of a free society should not police the loathsome expressions of its citizenry...

## Covering the Economy: Readings for February 21: Federal Reserve/Poverty and Income

Federal Reserve: Loose Ends

Poverty and Incomes

## History of Philosophy Cage Match

Brian Leiter makes it clear that Leon Wieseltier knows nothing about David Hume. It does make one wonder what Wieseltier has been doing with himself--and what Sam Tanenhaus is doing with his book review:

Leiter Reports: Why review a book of philosophy when you can sneer at it? (Leiter): The New York Times has done it again: they've enlisted an ignorant reviewer to review a philosophical book. The reviewer is Leon Wieseltier, the literary editor at The New Republic. The book is Daniel Dennett's latest book, a "naturalistic" account of religious belief....

[Wieseltier writes] "Dennett's misrepresentation of Hume [as an atheist, not a theist]... is noteworthy, therefore, because it illustrates [Dennett's] complacent refusal to acknowledge the dense and vital relations between religion and reason, not only historically but also philosophically."

Has Dennett misrepresented Hume?.... Paul Russell (Philosophy, British Columbia) writes.... "In 1757 Hume published “The Natural History of Religion”, a work that proposes to identify and explain the origins and evolution of religious belief.... Hume's primary objective in this work is to show that the origins and foundations of religious belief do not rest with reason or philosophical arguments of any kind but with aspects of human nature that reflect our weaknesses, vulnerabilities and limitations (i.e., fear and ignorance).... Hume is directly challenging an opposing view... [that] the evidence of God's existence is so obvious that no one sincerely and honestly doubts it...."

What Mr. Wieseltier confidently pronounces Hume's theism is, alas, not so clearly ascribed to Hume according to those who actually know something about Hume. There has been misrepresentation of Hume, I fear, but not by Professor Dennett.

Mr. Wieseltier's confident ignorance extends beyond Hume scholarship.... Mr. Wieseltier... does not seem to realize that an account of the historical genesis of a belief can have bearing on the epistemic status of that belief, that beliefs with the wrong kind of etiology are epistemically suspect....

Mr. Wieseltier complains: "It will be plain that Dennett's approach to religion is contrived to evade religion's substance. He thinks that an inquiry into belief is made superfluous by an inquiry into the belief in belief. This is a very revealing mistake. You cannot disprove a belief unless you disprove its content."

It is true that you cannot show a belief to be false by explaining its origin, but... you can show that holding the belief is not warranted by explaining its origin.... If you believe buying stock in High Tech Miracle, Inc. is a good investment based on recommendation of your broker, and then you discover that your broker recommended it because he is an investor in the company and a beneficiary of its rising stock fortunes, you no longer have a reason to believe it's a good investment.... Hume, Nietzsche, Marx, Dennett and many others exploit this form of argumentation, without making any mistakes, let alone abandoning "reason," as Mr. Wieseltier--whose arrogance may even outstrip his ignorance--remarkably claims...

## Giving Count Potemkin a Bad Name

George W. Bush: giving Count Potemkin a bad name.

Stygius: The NREL as Potemkin village : As expected, this Tuesday President Bush is coming to Colorado to deliver the Good News about alternative energy and energy conservation at the National Renewable Energy Lab. This comes just after the neglected NREL has been devastated by layoffs due to budget cuts and funding diversions. If they are expecting Coloradans to suspend their disbelief during the visit, the White House will sadly be mistaken.

It's galling that NREL has become the administration's latest Potemkin village in its permanent public relations campaign. From the Loveland Report Herald:

The senior biochemical engineer had worked for the laboratory for 22 years, converting biomass, such as trees, into fuels and chemicals, such as ethanol. His computer was disabled and his phone turned off; a manager escorted him out of the building at 3 p.m. "How do you expect, after 22 years, to wrap everything up in a few hours?" Mohagheghi said, adding that he lost his job and some dignity that day. "I didn't deserve to be treated this way," he said.

The layoffs came after President Bush's State of the Union address Jan. 31 sparked optimism at NREL. The president said Americans were addicted to oil, and he vowed funding for renewable energy research. Bush plans to visit NREL on Tuesday to reinforce his dedication to renewable energy.

Heightening the visit's surreality is the rank hypocrisy of Congressman Bob Beauprez, who's atrocious record of neglecting NREL accelerated the layoff of its scientists.

