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March 2006

Comparative Disadvantage...

Argentinian President Nestor Kirchner strikes!

Argentina Pens In Sales of Iconic Food - Los Angeles Times: By Patrick J. McDonnell, Times Staff Writer March 11, 2006: BUENOS AIRES -- Argentine President Nestor Kirchner has a plan to fight rising inflation and escalating food prices: Let them eat beef. In an extraordinary decision, the government this week announced a six-month ban on most beef exports from the world's third-largest purveyor of the meat.

In Argentina, prime beef is a cultural icon, rivaling tango, soccer and the late Eva Peron. Argentines are voracious beefeaters, consuming 143 pounds per capita annually. But consumers here have been grumbling about beef prices for months, and Kirchner -- a left-leaning populist often at odds with big business -- presented the ban as a way to protect his people from export-driven price hikes. The government hopes that meat targeted for overseas sale will now stay at home. Increased supplies will reduce domestic prices, which skyrocketed 20% last year, surpassing the worrisome inflation rate of more than 12%. "It doesn't interest us to export at the cost of hunger for the people," Kirchner declared.

The president's edict took effect Friday. Delighted shoppers rushed to butcher shops to inquire whether prices had dropped yet from the $2 or so a pound for the prime cuts that can go for 10 times as much in the United States and Europe. "The president's move was absolutely necessary in the moment we are living," said Hector Polino, who heads a consumer group that is critical of rising prices. "Beef is the principal food of habit in Argentine culture." From a political standpoint, Kirchner's bold stroke should also shore up his constituency as he contemplates a 2007 run for another four-year term.

But cattlemen said Kirchner's move would kill the golden calf. Beef exports earn vital foreign exchange for Argentina and amounted to a record $1.4 billion last year. Foreign sales rose 24%. Cattle farmers say the export ban will probably reduce supplies in the long term, cost them hundreds of millions of dollars and throw thousands of people out of work. "The plants will begin to shut down," Carlos Oliva Funes, president of Swift Armour Argentina, a large meat producer, told the conservative daily paper La Nacion.

"This is like telling Colombia it cannot export coffee," said Javier Jayo Ordoqui, who heads a rancher's association outside Buenos Aires, the capital. "This is cattle country." Indeed, on Friday, prices were reported to have plunged as much as 20% at Liniers, the country's largest live cattle market. Economists predicted that modestly lower prices would eventually trickle down to consumers.

Kirchner has sparred angrily with the cattlemen and other industries that resisted his inflation-fighting tactics. Last year, he called for a boycott against oil giant Shell because it would not cap its gas prices. It's one thing to protect consumers from inflation at the pump. But in moving to rein in beef prices, Kirchner is wrangling with a commodity at the core of Argentine identity. Dining on beef in Argentina has survived, largely unfazed, the low-fat trend and cancer worries, mad cow frenzy and other scares that have cut back consumption elsewhere. The Sunday parrilla, or barbecue, is an Argentine ritual, and prime cuts of pasture-raised beef -- even tasty filet mignon slowly cooked over wood -- are reputed to be higher in protein and lower in fat than the varieties common in the U.S.

In 2005, as inflation crept up, the government began to sign agreements with supermarkets and manufacturers to control prices on many basic goods. The administration also raised export taxes on beef and increased the minimum slaughter weight in an unsuccessful effort to curtail exports and keep prices down at home.


Victor Davis Hanson Sprays Self with Rhetorical Buckshot

<>Victor Davis Hanson denounces the fifth column of William F. Buckley, Niall Ferguson, Francis Fukuyama, George Will, and others--those:

Victor Davis Hanson on the Middle East on National Review Online: who even before 9/11 demanded that President Clinton or Bush remove Saddam Hussein, but now consider such a move an abject blunder of the first order. Their advocacy helped us get in when there were dubious reasons to go, and their vehement criticism may well get us out when there are now better reasons to stay until Iraq is secure.

Hanson's assertion that he believed back in 2003 that there were "dubious reasons to go" into Iraq is very interesting. It does not fit his declarations back on March 18, 2003, when he wrote:

Victor Davis Hanson on 48-Hour Speech on National Review Online: The president reviewed the history of disarming Saddam Hussein, and reminded us it is not pretty: violation of the 1991 armistice accords, obstruction of U.N. resolutions, sanctions, and inspectors, a record of aggression, hatred of America, and a propensity to abet and engage in terrorism.... [W]ar nonetheless has come due to the 12 years of U.N. dereliction and the moral cowardice of the world--a policy of appeasement that nearly ruined the 20th century, but in an age of frightful weapons would surely result in global suicide of our own.

The fact is that U.S. Marines will find more deadly weapons in the first hours of war than the U.N. did in three months. And by day two the world will have forgotten Dominique de Villepin and be listening instead to Tommy Franks, who will practice a different sort of diplomacy. Get out of town in 48 hours sounds tough — but not when it results in liberation, rather than subjugation, and reconstruction instead of destruction.

Critics have claimed that Mr. Bush has backed himself into a corner; it is hard to see how when his promise was democracy and freedom for a tyrannized Iraq. We should not underestimate the power of his message of human liberty or the need of overwhelming force to ensure it. The EU, the U.N., NATO, the European street, the American Left, and a host of others, by failing to understand the post 9/11 world and its requirement to neutralize Saddam Hussein, have unnecessarily put their perceived wisdom, prestige, and influence in jeopardy — and with the liberation of Iraq they all are going to lose big time.

Now the battlefield, Thucydides's harsh schoolmaster, will adjudicate what talk cannot. The only question remaining is not the ultimate verdict, but to what degree the past failure of allies to support the United States emboldened Saddam Hussein, cost the American military tactical surprise, complicated logistics, and needlessly raised casualties.

Three years from now will Victor Davis Hanson be writing that in the spring of 2006 there were only "dubious reasons to stay" in Iraq? Place your bets.


Honor and Dignity in the White House. Especially Dignity

Ah. We all wondered why White House Assistant to the President for Domestic Policy Claude Allen had resigned:

Former Bush Aide Charged in Felony Theft - Claude Allen had recently resigned as White House domestic-policy adviser. By Rachel Shteir: When Claude Allen, President Bush's longtime domestic-policy adviser, resigned suddenly on Feb. 9, it baffled administration critics and fans. The White House claimed that Allen was leaving to spend more time with his family.... Allen was arrested yesterday and charged in a felony theft and a felony theft scheme. According to a department press release, Allen conducted approximately 25 fraudulent "refunds" in Target and Hecht's stores in Maryland.... You purchase an item... leave the store with it... come back to the store and pick up exactly the same [item]... take [it]... and receipt from the original purchase to the returns desk, claiming that this is the item you bought, and get a refund for it.... Professional shoplifters like refund fraud because it's relatively safe. Since you never actually steal an object from the store, no one can chase you out to the parking lot.... Allen sought refunds for more than $5,000 in the past year. Allen allegedly stole items as expensive as a Bose theater system and a photo printer. Theft of more than $500 is a felony in Maryland...

African-Americans who go to work for Jesse Helms.... You gotta figure that there's a story there, that somewhere something's a few hoppers short of a full carload. But even so, this is a real surprise.

John Podhoretz at the Corner is first out of the gate with the official spin point:

The Corner on National Review Online: CLAUDE ALLEN [John Podhoretz]I wrote a book about the Bush White House. I know the names of many people who worked in the Bush White House. I've read every story there is to read about the Bush White House. I've been a political journalist for almost a quarter century, worked in a Republican administration, and gone to many right-wing parties. So let me say this about accused thief and former White House policy bigshot Claude Allen: WHO?

Claude Allen had the southeast corner office on the second floor of the West Wing--IIRC, the office that used to be Bob Rubin's in 1993-95.

He is, according to Bush:

Washington Date Line: "a dedicated public servant and a tireless advocate for those in need. I look forward to his continued service in this new role as my domestic policy adviser," Bush said in a statement.... Allen, a former state Cabinet secretary under Gov. Jim Gilmore in Virginia, is a staunch advocate of federal spending to promote abstinence until marriage and a foe of abortion rights.... Sen. George Allen, R-Va., praised the president's choice, saying "Claude Allen has the right principles, experience in state and federal government and knowledge to serve the president and America very well." The two men are not related.

Claude Allen's selection was taken by an official of the conservative Family Research Council as "a sign the White House is interested in giving serious attention to important domestic issues." Jayd Henricks of that group said Allen's principles "seem to reflect those of the president and the values voters that came out en masse in November."


Yes, Andrew Sullivan Is Still a Mendacious Dork

Andrew Sullivan, pathetically, claims that he always knew that George W. Bush was mendacious and incompetent, but--look! 911!:

Andrew Sullivan | The Daily Dish: Paul Krugman smears yours truly today.... He has one decent point: yes, I lionized George W. Bush for a while after 9/11, and, in retrospect, my attempt to place trust in him at a time of national peril was a misjudgment. But then, in times of peril, some of us feel that supporting the president, whoever he is, and hoping he gets things right, are not contemptible impulses. I should have been more skeptical. In less dire circumstances, I might have been. But some of us, in the days after 9/11, did not immediately go into partisan mode... and rallied behind a president at war.

Andrew is right about one thing: he did know that George W. Bush was mendacious long before 911. But 911 had nothing to do with Sullivan's lionizing Bush. Sullivan lionized Bush long before 911. On May 14, 2001, for example, we have Sullivan lionizing Bush not despite but because of his mendacity. Sullivan, you see, thought presidential lying was really kool:

Matthew Yglesias: The Lies, The Lies: At issue [in Sullivan's attacks on Paul Krugman] are Krugman's repeated insistences that George W. Bush's economic policy is founded on a tissue of lies. Krugman is, of course, entirely correct about this.... [I]n his May 14, 2001 column 'Downsize,' Sullivan conceded Krugman's point:

The Krugmans and the Chaits will shortly have a cow, if not a whole herd of them.... And, to be fair to these liberal critics, they're right about one thing. One of the tax cut's effects will surely be that the United States won't be able to afford a vastly expanded Medicare drug benefit. And the archaic sinkhole known as Social Security won't be shored up either. And Medicare, may the gods preserve us, may even have to grow at a slightly slower rate. In fact, many of the spending programs that some still believe solve most human problems will encounter the only political resistance that matters in budgetary matters: insolvency.

To which my response is: Hoorah.... Some commentators--at this magazine and elsewhere--get steamed because Bush has obscured this figure or claimed his tax cut will cost less than it actually will, or because he is using Medicare surplus money today that will be needed tomorrow and beyond. Many of these arguments have merit--but they miss the deeper point. The fact that Bush has to obfuscate his real goals of reducing spending with the smoke screen of 'compassionate conservatism' shows how uphill the struggle is.... [A] certain amount of B.S. is necessary for any vaguely successful retrenchment of government power in an insatiable entitlement state.... I just hope the smoke doesn't clear before the spenders get their hands on our wallets again.

Pathetic.


UPDATE: P. O'Neill catches Sullivan monkeying with his quotes from himself:

Best of Both Worlds: Sullivan, a pioneer in the labelling of Krugman as "shrill" for his dissent, delivers a long and clearly stung response... one specific thing should be noted right away. [Sullivan writes today]:

Five days after 9/11, in an aside in a long essay, I predicted that a small cadre of decadent leftists in enclaves in coastal universities would instinctively side with America's enemies. They did. Some still do.

Note, via Sullywatch for the previous instance, that this makes it two times that has he now altered that infamous quote, once to lessen its central accusation and now to claim it only applied to universities and not everyone on the coasts:

The middle part of the country - the great red zone that voted for Bush - is clearly ready for war. The decadent Left in its enclaves on the coasts is not dead - and may well mount a fifth column.

In the original, it is the coasts of the U.S. that are the enclaves, and those who do not live in the middle part of the country and/or did not vote for Bush in 2000 who are the "decadent Left." I understand that Sullivan now wishes that he had not written that.


