## If the Walls Had Eyes...

...things might be better:

Amygdala: EYE, OI. Sketchy:

UK scientists claim to have found a way of making people behave more honestly in an experiment they say will have a knock-on effect on everyday life.

A team from Newcastle University found people put nearly three times as much money into an "honesty box" when they were being watched by a pair of eyes on a poster, compared with a poster featuring flowers.

Researchers say the eye pictures were probably influential because the brain naturally reacts to images of faces and eyes.

"UK scientists": good, detailed, reporting there, Scotsman. Okay, they're from Newcastle U.; methinks you could be a tad more specific.

New Economist: Did abortion lower the crime rate? The evidence from England: Since Donohue and Levitt's 2001 QJE article "The Impact of Legalized Abortion on Crime" there has been quite a controversy in the United States about a possible causal relationship between higher abortion rates and the fall in crime.... Leo H. Kahane... David Paton... and Rob Simmons... "The Abortion-Crime Link: Evidence from England and Wales."... The authors have two robust findings: "Of the many results presented in this paper, there are two things we can say with confidence. First, increased unemployment rates are associated with increased crime. Second, the greater the proportion of children in care (our proxy for 'social deprivation'), the greater the crime rate. These results are remarkably consistent and robust to various estimation methods...

A Big, Bad Idea | TPMCafe: By Matthew Yglesias: Man. A while back I wanted to write an awesome takedown article on China hawks. But I could never come up with a really good news peg. And, what's worse, I became obsessed with trying to devise a counter-term for "panda hugger" which is what they call people who don't want to start a war with China. Well, via Kevin Drum, Soyoung Ho at The Washington Monthly has done the job masterfully with a hit piece on "Panda Slugger" Michael Pillsbury. Give it a read and I'll say no more about China policy...

JustOneMinute: GD Hamdan - Careful What You Wish For: The Supreme Court's ruling in Hamdan may represent a Pyrrhic victory for the Democrats - since Bush is now likely to go to Congress for enabling legislation, Dems may be forced into a series of potentially awkward votes just a few months before the election...

Georgetown University Law Center Faculty Blog: Hamdan: Preliminary Observations by Mark Tushnet: So, as the Court analyzed Hamdan, the case involved proceedings that had not been authorized by Congress. Indeed, the thrust of the Court%u2019s opinion is that, Congress having provided for military tribunals in the Uniform Code of Military Justice, the President could not put into effect alternative procedures inconsistent with what Congress had authorized. In the jargon of separation of powers law, the absence of authorization in Hamdan did not place the case in Justice Jackson%u2019s Category Two, where the President acts in the absence of congressional authorization, but rather in Jackson%u2019s Category Three, where Congress%u2019s actions, fairly read, prohibited the action the President took...

A Spat Over Iraq Revealed On Tape: By Glenn Kessler: MOSCOW, June 29 -- The official State Department version is that "there was absolutely no friction whatsoever" between Secretary of State Condoleezza Rice and Foreign Minister Sergei Lavrov during a meeting of foreign ministers in Moscow on Thursday. But a recording of the ministers' private lunch, made when an audio link into the room was accidentally left on, showed that "Condi" and "Sergei" -- as they called each other -- had several long and testy exchanges over Iraq. The disputes concerned relatively minor wording changes in the five-page statement issued after the meeting, but grew out of basic differences between the two governments over how to proceed on Iraq...

Armchair Generalist: Casual Fridays: I finished reading "Cobra II" by Michael Gordon and Bernard Trainor this week, and I am impressed. Initially, I had seen Michael Gordon's interview on The Daily Show, and I didn't think he really sold the book's thesis - he played up to the show's anti-Bush attitudes. When I flipped through the book at the bookstore, it didn't immediately grab me. But upon closer examination, this book is quite possibly the best one out there at explaining the story of how our military got mired in the Gulf. Let me get the main thoughts here up front. The authors focus more on Rumsfeld and his staffers rather than the White House's decisions, but refuse to give the military leadership any breaks. Gen (ret) Jack Keane notes that the Joint chiefs of Staff, the Vice Chiefs (to include himself), and General Tommy Franks all share responsibility for the problems in Iraq by not considering that guerrilla warfare was a serious possibility. It's clear that none of the generals responsible for the ground war were comfortable with Rumsfeld's chopping down the size of the force or with his micromanaging the force flow, but they were all good soldiers and did the best they could do. It's also clear that General Franks could be a real son of a bitch with his temper, and vocalized when he was not getting what he wanted...