Beauprez voted for 28 million in cuts to NREL. NREL is located in his district. In addition, he refused to sign a letter requesting that President Bush restore the funding to NREL. In addition, on November 8, 2005, a bipartisan letter from 100 members of Congress [PDF] was sent to President Bush urging him to "fully fund" renewable energy programs as authorized by the Energy Policy Act of 2005. Beauprez refused to sign that letter. That isn't stopping "Both Ways" Bob from living up to his monker; for today, in a Rocky Mountain News op-ed, Bob Beauprez has the temerity to lecture us on an out-of-control Congress: "There is no place in the country where the promise of this new technology is more evident than NREL. In the past two years, unfortunately, congressional earmarks have diverted precious resources away from NREL. The diversion of these funds into other institutions has served to undermine the mission at NREL and other national laboratories. I believe this is a mistake that must be corrected." Indeed it is, Congressman. You, however, are obviously not the man for the job. More reality, please. ## The Legacy of Asbestos In his essential "Golden State" column, the excellent Michael Hiltzik puts asbestos in perspective: Golden State: Golden State Column: The Legacy of Asbestos : Even within the specialized world of mass tort litigation, asbestos stands alone. Victims of tobacco, the dangers of which have been widely and clearly disseminated, are arguably if partially complicit in their own disease. The women who were injured by silicon implants and the Dalkon shield necessarily comprise a limited population. But asbestos could hurt anybody. Although its miners and manufacturers and their insurers knew of its hazards as far back as the 1930s, and possibly the 1910s, no alarms were sounded for the general public and no warnings appeared on the packaging until usage ceased in the 1970s. The victims were in many cases unaware that the material they were exposed to was asbestos and to the extent they were employees in refineries and shipyards, they wouldn't have had the option to avoid it even if they knew. The Rand Corp. survey of the litigation landscape is deeply mistrusted by the asbestos bar, which views it as an argument to shutter the courthouse doors against innocent victims. This is a misreading. It does document the diversion of resources to legal expenses on a massive scale, but it shows that the money comes out of the pockets of defendants and plaintiffs alike, and it weighs the effect of every alternative on victims' access to justice. As its main author, Stephen Carroll, told me, the fact that more than 60 cents of every dollar spent on the process gets eaten up by the process "doesn't tell you what you should do instead, but shows there's a powerful argument that there should be an instead."... This floating, glittering nuisance was asbestos. In April 2005, nearly 50 years later, McCann visited a doctor to determine why he was experiencing knife-like pains in his lungs after a lifetime hewing to a fanatical fitness regime. That was when he learned that the cascades of silvery flecks had bestowed upon him an incurable disease called mesothelioma. A few months later, McCann, 71, became an asbestos plaintiff in Los Angeles Superior Court, where he sued 21 manufacturers and marketers of asbestos or their corporate successors. Eight were later dropped from the case, and 12 reached confidential settlements. Opening statements in the trial of the sole remaining defendant, Burns International Services Corp., are scheduled for Wednesday.... Since the 1960s, more than 750,000 people have filed legal claims resulting from asbestos exposure, according to a study by the Rand Corp., and the growth rate has been picking up steam. Cases of mesothelioma, an aggressive lung malignancy of which asbestos is the only known cause, have been increasing by more than 2,500 a year. The Rand study estimated that defendant companies and their insurers had spent more than70 billion through 2002, including $21 billion on their own legal expenses and$49 billion in settlements and court awards, of which the plaintiffs received $30 billion. Meanwhile, more than 70 defendant companies have filed for bankruptcy protection (not all because of their asbestos liability). Asbestos plainly presents an unprecedented challenge to the U.S. court system. Although insurers and manufacturers knew of its health dangers by the 1930s, asbestos products were used extensively in industrial, commercial and residential construction through the 1970s, exposing people in all walks of life. Because its effects can appear 40 years after exposure, the size of the claimant pool is incalculable. Litigation in state courts, where most asbestos cases are filed, can have wildly varying outcomes: The average California jury award for mesothelioma is$5 million, says McCann's attorney, Roger Worthington, who specializes in such cases. But one of his clients was recently awarded $34 million. The process also imposes an intolerable burden on plaintiffs who may be terminally ill; one of McCann's depositions was a six-hour ordeal in the presence of 16 squabbling attorneys. Every attempt to find a solution has fallen short. Consider the 1982 bankruptcy of Johns-Manville Corp.... The bankruptcy resulted in the creation of a settlement trust whose billions of dollars in assets seemed to be comfortably adequate to pay the 100,000 claims anticipated over its lifetime. But the trust was quickly overwhelmed. The number of claimants breached the 100,000 threshold in about a year. Soon after, the trust was forced to conserve its resources by slashing payments to 10 cents on the dollar.... Just last week, a Senate plan to create a$140-billion trust fund with money from manufacturers and insurance companies was killed in a procedural vote. The plan had bipartisan support -- and bipartisan opposition. Plaintiffs and their lawyers were concerned that its built-in payment cap of \$1.1 million per claimant would leave many victims impoverished by medical costs.... Worthington and other attorneys prefer an approach being pushed in the House, which leaves the courtroom doors open to those with the most severe disease and defers lawsuits by those who can't show significant injury, even if they can prove exposure. But that bill could itself render many worthy claims too costly to interest lawyers....

