## Covering the Economy: Washington Post vs. the Internet, Round XXXIV

Washington Post vs. the Internet, Round XXXIV

Two pictures of weblogger Maryscott O'Connor. Which of these do you think the Washington Post ran?

## Immigration Once Again

Greg Anrig directs us to "the most significant new study about" immigration by the excellent and hard-working Gianmarco Ottaviano and Giovanni Peri:

Gianmarco I.P. Ottaviano and Giovanni Peri: "Rethinking the Gains from Immigration: Theory and Evidence from the U.S.": The standard empirical analysis of immigration, based on a simple labor demand and labor supply framework, has emphasized the negative impact of foreign born workers on the average wage of U.S.-born workers (particularly of those without a high school degree). A precise assessment of the average and relative effects of immigrants on U.S. wages, however, needs to consider labor as a differentiated input in production. Workers of different educational and experience levels are employed in different occupations and are therefore imperfectly substitutable.

When taking this approach, one realizes that foreign-born workers are “complements” of U.S.-born workers in two ways. First, foreign-born residents are relatively abundant in the educational groups in which natives are scarce. Second, their choice of occupations for given education and experience attainments is quite different from that of natives. This implies that U.S.- and foreign-born workers with similar education and experience levels are imperfectly substitutable. Accounting carefully for these complementarities and for the adjustment of physical capital induced by immigration, the conventional finding of immigration’s impact on native wages is turned on its head: overall immigration over the 1980-2000 period significantly increased the average wages of U.S.-born workers (by around 2%).

Considering its distribution across workers, such an effect was positive for the wage of all native workers with at least a high school degree (88% of the labor force in year 2000), while it was null to moderately negative for the wages of natives without a high school degree.

We may have to reopen the Stupidest Man Alive contest:

Matthew Yglesias, Belle Waring, and Thus Blogged Anderson watch with dropped jaws:

The Golden Hanson | TPMCafe: Belle Waring writes:

Belle Waring: You should really read the Vodkapundit post and accompanying thread. He says you'll need a drink, and the man is not kidding at all. The story he links to [by Dan Simmons] takes grave misreadings of Thucydides to a whole new level, a category in which the competition is stiff. Simmons is sure to win this year's coveted "Golden Hanson". The trophy features a stern VDH uprooting an olive tree with one hand and hitting himself repeatedly on the head with an axe handle with the other...

The Vodkapundit post is here. You can find the collective works of Victor Davis Hanson here. Hanson is an under-analyzed figure on the political media scene. Ever since 9/11 he's been generating words as a fantastical rate the overwhelming plurality of which are based on pretty clear-cut misreadings of Thucydides--such that a book about how a once-great country ruined its foreign policy and its own moral virtue in an unnecessary foreign adventure somehow becomes a book about how wars that look really stupid are, in fact, good because they provide a lot of opportunities to show resolve. Why National Review would be interested in publishing this is hard for me to say. Indefensible as the Bush foreign policy has been, it would be child's play to devise less-silly-than-this accounts of why it's a good idea.

Here's Anderson:

Thus Blogged Anderson.: So much for the great books: Somebody claims to have read Thucydides & come away with the message that it's bad not to be ruthless enough. Wow. Next we'll be hearing about how the Sermon on the Mount really means "kill them all, God knows his own."

## Open Markets, Open Borders...

Arnold Kling gets medieval on George Borjas:

EconLog, Free Trade Equals Redistribution?, Arnold Kling: Library of Economics and Liberty: George Borjas writes:

Immigration policy is just another redistribution program. In the short run, it transfers wealth from one group (workers) to another (employers). Whether or not such transfers are desirable is one of the central questions in the immigration debate.

There is an isomorphism between immigration, outsourcing, and free trade in general. In each case, overall economic efficiency is increased, due to the law of comparative advantage. There are distributional effects, to be sure, but no nation has been able to demonstrate an ability to use trade restrictions of any sort to reduce overall poverty.

Redistribution implies that trade is a zero-sum game. Borjas implies that immigration works like a tax on low-income workers and a subsidy to high-income employers. Of course, in any sort of competitive market, employers do not profit from lower costs but must instead pass them onto consumers. But why let a little economics get in the way of a folk-Marxist story?

Immigration, like all other forms of trade, is positive-sum game. All forms of trade restrictions hurt the economy. Immigration restrictions may change the composition of the least-well off. Overall, however, by weakening the economy immigration restrictions are likely to produce more poverty rather than less.

I am not a passionate supporter of open immigration as an economic policy. I do not think that the gains are huge. But I am angry any time an economist misleadingly describes trade as a "redistribution program." At that point, you forfeit your identity as an economist and instead become a demagogue.

## Brad Setser on the Current Three-Cornered Balance of Financial Terror: Asian Manufacturers, American Homeowning Consumers, and Middle-Eastern Oil Producers

Nouriel Roubini is scared of $70-a-barrel oil. Brad setser writes: RGE - Abridged Roubini on oil at$70 -- and not-so-abridged Setser on Petrodollars: A condensed version of Dr. Roubini's latest post: "I was wrong about the impact of $40 oil, but I'll be right about the impact of$70 oil." I know Dr. Roubini was wrong about the impact of $40 oil because my name also appears on the 2004 note. We both were wrong. We thought high oil prices would be a drag on the economy in 2004. They often are. Yet, global growth was very, very strong in 2004. Judging from the evidence, the magic formula for global growth is an undervalued Chinese RMB, high oil prices and a growing US current account deficit financed by the central banks of really poor countries and a few really rich oil sheiks. The formula is just so counter-intuitive that it took a long time to discover... 2005 wasn't quite as good as 2004, but it wasn't bad by any means.... I think James Hamilton would say that a strong global growth has been a tonic for oil producers. Oil prices are high mostly because demand for oil is high.... Nouriel identifies a couple of reasons why high oil prices might be a bigger drag going forward: The current run-up in oil prices seems to be driven at least in part by concerns about supply. Iran. Nigeria's delta. And, more generally, the folks that have oil are far more interested in renegotiating the terms of their existing contracts with big oil companies than in reaching agreement with the big oil companies on a new round of investment.... In 2003, 2004 and 2005, consumers tapped into their rising home equity (or just saved less as their homes appreciated) and kept on spending even as oil prices rose. Nouriel thinks that this process won't continue. The Fed will get in the way, pushing up short-term rates until long-term rates have to go higher. Or US consumers will simply burn out, and lose their desire to take on more debt.... I certainly wouldn't rule it the scenario he describes. But at least so far, there isn't much evidence the US consumer is cutting back. And I have been very struck by one thing that Nouriel doesn't put a lot of emphasis on. Call it the oil savings glut. There is no doubt that the spare savings of the world's oil exporters - savings in excess of their investment - is now enormous. And with oil at$70, it will only get bigger. And there is no doubt that the United States' need to borrow savings is enormous. And it too is getting bigger. I suspect one of the reasons why oil didn't exert more of a drag on the world economy is that the US had - by that time - entered into a cycle of expansion fueled by a surge in residential investment and rising consumption spurred by consumers' ability to borrow against rising home values. The oil exporters spare savings stepped into the breach left by the reduction in the pace of Asian central bank intervention. Non-Chinese Asian central bank intervention that is. China is a special case: its current account surplus grew even as its oil import bill grew.

By holding US real interest rates down, the oil exporters reinforced a process that got started with the Fed cut rates, and got further fuel from Asia's unwillingness to allow their currencies to appreciate against the dollar from 2002 on. There is a certain lovely symmetry: The countries with the highest propensity to save - China and the oil exporters - financed the country with the highest propensity to borrow in order to spend.

## The Current Situation

Glenn Rudebusch on the macro outlook:

FedViews (4/14/2006): The Current Economy and Outlook: FedViews: April 14, 2006: Glenn Rudebusch, Senior Vice President and Associate Director of Research at the Federal Reserve Bank of San Francisco, states his views on the current economy and the outlook:

Last year at this time, we anticipated continued steady growth in real output. As it turned out, the economy decelerated sharply in the fourth quarter... factors restraining the fourth quarter were temporary, and we expect a substantial rebound in growth this year.... [F]irst-quarter growth... may reach 5 percent at an annual rate. But that rapid pace is not expected to endure.... A year ago, we were expecting the core inflation rate to moderate a bit from the highs posted in 2004. In the event, core inflation did edge down a bit in 2005. Going forward, we now anticipate that core inflation will remain contained....