Goolsbee and Klenow on the Value of the Internet

Austan Goolsbee and Peter Klenow find large economic value in the internet:

SIEPR Discussion Paper: SIEPR Policy paper No. 05-010: VALUING CONSUMER PRODUCTS BY THE TIME SPENT USING THEM: AN APPLICATION TO THE INTERNET

For some goods, the main cost of buying the product is not the price but rather the time it takes to use them. Only about 0.2% of consumer spending in the U.S., for example, went for Internet access in 2004 yet time use data indicates that people spend around 10% of their entire leisure time going online. For such goods, estimating price elasticities with expenditure data can be difficult, and, therefore, estimated welfare gains highly uncertain.

We show that for time-intensive goods like the Internet, a simple model in which both expenditure and time contribute to consumption can be used to estimate the consumer gains from a good using just the data on time use and the opportunity cost of people's time (i.e., the wage). The theory predicts that higher wage internet subscribers should spend less time online (for non-work reasons) and the degree to which that is true identifies the elasticity of demand. Based on expenditure and time use data and our elasticity estimate, we calculate that consumer surplus from the Internet may be around 2% of full-income, or several thousand dollars per user. This is an order of magnitude larger than what one obtains from a back-ofthe-envelope calculation using data from expenditures.


Krugman and Wells on Health Care

Krugman and Wells on health care:

The New York Review of Books: The Health Care Crisis and What to Do About It : In The Health Care Mess Richmond and Fein tell us that Medicaid, like employer-based health insurance, came into existence through a sort of historical accident. As Lyndon Johnson made his big push to create Medicare, the American Medical Association, in a last-ditch effort to block so-called "socialized medicine" (actually only the insurance is socialized; the medical care is provided by the private sector), began disparaging Johnson's plan by claiming that it would do nothing to help the truly needy. In a masterful piece of political jujitsu, Johnson responded by adding a second program, Medicaid, targeted specifically at helping the poor and near poor.

Today, Medicaid is a crucial part of the American safety net. In 2004 Medicaid covered almost as many people as its senior partner, Medicare%u201437.5 million versus 39.7 million.

Medicaid has grown rapidly in recent years because it has been picking up the slack from the unraveling system of employer-based insurance. Between 2000 and 2004 the number of Americans covered by Medicaid rose by a remarkable eight million. Over the same period the ranks of the uninsured rose by six million. So without the growth of Medicaid, the uninsured population would have exploded, and we'd be facing a severe crisis in medical care.

But Medicaid, even as it becomes increasingly essential to tens of millions of Americans, is also becoming increasingly vulnerable to political attack. To some extent this reflects the political weakness of any means-tested program serving the poor and near poor. As the British welfare scholar Richard Titmuss said, "Programs for the poor are poor programs." Unlike Medicare's clients--the feared senior group--Medicaid recipients aren't a potent political constituency: they are, on average, poor and poorly educated, with low voter participation. As a result, funding for Medicaid depends on politicians' sense of decency, always a fragile foundation for policy.

The complex structure of Medicaid also makes it vulnerable. Unlike Medicare, which is a purely federal program, Medicaid is a federal-state matching program, in which states provide on average about 40 percent of the funds. Since state governments, unlike the federal government, can't engage in open-ended deficit financing, this dependence on state funds exposes Medicaid to pressure whenever state budgets are hard-pressed. And state budgets are hard-pressed these days for a variety of reasons, not least the rapidly rising cost of Medicaid itself. The result is that, like employer-based health insurance, Medicaid faces a possible unraveling in the face of rising health costs. An example of how that unraveling might take place is South Carolina's request for a waiver of federal rules to allow it to restructure the state's Medicaid program into a system of private accounts. We'll discuss later in this essay the strange persistence, in the teeth of all available evidence, of the belief that the private sector can provide health insurance more efficiently than the government. The main point for now is that South Carolina's proposed reform would seriously weaken the medical safety net: recipients would be given a voucher to purchase health insurance, but many would find the voucher inadequate, and would end up being denied care. And if South Carolina gets its waiver, other states will probably follow its lead...


X% of Life Is Having Attitude...

Michael Froomkin says that much of life is about being optimistic and energetic and having enough attitude to keep making lots of low-probability bets, because some of them will turn out well:

Discourse.net: Changes in Attitudes, Changes in Latitudes: This will probably get me in trouble, but I wanted to respond to one of the comments to "UM Promises to Be Good About Something," which actually seems to be responding to something I said in "Class Warfare." There I wrote,

I'd expect that most of the faculty see students as junior versions of themselves and their friends. After all, we were (almost) all law students once. What the current fracas reveals is that many students not only don't see the faculty as senior versions of themselves, but seem quite unaware that even when it doesn't feel their pain, the faculty wants them to learn, and to go out into the world prepared to do good and to do well.

The commentator disagreed,

Your students see you and your colleagues as the Havard/Stanford/Yale elites that you and they are. When a Miami student looks around, they do not see senior versions of themselves because you are not that. Miami students do not see themselves as attorneys in the top DC/NY law firms, as federal clerks (and certainly not federal judges), as US/DOJ attorneys, and certainly not as law professors. How are you a senior version of the students that you teach? Almost none of them will be a tenured professor at a law school. You know that.

To which a former student replied, "Shoot higher... people in other UM Law classes certainly saw themselves in those roles... and are currently in those roles."

I think that's absolutely the right answer, and that the first commentator has let his reverse elitism get the better of him.

It's true that the odds of getting a teaching job coming from UM are low compared to a top 10 law school, although it has been done.... (If you want to teach, write publishable stuff: get on a law journal, publish a note and also write something else for publication in a non-UM journal -- something a number of my students have done while in law school. After graduation, work a bit, then get a pre-teaching fellowship from one of the schools that offer them. It can be done.)

OK. Here's where I get myself in trouble:

As I see it, the way in which the majority of UM students differ most from the majority of Yale students is that Yale students feel empowered and UM students by and large do not. While this feeling obviously has some empirical validity... the empirical element is nowhere as great as UM students think.... [W]hat really has the biggest effect on the rest is the self-fulfilling aspect of this prophecy: because UM students don't try lots and lots of stuff -- like apply for clerkships -- they don't get lots of stuff.

Rejection is a part of life.... [T]he really big difference is the extent to which people will take charge of their own futures, think big, take risks, do unconventional things, and take large efforts to apply for many things and risk tons of rejection, to get what they want. The top N% of our class would fit right in at Yale... more than 5 less than 15.... The next batch would stand out less for lack of brains than lack of... I don't know quite what to call it.... Maybe it's just "attitude".

I agree that not everyone at UM is going to have a big national career. But some will; and many, many will end up holding key positions in this state.... So, yes, UM students do look sort of familiar in many ways. Other than how they dress in February, anyway.

Mind you, I'm not sure he's right. Attitude without connections and allies may well simply get you fired quickly. I would agree that X% of life is about having attitude, showing up, picking yourself up off the floor and trying again. But I would not dare guess what that X actually is.


Get a Mac!

Joshua Micah Marshall buys a Mac:

Talking Points Memo: by Joshua Micah Marshall March 6, 2006 09:22 PM : PC-Rage-Mac-Envy update: So, my own predictions notwithstanding, this weekend, I took the plunge. I went out and bought my first Mac.

I am, it turns out, afflicted with a severe characterological disorder which prevents me from ever reading directions for any new product I purchase but rather forces me to stumble around by trial and error until I figure out how the new thing works. No pity please, I've had the condition since childhood. But that did create a few grumbly moments as I tried to figure out how to do some elementary task. At first at least, not having the right mouse key was something like learning to ride a bike.

Within about a day though I felt like I'd gotten my sea legs. And so far I have to say that I'm really pleased with the decision.

Another ex-PCite simply abandons his old computer:

I don't know whether it was the viruses, or the spyware, or the wonky DLLs installed by the children's games, or the antispyware, or the antiviruses. But the thing was totally unusable. Now I'm scared that the Mac will gain market share, and the virus and spyware writers will start in on it.


Martin Wolf Says Japan Is Back

He writes:

FT.com / Comment & analysis / Columnists - Martin Wolf: Unreformed, but Japan is back : After almost one and a half decades of disappointment, growth is strong, deflation is vanishing and confidence is returning. Is this then the reward for Junichiro Koizumi's reforms? "Exactly the opposite" is the answer. In what way then is this an unreformed Japanese economy? It is still a Japan whose growth depends heavily on exports and investment, whose private sector saves far more than it can profitably invest at home and whose corporations waste capital. Japan is not recovering because it has a brand new economy: what has been achieved is a partial clean-up of the legacy of the bubble years.

Between the fourth quarter of 2001 (the last deep trough in gross domestic product) and the fourth quarter of last year, the economy expanded by 9.9 per cent, in real terms. Net exports generated an astonishing 30 per cent of the increase in demand, investment 18 per cent and government consumption a further 14 per cent (see chart). Private consumption generated a mere 39 per cent of the increase in demand.

The sharp improvement in net exports had two principal explanations: the depreciation of the real exchange rate; and China's demand for Japanese technology....


Yes, Budget Deficits Matter

Menzie Chinn on how 105-200bp of the low U.S. long bond are the result of foreign government purchases of dollar denominated securities:

Econbrowser: Do (budget) deficits matter? : Thinking about what happens to interest rates when foreign capital inflows slow: In Suskind's The Price of Loyalty, Paul O'Neill attributes to Dick Cheney the statement that "Deficits don't matter. Reagan proved that."

Given that the US government has been, and is running for the foreseeable future (see here), large deficits against a backdrop of low household savings without nary a budge in long term interest rates, one might think that Vice President Cheney's conclusion is correct (although it must be said that he denies having made this remark). A variety of studies suggest that debt and deficits matter, but these effects have been masked by the tendency of foreign monetary authorities and individuals to save U.S. Treasuries. (Note that there is some evidence that long term rates are now finally rising despite this effect of capital inflows.)

A recent (2/17) Deutschebank study finds a significant role for current budget deficit and the current government debt stock (as a share of GDP). When log Asian foreign exchange reserves are included, the model predicts the current long term interest rate within 30 bp (as opposed to 130 for the standard model).

Similar results are obtained in Chinn and Frankel (2005), and Warnock and Warnock (2005). In the first instance, the debt-to-GDP ratio expected two years ahead has a positive and statistically significant coefficient; a model excluding foreign official intervention overpredicts the US long term rate by about 200 bp. When official purchases are included, the coefficient on this variable is negative and statistically significant. In the second instance, Warnock and Warnock's study uses the deficit-to-GDP ratio, the fed funds rate (and so addresses the "conundrum"), and more refined and up-to-date asset data. They find that excess capital inflows account for about 105 bp of the deviation of long term interest rates from the predicted value from a baseline model.


Global Imbalances

Brad Setser on the latest trade deficit number. He watches the global imbalance become more imbalanced--globally:

Roubini Global Economics (RGE) Monitor: I sure hope that the US is exporting a lot of "intangibles" that don't show up in the trade data, and generating lots more intangible dark matter to offset all the external debt that the US is taking on.

Because the tangible deficit sure seems to be growing.

Exports are doing fine. January exports are up 12% y/y. Boeing had a good month. And corn and soybeans seem to be flowing out of the mouth of the Mississippi to world markets again.

The argument that the trade deficit is growing because the world isn't growing doesn't hold water. Right now, strong global growth is propelling strong US export growth. Even with a stronger dollar.

But 12% y/y export growth doesn't cut it if imports are up by about 16% y/y - and non-oil imports are up 11.2% y/y.

The real story in my book is the continued acceleration in non-oil imports. Consider the trend in non-oil goods imports

(I'll try to put in a graph in a bit)

July: $116.2b (roughly the same as in the first half of 2005) August: $117.3 September: $120.2 October: $122.3 November: $121.5 December $125.35 January: $130.1b....