Seated on the couch in his Dana Point home next to Lucille, his wife of 52 years, McCann can still seem the picture of vigor. When he stands upright, his 5-foot-4 frame projects the compact power that won him his gold medal as a 125-pound wrestler at the Rome Games in 1960. It's only when one sees him shamble painfully from one room to the next that the effects 12 courses of chemotherapy have had on his body become outwardly detectable.... He doesn't conceal his bitterness toward the industry that poisoned him. "I was taught that you run your business in an ethical manner," he says. "If I hadn't seen the documentation that these companies knew what they were doing, I wouldn't have pursued this. But I'm angry."

## What Is Wrong with Bjorn Lomborg?

A commentor asks what I think is wrong with Bjorn Lomborg. Here's my answer, from the archives:

Skepticism Toward the Skeptical Environmentalist: Archive Entry From Brad DeLong's Webjournal : I cannot be the only economist who was disappointed by Bjorn Lomborg's column in the New York Times on Monday, August 26 [2002]. Lomborg makes a number of good points: it is definitely the case that we are pumping enough CO2 and other greenhouse gases into the atmosphere to warm the earth; that many of our environmental problems are the diseases of poverty, early industrialization, and the absence of democracy; that the Kyoto Protocol would be hideously expensive; that it would delay the warming trend for a decade at most; that projected temperature rises up to 2100 are bearable; and that it would almost surely be better to spend the resources that would be sucked up by the Kyoto Protocol on third-world public health and infrastructure instead.

But as I read I kept waiting for another shoe to drop, and it did not. It seemed to me that Bjorn Lomborg's argument was radically and dangerously incomplete. It seemed to me that there were three more critical points that Bjorn Lomborg desperately needed to make, but did not. And because he did not it seemed to me that the net effect of his piece was not to reveal wisdom, but to darkeneth counsel.

So let me make these three missing points:

First, climatologists' model-based central projections of the effects of global warming over the next century are just that: model-based central projections. There is enormous uncertainty about what will happen. It might be the case (although most scientists would bet heavily against it) that our pumping CO2 into the atmosphere will have little effect on climate--that the CO2 will be quickly absorbed into the oceans and terrestrial biosphere (making gardening much easier), and that any residual warming will be largely balanced out by the cooling effects of industrial soot. It is likely to be the case that the central projection of a 4 to 5 degree Fahrenheit warming over the next century will be roughly accurate. It might be the case that something horrible might happen--bubbles of methane trapped beneath the sea floor being liberated to greatly increase the greenhouse effect, global warming disrupting the Gulf Stream and causing a local cooling in Europe that would give Rome the climate of Oslo and produce 400 million Europeans anxious to move someplace else. The central projection of the effects of global warming over the next century looks bearable, but the extreme possibilities may well not be. Any approach to dealing with global warming that does not create the capability for massive and swift action should things be worse than currently expected is fatally flawed.

Second, those who will suffer from global warming are largely in the global south. If global warming does (say) increase the magnitude of major typhoons and does raise the sea level a bit, by the latter part of this century more than 100 million people in the Ganges delta will be at risk of drowning if a high tide accompanies the storm surge of a major typhoon in the Bay of Bengal. The managers and shareholders of companies like Halliburton that will gain from inaction on global warming are a different and distinct group from the tropical peasants who stand to lose their health and their lives. Any claim that "instead of Kyoto we should be doing X" has to be accompanied by a plan to actually do X. Otherwise, the claim that inaction on global warming enhances world welfare is likely to be very false indeed, as it is hard to believe that on the scale of human happiness higher incomes in the global north will outweigh nastier, more brutish, and shorter lives in the global south. It is one thing to say that the resources the Kyoto Protocol wants to use to fight global warming could be used to provide first-class public health and economic infrastructure to the global south. It is another to say that these resources, instead, will be used to get every American household a second DVD player and every tenth American household a power boat.