[T]here are probably two key risks to the forecast. First, we may be underestimating the underlying strength of aggregate demand in the economy and the impetus for higher inflation.... A second key risk is that we may be underestimating the effect of the past tightening of monetary conditions on the economy.... The recent removal of monetary accommodation has started to have some effect on mortgage rates, which should damp housing demand. Indeed, by one survey measure, home buying attitudes have soured recently....

Over the past 45 years, the real funds rate has averaged about 2-1/2 percent, which is probably close to the center of a neutral range for monetary policy. Monetary policy now appears to be positioned at the upper end of this neutral range, but the future path of policy is quite uncertain and very dependent on how the incoming data shape the outlook.

## Joe Nocera on Jeffrey Skilling

Nocera writes:

Mr. Skilling, for the Defense - New York Times: In the world according to Jeffrey Skilling, Enron was brought down by two things: the revelation that Mr. Fastow was using his partnerships to make millions while also skimming from the company -- actions Mr. Skilling contends he knew nothing about.... And secondly, he says, Enron was done in by a handful of short sellers, who organized a conspiracy to attack the stock. (Gee, where have we heard that before?)

Well, what did you expect him to say?.... For most of the time on the witness stand, Mr. Skilling seemed smaller than life. He often wore a timid, tentative facial expression, a little like a third grader hoping not to be reprimanded by the teacher. But at least once a day he would have momentary meltdowns, and all the bitterness, sarcasm and self-pity would creep to the surface -- only to be damped back down by Mr. Petrocelli. In the course of answering a question about Mr. Fastow's crimes, for instance, Mr. Skilling took an unprompted swipe at the F.B.I. -- an incredibly foolhardy thing to do in front of a jury. When you're on the witness stand, fighting for your life, there is nothing more important than being disciplined in what you say and how you act....