Annualized, the $68.5b monthly goods and services deficit in January works out to $820 b - or $100 b or so more than the 2005 deficit. I expect the strong(er) dollar will exert a drag on US export growth, which I expect to slow a bit. And barring a broader slowdown in the US economy, I don't see much that will lead to a sharp slowdown in import growth. Toyota looks poised to have a very, very good year. So I would expect the annual trade deficit in 2006 to widen just a bit, to maybe $840-850b. Throw in a transfers deficit of $80b and an income deficit of $70b - remember, the US has to pay interest on the $820b in net debt it took on in 2005, and the interest rate on the existing US stock of short-term debt is rising as well - and a current account deficit of close to $1 trillion is a very serious possibility. I honestly am not putting that number out just for effect; it is the number that is popping out of my spreadsheets....

There hasn't been any landing, hard or soft, to date. The biggest import market in the world is sucking in goods and services from everyone, propelling global growth.

With massive imbalances.

But, as Mark Gilbert has pointed out, in 2005 the bond market concluded that worrying about imbalances was something that other people should do, just like worrying about credit risk was something best left to those not actually in the market.

That has consequences. Without any market pressure to adjust, so far, the world has opted not to.


They Came for the Chicken Farmer

The New York Times finally gets it:

http://www.nytimes.com/2006/03/08/opinion/08wed1.html?_r=1&th=&oref=slogin&emc=th&pagewanted=print: This has been our nightmare since the Bush administration began stashing prisoners it did not want to account for in Guantánamo Bay: An ordinary man with a name something like a Taliban bigwig's is swept up in the dragnet and imprisoned without any hope of proving his innocence.

A case of mistaken identity's turning an innocent person into a prisoner-for-life was supposed to be impossible. President Bush told Americans to trust in his judgment after he arrogated the right to arrest anyone, anywhere in the world, and toss people into indefinite detention. Defense Secretary Donald Rumsfeld infamously proclaimed that the men at Guantánamo Bay were "the worst of the worst."

But it has long been evident that this was nonsense, and a lawsuit by The Associated Press has now demonstrated the truth in shameful detail. The suit compelled the release of records from hearings for some of the 760 or so men who have been imprisoned at Guantánamo Bay. (About 490 are still there.) Far too many show no signs of being a threat to American national security. Some, it appears, did nothing at all. And they have no way to get a fair hearing because Gitmo was created outside the law.

Take the case of Abdur Sayed Rahman, as recounted in Monday's Times. The transcripts quote Mr. Rahman as saying he was arrested in his Pakistani village in January 2002, flown to Afghanistan, accused of being the Taliban's deputy foreign minister and then thrown into a cell in Guantánamo Bay. "I am only a chicken farmer in Pakistan," he said, adding that the Taliban official was named Abdur Zahid Rahman.

Other cases included prisoners who owned a particular kind of cheap watch supposedly favored by Al Qaeda. An Afghan was accused of being the former Taliban governor of a province and subjected to a pretzel logic that would make Joseph Heller cringe. He said he was a different person entirely and asked the tribunal to contact the current governor and verify his story. The presiding officer refused, saying it was up to the prisoner to produce the evidence. The incarcerated Afghan then pointed out that he was being held virtually incommunicado in a United States prison in a remote corner of Cuba and not allowed to make calls. The presiding officer assured the prisoner that he would have plenty of time to write a letter — during the year of continued detention before his case might be reviewed again.

Some of the prisoners proudly proclaimed their allegiance to the Taliban or Al Qaeda. But far too many seemed to be innocents or lowly foot soldiers simply caught up in the whirlwind after 9/11.

Because Mr. Bush does not recognize that American law or international treaties apply to his decisions as commander in chief, these prisoners were initially not given hearings. The transcripts are from proceedings that were begun under a court order. They started years after the prisoners were originally captured — a clear violation of the Geneva Conventions. And they were conducted under rules that mock any notion of democratic justice.

Prisoners do not see the evidence against them and barely have access to legal counsel. Now, thanks to a horrible law sponsored by Senators Lindsey Graham, a Republican, and Carl Levin, a Democrat, they have virtually no right of appeal. The law even permits the use of evidence obtained by torture.

If the stories of the chicken farmer and the men with the wrong watches are new, the broad outlines of this disaster have long been visible. It is shocking in itself, and in the fact that average citizens have not risen up to demand that these abuses come to an end. The founding fathers knew that when you dispensed with the rule of law, the inevitable outcome was injustice. Now America is becoming the thing they sought to end.


Thinking About South Dakota

Michael Berube thinks about South Dakota, and reminds us that Ralph Nader is a strong candidate for the Stupidest Man AliveTM prize:

Michael Berube : When I think about South Dakota, I think about all kinds of things. Like this little item from way back when:

Nader Sees a Bright Side to a Bush Victory by Melinda Henneberger Dearborn, MI, November 1, 2000 –

Mr. Nader said he did not think there would be much difference between the justices Mr. Gore would choose and those Mr. Bush would appoint. After all, Democrats had helped confirm Justices Antonin Scalia and Clarence Thomas, hadn’t they? Besides, “You can’t really predict how Supreme Court justices will behave.”

And he called the possibility that a court packed with Republican appointees could overturn Roe v. Wade a “scare tactic.” On Sunday, Mr. Nader said in a television interview that even if Roe v. Wade was overturned, the issue “would just revert to the states.” Just?

“Here’s what happened on that,” he said wearily. “The scare tactic is that would end choice in America, and I just said that’s not true, but I should have been astute enough not to mention that.”

He said he did not in any case believe for a moment that Mr. Bush would seek to overturn Roe v. Wade. “The first back alley death, and the Republican Party is in deep trouble and they know it,” he said. He described the party’s opposition to abortion as just for show, “just for Pat Robertson."

My point is not that Ralph Nader was secretly pro-coathanger. My point is that Nader, like all too many men on the left, doesn’t believe that the right-wing culture warriors really mean it. They think it’s all shadow-boxing, a distraction, a sop thrown to the radical fringe. That same attitude can be found, as I’ve noted before, in Tom Frank’s What’s the Matter with Kansas?, where Frank writes, “Values may ‘matter most’ to voters, but they always take a backseat to the needs of money once the elections are won. This is a basic earmark of the phenomenon, absolutely consistent in across its decades-long history. Abortion is never halted. Affirmative action is never abolished. The culture industry is never forced to clean up its act.”

The idea is that an actual abortion ban would go too far: the first back alley death, and the Republican Party is in deep trouble. Well, maybe and maybe not, folks. You might think, along similar lines, “the first hideous death by torture in the War on Terror, and the Republican Party is in deep trouble,” or “the first unconstitutional power grab by the executive branch, and the Republican Party is in deep trouble,” or “the first data-mining program of domestic spying, and the Republican Party is in deep trouble,” or “the first systemic corruption scandal involving Jack Abramoff and Duke Cunningham and Tom DeLay, and the Republican Party is in deep trouble,” and you’d be, ah, wrong, you know. Besides, there’s a nasty time lag between that first back-alley death and the repeal (if any) of a state’s draconian abortion law, and in that time-lag, that state’s Republican Party might or might not be in deep trouble. It’s hard to unseat incumbents in this jerry-built and gerrymandered system, after all. So there’s no guarantee that popular outrage against back-alley deaths would jeopardize a state’s elected GOP officials en masse. But we can be pretty sure that women with unwanted pregnancies would be . . . how shall we say? in deep trouble.

As for Nader’s belief that Gore would probably have appointed people like John Roberts and Samuel Alito: well, that’s reason number 22 I didn’t think his political judgment was worth bothering with.


Sandra Day O'Connor Joins the Order of the Shrill!

Nina Totenberg reports:

The Raw Story | Retired Supreme Court Justice hits attacks on courts and warns of dictatorship: Supreme Court justices keep many opinions private but Sandra Day O'Connor no longer faces that obligation. Yesterday, the retired justice criticized Republicans who criticized the courts. She said they challenge the independence of judges and the freedoms of all Americans. O'Connor's speech at Georgetown University was not available for broadcast but NPR's legal correspondent Nina Totenberg was there.

Nina Totenberg: In an unusually forceful and forthright speech, O'onnor said that attacks on the judiciary by some Republican leaders pose a direct threat to our constitutional freedoms. O'Connor began by conceding that courts do have the power to make presidents or the Congress or governors as she put it "really, really angry." But, she continued, if we don't make them mad some of the time we probably aren't doing our jobs as judges, and our effectiveness, she said, is premised on the notion that we won't be subject to retaliation for our judicial acts. The nation's founders wrote repeatedly, she said, that without an independent judiciary to protect individual rights from the other branches of government those rights and privileges would amount to nothing. But said O'Connor as the founding fathers knew statutes and constitutions don't protect judicial independence, people do.

And then she took aim at former GOP house leader Tom DeLay... she quoted his attacks on the courts at a meeting of the conservative Christian group Justice Sunday last year when DeLay took out after the courts for rulings on abortions, prayer and the Terri Schiavo case. This, said O'Connor was after the federal courts had applied Congress' onetime only status of Schiavo as it was written. Not, said O'Connor, as the congressman might have wished it were written. This response to this flagrant display of judicial restraint, said O'Connor, her voice dripping with sarcasm, was that the congressman blasted the courts.

It gets worse, she said, noting that death threats against judges are increasing. It doesn't help, she said, when a high-profile senator suggests there may be a connection between violence against judges and decisions that a senator disagrees with. She didn't name him, but it was Texas senator John Cornyn who made that statement, after a Georgia judge was murdered in the courtroom and the family of a federal judge in Illinois murdered in the judge's home. O'Connor observed that there have been a lot of suggestions lately for so-called judicial reforms, recommendations for the massive impeachment of judges, stripping the courts of jurisdiction and cutting judicial budgets for punishing offending judges. Any of these might be debatable, she said, as long as they are not retaliation for decisions that political leaders disagree with.

I, said O'Connor, am against judicial reforms driven by nakedly partisan reasoning. Pointing to the experience of developing countries and former communist countries where interference with an independent judiciary has allowed dictatorship to flourish, O'Connor said we must be ever-vigilant against those who would strongarm the judiciary into adopting their preferred policies. It takes a long of degeneration before a country falls into dictatorship, she said, but we should avoid these ends by avoiding these beginnings.

Nina Totenberg, NPR News, Washington.

Welcome, Justice O'Connor! We have reserved the Chaos Suite for you. You can pick up your robe... oh, I see you have your robe...


The Bush Administration Is Evil

The New York Times on the Bush Administration's plans to discontinue the Survey of Income and Program Participation:

Discovering What Happens Next - New York Times: The White House has a sorry history of withholding information that the public and Congress need to make informed policy judgments. A proposal in President Bush's new budget would take that damaging tendency one step further by eliminating a government survey that captures the real-world impact of welfare reform, Medicaid, child-support enforcement and many other policies and programs. Started by the Census Bureau in 1984, this study, called the Survey of Income and Program Participation, questions thousands of the same people every four months for two to four years and gathers details about their lives, including their use of government aid. It is particularly valuable for the way it uncovers the actual effects of government programs and the way people move in and out of them. Most other polls simply capture data at a given point in time.

Take welfare reform, for example. Rather than evaluating it simply by the number of people on welfare before and after, researchers using the survey have isolated the factors -- social, economic and personal -- that have allowed some men and women to successfully leave welfare for work and the factors that caused others to fall into deeper poverty. Such information is vital to build on what works, to amend what doesn't and to allocate scarce government resources accordingly. Getting rid of the survey this year, as the new budget proposes, would make it very difficult to study the fallout from deep cuts in food stamps, child care, Medicaid and other programs for the poor that Congress passed and Mr. Bush signed last month. That would be great for politicians who don't want to be held accountable. But it would be a big loss for anyone who wants government to work well.

The Bush Administration: Not Just Dumb. Evil Too.


Stupidest Man Alive Contest

Chris Suellentrop enters Charles Krauthammer into the Stupidest Man AliveTM contest:

The Opinionator: Has Charles Krauthammer become pessimistic about the American project in Iraq? The conclusion of his Washington Post column says there is only "one hope for success in Iraq": "an effective, broad-based national unity government that, during its mandatory four-year term, presides over an American withdrawal..."