Third, global warming produced by a fossil fuel-burning civilization may be bearable and managable up to the end of the twenty-first century, but the warming trend is unlikely to stop there. Humanity will have to move to greenhouse gas-free industry at some point unless you want to see temperatures rising not by five but by ten or fifteen degrees. We need to start doing the research and industrial development now so that countries developing in 2050 can be offered an attractivge choice of greenhouse gas-free technologies as they industrialize. We don't want the climate in the twenty-second century to be shaped by an industrial China that in 2080 is still burning its brown coal, do we? So Lomborg's argument has to be a call not for inaction, but for rightly-directed action on global warming--which means a lot more money spent starting today on developing the technological alternatives we will need to have available for the end of the twenty-first century.

How do these three points change Lomborg's argument? He may well still be right that inaction on control of greenhouse gas emissions over the next twenty years is the best policy--but that claim needs a footnote warning that we need now to build the institutions and technologies necessary to take swift action if it turns out that things are worse than expected. He may well be right that the resources that Kyoto would suck up would do more for human welfare if spent creating a more human world by boosting public health and economic infrastructure--but that claim needs to be accompanied by a plan to make sure that these resources are devoted to their best alternative use in the global south. "Would" cuts no ice here. "Will" does.

And, most disappointing of all, is Lomborg's failure to even mention the importance of technological development. If it is the best policy to wait for a technological fix to the problem of global warming, then we need first to fix our technology so that it will be able to do what we ask of it when we need it.

It's not my field of expertise, but as a card-carrying economist I can't help but think that Lomborg is probably right when he condemns Kyoto as a low-value use of our precious wealth--as something that would be largely ineffective at fighting global warming and also so expensive as to foreclose options to do other things that would be more useful. Lomborg's flaw, however, is that he doesn't spell out what the "other things" we should be doing are. And that's what he needs to do if he wants to advance the ball.

## Why Oh Why Can't We Have a Better Press Corps? (Yet Another Washington Post/Deborah Howell Edition)

Brad DeLong: Marky makes a good point:

Until I read it in Howell's column, I had no idea that it was conservatives who objected to Milbank's appearance in a hunting jacket. I thought it was very inappropriate. Frankly, my first reaction was to think that Milbank was trying to help the VP minimize the accident through the use of humor---which is a strategy the White House was clearly employing last week.

I think this is right--IIRC, that was the day that Jeb Bush put an orange sticker on his chest and Scott McClellan wore an orange tie, both saying they were doing so because they had been warned the vice president might show. Cheney originally deployed two lines of spin: (i) it was Whittington's fault for sneaking up behind Cheney, and (ii) it's a not-very-serious accident with a humorous side.

The hunting cap and vest that Dana Milbank wore and that Deborah Howell denounces was Milbank's (a) being funny and (b) reinforcing the White House's desired spin.

The interesting question is why does Howell think that what Milbank did--which was also what Jeb Bush and Scott McClellan did--was "inappropriate" mocking of Cheney and Whittington? Deborah Howell's column implies that it was because Malkin and PowerLine directed their readers to her.

Without knowing--or noticing--or thinking about--the blaze orange tie on Scott McClellan and what this told her about White House media strategy, Deborah Howell, in Jane Hamsher's words, "hops to like a Texas toad."

I'm sure you can think of words to describe Deborah Howell. Here are some that occur to me: powerful keen-eyed ombudsman with a brain that puts Einstein to shame; a rock of journalistic independence; one of the truly incredible wonders of our age.

## More Competition for Fafblog!

Commenting on this:

Bush's Chat With Novelist Alarms Environmentalists - New York Times : In his new book about Mr. Bush, "Rebel in Chief: Inside the Bold and Controversial Presidency of George W. Bush," Fred Barnes recalls a visit to the White House last year by Michael Crichton, whose 2004 best-selling novel, "State of Fear," suggests that global warming is an unproven theory and an overstated threat.Mr. Barnes, who describes Mr. Bush as "a dissenter on the theory of global warming," writes that the president "avidly read" the novel and met the author after Karl Rove, his chief political adviser, arranged it. He says Mr. Bush and his guest "talked for an hour and were in near-total agreement. The visit was not made public for fear of outraging environmentalists all the more," he adds...