In this case, though, it seems to me that this question actually answers itself: $285 billion sounds like a front-page headline; "approximately 1.7% of federal spending over the next six years" sounds like what William Safire used to call a "nine-point MEGO" where the MEGO stood for "my eyes glaze over."... And your economic journalist has, what, fourteen column inches on a good day? I think Michael has largely missed Dean's point. The right way to put the number is: "$170 per person per year--out of a federal budget that spends $10,000 per person per year." That is neither MEGO, nor does it misinform. ## Still Far From Full Employment When I look at the numbers that Daniel Gross is looking at, I find it impossible to understand why so many people think that we are close to full employment: Invest Globally, Stagnate Locally - New York Times: By DANIEL GROSS: IN the United States and Europe, there has been a curious disconnect in recent years between the performance of the corporate sector and the performance of the overall economy. For example, median incomes for American workers have barely budged since 2000, while corporate profits have nearly doubled.... It's a truism in the large developed economies that capital is strong and labor is weak. From 2001 to the fourth quarter of 2005, corporate profits as a percentage of United States G.D.P. rose significantly, to 11.6 percent from about 7 percent. Companies have been able to keep a larger share of the cash they generate, rather than pay it out in wages, in part "because the labor market recovery has been weak," said J. Bradford DeLong, professor of economics at the University of California, Berkeley. Professor DeLong notes that while unemployment is low, other measures of labor-market health, from hours worked to the employment-to-population ratio, show it to be less than robust.... The heightened mobility of capital allows companies to invest their profits around the globe with considerable freedom. "American companies really haven't been sinking much of their gains back into domestic investment," said Jared Bernstein, senior economist at the Economic Policy Institute in Washington. In the United States, nonresidential fixed investment as a percentage of G.D.P. fell to 11.56 percent in 2005 from 12.55 percent in 2000.... ## The Cost of Corporate Taxes Chang-Tai Hsieh and Jonathan A. Parker say: don't tax retained earnings--especially in countries where cost differences between internal and external finance are large: Taxes and Growth in a Financially Underdeveloped Country: Evidence from the Chilean Investment Boom: NBER Working Paper No. 12104 March 2006: Abstract: This paper argues that taxation of retained profits is particularly distortionary in an economy with good growth prospects and poorly developed financial markets because it primarily reduces the investment of financially constrained firms, investment that has marginal product greater than the after-tax market real interest rate. Contrarily, taxes on distributed profits or capital gains primarily reduce the investment of financially unconstrained firms. Chile experienced a banking crisis over the period from 1982 to 1986 and in 1984 reduced its tax rate on retained profits from 50 percent to 10 percent. We show that, consistent with our theory, there was a large increase in aggregate investment after the reform which was entirely funded by an increase in retained profits. Further, we show that investment grew by more in industries that depend more on external financing, according to the Rajan and Zingales (1998) measure. Finally, we present some weak evidence from comparisons of investment rates across firms for several different measures of their likelihood of being financially constrained. ## Thank You, United Flight 93 David Corn thanks the men and women of United Flight 93: David Corn: Yesterday, the transcript of the final thirty-one minutes and sixteen seconds of Flight 93 was released. This was the fourth plane, the one apparently heading toward Washington, perhaps to attack the White House, perhaps to strike the Capitol. (Several experts seem to think the Capitol was the primary target of the Flight 93 hijackers. Perched on a hill, it certainly would be an easier target to hit than 1600 Pennsylvania Avenue.) As I read the transcript, my eyes filled with tears. The heroic actions of Flight 93 passengers become rather visceral when you read--and mentally hear--their words and those of the al Qaeda hijackers. It remains unclear whether the passengers made it into the cockpit or were about to break in before the hijackers decided to roll the aircraft and crash it into a field in Pennsylvania. But there's no doubt that the passengers did force this action and thwarted whatever attack the hijackers had in mind. All of us who work on Capitol Hill--in the Capitol or not--owe these passengers our profound gratitude. Having heard about the attacks in New York, they decided to take action. They probably realized that the lives were already lost, but they would go out fighting--to save others. They were not soldiers, not cops, not professionals paid every day to risk their lives to help someone else. They were just folks on a plane, brought together only by their travel plans. I thank them and their families and friends (anyone who had taught or inspired them to do what was right and courageous). I will keep their actions always in mind. Dulce et decorum pro patria mori ## Special John Snow Update (Why Oh Why Are We Ruled by These Morons? Department) Today we are treated to the edifying spectacle of the worst Treasury Secretary in living memory--John Snow--trying to trash one of the best--Bob Rubin. Of Bob Rubin's Hamilton Project http://www.hamiltonproject.org, Snow says: http://www.treas.gov/press/releases/js4178.htm: [Rubin and company] styled their undertaking the so-called "Hamilton Project," drawing on the name of the first U.S. Treasury Secretary. Based on what was said, it appears that Hamilton's name may have been misappropriated. Hamilton after all was foremost among the founding fathers in seeing that the new republic's future depended upon the vitality of commerce and the private sector while the authors of the Hamilton Project argue for a larger government role... Does John Snow really have no clue that Hamilton believed that a big, activist government--regulating the financial system, supporting science and industry, encouraging manufactures, assuming the national debt--was essential for the health of the American economy? Is it really the case that nobody in John Snow's entourage knows that Hamilton was always on the "big government" side in his fights with Jefferson? That Jefferson believed that a big government was a threat to liberty, but that Hamilton did no--Hamilton was not interested in either big government or small government per se but rather in effective government? Five current and ex administration officials I have polled this morning say, "no." None of them are surprised. They imply that this degree of ignorance on the part of Snow and his entourage is more-or-less par for the course, given what they have seen in the Roosevelt Room and elsewhere. The Bush administration: once again worse than you can imagine, even after taking account of the fact that the Bush administration is worse than you can imagine. The kicker is that the White House has as low an opinion of John Snow as anybody. By all accounts, new chief of staff Josh Bolten has been wandering around telling his favored reporters that removing Snow is his first priority. The White House hired Snow wanting a cheerleader for policies designed outside the Treasury by people unqualified to make economic policy. They got what they wanted. And now they are upset--like the story of the city slickers from Houston who buy a steer and then complain about its low sperm count. The excellent Paul Blustein has some insightful things to say about this: Snow Is Loyal, but It May Not Be Enough: Snow... hasn't strayed from the Bush administration line, committed serious gaffes, presided over recessions, triggered financial market turmoil or gotten caught in a major scandal. So why does Snow's job security appear so precarious and his performance such a frequent target of discontent at the White House?... Snow has hewed strictly to the White House's talking points. That... [was] his undoing: He has been such a loyal salesman that he has come across as ineffective.... "I lay some of the blame on the fact that he has followed the script too well"... said Pamela F. Olson, a former assistant Treasury secretary.... "John Snow has been a good mouthpiece even when he would personally have been better off if he hadn't, and the president would have been better off too. But he has followed the instructions he has been given."... Snow's PR efforts... [have] been hampered by the... [fact that] he plays a much less important role in policymaking.... [A] top Senate Republican staffer [said]... "[T]he problem is that the White House plays it up themselves that [Snow's] the spokesman and policy gets made inside the White House. I think it hurts them, but it's their choice."... "[Snow] hasn't done anything wrong," [Kevin] Hassett said. Snow could be an effective spokesman, he said, "if he was the one who had the authority to speak and make policy..." Kevin Hassett is, of course, wrong. Snow should have gone to the White House three years ago and told them, "I can be an effective spokesman and advocate only if I am a maker of policy and not just a cheerleader for policies made elsewhere." His subservience to the White House has not served either the country or Bush well. ## You're Not Paying Enough for the Internet Paul Kedrosky cites Goolsbee and Klenow http://siepr.stanford.edu/papers/pdf/05-10.html : You're Not Paying Enough for the Internet: From a new Stanford economics working paper: Only about 0.2% of consumer spending in the U.S. ... went for Internet access in 2004 yet time use data indicates that people spend around 10% of their entire leisure time going online... 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. ## Stupidest Man Alive: The Winner I regret to say that Donald Luskin of National Review is not the stupidest man alive. The stupidest man alive is Jon Derbyshire of National Review. Yes, that's Jon "I Got Mine, Jack! Pull up the Ladder!" Derbyshire: The Corner on National Review Online: REFORMED [Jon Derbyshire] A couple of readers to this effect: "Aren't you a bit embarrassed to be laying in to illegal immigrants, having confessed that you yourself were once an illegal immigrant?" No. I look on it as being sort of like the reformed drunk at a temperance meeting. Besides, there's INSIDE and OUTSIDE. I can recall thinking, as an i-i, that Americans were kind of naive about immigration. Since the naivety was to my personal advantage, I didn't complain. AS AN AMERICAN, and having jumped through all the darn immigration hoops at last (seven years to Green Card, nine more to citizenship), I'm entitled to another point of view... Ah. I see the circular firing squad of flying attack monkeys has arrived from National Review to troll. I'll keep the amusing ones... ## Tackling America's Growing Inequality A fake newspaper: Sebastian Mallaby of the Washington Post: Political Crackups: The Republicans' dismal performance could shake their grip on power.... But the top congressional Democrats seem barely more attractive than the Republicans; they have mastered the art of obstructionism but are light on policy proposals... A fake newspaper has to be "bipartisan" in the sense that anything negative said about one political party has to be "balanced" by an equal and opposite negative said about the other. A real newspaper--like the Financial Times--behaves very differently. For example: FT.com / Comment & analysis / Editorial comment - Tackling America's growing inequality: April 6 2006 03:00: That George W. Bush has so far had difficulty persuading any prominent Wall Street Republican to replace John Snow as treasury secretary speaks volumes about the low priority his administration has accorded to economic decision-making.... In that context, we welcome the launch yesterday by the Brookings Institution of a new platform - the Hamilton Project, named after America's first Treasury Secretary - to address America's looming economic challenges. Although composed mostly of Democrats, the group states a clear preference for market-based solutions to America's problems. It rejects the latent signs of protectionism recently visible on Capitol Hill. But it makes a strong case for the state to play a more constructive role both in improving the efficiency of America's market economy, but also in addressing the growing inequity of market outcomes. Most important, it addresses the potentially dangerous impact that America's virtually stagnant median wage could have on the country's political mood and on the workings of the economy. Since 1973, the income of the top 10 per cent of American earners has grown by 111 per cent, while the income of the middle fifth has grown by only 15 per cent. That trend has become more pronounced in the last few years. Between 1998 and 2004, the median income of American households fell by 3.8 per cent. This coincided with annual productivity growth in excess of 3 per cent in most of those years. You do not need to take a definitive stance on why America's high productivity growth has been so disproportionately captured by a small percentage of Americans to agree that it makes for a potentially volatile political scenario. Alan Greenspan, the former chairman of the Federal Reserve and a Republican, has made the same point in public. There is room for more scepticism about the group's argument that growing income inequality harms economic growth. There is some evidence that the growing volatility of American incomes feeds into a culture of risk aversion, which in turn reduces the creation of small businesses. There are also grounds for believing that a stronger personal bankruptcy law would enhance risk-taking, which would lift America's economic growth. But the jury is still out on the question of whether growing inequity necessarily leads to lower growth. Yet it would be hard to dispute the recommendation that America should boost investment in the skills of its workforce, both through better technical training and improving the underperforming public school system. Likewise, we strongly agree with the view that the US needs to return to the path of fiscal discipline from which Mr Bush has strayed, even if the group ducked the question of how it would reform America's entitlement system. Reducing the cost of Medicare and Medicaid is America's most important long-term fiscal challenge. It is also critical to reverse Mr Bush's tax cuts. At a time of economic demagoguery on Capitol Hill and a vacuum of leadership in the White House it is refreshing that rational voices are addressing America's core economic challenges. Many of the policy details are awaited. But the diagnosis is persuasive. ## Covering the Economy: April 12, 2006: Global Issues Global Issues Readings: Offshoring: The Next Industrial Revolution? - Alan S. Blinder: Summary: Economists who insist that "offshore outsourcing" is just a routine extension of international trade are overlooking how major a transformation it will likely bring -- and how significant the consequences could be. The governments and societies of the developed world must start preparing, and fast... Brad DeLong's Semi-Daily Journal: Outsourcing: Matt Richtel writes: "The Long-Distance Journey of a Fast-Food Order - New York Times: SANTA MARIA, Calif. -- Like many American teenagers, Julissa Vargas, 17, has a minimum-wage job in the fast-food industry -- but hers has an unusual geographic reach..." Alan Krueger on Immigration: Immigration policy involves fundamental issues about what and who we are as a country. There are no simple answers on immigration policy because different people can legitimately assign different weights to the welfare of new immigrants, recent immigrants, and various groups of natives. In addition, there is considerable debate disagreement among economists about the economic impacts of immigration.... ## Cats Are Sadistic, Aren't They? Alex Tabarrok tells us to go watch Ed Leamer play cat-and-mouse with Thomas Friedman: Marginal Revolution: Flat Buster: Ed Leamer reviews Thomas Friedman's The World is Flat. When the Journal of Economic Literature asked me to write a review of The World is Flat, by Thomas Friedman, I responded with enthusiasm, knowing it wouldn’t take much effort on my part. As soon as I received a copy of the book, I shipped it overnight by UPS to India to have the work done. I was promised a one-day turn-around for a fee of$100. Here is what I received by e-mail the next day: “This book is truly marvelous. It is perhaps the greatest book ever written. It will surely change the course of human history.” That struck me as possibly accurate but a bit too short and too generic to make the JEL happy, and I decided, with great disappointment, to do the work myself.

Don't let the opening fool you, in the course of much fun at Friedman's expense Leamer does a superb job of reviewing economic geography, trade theory, and recent economic history. And lest you think he picks easy targets, Paul Samuelson and others come in for some knocks as well. Hat tip to Prashant Kothari at the Indian Economic Blog.