Yes, after four and a half years of what Charles Krauthammer has told us over and over again is George W. Bush's flawless brave and bold leadership, he now says that we have but one--totally unrealistic--hope for success in Iraq.

What state does Charles Krauthammer think we would be in if we hadn't been lucky enough to have a leader like George W. Bush?


Paul Krugman Says "I Told You So"

"Welcome to the party!" he says, as the prodigal commentators return:

The Conservative Epiphany - New York Times: Bruce Bartlett, the author of "Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy," is an angry man. At a recent book forum at the Cato Institute, he declared that the Bush administration is "unconscionable," "irresponsible," "vindictive" and "inept." It's no wonder, then, that one commentator wrote of Mr. Bartlett that "if he were a cartoon character, he would probably look like Donald Duck during one of his famous tirades, with steam pouring out of his ears."

Oh, wait. That's not what somebody wrote about Mr. Bartlett. It's what Mr. Bartlett wrote about me in September 2003, when I was saying pretty much what he's saying now. Human nature being what it is, I don't expect Mr. Bartlett to acknowledge his about-face. Nor do I expect any expressions of remorse from Andrew Sullivan, the conservative Time.com blogger who also spoke at the Cato forum. Mr. Sullivan used to specialize in denouncing the patriotism and character of anyone who dared to criticize President Bush, whom he lionized. Now he himself has become a critic, not just of Mr. Bush's policies, but of his personal qualities, too.

Never mind; better late than never. We should welcome the recent epiphanies by conservative commentators who have finally realized that the Bush administration isn't trustworthy. But we should guard against a conventional wisdom that seems to be taking hold in some quarters, which says there's something praiseworthy about having initially been taken in by Mr. Bush's deceptions, even though the administration's mendacity was obvious from the beginning.

According to this view, if you're a former Bush supporter who now says, as Mr. Bartlett did at the Cato event, that "the administration lies about budget numbers," you're a brave truth-teller. But if you've been saying that since the early days of the Bush administration, you were unpleasantly shrill. Similarly, if you're a former worshipful admirer of George W. Bush who now says, as Mr. Sullivan did at Cato, that "the people in this administration have no principles," you're taking a courageous stand. If you said the same thing back when Mr. Bush had an 80 percent approval rating, you were blinded by Bush-hatred. And if you're a former hawk who now concedes that the administration exaggerated the threat from Iraq, you're to be applauded for your open-mindedness. But if you warned three years ago that the administration was hyping the case for war, you were a conspiracy theorist.

The truth is that everything the new wave of Bush critics has to say was obvious long ago to any commentator who was willing to look at the facts.

Mr. Bartlett's book is mainly a critique of the Bush administration's fiscal policy. Well, the administration's pattern of fiscal dishonesty and irresponsibility was clear right from the start to anyone who understands budget arithmetic. The chicanery that took place during the selling of the 2001 tax cut -- obviously fraudulent budget projections, transparently deceptive advertising about who would benefit and the use of blatant accounting gimmicks to conceal the plan's true cost -- was as bad as anything that followed.

The false selling of the Iraq war was almost as easy to spot. All the supposed evidence for an Iraqi nuclear program was discredited before the war -- and it was the threat of nukes, not lesser W.M.D., that stampeded Congress into authorizing Mr. Bush to go to war. The administration's nonsensical but insistent rhetorical linkage of Iraq and 9/11 was also a dead giveaway that we were being railroaded into an unnecessary war....

But as I said, better late than never. Born-again Bush-bashers like Mr. Bartlett and Mr. Sullivan, however churlish, are intellectually and morally superior to the Bushist dead-enders...


Signs of Reform at the New Republic

Franklin Foer faces up to one of the demons of its past. Chris Suellentrop reports:

The Opinionator: TNR's Mea Culpa on Healthcare: In its first issue under new editor Franklin Foer, the New Republic endorses universal health care [$] and calls the collapse of President Clinton's universal health-care plan "a debacle that this magazine, regrettably, abetted." With editorials like that, writes Washington Monthly blogger Kevin Drum, the New Republic will "go a very long way toward redeeming themselves."...


Eric Alterman Asks a Rhetorical Question

He writes:

Alterman: The lost Kinsley rule - Altercation - MSNBC.com : Jake Weisberg... is picking on Howard Dean and I can't believe it: "[Dean's] injudicious comment about the GOP being the party of white Christians was followed by his statement that 'the idea that we're going to win this war is an idea that unfortunately is just plain wrong'." Such gaffes lead to endless debate about how Howard Dean is screwing up, rather than about how Bush is screwing up." How... [can] Michael Kinsley's appointed successor... write... "gaffe"... without pointing out Kinsley's most famous observation: that "gaffe" is what Washington calls a statement by a politician that happens to be true? Would Weisberg argue that... we are "winning" the Iraq war...?... [B]oth Dean statement... are true. And it's the job of intellectuals to congratulate politicians for speaking uncomfortable truths--at least I thought it was.... I don't recall any cases in which when Kinsley wrote about such things, he was attacking the truth-tellers. But Weisberg seems to think Dean is deserving of contempt.... Am I missing something or is this as depressing as it looks?

Yes, Eric, it's as depressing as it looks.


Recurrence

Glaukon: What are you reading?

Admetos: William the Silent--a biography of a sixteenth century Dutch prince and politician. What are you reading?

Glaukon: The Assassin's Gate--an account of America's ongoing misadventure in Iraq.

Admetos: They are both works of politico-military history, but other than that these books must be about very different things, yes?

Glaukon: No.

Admetos: No?

Glaukon: Our big-headed friend would say that they are about the same thing.

Admetos: He would?

Glaukon: Let me put it this way: Your book is about how the world's preeminent superpower sends the most powerful conventional military force the world had ever seen to occupy and reform a distant land. But the alien occupiers find themselves in a hostile land riddled with violent religious sectarians. The occupiers do not speak the language or understand the politics. Powerful local neighbors make lots of trouble. And the situation spirals downward. Right?

Admetos: You have it. That's what my book is about.

Glaukon: And that's what my book is about.


The Ezra Klein Awards

Ezra Klein issues his personal weblog awards:

Ezra Klein: Klein Awards :

Most Deserving of Wider Recognition: Liberalism Without Cynicism. Reading Laura tends to be the most infuriating moment of my day. I've been blogging longer than her, I'm a professional writer -- and yet her stuff is orders of magnitude better than mine. Smarter, more gracefully composed, more genially put. I hate her. But, through the red mists of my rage, I can recognize that she's the shiniest hidden gem in the blogosphere, and if you're not reading her regularly and obsessively, you're making a huge mistake.

Best New Blog: Battlepanda. Angelica is my favorite kind of blogger, the amateur wonk. Since she's not yet gone pro and been co-opted by an organization or specialization, her curiosity ranges wide and she approaches a stunningly broad array of issues both honestly and substantively. That she's a lively, energetic writer just completes the package.

Best Writer: Lance Mannion. Easily the finest prose stylist you're likely to read in a day. The blogs boast a couple of professional word crafter (who are a different breed than the more workmanlike professional pundits), but for my money, none match Mannion. If you want to know why, read his post on curmudgeons. It's a classic.


The Whig History of Holland

The end of C.V. Wedgwood's William the Silent:

The work to which [William] had devoted his life, and for which he had died, was never to be accomplished. The Netherlands, as he had known them, were never to be one nation. The struggle for their liberation had transmuted the past and destroyed the possibility of its revival. What he had done was to create a new State, the United Provinces of the coming century, the 'Holland' of the future. Even though it fell short of what he had wanted, his achievement was very great. For it was a hard and desperate task, to restore the self-respect and freedom of a people borne down by apparently inescapable doom, to fight a great power with such small instruments, and to fight it for five years without hope and alone.

It was a strange, almost a unique, thing to be the idol of a nation and remain uncorrupted, to be yourself the guardian of the people's rights sometimes against the emotional impulse of the people themselves. In times of emergency and war, in political crisis and national danger it is often expedient to sacrifice the forms--even the spirit--of popular government. Was not this one of the chief reasons why popular governments [have] withered in so many lands during this stormy [twentieth] century?

There lies his greatest claim to recognition: he sought not to impose his own will on the embryo nation, but to let the nation create and form itself. He belonged in spirit to an earlier, a more generous and more cultured age than this [late sixteeth century] of narrowness and authority, and thin, sectarian hatred. But he belonge also to a later age; his deep and genuine interest in the people he ruled, his faith in their development, his toleration, his convinced belief in government by consent--all these reach out from the mediaeval world towards a wider time.

Few statesmen in any period, none in his own, cared so deeply for the ordinary comfort and the trivial happiness of the thousands of individuals who are 'the people'. He neither idealized nor overestimated them and he knew they were often wrong, for what political education had they yet had? But he believed in them, not merely as a teoretical concept, but a individuals, as men. Therein lay the secret of the profound and enduring love between him and them. Wise, wary, slow to judge and slow to act, patient, stubborn, and undiscouraged, no other man could have sustained so difficult a cause for so long, could have opposed with so little sacrifice of public right, the concentrated power of a government that disregarded it. He respected in all men what he wished to have respected in himself, the right to an opinion.

There have been politicians more successful, or more subtle; there have been none more tenacious or more tolerant. 'The wisest, gentlest and bravest man who ever led a nation', he is one of that small band of statesmen whose service to humanity is greater than their service to their time or their people. In spite of the differences of speech or political theory, the conventions and complexities which make one age incomprehensible to another, some men have a quality of greatness which gives their lives universal significance. Such men, in whatever walk of life, in whatever chapter of fame, mystic or saint, scientist or doctor, poet or philosopher, and even--but how rarely--soldier or statesman, exist to shame the cynic, and to renew the faith of humanity in itself.

Of this number was William of Nassau, Prince of Orange, called the Silent.

Whig history. The straight stuff. 200 proof. Very, very good to the taste.


Jack Abramoff Strikes Back!

The Left Coaster reads Vanity Fair and summarizes:

The Left Coaster: More Abramoff Revelations Imminent: Despite his attorney's threat last week that his client would start naming names soon if he wasn't allowed to cut his best deal with the feds for his cooperation, it appears that Jack Abramoff has told part of the story to Vanity Fair for their upcoming edition....

On President Bush:

President Bush, who claims not to remember having his picture taken with Abramoff. According to Abramoff, at one time, the president joked with Abramoff about his weight lifting past: "What are you benching, buff guy?"

On former Rove deputy Ken Mehlman:

According to documents obtained by Vanity Fair, Mehlman exchanged e-mail with Abramoff, and did him political favors (such as preventing Clinton administration alumnus Allen Stayman from keeping a State Department job), had Sabbath dinner at Abramoff's house, and offered to pick up Abramoff's tab at Signatures, Abramoff's own restaurant.

On Rep. Tom DeLay (R-TX):

Abramoff has "admired Tom DeLay and his family from the first meeting with him," he tells Margolick. "We would sit and talk about the Bible. We would sit and talk about opera. We would sit and talk about golf," Abramoff recalls. "I mean, we talked about philosophy and politics."

On Newt Gingrich:

Newt Gingrich, whose spokesman Rick Tyler tells Margolick that "Before [Abramoff's] picture appeared on TV and in the newspapers, Newt wouldn't have known him if he fell across him. He hadn't seen him in 10 years." A rankled Abramoff says "I have more pictures of [Newt] than I have of my wife."

On Sen. Conrad Burns (R-MT):

Abramoff says: "Every appropriation we wanted [from Burns's committee] we got. Our staffs were as close as they could be. They practically used Signatures as their cafeteria. I mean, it's a little difficult for him to run from that record."

As Abramoff says:

firedoglake: For a guy who did all these evil things that have been so widely reported, it's pretty amazing, considering I didn't know anyone. You're really no one in this town unless you haven't met me.


Andrew Postelnicu Reports on Insider Sales

Daniel Gross makes the catch:

Daniel Gross : Andrew Postelnicu reports in the Financial Times that corporate insiders are dumping shares.