Bob, in comments, reaches Fafblog-like heights of extravagant lunacy:

Bush Science Policy Department: It's nice that you can pass judgement on [Crichton's novel] as "fiction" when you have never even read it! Might as well take the word of environmental scientists rather than thinking for yourself. Wouldn't want to change your mind on something or be exposed to a different point of view. It's exactly this lack of intellectualism that I expect from the knee-jerk Bush-bashers on the left.

Posted by: Bob | February 19, 2006 at 08:19 PM

Bravo! Bravo!

## Why Oh Why Are We Ruled by These Idiots? (Bush Science Policy Department)

Science policy, George W. Bush style. The puzzle is not why so few scientists and academics are Bush-supporting Republicans. The puzzle is why any at all are.

Michael Berube writes, apropos of Bush using Michael Crichton as his science advisor:

Berube: Environmentalists were not the only group Mr. Bush considered during Mr. Crichton’s visit. “They covered the entire spectrum of Crichton’s work,” said Mr. Barnes. “Crichton warned the President that the rapacious Japanese economy would soon crush America, that female executives are often the perpetrators in sexual-harassment cases, and, most important, that the lost city of Zinj is populated by murderous talking gorillas. As in their discussion of global warming, Mr. Bush was in near-total agreement.”

Environmentalists have responded with alarm to the news. “This shows the president is more interested in science fiction than science,” Frank O’Donnell, president of Clean Air Watch, said after learning of the White House meeting. Mr. O’Donnell’s group monitors environmental policy.

Curiously, however, Christian conservatives have also expressed concern. “The president met with Michael Crichton for an hour and they never discussed the dangers of genetic research? That’s an outrage,” said the Rev. James Dobson, founder of Focus on the Family. “While we understand that the president needs to stay informed about global-warming charlatans, sexually predatory women and dangerous talking gorillas, we strongly believe that he should take a stand against scientific research conducted by atheistic madmen. The president needs to reassure Christians that the Culture of Life® will not be threatened by genetically engineered dinosaurs, human-animal hybrids, or deranged robots with Yul Brynner’s face.”

Toxic, rapidly-reproducing crystalline organisms from outer space could not be reached for comment.

## The Bush Administration: Worse than She Could Imagine

Sarah Vowell writes:

The Pessimism Deficit - New York Times : My go-to worldview is pessimism. I see a Times Square billboard promoting a musical that has its audience "dancing in the aisles" and I can't help but think, "That is a fire hazard." But it has been my happy experience that if one moves through life in a constant state of low-key dread, then one gets to be continually pleasantly surprised....

I got the feeling that he was asking for reasons to be optimistic about the government Alas, I see my initial worries about the current administration as the greatest betrayal in my whole life by my old pal pessimism. I attended the president's inauguration in 2001. When he took the presidential oath, I cried. What was I so afraid of? I was weeping because I was terrified that the new president would wreck the economy and muck up my drinking water. Isn't that adorable? I lacked the pessimistic imagination to dread that tens of thousands of human beings would be spied on or maimed or tortured or killed or stranded or drowned, thanks to his incompetence. I feel like a fool.

## Covering the Economy: Greg Ip on Ben Bernanke's Humphrey-Hawkins Testimony

As is so often the case, the single best summary story of Bernanke's Humphrey-Hawkins testimony I have seen was written by Greg Ip:

WSJ.com - Blunt-Talking Bernanke Warns of Inflation Risks : Making his debut before Congress as Federal Reserve chairman, Ben Bernanke demonstrated continuity with Alan Greenspan's interest-rate policies but broke with his predecessor's style.

Mr. Bernanke told Congress yesterday that inflation still is at risk of quickening because of high energy prices and economic overheating. He thus endorsed the thinking of the Fed at its last meeting, headed by Mr. Greenspan, and suggested the string of rates increases begun under Mr. Greenspan's leadership in June 2004, isn't over.

But his succinct and often blunt answers to questions from members of the House Financial Services Committee and his refusal to comment on many politically contentious issues signaled a stylistic break with Mr. Greenspan, who often spoke opaquely about monetary policy and lucidly about almost everything else.

Continue reading "Covering the Economy: Greg Ip on Ben Bernanke's Humphrey-Hawkins Testimony" »