## Bush "Management Style"

It is a great shame that the New York Times put Bruce Bartlett's temporary weblog behind its "Times Select" paywall. Here's a good piece on Bush "management style":

Bruce Bartlett - The Right Stuff - Bush Plays the Same Old Hand - New York Times Blog: [I]n 2002, Treasury Secretary Paul O'Neill was publicly fired -- along with Larry Lindsey, Director of the National Economic Council -- in a fashion that suggested there was more to it than a mere desire to change staff. Why Bush could not have... allow[ed] them to leave with their dignity intact has never been explained.... Both would have resigned in a heartbeat if they knew that the president was displeased with their performance. Both deserved to have Mr. Bush himself tell them they were out. The firings sent a message to everyone in the administration that they were expendable and could be dispensed with at a moment's notice. They would not even be permitted the face-saving gesture of quitting for "personal reasons" if Mr. Bush thought there was some benefit to publicly throwing them overboard. The effect was to dampen what little initiative and independence might have existed within the administration....

John Snow, got the message that he must not take the lead on any issue.... His only job seems to be greeting every new economic statistic as if the nation had won the lottery.... Mr. Bush's managerial style has been manifestly unsuccessful... yet there is no indication that he will change his approach.... Mr. Bolten will do his job with ruthless efficiency, for he is the truest of Mr. Bush's true believers. I know this because I have observed it firsthand.

Josh Bolten and I often worked together during the George H.W. Bush administration... a couple of years into the current administration, I saw him at a reception. I had just started writing some mildly critical things about some of Mr. Bush's policies, like the Medicare drug program, which I thought was unaffordable. Up until that time, I had been almost entirely positive in my writings about the administration. So I was taken aback when I went up to Mr. Bolten to say hello and he pointedly turned his back on me and walked away. I guess he thought he was punishing me for my criticism. All this did was confirm my growing belief that Mr. Bush would ultimately be a disaster for the Republican Party and the conservative movement.

The funny thing is that I was treated far better by Bill Clinton's people while he was in office, even though I almost never had a good word to say about their positions. To their credit, they really believed in what they were doing and were almost evangelical in their desire to explain why it was right, even to Republicans like me who were unlikely to ever embrace their message. I have no doubt that if I had come across Gene Sperling, one of Clinton's closest economic advisers, at such a reception, he would have come straight at me with a laundry list of facts and arguments for why I was wrong to be critical. I would have been invited to the White House mess to carry on the conversation, and I would have left with an armful of studies and statistics explaining the virtues of whatever Clinton program I was attacking.

By contrast, the Bush administration never provides its supporters with any ammunition... beyond the endless repetition of the day's talking points...

## A Singularity of Shrillness...

Andrew Sullivan's shrillness exceeds all bounds of possibility:

Andrew Sullivan | The Daily Dish: Yglesias Award Nominee: I think this Administration is the most politically and substantively inept that the nation has had in over a quarter of a century. The good news about it, as far as I'm concerned, is that it's almost over," - George Conway, National Review.

Andrew Sullivan | The Daily Dish: A Bush Collapse: Once Bush's passivity, indolence and arrogance were put on full display, once it was apparent that the government was not working, and that Bush was the reason, people figured out why the war in Iraq was such a shambles. And so the mystique required to sustain patriarchal authority was shattered. I think this is largely irreparable because it's about a basic assessment of a single man. What worries me is that we have almost three more years. If we face a confrontation or a crisis, this president will not be able to carry Americans with him. Our enemies will take comfort from this. Which is why re-electing him was such a terrible risk.

Andrew Sullivan | The Daily Dish: Why Rummy Will Stay: In this war, the president has essentially delegated all key decisions to the Cheney-Rumsfeld axis. The fact that these two are manifestly incompetent, have trashed the military, destroyed its honor, and turned Iraq into an early chapter in Hobbes is irrelevant. The president doesn't trust anyone else sufficiently to replace them. And he's too out of touch to make the key decisions himself.

Andrew Sullivan | The Daily Dish: Quote for the Day: "Can anyone doubt that matters are just as serious today, on the American right, as they were for the left in 1947? In much the same way that liberals felt torment over disowning the monsters on "their side," so we now see decent conservatives writhing and twisting, like pretzels, in order to make excuses for rapacious kleptocrats, incompetent thugs, moronic armchair warriors, cynical spin doctors, conniving feudalists and screeching fanatics.Are they truly loyal to such monsters? Are they kept in rigid lockstep out of some misplaced fealty to a ridiculous "political axis" that was insipid even when the French invented it, in 1789? A left-right axis that offers no relevance or insight or utility for an agile and sophisticated Third Millennium?" - David Brin, on his blog

Andrew Sullivan | The Daily Dish: Hamill on Bush: A reader sent me a piece by Pete Hamill from January 2001.... Hamill laments Bush's crippled 2000 election victory and predicts the ensuing presidency. I found the following passge disturbing: "[W]e should be prepared for armed melodrama. Bush is not a worldly man. His father was head of the CIA, ambassador to China, and president of the United States. The son stayed home. During the Vietnam War, he hurried into the Texas National Guard, defending the skies over Houston. He has visited only two foreign countries, one of them Mexico (the other seems to have slipped his mind). He was the first presidential candidate in memory who needed briefings about geography. But he knows where Iraq is, and is completely aware of what his father failed to do in that country: remove Saddam Hussein. A son in rivalry with a father can be a very dangerous man. To show 'leadership', the new President Bush might defy the European allies of the United States, and risk another oil crisis, by seizing on some slight--real or imagined--to finish off Saddam Hussein. He would thus force his father to admire him and get a boost in the public opinion polls." I didn't see it coming. But it behooves me to acknowledge those who did.

But where's the public apology to Paul Krugman for being a shrill, unbalanced critic of George W. Bush when it might have mattered for the country? That's way overdue...

## National Saving

I complain about the quality of the free ice cream Greg Mankiw offers at his weblog, and get results. Greg Mankiw explains how he would increase national savings:

Greg Mankiw's Blog: How to Increase National Saving: Brad DeLong (econ prof at Berkeley, former ec 10 student and assistant prof at Harvard, and super-blogger) welcomes me to the blogosphere at his blog and then complains about my post on the trade deficit. He thinks that I am being "elliptical" for saying I would like to see an increase national saving. I thought that my statement was pretty clear, but I am happy to explain to Brad what I mean.

I suppose Brad wants to know how I would increase national saving. Part of the answer is that tax policy could do more to encourage private saving. I have long been an advocate of moving the tax system in the direction of a consumption tax. The Hall-Rabushka flat tax or the Bradford X tax would be ideal. But one can also do incremental reform within the current tax structure. I would, for example, vastly expand the opportunities for tax-deferred saving, such as IRAs and 401k plans. I would like to move toward allowing corporations to expense all capital investments.

I also think there is some compelling evidence coming out of the behavioral economics literature that the details of savings plans matter a lot for how successful they are. My colleague David Laibson has put together some persuasive evidence that the default is crucial. If workers are automatically enrolled in 401k plans, and have the option of opting out, participation is much higher than if workers have to actively opt-in, as is usually the case today.

The other piece of the national saving picture is public saving. A smaller federal budget deficit would mean more national saving, less reliance on foreign capital flows, and a smaller trade deficit. The trade deficit and the budget deficit are not twins, but they are cousins.

As anyone who has looked at the numbers knows, the federal government's current budget deficit is, in a sense, only the tip of the iceberg of the fiscal problems to come. The federal budget is on an unsustainable path. When the baby-boom generation retires and becomes eligible for Social Security and Medicare, all hell is going to break loose. The policy options aren't pretty--either large cuts in promised benefits or taxes vastly higher than anything ever experienced in U.S. history...

To summarize: Greg wants to: (i) raise taxes, (ii) cut government spending, and so (iii) balance the budget, (iv) shift the tax code to be yet more friendly toward savings, and (v) reform ERISA so that employer-sponsored defined-contribution pension plans are the default option rather than requiring opt-in. I would buy into all four of those, with a footnote about how (iv) needs to be implemented in a way that does not reduce progressivity and make America a yet more unequal place.