Selling of US stocks by company officers, directors and other insiders last month reached the highest level since just before the bursting of the dotcom bubble, data showed. Thomson Financial said insider selling reached a total of $6.1bn in February, the highest since the $9.1bn record set in February 2000. High levels of insider activity are viewed as indicators of turning points in the market, and many investors incorporate the data into their market analysis. Mark LoPresti, analyst at Thomson, said the data fitted within historical patterns of spikes in insider activity from January to March. He said a further increase in March could be more meaningful because insider activity had generally decreased during this month.

The biggest Wall Street companies saw the highest levels of insider selling, Thomson said, with sellers outnumbering buyers by four to one. George Muzea, who runs an investment research firm focused on insider activity, concurred with that finding. "The lack of insider interest in large caps does not bode well for some of the larger indexes, such as the S&P 500," Mr Muzea said. "In our opinion, from an insider perspective, it makes sense to consider . . . S&P 500 for short [calls]." Mr Muzea added that investor sentiment still indicated more bulls than bears in themarket. The reverse had not occurred since October 2002, he said.


Of Course Foreigners Are Buying Up America!

Nouriel Roubini points out that of course foreigners are buying up America: we're running a current account deficit:

RGE - With the US current account deficit close to a trillion dollars of course foreigners will soon own most of the US capital stock : The current political saga and debate about the purchase by a Dubai-based company of the management of six US ports misses the most crucial point: with a US current account deficit running towards $900b this year and probably above one trillion $ next year, in a matter of a few years foreigners may end up owning most of the U.S. capital stocks: ports, factories, corporations, land, real estate and even our national parks. This is basic accounting: if you run a current account deficit (import more than export, spend more than your income, save less than you invest) you need to borrow from the rest of the world to finance such excess of spending (on private and public consumption and investment) over your national income. And you need to borrow on net every year to the tune of the current account deficit. That is why countries that run current account deficits become net foreign debtors.

There are only two ways in which this accumulation of foreign liabilities of a debtor country can occur: either debt (when you issue private or government bonds purchased by foreigners and when you borrow in the form of bank or other loans from foreigners) or equity that can take the forms of FDI (foreign direct investment when non-residents acquire a domestic firm or other domestic assets such as real estate or when they build a new factory in the US) or portfolio investment in the equity market. So, it is either debt or equity but in either case the foreign liabilities of the US go up and foreigners increase debt or equity claims against the US. It is as simple as that and, with a trillion $ current account deficit the US foreign liabilities will increase every year by a trillion dollars.

Now, until recently, foreigners have financed the US current account deficit more in the form of debt rather than equity. Since a good fraction of this current account deficit was driven in the 2004-2005 period by the growing US fiscal deficit, the foreigners have piled up more and more Treasury bills and bond. Indeed, by now over 53% of all Treasuries are held by non-residents, a good fraction of which by foreign central banks. But, increasingly, foreigners are starting to realize that exchanging their goods and services for lousy low-return IOUs of the US government is a most lousy deal for them. Why hold Treasuries that give you a mediocre 4.5% return over 30 years when you can instead buy higher return capital such as US corporation, US factories, ports, real estate and any other asset currently owned by American in this great land of ours?

The nationalistic political backlash against this foreign acquisition of US capital it altogether hypocritical. Foreigners are selling us their high quality goods and services because we are on a national consumption binge and they are getting tired of getting in return useless low-return IOUs of the US government. There are plenty of great assets and gems in the US that are much more worth and provide in the long run much higher returns than T-bills. So, they rationally want to buy those assets, i.e. lend us in the form of equity rather than debt. And these foreigners are, increasingly, not just private investors but also central banks and other public authorities that have accumulated low-return dollar reserves to the tune of almost $400b last year alone with a total stock of such dollar reserves that is close to $3 trillion now.

Also, altogether hypocritical is the behavior of US politicians who lobby hard all of the world to open up their markets to US foreign direct investment and now they are screaming, under the fig leaf of national security, about the foreign FDI into the U.S....

I'd agree with Nouriel if there weren't signs that the FBI and the Coast Guard are not the happiest of campers about the Peninsular and Oriental Steam Navigation Company. But on the big point he's right: Economic growth produces about $1.3 trillion of new net wealth in America every year, and at a current account deficit of $1 trillion only $300 billion of that is an addition to the wealth of Americans--the $1 trillion that matches the current-account deficit is an addition to the wealth of foreigners.


Free Advice to the Wall Street Journal

Barry Ritholtz notes that the Wall Street Journal news pages have started weblogs:

The Big Picture: WSJ Joins the Blogging Crowd: The newest entrants to the blogosphere is none other than the WSJ. They are now running at least two three distinct blogs I know of, with more sure to follow.

  1. Marketbeat: http://online.wsj.com/article/SB114173595019491371.html?mod=home_whats_news_us
  2. Law and Business: http://blogs.wsj.com/law/?mod=home_law_left
  3. Washington Wire: http://blogs.wsj.com/washwire/

Barry then proceeds to give them lots of very good advice--advice that they could have paid $100K for a team of consultants to give them, and still come out well ahead.


Wednesday Lunchtime Camel-Driving Blogging

Yet more evidence that the economics coverage of the National Review is not the nadir of the magazine. Here we see it flunking theology:

Ross Douthat: [T]he traditional Christian attitude... wasn't that every rich man needed to sell all he had and enter a monastery, but that some did. Christ told the rich young man to give away all his possessions and follow him, but he didn't tell that to everyone he met -- it was a specific mission for a specific person, or kind of person.

Oh yeah? Context, boys, context. Let's roll the videotape from today's Gospel Lesson:

There came one running, and kneeled to him, and asked him, "Good Master, what shall I do that I may inherit eternal life?"

And Jesus said unto him, "Why callest thou me good? there is none good but one, that is, God. Thou knowest the commandments: Do not commit adultery. Do not kill. Do not steal. Do not bear false witness. Defraud not. Honour thy father and mother.

And he answered and said unto him, "Master, all these have I observed from my youth."

Then Jesus beholding him loved him, and said unto him, "One thing thou lackest: Go thy way, sell whatsoever thou hast, and give to the poor, and thou shalt have treasure in heaven: and come, take up the cross, and follow me."

And he was sad at that saying, and went away grieved: for he had great possessions.

And Jesus looked round about, and saith unto his disciples: "How hardly shall they that have riches enter into the kingdom of God!" And the disciples were astonished at his words. But Jesus answereth again, and saith unto them: "Children, how hard is it for them that trust in riches to enter into the kingdom of God! It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the Kingdom of God."

And they were astonished out of measure, saying among themselves: "Who then can be saved?"

And Jesus looking upon them saith: "With men it is impossible, but not with God: for with God all things are possible."

Then Peter began to say unto him: "Lo, we have left all, and have followed thee."

And Jesus answered and said: "Verily I say unto you, There is no man that hath left house, or brethren, or sisters, or father, or mother, or wife, or children, or lands, for my sake, and the gospel's, but he shall receive an hundredfold now in this time, houses, and brethren, and sisters, and mothers, and children, and lands, with persecutions; and in the world to come eternal life.

"But many that are first shall be last; and the last first."

The injunction "sell whatsoever thou hast and give to the poor" is addressed to "they that have riches" because "it is easier for a camel to go through the eye of a needle than for a rich man to enter into the Kingdom of God." Jesus is not issuing "a specific mission for a specific person, or kind of person"; Jesus is warning all with "great possessions" of the danger he sees that they are in.

Jesus doesn't shut the door: God will move mountains and make miracles in order to get the camel through the eye of the needle, "for with God all things are possible." Nevertheless: "many that are first shall be last; and the last first."

By cutting off the passage at "follow me" and suppressing the subsequent dialogue between Jesus and the disciples, Ross Douthat is performing the equivalent of putting his fingers in his ears and screeching: "I can't hear you!! You're not talking to me anyway!!" This is common practice at National Review. But screeching "You're not talking to me!!" is a distinctly odd posture to adopt when one is addressed by one's God.


Marginal Revolution: Krugman on Unemployment

Alex Tabarrok writes:

Marginal Revolution: Krugman on Unemployment : Via Brad deLong is Paul Krugman's introduction to the General Theory. Point Three in Krugman's stripped down version is:

3. Government policies to increase demand, by contrast, can reduce unemployment quickly.

Well, that would certainly explain why unemployment recovered so quickly during the Great Depression. Or perhaps, despite the fact that "all it took to get the economy going again was a surprisingly narrow, technical fix," we just weren't trying hard enough.

Yep. This was settled by E. Cary Brown, two generations ago. Roosevelt New Deal fiscal policy was a lot better than Hoover fiscal policy--it wasn't actively contractionary--but it wasn't very expansionary either. World War II fiscal policy, by contrast, was very expansionary indeed--and very successful at pushing unemployment down.


The Entire Cato Institute Is Shrill!

Through the magic of time travel, we bring you Dana Milbank's Wednesday column 45 minutes early. The entire Cato Institute gets enraged and piles on in shrill unholy Bush-hating madness.

They even endorse Bill Clinton:

"At Conservative Forum on Bush, Everybody's a Critic" By Dana Milbank Wednesday, March 8, 2006; A02:

If the ancient political wisdom is correct that a charge unanswered is a charge agreed to, the Bush White House pleaded guilty yesterday at the Cato Institute to some extraordinary allegations.

"We did ask a few members of the Bush economic team to come," explained David Boaz, the think tank's executive vice president, as he moderated a discussion between two prominent conservatives about President Bush. "We didn't get that."

Now why would the administration pass up such an invitation?

Well, it could have been because of the first speaker, former Reagan aide Bruce Bartlett. Author of the new book "Impostor: How George W. Bush Bankrupted America and Betrayed the Reagan Legacy," Bartlett called the administration "unconscionable," "irresponsible," "vindictive" and "inept."

It might also have had something to do with speaker No. 2, conservative blogger Andrew Sullivan. Author of the forthcoming "The Conservative Soul: How We Lost It; How to Get It Back," Sullivan called Bush "reckless" and "a socialist," and accused him of betraying "almost every principle conservatism has ever stood for."

Nor was moderator Boaz a voice of moderation. He blamed Bush for "a 48 percent increase in spending in just six years," a "federalization of public schools" and "the biggest entitlement since LBJ."

True, the small-government libertarians represented by Cato have always been the odd men out of the Bush coalition. But the standing-room-only forum yesterday, where just a single questioner offered even a tepid defense of the president, underscored some deep disillusionment among conservatives over Bush's big-spending answer to Medicare and Hurricane Katrina, his vast claims of executive power, and his handling of postwar Iraq.

Bartlett, who lost his job at the free-market National Center for Policy Analysis because of his book, said that if conservatives were honest, more would join his complaint. "They're reticent to address the issues that I've raised for fear that they might have to agree with them," he told the group. "And a lot of Washington think tanks and groups of that sort, they know that this White House is very vindictive."

Waiting for the talk to start, some in the audience expressed their ambivalence.

"It's gonna hit the [bestseller] lists, I'm sure," said Cato's legal expert, Roger Pilon.

"Typical Bruce," replied John Taylor of the Virginia Institute for Public Policy.

Admitted Pilon: "He's got a lot of material to work with."

Bartlett certainly thought so. He began by predicting a big tax increase "to finance the inevitable growth of government that is in the pipeline that President Bush is largely responsible for." He also said many fellow conservatives don't know about the "quite dreadful" traits of the administration, such as the absence of "anybody who does any serious analysis" on policy issues.

Boaz assured the audience that he told the White House that "if there's a rebuttal to what Bruce has said, please come and provide it."

Instead, Sullivan was on hand to second the critique. "This is a big-government agenda," he said. "It is fueled by a new ideology, the ideology of Christian fundamentalism." The bearded pundit offered his own indictment of Bush: "complete contempt" for democratic processes, torture of detainees, ignoring habeas corpus and a "vast expansion of the federal government. The notion, he said, that the "Thatcher-Reagan legacy that many of us grew up to love and support would end this way is an astonishing paradox and a great tragedy."