## Wonkette Is Tres Mechant

Today, it bites Slate and Jacob Weisberg for continuing to publish Christopher Hitchens:

Seriously, Does Weisberg Owe Him Money or Something? - Wonkette: The next question we'd like to see [Slate's] Explainer tackle: Do nuts ever feel embarrassed at having descended into self-parody after latching on to the wrong group of public pseudo-intellectuals? Well, not as long as the checks keep clearing, we guess.

Memo to Jacob: your marquee has no value if the things that appear on it have a substantial probability of being just stupid.

## Rick Perlstein

Henry Farrell informs us that Rick Perlstein has a webpage:

(Rick Perlstein): Rick Perlstein is the author of Before The Storm: Barry Goldwater and the Unmaking of the American Consensus, winner of the 2001 Los Angeles Times Book Award for history. It appeared on the best books lists that year of New York Times, Washington Post, and Chicago Tribune, and also achieved the status, in the wake of the Clinton Wars and the 2000 Florida recount, of being one of the very rare books to receive glowing reviews in both left-wing and right-wing publications. From the summer of 2003 until 2005 he covered the presidential campaigns as chief national political correspondent for the Village Voice. His is currently working on a sequel to Before the Storm tentatively titled Nixonland: The Politics and Culture of the American Berserk, 1965-1972. He has also published The Stock Ticker and the Superjumbo: How the Democrats Can Once Again Become America's Dominant Political Party, an essay with responses from commentators including Robert Reich, Elaine Kamarck, and Ruy Teixeira, published as a book in 2005.

## Outsourcing

Matt Richtel writes:

The Long-Distance Journey of a Fast-Food Order - New York Times: SANTA MARIA, Calif. -- Like many American teenagers, Julissa Vargas, 17, has a minimum-wage job in the fast-food industry -- but hers has an unusual geographic reach. "Would you like your Coke and orange juice medium or large?" Ms. Vargas said into her headset to an unseen woman who was ordering breakfast from a drive-through line.... What made the $12.08 transaction remarkable was that the customer was not just outside Ms. Vargas's workplace here on California's central coast. She was at a McDonald's in Honolulu. And within a two-minute span Ms. Vargas had also taken orders from drive-through windows in Gulfport, Miss., and Gillette, Wyo. Ms. Vargas works not in a restaurant but in a busy call center in this town, 150 miles from Los Angeles. She and as many as 35 others take orders remotely from 40 McDonald's outlets around the country. The orders are then sent back to the restaurants by Internet, to be filled a few yards from where they were placed. The people behind this setup expect it to save just a few seconds on each order. But that can add up to extra sales over the course of a busy day at the drive-through. While the call-center idea has received some attention since a scattered sampling of McDonald's franchises began testing it 18 months ago, most customers are still in the dark. For Meredith Mejia, a regular at a McDonald's in Pleasant Hill, Calif., near San Francisco, it meant that her lunch came with a small helping of the surreal. When told that she had just ordered her double cheeseburger and small fries from a call center 250 miles away, she said the concept was "bizarre."... Ms. Vargas seems unfazed by her job, even though it involves being subjected to constant electronic scrutiny. Software tracks her productivity and speed, and every so often a red box pops up on her screen to test whether she is paying attention. She is expected to click on it within 1.75 seconds. In the break room, a computer screen lets employees know just how many minutes have elapsed since they left their workstations. The pay may be the same, but this is a long way from flipping burgers. "Their job is to be fast on the mouse -- that's their job," said Douglas King, chief executive of Bronco Communications, which operates the call center. The center in Santa Maria has been in operation for 18 months; a print-out tacked to a wall declares, "Over 2,540,000 served." McDonald's says it is still experimental, but it puts an unusual twist on an idea that is gaining traction: taking advantage of ever-cheaper communications technology, companies are creating centralized staffs of specially trained order-takers, even for situations where old-fashioned physical proximity has been the norm.... Jon Anton, a founder of Bronco, says that the goal is "saving seconds to make millions," because more efficient service can lead to more sales and lower labor costs. With a wireless system in a Home Depot, for example, a call-center operator might tell a customer, "You're at Aisle D6. Let me walk you over to where you can find the 16-penny nails," Mr. Anton said.... When the customer pulls away from the menu to pay for the food and pick it up, it takes around 10 seconds for another car to pull forward. During that time, Mr. King said, his order-takers can be answering a call from a different McDonald's where someone has already pulled up. The remote order-takers at Bronco earn the minimum wage ($6.75 an hour in California), do not get health benefits and do not wear uniforms. Ms. Vargas, who recently finished high school, wore jeans and a baggy white sweatshirt as she took orders last week.

The call-center system allows employees to be monitored and tracked much more closely than would be possible if they were in restaurants. Mr. King's computer screen gives him constant updates as to which workers are not meeting standards. "You've got to measure everything," he said. "When fractions of seconds count, the environment needs to be controlled."...

## Why Oh Why Are We Ruled by These Moronic Liars?

Condi Rice in U.K. Flunks Reporter's 'Sgt. Pepper' Test: Secretary of State Condoleezza Rice's goodwill trip to England.... [T]he trip hit rock bottom when she failed to get a famous Beatles reference.... Rice, a classically trained pianist and student of the great composers, has said she is a Beatles fan. But she looked blank during a stopover in British Foreign Secretary Jack Straw's hometown of Blackburn, when a British reporter refered to the "4,000 holes in Blackburn, Lancashire." Straw jumped in to explain that the line was from the classic 1967 Beatles song "A Day in the Life," on their album "Sgt. Pepper's Lonely Hearts Club Band."...

The reporter asked Rice to sing a few bars. She meant the part about the 4,000 holes. "But Rice, in over her head in Beatles trivia and looking sorry she had gotten into the whole thing," according to the Associated Press, woodenly sang the title "Sgt. Pepper's Lonely Heart's Club Band," then left with Straw....

Later, at a press conference, asked to name some of the "thousands" of mistakes she had said the U.S. made in Iraq, Rice replied: "First of all, I meant it figuratively, not literally. Let me be very clear about that. I wasn't sitting around counting. The point I was making to the questioner... is that, of course, if you've ever made decisions, you've undoubtedly made mistakes. The important thing is to get the big strategic decisions right, and that I am confident that the decision to overthrow Saddam Hussein and give the Iraqi people an opportunity for peace and for democracy is the right decision."

## Greg Mankiw's Blog: Is the U.S. Trade Deficit a Problem?

Greg Mankiw now has a weblog. This is very welcome: we are going to get a lot of high-quality free ice cream--with lots of chocolate sauce, nuts, and whipped topping as well--out of his joining the chorus.

Nevertheless, let me follow the first rule of the internet, and complain about the quality of the free ice cream that Greg is offering us. Greg still has a tendency to speak... well, let me elliptically say that he has a tendency to speak over-elliptically.

For example:

Greg Mankiw's Blog: Is the U.S. Trade Deficit a Problem?: An important issue facing the U.S. economy today is the trade deficit. There are at least three points of view among professional economists about the trade deficit and the associated inflow of capital that the United States has experienced in recent years.

One point of view suggests that the trade deficit is no big deal. If Japan were to start buying large quantities of steel, lumber, glass, and furniture from the United States, we would call that an export and our trade deficit would shrink. But if instead Japanese investors buy office buildings in New York made of American steel, lumber, glass, and furniture, that purchase is a capital account transaction. Because there no reason to prefer that Japanese buyers take delivery of their steel, lumber, glass, and furniture in Tokyo rather than New York, one can argue that we shouldn't be terribly concerned about the trade deficit.

As far as I can tell, this is close to the view that Ben Bernanke has expressed when he suggested that the U.S. trade deficit reflects a "global saving glut." With so much saving in the rest of the world, it is natural that foreigners would want to invest some of that saving in the United States rather than on their own shores. And there is no particular reason that we should object to their doing so. (A similar view is expressed in this article by economist Donald Boudreaux.)

A second point of view is that the trade deficit and the accompanying capital inflows are a problem because they are a financial crisis waiting to happen. Paul Krugman has pushed this perspective in his New York Times column. More than two years ago (January 6, 2004), Krugman wrote: "The traditional immunity of advanced countries like America to third-world-style financial crises isn't a birthright. Financial markets give us the benefit of the doubt only because they believe in our political maturity -- in the willingness of our leaders to do what is necessary to rein in deficits, paying a political cost if necessary.... If this kind of fecklessness goes on, investors will eventually conclude that America has turned into a third world country, and start to treat it like one. And the results for the U.S. economy won't be pretty."

In essence, Krugman is saying that we risk a hard landing of sudden capital flight. Of course, this catastrophe scenario hasn't materialized, lending some credibility to the Bernanke "What-me-worry?" hypothesis. The nice thing about such crisis predictions, however, is that they are probabilistic, so Paul would surely just say we've been lucky--so far.

My own view of the trade deficit and capital inflows is somewhere between Bernanke's and Krugman's. I don't rule out the Krugman financial crisis scenario, although I would bet against it. In fact, I am betting against it in my personal portfolio, where I am happily holding U.S. equities and dollar-denominated bonds. But I am not quite as sanguine as Bernanke has been.

My view is that the trade deficit is not a problem in itself but is a symptom of a problem. The problem is low national saving. Given that national saving is low, I am not eager for the trade deficit to disappear, because that would mean that domestic investment would need to fall to the low level of national saving. But I do think it would be good if the trade deficit were to disappear accompanied by an increase in national saving.

By "increase in national savings," Greg Mankiw is saying--elliptically--that he wants to see (a) an increase in thriftiness on the part of American households coupled with (b) tax increases and (c) significant spending cuts. It would be a good thing if his discourse were less elliptical.

Moreover, I don't think that Greg is completely accurate when he describes his position as between that of Bernanke and Krugman. As best as I can judge, Ben Bernanke believes that (a) desired private savings in Asia is higher than investment and (b) there are very attractive investment opportunities in the United States hence (c) asset prices in the U.S. are appropriately high and (d) capital flows into the U.S. are sustainably strong and (e) U.S. households are taking appropriate advantage of high asset prices to consume more now and save less in the future. Paul Krugman believes that (a) governments in Asia are short-sightedly accumulating dollar-denominated financial assets at an unsustainable rate and (b) investment opportunities in the U.S. are not all that attractive hence (c) asset prices in the U.S. are inappropriately high and (d) capital flows into the U.S. are unsustainable and carry significant risk of financial crisis because (e) U.S. households are spending at an unsustainable rate.

Greg's position does not split the difference between these two. Greg's position appears to me to be that (a) desired private savings in Asia is higher than investment and (b) there are very attractive investment opportunities in the United States hence (c) asset prices in the U.S. are appropriately high and (d) capital flows into the U.S. are sustainably strong but (e) U.S. households are short-sightedly consuming more now and saving less for the future than they would if they really knew what they were doing. It is not clear to me whether Greg's (e) is the result of households' not understanding that the government's budget deficit--its excess of spending over taxes--is in the long run their savings deficit, or is the result of simple household myopia even leaving the government's finances to one side. What is clear is that Greg thinks that, given low U.S. savings, it is better to have a trade deficit than not to have a trade deficit.

I am, in fact, not sure how to characterize all these positions in a helpful way. I think Barry Eichengreen has come closest to doing so at http://www.rgemonitor.com/blog/setser/122658.

## Why Oh Why Can't We Have a Better Press Corps? (Washington Post Clown Show Edition)

The news and the editorial pages of the Washington Post stagger around, hitting each other over the head with inflated pigs' bladders. As Joe Wilson says, "it might be helpful to the Post's readers if the editorial board would at least read the news before offering its judgments."

A while ago one Post staffer asked me why I did not presume that the Post's writers were "trying, hard, to do their jobs and, perhaps on deadline, [falling] short of the ideal..." Today appears to provide a good reason.

SusanG has the story:

Daily Kos: SusanG Sun Apr 09, 2006 at 08:48:28 AM PDT:

The world awakened this morning to a puzzle of ridiculousness: a Washington Post op/ed that can only be described as a hit piece on Joseph Wilson's "absurdly over-examined visit" (the editorial's words, certainly not mine) to Niger, in which the editorial staff claims there was no effort at the White House to discredit Mr. Wilson.... while its news pages headlined an investigative piece on the front page entitled "A `Concerted Effort' to Discredit Bush Critic."

The ironic juxtaposition of the two articles was not lost on Mr. Wilson, who in a private communication to me this morning (sorry, no link) made the following statement:

Sunday's Washington Post lead editorial once again misrepresents the facts as the paper's own reporting in the Barton/Linzer article in the same edition makes clear. While I respect the separation of news and editorial function it might be helpful to the Post's readers if the editorial board would at least read the news before offering its judgments. One of the reasons my trip to Niger has been overanalyzed, as the Post editorial says, is because people like those who wrote the editorial continue to misconstrue the facts and the conclusions."

Indeed. Let's follow the absurdity, shall we...? The editorial states:

Mr. Wilson subsequently claimed that the White House set out to punish him for his supposed whistle-blowing by deliberately blowing the cover of his wife, Valerie Plame, who he said was an undercover CIA operative. This prompted the investigation by Special Counsel Patrick J. Fitzgerald. After more than 2 1/2 years of investigation, Mr. Fitzgerald has reported no evidence to support Mr. Wilson's charge....

The material that Mr. Bush ordered declassified established, as have several subsequent investigations, that Mr. Wilson was the one guilty of twisting the truth. In fact, his report supported the conclusion that Iraq had sought uranium.

Then on Page 1, we find the news report:

A 'Concerted Effort' to Discredit Bush Critic: Prosecutor Describes Cheney, Libby as Key Voices Pitching Iraq-Niger Story

By Barton Gellman and Dafna Linzer
Washington Post Staff Writers
Sunday, April 9, 2006; A01

As he drew back the curtain this week on the evidence against Vice President Cheney's former top aide, Special Counsel Patrick J. Fitzgerald for the first time described a "concerted action" by "multiple people in the White House" -- using classified information -- to "discredit, punish or seek revenge against" a critic of President Bush's war in Iraq.

Bluntly and repeatedly, Fitzgerald placed Cheney at the center of that campaign. Citing grand jury testimony from the vice president's former chief of staff, I. Lewis "Scooter" Libby, Fitzgerald fingered Cheney as the first to voice a line of attack that at least three White House officials would soon deploy against former ambassador Joseph C. Wilson IV.

Cheney, in a conversation with Libby in early July 2003, was said to describe Wilson's CIA-sponsored trip to Niger the previous year -- in which the envoy found no support for charges that Iraq tried to buy uranium there -- as "a junket set up by Mr. Wilson's wife," CIA case officer Valerie Plame.

Here we have a two-fer in terms of self-debunking: (1) There was indeed total validation of Mr. Wilson's charges of persecution, despite what the editorial says; and (2) The news story confirms that there was "no support for charges that Iraq tried to buy uranium there" - in direct contradiction to the editorial's claim that Wilson's report supported the purchase effort.

Mark Kleiman reported back in September 2002 that Eugene Volokh was misreading Thucydides:

The Reality-Based Community: Recklessness: "The Whole Earth is the Tomb of Famous Men": My friend and colleague Eugene Volokh, who thinks we should go to war, quotes Thucydides: "The secret of happiness is freedom, and the secret of freedom is courage."

Here's the full passage, in a different translation; it's from the great Funeral Oration of Pericles:

For the whole earth is the tomb of famous men; not only are they commemorated by columns and inscriptions in their own country, but in foreign lands there dwells also an unwritten memorial of them, graven not on stone but in the hearts of men. Make them your examples, and, esteeming courage to be freedom and freedom to be happiness, do not weigh too nicely the perils of war.