The question period gave the two a chance to come up with new insults.

"If Bush were running today against Bill Clinton, I'd vote for Clinton," Bartlett served.

"You have to understand the people in this administration have no principles," Sullivan volleyed. "Any principles that get in the way of the electoral map have to be dispensed with."

Boaz renewed his plea. "Any Bush economists hiding in the audience?"

There was, in fact, one Bush Treasury official on the attendance roster, but he did not surface. The only man who came close to defending Bush, environmental conservative Fred Singer, said he was "willing to overlook" the faults because of the president's Supreme Court nominations. Even Richard Walker, representing the think tank that fired Bartlett, declined to argue. "I agree with most of it," he said later.

Unchallenged, the Bartlett-Sullivan tag team continued. "The entire intellectual game has been given away by the Republican president," said Sullivan. "He's a socialist in so many respects, a Christian socialist."

Bartlett argued that Richard Nixon "is the model for everything Bush is doing."

Sullivan said Karl Rove's political strategy is "pathetic."

Bartlett said that "the administration lies about budget numbers."

"He is not a responsible human being; he is a phenomenally reckless human being," Sullivan proclaimed. "There is a level of recklessness involved that is beyond any ideology."

"Gosh," Boaz interjected. "I wish we had a senior White House aide up here."

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


$#%@&**(&^%!!

Four pages of algebra. Four pages. Had to be done three times because of mistakes. And it would have been eight lines if I had thought that the right way to set up the problem was recursively.

Serves me right for having thought fifteen years ago that I could get away by skimming rather than cracking Recursive Methods in Economic Dynamics...


Krugman's Intro to Keynes's General Theory

Paul Krugman has written a very good introduction to Keynes's General Theory of Employment, Interest and Money:

In the spring of 2005 a panel of “conservative scholars and policy leaders” was asked to identify the most dangerous books of the 19th and 20th centuries.... Charles Darwin and Betty Friedan ranked high on the list. But The General Theory of Employment, Interest, and Money did very well, too. In fact, John Maynard Keynes beat out V.I. Lenin and Frantz Fanon. Keynes, who declared in the book’s oft-quoted conclusion that “soon or late, it is ideas, not vested interests, which are dangerous for good or evil,” [384] would probably have been pleased.

Over the past 70 years The General Theory has shaped the views even of those who haven’t heard of it, or who believe they disagree with it. A businessman who warns that falling confidence poses risks for the economy is a Keynesian, whether he knows it or not. A politician who promises that his tax cuts will create jobs by putting spending money in peoples’ pockets is a Keynesian, even if he claims to abhor the doctrine. Even self-proclaimed supply-side economists, who claim to have refuted Keynes, fall back on unmistakably Keynesian stories to explain why the economy turned down in a given year....

It’s probably safe to assume that the “conservative scholars and policy leaders” who pronounced The General Theory one of the most dangerous books of the past two centuries haven’t read it. But they’re sure it’s a leftist tract, a call for big government and high taxes.... [T]he arrival of Keynesian economics in American classrooms was delayed by a nasty case of academic McCarthyism. The first introductory textbook to present Keynesian thinking, written by the Canadian economist Lorie Tarshis, was targeted by a right-wing pressure campaign aimed at university trustees. As a result of this campaign, many universities that had planned to adopt the book for their courses cancelled their orders, and sales of the book, which was initially very successful, collapsed. Professors at Yale University, to their credit, continued to assign the book; their reward was to be attacked by the young William F. Buckley for propounding “evil ideas.”

But Keynes was no socialist - he came to save capitalism, not to bury it. And there’s a sense in which The General Theory was... a conservative book.... Keynes wrote during a time of mass unemployment, of waste and suffering on an incredible scale. A reasonable man might well have concluded that capitalism had failed, and that only... the nationalization of the means of production - could restore economic sanity.... Keynes argued that these failures had surprisingly narrow, technical causes... because Keynes saw the causes of mass unemployment as narrow and technical, he argued that the problem’s solution could also be narrow and technical: the system needed a new alternator, but there was no need to replace the whole car. In particular, “no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community.”... Keynes argued that much less intrusive government policies could ensure adequate effective demand, allowing the market economy to go on as before.

Continue reading "Krugman's Intro to Keynes's General Theory" »


Covering the Economy: March 7: Tax Day!

"Don't tax you, don't tax me, tax the guy behind the tree!"--Russell Long, Senate Finance Committee Chairman

"The art of taxation is like plucking a goose: to get the most feathers with the least amount of hissing."--Jean-Baptiste Colbert, French Finance Minister

Our tax system:

Washingtonpost.com: Tax Policy Special Report : Tax Policy: Ripe for Reform? By Dan Froomkin Washingtonpost.com Staff Updated April 28, 1998 : "The U.S. tax code is phenomenally complicated, not entirely fair -- and takes money out of your pocket. What's to like?"

An example of unfairness:

Who Needs the Mortgage-Interest Deduction? - New York Times : By ROGER LOWENSTEIN: "One of the first financial lessons I learned from my father was that when you buy a house, you get a tax break from deducting the interest on your mortgage. Therefore, he would explain as if it were as natural as pivoting at second base on a throw from shortstop, a person could afford to pay more for a house that he owned than he would on a residence that he was only renting and on which he didn't get the tax break."

Taxes are almost surely going up:

William G. Gale and Peter R. Orszag (2004) "The Budget Outlook: Projections and Implications", The Economists' Voice: Vol. 1: No. 2, Article 6. http://www.bepress.com/ev/vol1/iss2/art6

The tax reform rugby scrum:

Edward P. Lazear and James M. Poterba (2006) "Reforming Taxes to Promote Economic Growth", The Economists' Voice: Vol. 3: No. 1, Article 3. http://www.bepress.com/ev/vol3/iss1/art3

Alan J. Auerbach (2006) "The Tax Reform Panel’s Report: Mission Accomplished?", The Economists' Voice: Vol. 3: No. 1, Article 5. http://www.bepress.com/ev/vol3/iss1/art5

Leonard E. Burman and William G. Gale (2006) "The Tax Reform Proposals: Some Good Ideas, but Show Me the Money", The Economists' Voice: Vol. 3: No. 1, Article 4. http://www.bepress.com/ev/vol3/iss1/art4

Michael J. Graetz (2006) "Tax Reform: Time For a Plan C?", The Economists' Voice: Vol. 3: No. 1, Article 2. http://www.bepress.com/ev/vol3/iss1/art2

Michael J. Boskin (2006) "A Broader Perspective on the Tax Reform Debate", The Economists' Voice: Vol. 3: No. 1, Article 1. http://www.bepress.com/ev/vol3/iss1/art1


The Dog That Did Not Bark: A Defense of Return Predictability

Every once in a while I am reminded that John Cochrane is really smart: he keeps coming up with things that are completely obvious and yet that I did not know:

The Dog That Did Not Bark: A Defense of Return Predictability : John H. Cochrane NBER Working Paper No. 12026 Issued in February 2006 NBER Program(s): AP

Abstract: To question the statistical significance of return predictability, we cannot specify a null that simply turns off that predictability, leaving dividend growth predictability at its essentially zero sample value. If neither returns nor dividend growth are predictable, then the dividend-price ratio is a constant. If the null turns off return predictability, it must turn on the predictability of dividend growth, and then confront the evidence against such predictability in the data. I find that the absence of dividend growth predictability gives much stronger statistical evidence against the null, with roughly 1-2% probability values, than does the presence of return predictability, which only gives about 20% probability values. I argue that tests based on long-run return and dividend growth regressions provide the cleanest and most interpretable evidence on return predictability, again delivering about 1-2% probability values against the hypothesis that returns are unpredictable. I show that Goyal and Welch's (2005) finding of poor out-of-sample R2 does not reject return forecastability. Out-of-sample R2 is poor even if all dividend yield variation comes from time-varying expected returns.


The hole in Cochrane's argument, of course, is the kinds of dividend processes Robert Barsky and I thought about in our "Why Does the Stock Market Fluctuate?" Such processes generate (i) unpredictable returns with (ii) little short-run dividend predictability. Of course, they also explode in finite time--either upward or downward.


The Pile Grows...

The pile of good books to read grows:

C.V. Wedgwood (1944), William the Silent: William of Nassau, Prince of Orange, 1533-84 (New York: Book-of-the-Month Club: 1842124013). http://exec/obidos/asin/1842124013/braddelong00

Perry Anderson (2005), Spectrum (London: Verso: ). http://www.amazon.com/exec/obidos/asin/1859845274/braddelong00

William the Silent is great. Spectrum less so (although the first essay--on Leo Strauss, Friedrich Hayek, Michael Oakeshott, and Karl Schmitt--was brilliant). All the while I was reading it, I kept on thinking how much better it would have been had Anderson finally written his sequel to Lineages of the Absolutist State.


Two Degrees of Separation

Two degrees of separation, via Berkeley graduate student Chris Blattman, between me and David--a young teenager in Uganda who has been ripped from his family, bombed, and enslaved as a child soldier.

Chris writes:

To friends and colleagues in the US,

Some of you might know that I'm doing my dissertation work on a study of former child soldiers in northern Uganda with my partner, Jeannie. As a consequence of our work, we have met some truly incredible youth affected by the war, each of whom has tremendous potential but no means to even attend secondary school or earn a living. We've helped out where we can financially, but our goals are bigger than our grad student pocketbooks. As a result, we've teamed up with two charitable organizations, GiveMeaning.Com and AVSI USA, to start a sponsorship program of at least $14,000 for some of the amazing youth we have encountered in our work.

To start we are raising school fees for two refugee brothers, David and Johnson, who despite bomb attacks, family separation, and enslavement by an armed group, have single-mindedly pursued education all their lives. They have done amazingly well on their own, but to finish high school and attend college in Uganda they will need a helping hand. If we meet our goals, there are many more youth we hope to help out.

We hope that, for many of you, this is a chance to bring a more personal and tangible touch to your giving. We also hope that you'll share this opportunity with friends, family, and colleagues. Like many charities, we can offer tax deductions in both Canada and the US. Unlike most charities, we offer a chance to know exactly whom your generosity reaches, and to share in the successes and joy it brings. Also unlike most organizations, 100% of the funds will reach these youth, and we will regularly keep givers updated with news, pictures and letters. If you are interested in learning more about the youth we are sponsoring and donating to our fund, you can visit our Giving Group at:

http://www.givemeaning.com/donate/l-ggprofile.aspx?gg=273

All the additional information and assurance you should need is just below, and I invite anyone to e-mail me at blattman@berkeley.edu if they have any further questions or concerns. Thanks so much for listening to our appeal.

Sincerely,
Chris

DONATING: If you are interested in learning more about the youth we are sponsoring and donating to our fund, you can visit our Giving Group at: http://www.givemeaning.com/donate/l-ggprofile.aspx?gg=273

ABOUT US:If you are interested in learning more about the research study Jeannie and I are running in Uganda (with AVSI and UNICEF), you can visit our project page at: http://www.SWAY-Uganda.org. I also have a web page at http://www.chrisblattman.org.

ABOUT OUR PARTNERS: Finally, if you want to learn a little more about our partner charities before donating, you can visit their websites or read articles about their good works. http://www.GiveMeaning.com is a registered charity in Canada and the US. It helps small projects like ours raise funds through online donations, and issues tax receipts to our donors at no fee. They ensure that the funds reach a registered charity in North America or abroad, in our case AVSI USA. AVSI is an international volunteer organization that we have been working with in Uganda for the past year. They are one of the most committed and longstanding aid organizations in northern Uganda, and you can read about them at http://www.avsi.org. A recent article about GiveMeaning.com in Canadian Business Magazine is here: http://www.givemeaning.com/about/l-aboutus_media.aspx?id=14.