The language is magnificent; but the context made it deeply ironic then, and its use now in the pro-war cause is not less ironic. Pericles had just led the Athenians into the Peloponnesian war, and the speech, given after its first, victorious, year, is confident of victory, even somewhat boastful. Yet Thucydides' readers knew that this was to be the high-water mark of Athenian greatness: what was to follow was defeat, conquest, and the imposition of a Quisling government. Later Athens was to regain its independence, but not its hegemony, and its permanently poisoned relationships with the other poleis were to lead, in the next century, to the conquest of all of Greece by the Macedonians under Philip and Alexander.

So when Pericles urges his hearers not to "weigh too nicely the perils of war," we are meant to hear in the background Thucydides' sardonic laughter. Pericles took his own advice (or perhaps Thucydides put into the mouth of Pericles words appropriate to his actions), and the result was catastrophe.... I do not now see in power men and women who nicely weigh the perils of war. Rather, I think I see a truly Periclean hubris, albeit expressed in much less stirring language.

America is, in many ways, the new Athens. The parallels between the Peloponnesian war and the Cold War are almost eerie: a land-based, insular, impoverished, culturally conservative and backward land power against a wealthy, mercantile, culturally rich, heterogeneous, and innovative democracy. Only this time the good guys won.

Let's not have it go to our heads. A calculating boldness a virtue; rashness is a vice. There are better uses for the whole earth than to make it our tomb.

## Why Does Michael Barone Still Have a Job?

TO: Editors, National Journal, U.S. News and World Report

It is being undermined by your continued employment of Michael Barone. Just saying.

Let's turn the mike over to Michael:

USNews.com: Opinion: Barone Blog: Barone Blog: The K Street Project: In the wake of Tom DeLay's announcement that he will resign from Congress, commentators of all stripes have been close to unanimous in criticizing him for his lead role in the K Street Project. This was the attempt to get trade organizations and large corporations to hire Republicans as lobbyists.... I'd like to weigh in against the critics of the K Street Project. Yes, it looked unseemly. The Republicans went ballistic after the Electronics Industry Alliance (I think I've got that name right) hired former Democratic Rep. Dave McCurdy as its top D.C. guy; critics said, gee, that's unfair, McCurdy is a talented and decent guy (an opinion with which I'd concur).... To which my response is: Hey, that's life in the big city....

Yes, there are downside risks--that you'll be taken captive by the lobbyists you create, that they will skew public policy toward their interests rather than toward the interests of your party or the broader public it seeks to represent, that you will attract in the ranks of your staff self-seekers who will betray you as some of Tom DeLay's staffers have...

"That you will attract in the ranks of your staff self-seekers who will betray you as some of Tom DeLay's staffers have." Right. Just as Elizabeth I Tudor's counsellors betrayed her and acted against her wishes when they sent the warrant to execute Mary Queen of Scots to Fotheringay Castle.

That anyone would imagine their readers would swallow such low-quality bulls--- -- that's amazing.

## Why Oh Why Were We Ruled by These Lunatics? (The Chapel of Kings College, Cambridge, Edition)

May I say that Henry VI Lancaster was a true loon?

The Kings College Chapel at Cambridge--half a gothic cathedral built for a congregation that was to consist of a rector and twelve scholars (twelve apostles, you see). There are lots of other places where half a gothic cathedral could have been much more useful. Sheesh.

On the other hand, two other kings--Richard III and Henry VII--followed through to complete the project: three royal loons.

And the Tudor dragons are truly cool. I am really sorry that they were replaced by unicorns when James I Stuart succeeded Elizabeth I Tudor.

And how come I have never seen this before? I am 45, after all...

From Jim Henley and company:

April 7, 2006 Blog

Blog.

Posted by Jim Henley @ 9:09 pm, Filed under: Main

Comment by Reader — April 7, 2006 @ 9:10 pm

Comment.

Comment by Jim Henley — April 7, 2006 @ 9:12 pm

Comment by Michael — April 7, 2006 @ 9:14 pm

Oversharp disagrement based on unstated differences in paradigms.

Comment by Steve — April 7, 2006 @ 9:34 pm

(Parenthetical complaint regarding tags permitted in comments!)...

## Why Oh Why Are We Ruled by These Morons?

Jim Henley listens to Condi Rice, and his brain explodes

Unqualified Offerings: This New Post-Cold-War World: [Condoleezza Rice says:] "When the President spoke at Whitehall in London, he talked about 60 years of trying to buy stability at the expense of freedom, and getting neither. Now we are attempting the reverse..."

Leave aside the libel of Franklin D. Roosevelt, Harry S Truman, and Dwight D. Eisenhower, who did not "buy stability at the expense of freedom" but rather did more for human freedom than anybody else, ever. Just what is "the reverse"? Buying freedom at the expense of stability? (But freedom is not bought.) Selling stability in return for freedom?

## Lance Knobel Finds Something Interesting in the FT

He writes:

Lance Knobel: China’s myths? Guy de Jonquières in the Financial Times takes on what he terms the myths of Chinese manufacturing (subscribers only). A valuable contrarian view:

By most measures, [US manufacturing] is in rude health. The US is still the top manufacturing nation, producing almost a quarter of global output, the same as in 1994, while Japan’s share has shrunk. Adjusted to reflect steady falls in the prices of manufactures relative to other goods and services, US output has doubled since 1985 and its share of gross domestic product has changed little in half a century.

True, more output is from plants owned by non-US companies, some of which have displaced indigenous production. That may fuel popular perceptions of national decline, particularly because greenfield factories usually shun the old rust belt. But corporate nationality is irrelevant to overall economic welfare, except insofar as foreign-owned plants often out-perform locally owned ones.

What of China as “job thief”? US manufacturing employment is in long-term decline, just as it is in other rich countries. But that is chiefly because of impressive productivity gains. Had none occurred since 1970, almost 40 per cent of all US jobs would – in theory – be in manufacturing, three times today’s level. But the comparison is meaningless because standing still would have consigned US manufacturers to competitive oblivion.

Of course, Chinese competition has claimed some US manufacturing jobs. But Oxford Economics puts the losses from 2000 to 2010 as low as 500,000 – no more than the US labour force sheds each week. Their disappearance is also partly a statistical illusion. Many manufacturing jobs are actually in services, such as finance and marketing, which yield far higher returns. As companies have disaggregated or outsourced operations, official employment data have re-allocated swaths of workers to the services sector.

If US manufacturing is stronger than many Americans believe, China poses a weaker challenge than is often supposed. Its output is still less than half that of the US – and many of its industries are suffering a severe profits squeeze. Indeed, to call China a manufacturing economy is something of a misnomer. In reality, it is the world’s biggest final assembly shop, with minimal local value-added.

As a forthcoming report by the Institute for International Economics and the Center for Strategic and International Studies points out, on average two-thirds of the value of Chinese products is imported – and much more in some industries. Furthermore, China’s much-ballyhooed “high-tech” exports are a quirk of customs classification: most are low-margin electronics products, such as DVD players...

## Fool Me Once, Shame on You Department

Teresa Nielsen Hayden provides a guide to Bush-speak:

Making Light: Jane Smiley's "Notes for Converts": Bush is to public discourse as Three Card Monte is to card game. I've drafted a number of unfinished ML posts since autumn 2000 about Bush and his use of language. The first one was written after I watched an otherwise sensible friend get into a tizzy over some stupid things Bush said about an exceptionally stupid proposed amendment to the Constitution. She was trying to figure out what he meant by his remarks.

Nothing, I told her. He meant nothing. Bush doesn't really talk to us. When it's advantageous or required, he'll go through the motions of talking to us, but that's all. What it "means" is that he either has to do it, like the State of the Union speech; or he wants something from us, like votes; or he's tossing out a string of words calculated to endear him to some fraction of the citizenry, like "manned missions to Mars" or "Constitutional amendment prohibiting same-sex marriage." He doesn't care what he's saying, and afterward he doesn't consider himself bound by what he's said.

The implications are unpleasant. Someone who doesn't care that he's lying to you, and doesn't care that you know it, doesn't respect you, and doesn't consider you part of his social or political universe. Look at how many reasons Bush has tendered for cutting taxes for the rich, or going to war with Iraq. The only connection between those statements and his actions is that he believed that saying those things would get him what he wants.