Consequentialist Libertarianism: Jeff Miron Presents the Case for Small Government

He's a consequentialist libertarian--his argument is not that government has no *right* to interfere with your liberty but that on balance government does gross and visible harm when it interferes with your liberty:

The Case for Small Government : In this blog I provide a libertarian perspective on economic and social policy. By libertarian, I mean consequential libertarian, not philosophical libertarian. Thus, my arguments are based on assessments of costs and benefits, not on assertions about rights. My claim is that most government policies do more harm than good, even when the policies have good intentions and even when private arrangements work imperfectly.... I emphasize three themes in particular. The first is that consequential libertarianism is consistent in its approach to the issues. Modern liberalism and conservatism are not. The second theme is that both liberals and conservatives advocate massive amounts of government intervention. The two perspectives disagree about precise policy choices, but overall they are far more similar than different. The libertarian perspective, however, is truly distinct from either mainstream view.

The third theme is that most economic and social problems are best addressed by eliminating the government interventions that caused or exacerbated the problem in the first place. Creating even more government is never a sensible approach.This blog aims to persuade, but it also aims to educate. I hope to convince readers that the libertarian perspective is interesting, even if I cannot convince them it is right. Time will tell whether I succeed.


Impeach George W. Bush. Impeach Richard Cheney. Do It Now

Way, way back in February 2003, Daniel Davies asked a question:

D-squared Digest -- FOR bigger pies and shorter hours and AGAINST more or less everything else: Can anyone... give me one single example of something with the following three characteristics:

  1. It is a policy initiative of the current Bush administration
  2. It was significant enough in scale that I'd have heard of it (at a pinch, that I should have heard of it)
  3. It wasn't in some important way completely f---- up during the execution.

Now, three years later, ReddHedd of firedoglake and Judd of ThinkProgress find that even Republican hack William Kristol is saying the same thing--that the Bush administration is massively incompetent at every possible level:

firedoglake : ThinkProgress made a great catch from this morning's Fox News Sunday, and I wanted to take a moment this morning to talk about the potential implications of Bill Kristol's pronouncement of the Bush Administration as incompetent. Here's Kristol's quote:

I think it's become in people's minds an emblem of the administration that just isn't as serious about the competent execution of the functions of government as it should be. And even--I'm struck talking to conservatives and Republicans--they agree with the president on basic political philosophy, the they agree with his basic policy agenda, but they are worried that they just don't seem to be able to execute as well as they should be.

That Kristol was saying this on Fox this morning is telling of a couple of things: the Republican party establishment is now worried that President Bush has become a drag on the entire party, and that he poses a serious problem for them in the upcoming mid-term elections in the Fall; and that someone has sanctioned Kristol talking about this on air on Fox....

Judd makes a great point in his post:

Kristol is right, and it's a dynamic that makes policy debates almost irrelevant. Even if the administration were to stumble onto a policy that would improve things, it's highly unlikely the people in charge would be able to execute the policy effectively...


Ed Glaeser and Housing Price Appreciation

Mark Thoma directs us to:

Economist's View: [A]n interesting NY Times article on Edward L. Glaeser, an urban economist at Harvard:

Home Economics - New York Times : By JON GERTNER: Edward L. Glaeser grew up on the East Side of Manhattan, went to school in Princeton, N.J., and Chicago, lived for a time in Cambridge, Mass., and Palo Alto, Calif., and recently moved with his wife and young son to a house on six and a half acres in the affluent suburb of Weston, Mass. To Glaeser, this last move has been a big adjustment. For one thing, he is not a good driver, and the new commute has prompted him to leave his house by 6 a.m. so as not to get ensnared in the morning rush hour. For another, Glaeser and the suburbs are clearly an unholy marriage of sensibilities, especially since his new house is bordered by about 600 acres of conservation land. "I wake up every day, thinking, My goodness, how many units of housing could you build here?" he says. Glaeser is a creature of density. An economist at Harvard, he has spent almost his entire professional life walking around, and thinking about, cities -- seeking explanations why some metropolitan areas thrive and some suffer and what factors make some places pricey and some cheap. He is just 38. In the years since earning his Ph.D. at the University of Chicago, though, he has been prolific and provocative in a way that has left many of his colleagues awestruck. "I think he's a genius," says George Akerlof, an economist at the University of California, Berkeley, who was awarded a Nobel Prize in 2001....

Glaeser's recent work on real estate addresses the issues of supply rather than of demand. He is far more interested in the forces shaping land development and residential building in the United States than in the forces shaping buyers' motivations and actions. He views supply as crucial to appreciating what has happened to the U.S. real-estate market over the past 30 years. A few months ago, he traveled from his Harvard office to the Massachusetts State House, near Boston Common, to discuss with the leaders of the State Legislature a research project he had just completed on the local housing market. Between 1980 and 2000, four of the five cities in the U.S. with the fastest-growing housing prices were in Boston's metropolitan area: Cambridge, Somerville, Newton and Boston itself. (Palo Alto had the second-fastest-rising prices over that time.) Glaeser and several colleagues considered two explanations. First, the possibility that builders in the metro area were running out of land and that home prices reflected that scarcity. The second hypothesis was that building permits were scarce, not land. Had the 187 townships in the metro area created a web of regulations that hindered building to such a degree that demand far outstripped supply, driving prices up?

Almost as a rule, Glaeser is skeptical of the lack-of-land argument. He has previously noted (with a collaborator, Matthew Kahn) that 95 percent of the United States remains undeveloped and that if every American were given a house on a quarter acre, so that every family of four had a full acre, that distribution would not use up half the land in Texas. Most of Boston's metro area, he concluded, wasn't particularly dense, and even in places where it was, like the centers of Boston and Cambridge, there was ample opportunity to construct higher buildings with more housing units.

So, after sorting through a mountain of data, Glaeser decided that the housing crisis was man-made. The region's zoning regulations -- which were enacted by locales in the first half of the 20th century to separate residential land from commercial and industrial land and which generally promoted the orderly growth of suburbs -- had become so various and complex in the second half of the 20th century that they were limiting growth. Land-use rules of the 1920's were meant to assure homeowners that their neighbors wouldn't raise hogs in their backyards, throw up a shack on a sliver of land nearby or build a factory next door, but the zoning rules of the 1970's and 1980's were different in nature and effect. Regulations in Glaeser's new hometown of Weston, for instance, made extremely large lot sizes mandatory in some neighborhoods and placed high environmental hurdles (some reasonable, others not, in Glaeser's view) in front of developers. Other towns passed ordinances governing sidewalks, street widths, the shape of lots, septic lines and so on -- all with the result, in Glaeser's analysis, of curtailing the supply of housing. The same phenomenon, he says, has inflated prices in metro areas all along the East and West Coasts....

"He doesn't wake up in the morning and say, 'My agenda is to fight government,"' says his Harvard colleague Martin Feldstein, an economist long in favor of privatizing Social Security and who, you might argue, knows what it's like to wake up with that agenda. While Glaeser admits to a libertarian bent, with a preference for market solutions over government solutions (he calls rent control "bad, bad, bad"), his inconsistencies are such that his colleagues disagree over whether he comes from the political center or the right. Certainly no one accuses him of being a lefty. But Glaeser has many admirers, and several research collaborators, on the liberal end of the spectrum; he likewise displays an odd enthusiasm for progressive efforts like those by London's mayor, Ken Livingstone (Glaeser affectionately calls him by his popular nickname, Red Ken), who imposed a stringent "traffic tax" on vehicles in the center city to reduce congestion....

My two cents are that there are two things going on here. First, there is the transformation of local governments--especially local governments of neighborhoods made up of detached houses--from machines to enrich developers via new construction to machines to enrich homeowners by generating upward pressure on house prices.

Second, there's a version of the "limited land" hypothesis: starting around 1970, many of America's metropolitan areas filled up in the sense that there was no longer greenfield land within less than half an hour's commute of anywhere you wanted to go. (New York is different, and was different for a long time.) Before 1970 being within half an hour's commute isn't valuable--it's there for everybody. Since 1970, being within half an hour's commute of Georgetown or Boston Common or the Embarcadero has become increasingly scarce and increasingly valuable.

If not for fact (1)--local political control prohibiting substantial density upgrades--fact (2) wouldn't matter much: we'd be changing Cambridge to look much more like the Upper West Side, and changing Berkeley to look much more like Cambridge. If not for fact (2)--SMSA-level congestion--fact (1) wouldn't matter much: we'd be building more greenfield neighborhoods within half an hour of the most interesting places, and the fact that established inner-belt suburbs restrict increased density wouldn't boost their housing values much or cause anybody much concern.

It is the interaction of the two, I think, that is key. IMHO zoning changed first, and then the consequences were triggered when congestion arrived as the freeways filled up.

Needless to say, none of this means that I am anything other than a huge and adoring fan of Ed Glaeser. In fact, is there a lobby pushing him for the Clark Medal?

And let's not forget that Red Ken Livingstone stole his congestion tax ideas from Milton Friedman...


Relative Material Deprivation Behind the Iron Curtain...

From Slavenka Drakulic (1992), How We Survived Communism and Even Laughed (New York: Harper: 0060975407):

"...that almost ten years after we saw each other in New York... there are still no strawberries [in Poland] and perhaps there won't be for another ten years.... Both of them took just one strawberry each, then put the rest in the refrigerator 'for Grzegorz.' This is how we tell our kids we love them, because food is love, if you don't have it, or if you have to wait in lines, get what you can, and then prepare a decent meal.... All this stays with me forever. When I come to New York and go shopping... Balducci's.... Third Avenue and 71st... I think of Zofia, my mother, my friend Jasmina who loves Swiss chocolates... my own hungry self still confused by the thirty kinds of cheese.... In an article in Literaturnaya Gazeta May 1989... Yevgenii Yevtushenko tells of a kolkhoz woman who fainted in an East Berlin shop, just because she saw twenty kinds of sausages..."

"Living under such conditions and holding Vogue magazine in your hands is... almost like holding a pebble from Mars.... 'I hate it,' says Agnes, an editor at a scientific journal in Budapest.... 'Just look at this paper--glossy, shiny, like silk.... Once you've seen it, it immediately sets... a visible boundary. Sometimes I think that the real Iron Curtain is made up of silky, shiny images... pictures from women's magazines.'... For us, the pictures in... Vogue were... important.... [T]he message that we absorbed was that the other world was a paradise. Our reading was wrong and naive... [but was] a powerful force, an inner motivation, a dormant desire for change, an opportunity to awaken.... What [did] we care about the manipulation inherent in the fashion and cosmetic industries? To tell us the are making a profit by exploiting our needs is like warning a Bangladeshi about cholesterol.... [T]he images [made] you hate the reality you [lived] in... not only can you not buy any of the things... but the paper itself, the quality of print, is reachable. The images... [were] more dangerous than any secret weapon, because they [made] one desire that 'otherness' badly enough to risk one's life trying to escape. Many did..."


Stupid and Poor...

Correspondents have been asking where my four-times-a-year pointing out that Donald Luskin is a *real* idiot--and that anyone who cites him as an authority is bonkers--is. The problem is that surfing over to his website is so painful and sad. But I'll do it.

Here we have Donald Luskin writing that Paul Krugman should "aspire" to becoming a totalitarian dictator and killing twenty million people:

The Conspiracy to Keep You Poor and Stupid : SOMETHING FOR KRUGMAN TO ASPIRE TO: Reader Perry Eidelbus informs us that Paul Krugman has been selected in a poll as number 35 among the top economists of the 20th century. Perry notes: "At least 13 people out of 1249 respondents thought Krugman was one of the top five (12 for first-place votes, and a 13th for a second-place vote). At most, 64 people voted for him (all fifth-place votes). At least 36 were similarly minded to vote for Lenin, of all people, as at least the fifth greatest. Mao apparently didn't make it. I guess you can still kill 20 million people and be called an economist..."

It appears that Luskin is making the point--if there is a point--that economists who like Krugman are also economists who like Lenin. But what Luskin doesn't point out is that in the poll Lenin's 36 points (and Paul's 64) are swamped by right-wingers Joseph Schumpeter's 1080 points, Friedrich Hayek's 469, Milton Friedman's 319, Ronald Coase's 246, and even Ludwig von Mises's 78.

(Keynes wins by a landslide, with 3.5 times Schumpeter's vote point total.)

As I said, painful and sad: Luskin can't open his mouth without misrepresenting something--in this case an online poll--and misrepresenting it for no purpose.


The Pony Question...

Robert Waldmann writes:

Robert's Stochastic thoughts: All us reelly kool bloggers celebrate extremely bad news for Bush with photos of cute little ponies.... I don't have the faintest idea why, but I am blindly obeying the blog borg.

I thought it was in homage to Belle Waring's best weblog post ever: If Wishes Were Horses, Beggars Would Ride -- A Pony!:

[H]e should not only wish that Bush would say a lot of good things about democracy-building and fighting terrorism in a speech written for him by a smart person, he should also wish that Bush should actually mean the things he says and enact policies which reflect this, and he should wish that everyone gets a pony. See?


Bryan Caplan Believes in the Equity Premium Puzzle

He not only believes in it, he believes in the home bias puzzle too--and he acts on his beliefs:

EconLog, Four Bad Role Models, Bryan Caplan: Library of Economics and Liberty : Karen Lewis' excellent article on home country bias in the Journal of Economic Literature convinced me that I should drastically increase my ratio of international assets to domestic assets. After a brief "cooling off" period imposed by my ever-prudent wife, we went forward and made the change.

But has he mortgaged his house to the gills and invested the proceeds in international equities? Enquiring minds want to know!


We Leave Saving to the Private Investor...

As part of an attack on Paul Krugman, Michael Stastny approvingly cites George Reisman who approvingly quotes Ludwig von Mises:

Mahalanobis: George Reisman writes: "Paul Krugman is very upset. In his Monday New York Times Op-Ed column this week, he complains that while the real incomes of the great majority of Americans have essentially stagnated or declined over the last thirty-five years.... The essential thing to understand here about Krugman is that he is a Keynesian. And as Mises observed, 'The essence of Keynesianism is its complete failure to conceive the role that saving and capital accumulation play in the improvement of economic conditions'."

Well, let's pull out John Maynard Keynes from behind the curtain:

John Maynard Keynes : We leave Saving to the private investor, and we encourage him to place his savings mainly in titles to money. We leave the responsibility for setting Production in motion to the business man, who is mainly influenced by the profits he expected to accrue to himself in terms of money. Those who are not in favor of drastic changes in the existing organization of society believe that these arrangements, being in accord with human nature, have great advantages. But they cannot work properly if the money, which they assume as a stable measuring-rod, is undependable. Unemployment, the precarious life of the worker, the disappointment of expectation, the sudden loss of savings, the excessive windfalls to individuals, the speculator, the profiteer--all proceed, in large measure, from the instability of the standard of value.

Keynes was neither a Fascist nor a Communist--i.e., he was not one of those "in favor of drastic changes in the existing organization of society." Does it sound like Keynes failed to conceive the role that saving plays in the improvement of economic conditions?

I've often thought that von Mises must never have read Keynes very carefully.


Virginia Postrel Is a Saint

She writes:

Dynamist Blog: A Medical Adventure: Unless people like Leon Kass get their way, someday patients with failing kidneys will be able to get made-to-order replacements that are exact genetic matches, either through therapeutic cloning or some now-unknown future technology. Now, however, if your kidneys stop working, you have three options: die, go on dialysis (regularly described as "living hell" by dialysis patients and their loved ones), or find a donor kidney. And donor kidneys are in short supply, made shorter by legal restrictions and social taboos.

Last fall, my friend Sally Satel wrote about the issue in general and her own search for a kidney donor. Between the time she wrote the article and the time it appeared in the NYT, I heard about her situation and volunteered as a donor. Our tissues turned out to be unusually compatible for nonrelatives and, when her Internet donor dropped out, I moved from backup to actual donor. We have our surgeries tomorrow morning.

As surgeries go, the procedure is safe and straightforward--far more so than people think. A donor can live a completely normal life with one kidney. The recipient is not so lucky, since a foreign organ requires a lifetime of immunosuppressant drugs. But that's a lot better than the alternative.


Knight Ridder's Tom Lasseter Has an Appointment in Samarra

Greg Mitchell writes:

Why Tom Lasseter Stays Behind in Iraq: Two weeks ago, I wrote a column alerting readers to a report by Knight Ridder's longtime Baghdad correspondent Tom Lasseter. He had returned from an embed mission to little-visited Samarra and, in his usual way, offered a remarkably frank look at a city that was taken by the U.S. last year but never really pacified. Well, timing is everything. A few days later, insurgents blew the top off the main mosque there and a near-civil war has raged since, with hundreds killed.

Lasseter's mid-Februrary dispatch proved prescient, but what surprised me most of all was that he was still out there risking his life. When last we heard from him last autumn, he was planning to wind up his long, award-winning stint in Iraq in January 2006, and move to Washington, D.C., to work for the KR bureau there. So what was he doing in mid-February, still in Iraq, filing another wrenching dispatch, embedded with U.S. troops in Samarra? What's with this guy? And how does he manage to get all of these stories, and revealing quotes, from military personnel when few others can?

E&P has covered Lasseter several times in the past two years. His assignment in Samarra caused me to ask him how it came about. From Baghdad, he replied that he had been curious about Samarra for quite some time. Was it indeed pacified last year, as claimed by the U.S., or more like still-boiling Ramadi? After expressing his interest to the public affairs chief for the 101st Airborne, he got the OK to hitch a ride in a helicopter to the city in January. Lasseter wrote in this e-mail that he was "pretty surprised by the level of destruction in the town." Its population of over 200,000 had been cut in half. Despite being surrounded by a seven-mile-long security wall, it was beset by an increasing number of explosions set off by insurgents...


Yet More Journamalism From the Washington Post (Why Oh Why Can't We Have a Better Press Corps?)

Matthew Yglesias looks askance at the liquid stream of excrement that is Richard Cohen as it further pollutes the river of American political discourse:

Matthew Yglesias | TPMCafe: Phase one of the Dubai port pushback has been for the President's defenders to call his critics racists and dismiss our concerns as baseless. After all, the Coast Guard will still be running security. Well, the Coast Guard turns out to have concerns. Thus, Richard Cohen and his phase-two pushback:

Would that anyone could say the same about many of the deal's critics. Whatever their concerns may be, whatever their fears, they would not have had them, expressed them or seen them in print had the middle name of the United Arab Emirates been something else.

I think I would need to be a card-carrying rightwinger to have an appropriate reply to this kind of racial demagoguery. The problem isn't that my concerns are without merit. My concerns may well have merit. But whatever my concerns may be they should be ruled out of bounds because Cohen knows -- he just knows -- that really, deep down, they're just motivated by racism. This is like a six year-old's approach to argumentation.

Whatever.


Economist's View

Mark Thoma transmits some good advice from Robert Rubin:

Economist's View: Robert Rubin urges Democrats to define the nation's fiscal problems broadly and not to fall into the trap of focusing solely on Social Security and Medicaid in formulating a solution:

Rubin Urges Democrats to Reject Bush Social Security Proposal, Bloomberg: Former U.S. Treasury Secretary Robert Rubin urged fellow Democrats to reject President George W. Bush's plan for a bipartisan commission to examine solutions to the mounting costs of Social Security and health care. Rubin... said Democratic leaders in Congress should instead insist Bush join them in a "fiscal commission" to discuss all options for cutting the budget deficit, including rolling back Bush's tax cuts. "It only makes sense substantively, in my judgment, to get together around this if everything is on the table, including the tax cuts," Rubin ... said... "Otherwise you have a one-sided approach to what is a very large problem."...

Rubin is--as he almost invariably is--right. We don't need an Entitlements Commission, we need a Fiscal Commission


Why Oh Why Can't We Have a Better Press Corps? (Today's Acts of Journamalism From the Washington Post Company)

Over at the Washington Post's Slate, John Dickerson drives Betty the Crow around the bend and over the cliff:

BTC: [John] Dickerson, the former Time Magazine Washington correspondent who now holds down the Ruminant desk at Slate, is shocked and alarmed by the presiden's lack of engagement [during] the [pre-Hurricane] briefing.... "I don't know what question the president should have asked," Dickerson plaintively writes toward the end of his column, "but shouldn%u2019t he have asked something?"... that little cri de coeur pales next to something Dickerson wrote earlier in the piece.

We see the president all the time in public settings, giving speeches, shaking hands, looking concerned. But this footage is fascinating because it is the first video I can recall of the president at work in private. It's our chance to see how the image of the president painted by his allies compares with the actual man. And the result is somewhat alarming. Based on what I'd been told by White House aides over the years, I expected to see the president asking piercing questions that punctured the fog of the moment and inspired bold action. Bush's question-asking talents are a central tenet of the president's hagiography. He may not be much for details, say aides, but he can zero in on a weak spot in a briefing and ask out-of-the-box questions. I have been repeatedly told over the years that he once interrupted a briefing on national defense to pose a 30,000-foot stumper: What is the function of the Department of Defense?...

I don't know what's most distressing... that Dickerson believed what Bush allies told him... that the president would... ask what the Pentagon is for, that [his aides]... were stumped by the question, that Bush aides thought the anecdote... flattering to Bush... or that a veteran reporter can reference "the view from 30,000 feet" without the slightest hint of embarrassment or irony.... It's tempting to think, or hope, that Dickerson is writing tongue in cheek, but he makes clear a bit later that no, he really did buy the bridge.

Perhaps the Katrina briefing was an aberration. But I worry that it isn't.... Former anti-terrorism official Richard Clarke and Treasury Secretary Paul O'eill both wrote about Bush's lack of curiosity. L. Paul Bremer's account... inadvertently paints a similar picture...

So. Okay. What we have here is an experienced Washington hand who has presumably been conscious during at least some of the past five years, and is only now -- and only because he saw the frickin' video beginning to worry that Bush may not be quite as competent as those responsible for covering his ass say he is...

And over at Romanesco, the real reporters at Knight-Ridder go on the warpath:

Poynter Online - Forums:

TO: Knight Ridder Editors
FROM: Clark Hoyt [Washington bureau chief] John Walcott

On Feb. 7, Warren Strobel reported on a State Department reorganization that sidelined career arms control experts who don't share the Bush administration's mistrust of international arms negotiations and agreements. Exactly two weeks later, The Washington Post published a virtually identical story by Glenn Kessler. We say "virtually identical" only because the stories were written with different words. There was not a single fact in Kessler's story that was not in Strobel's, the product of weeks of careful enterprise reporting and interviews with 11 current and former government officials. We have asked, through the Post's ombudsman, Deborah Howell, who was once executive editor in St. Paul, for a published acknowledgement of the Knight Ridder story. To date, it hasn't happened. We understand that there has been vigorous opposition from the Post reporter, who has claimed, in essence, that the "trade press" had already widely reported the story, a contention that is in fact not correct. We're waiting to see what happens....

[W]hy do we harp on this? Because the reporters who do the groundbreaking work deserve the credit. Because Knight Ridder, which invests substantially in this kind of original journalism, deserves the credit, even -- or perhaps especially -- in these trying times for all of us. And because the integrity of our profession, already under all-out assault from partisans, requires that we and others be honest with readers about how news originates. That's why, though it breaks our competitive hearts, we acknowledged right at the top of this morning's story about President Bush's briefing on Hurricane Katrina that the Associated Press was the first to obtain the video and transcripts of the briefing, if only by hours...

As somebody--Matthew Yglesias?--once said, these are the reasons that people interested in news-as-information rather than news-as-entertainment are increasingly turning to respected weblogs of good reputation for their information and serious analysis.

If Dickerson can sit in Washington for five years and really think that Bush routinely asks "piercing questions that puncture the fog of the moment and inspire bold action," what other stupid and insane--make that stupidly insane--beliefs underpin his writings? If Washington Post reporters and editors feel under no ethical obligation to acknowledge Knight-Ridder's priority, what other parts of what they do are ethics-free?