## The Myopic Press

Mark Schmitt on the myopic press:

Straight-Line Projections | TPMCafe: Many years ago, I remember that the Washingtonian magazine commissioned the writer who goes by the name of "Joe Bob Briggs", and who had made his name in a Texas paper with his reviews of drive-in and B-movies, to review all the Sunday morning political talk shows. It was a hilarious piece of writing, which unfortunately I cannot find online, but I vividly remember, first, his observation that David Gergen bore an uncanny resemblance to The Cat in The Hat, and second, that everything that purported to be a "prediction" on McLaughlin or Meet the Press or Sam and Cokie was nothing more than "a straight-line projection from the present." Not necessarily a humorous observation, but accurate, and not always obvious.

Reading Elizabeth Bumiller's cold assessment this morning of Bush's futile effort to justify the Iraq war reminded me of Joe Bob's second observation.

It's tempting to play the game of "the press is cowed by the right," or "the press is all a bunch of liberals." The fact is that the main bias of the press is toward the assumption that, however things look now, that's how they will remain. For my money, over the last few years, no reporter has been more "in the tank," more slavishly devoted to the conventional wisdom on Bush's genius and Bush's overwhelming political strength than Bumiller. Part of that was the isolation of the bubble, but more important was that straight-line projection: Bush is politically strong, therefore he will remain politically strong.

Now of course, Bush looks ridiculously weak, so the straight-line projection has him going down the tubes.... The press isn't biased toward the right or the left (generally speaking, with some exceptions), but it is biased toward inertia. That's a factor that's worked hugely to the advantage of Bush and the right, and now it will kill them...

I think that Mark is wrong. The biases in the press are not toward "inertia." I'm not sure what they are, exactly, but they are powerful--and they give us a press corps that is, by and large, an embarrassment.

Andrew Lo hopes to redirect the attention of finance economists by taking market selection seriously:

Mahalanobis: Adaptive-Markets Hypothesis :: Survival of the Richest

How can the efficient-markets hypothesis and behavioral economics ever be reconciled? According to Andrew Lo, perhaps by looking to Charles Darwin instead of Adam Smith:

Efficient markets and behavioral economics can coexist in the same universe where markets, and the behavior of their participants, evolve. A new approach, which I call the "adaptive-markets hypothesis," describes just such a framework. Based on well-known principles of evolutionary biology--competition, mutation, reproduction, and natural selection--the adaptive-markets hypothesis shows how these forces, as they act on individual investors and institutions, influence the efficiency of markets and the waxing and waning of investment products, businesses, industries, and, ultimately, fortunes.

The adaptive-markets hypothesis begins with the premise that individual behavior is a collection of rules of thumb, or heuristics, produced through a process of natural selection. As in nature, investors learn to behave in ways that are conducive to survival. If the environment remains stable for long periods, we'll end up with heuristics that are appropriate for that environment. If the environment shifts, certain heuristics may no longer be helpful. those who adapt to the new environment by developing a better set of heuristics will prosper and be more likely to pass on those adaptions to subsequent generations.

Individuals in financial markets develop heuristics to address various economic challenges. For example, value investors have developed a heuristic that involves purchasing stocks when market prices are below their intrinsic values, and, over time, this approach has been successful. However, when the environment changes, as it did in the U.S. stock market between 1992 and 2000, existing heuristics may be ill suited to the new environment. In such cases, we may observe behavioral biases, actions that seem irrational. For instance, the fabled value investor Julian Robertson experienced enormous losses during the late 1990s and, as a result, closed his hedge fund in March 2000. In retrospect, we know that Robertson's heuristics would have been extraordinarily successful had he persisted with them for just a few month longer, when the market environment swung from growth to value once again.

Under the adaptive-markets hypothesis, behavioral biases abound. The origins of such biases are, in many cases, heuristics that have been carried over from nonfinancial contexts. For example, certain forms of "irrational" risk-taking behavior, such as the tendency to take bigger risks during a losing streak, may have actually given our hunter-gatherer ancestors advantages in the wild but serve people poorly in financial markets today. The richness of market dynamics comes form the interactions of people with different heuristics, in much the same way that the richness of the amazon rainforest is created by the interactions of different species, each with its own adaptive strengths and weaknesses. After the U.S. stock market crash of 1929, for instance, most U.S. investors bercame highly risk averse, thereby decreasing the supply of capital to the stock market and yielding a higher equity-risk premium. By contrast, the current population of investors in the stock market consists of a large proportion of younger and apparently more risk-tolerant individuals who developed their heuristics during a period of great economic prosperity. Not surprisingly, when measured over the past few years, the equity-risk premium has declined. Are current investors irrational, or were the investors around the time of the great Depression irrational? The answer is neither. Preferences are shaped by the forces of natural selection operating in a given economic environment, so we shouldn't expect the investors of the 1930s to behave like the investors of the 1990s.

In the realm of adaptive markets, "rational" and "biased" become less meaningful qualities than "fit" and "adaptable." Instead of competing for food, water, and mates, market participants compete for wealth, and the selection of the most successful bgusinesses reinforces heuristics that produce wealth. The extraordinary competitiveness of global financial markets and the outsize rewards that go to the fittest players suggest that Darwinian selection is at work in determining the profile of the successful investor. After all, unsuccessful market participants--the ones who continue to make maladaptive decisions--are eventually eliminated form the population. In the dog-eat-dog world of the adaptive-markets hypothesis, it's survival of the richest.

Source: Survival of the Richest by Andrew W. Lo | Harvard Business Review March 2006

## Transitory International Labor Migration

Transitory international labor migration: a Belle Waring's-eye view:

John & Belle Have A Blog: Trip: The girls and I are going to the Philippines next week with our maid Tena. She is from a town on the main island of Luzon, on the west coast about 7 hours drive north of Manila. She hasn't been back home to visit her kids in all the 5 years she's worked for us, preferring to take the money I would have spent on her ticket and send it home. I had been trying to convince her for quite a while, with little success.

Overseas workers who go back for a visit to their hometown are invariably hit up for money by every relative and even aquaintance they see. Some maids end up spending so much on these trips, what with presents to buy and people to help that they wind up in debt at the end of their 2-year contract, having sacrificed a lot for little apparent gain.

Tena also has said that it would make her feel so homesick to see her children for a short time and leave them again that not seeing them is better. But slowly, with the application of greater and greater amounts of cash, I talked her into it.

We are going back for her daughter's high school graduation. She's not telling her kids or her mom; she wants to just walk up and surprise them. Sounds to me like the kind of thing that causes heart attacks, but whatever. I have never been to the Philippines, and I'm really looking forward to it. It is always such a different experience to go and stay in someone's home, rather than in hotels. Tena's mom is going to teach me how to make lots of tasty food, such as stuffed milkfish and a kind of ox tongue stew. I am going to supply the meat (including a whole pig's head!) and beer and booze for a big party, and Tena's getting the veggies, soft drinks and so on.

I tried to get a whole suckling pig, but they could only come up with what is basically a small hog, and that's too much. So, head it is! I just hope I don't get drunk and get double-dog-dared into eating an eyeball (something I have done in the past, with a BBQ sheep's head in Cyprus.) They are almost certainly going to rent a karaoke machine and make me sing, though. I better start practicing "You Are The Wind Beneath My Wings" now.

Tena says there is a nice beach nearby, with restaurants on the beach where you can get tasty fresh fish and squid. I think most of the time we're just going to hang out, though there are some catholic shrines and things around that might be interesting. I'm looking forward to going to the wet markets and seeing all the stuff. I think I'm going to have to pass on the delicacy called balut, which is a boiled egg containing the partially formed chicken embryo, which you eat bones and all. Crunchy. Also, tripe stew? I just don't like tripe. I've tried.

John's parents are thoughtfully paying for Tena's daughter to go to nursing school starting in May. Her son is being a bit of a slacker but will hopefully finish up next year, and then I hope I can convince my family to help with his school. Big improvements all around! Thanks Paul and Kay, you rock!