Obsidian Wings: Hamdan: The Bigger Picture: As I read the Hamdan decision, it does require that the protections of Article 3 of the Geneva Conventions be extended to all detainees, including these. However, there doesn't seem to be any way at all for this requirement to be enforced. It's not just that it's unclear either that Hamdan allows for an individual cause of action based on the Geneva Conventions, or that the arguments the court made in Rasul would apply to detainees held in Afghanistan. The more serious problem is: if no one other than the ICRC, which has a policy of strict confidentiality, is allowed to visit this facility; if the names of detainees are not released; if no one outside the government has any clue what's going on there, or to whom, then how on earth can anyone try to enforce the law there?...

Roubini Global Economics (RGE) Monitor: Levered long/ long funds Brad Setser | Jun 29, 2006: An anonymous partner at a mid-sized London hedge fund expressed something I was trying to say a couple of weeks ago fair better than I could have. From the Financial Times: "'A lot of managers have gone from being long-short funds [funds that make bullish and bearish bets on stocks] to being long-long funds with leverage, which removes the whole point of hedge funds offering protection in the event of a downturn', said a partner at a mid-size hedge fund in London." I expressed my argument somewhat less elegantly %u2013 saying that that some hedge funds were not really hedged. And many of my readers pointed out -- quite correctly %u2013 that no one that is fully hedged makes money. But what I was getting at was that it was quite costly to hedge say a long position in an emerging market equity market with an offsetting short position in the same equity market. Funds that hedged in the same market didn't do as well as funds that did not hedge. Until May, a rising tide was lifting all boats. And punishing shorts. So there was a temptation to become a long/ long fund. Or to find proxy hedges that didn%u2019t cost you an arm and a leg...

Fed Raises Rates, but Scales Back Talk of Inflation - New York Times: By EDMUND L. ANDREWS: WASHINGTON, June 29 %u2014 The Federal Reserve raised interest rates for the 17th consecutive time on Thursday, but kicked off a powerful celebration in the stock market by lowering its alarms about inflation. As expected, the central bank raised its crucial lending rate another quarter-point, to 5.25 percent, and left itself room to raise it again before stopping. But for the first time since it began lifting rates two years ago, the Fed stopped short of signaling that further interest rate increases were all but certain. In what traders described as a huge "relief rally," the Dow Jones industrial average surged 217 points, or 2 percent, in its biggest one-day jump in three years. Other stock and bond market indicators also rose, as interest rates on long-term bonds edged down. The dollar fell against major currencies, with foreign investors reducing their calibrations for interest rates in the United States...

Economist's View: Paul Krugman: How To Be a Hack: Portrait of a hired gun.... How can you tell the hacks from the serious analysts? One answer is to do a little homework. Hack jobs often involve surprisingly raw, transparent misrepresentations of fact.... But there is another telltale clue: if a person, or especially an organization, always sings the same tune, watch out. Real experts, you see, tend to have views that are not entirely one-sided. For example, Columbia's Jagdish Bhagwati, a staunch free-trader, is also very critical of unrestricted flows of short-term capital. Right or not, this mixed stance reflects an honest mind at work. You might think that hacks would at least try to simulate an open mind... But it almost never happens. Of course, honest men can disagree, and they can also make mistakes. But it's still a good idea to tune out supposed experts whose minds are made up in advance...

Choice, Chance, and Wealth Dispersion at Retirement: Steven F. Venti, David A. Wise NBER Working Paper No. 7521 Issued in February 2000: People earn just enough to get by' is a phrase often used to explain the low personal saving rate in the United States. The implicit presumption is that households simply do not earn enough to pay for current needs' and to save. We show in this paper that at all levels of lifetime earnings there is an enormous dispersion in the accumulated wealth of families approaching retirement. It is not only households with low incomes that save little; a significant proportion of high income households also saves little. And, a substantial proportion of low income households save a great deal. We then consider the extent to which differences in household lifetime financial resources explain the wide dispersion in wealth, given lifetime earnings. We find that very little of this dispersion can be explained by chance differences in individual circumstances largely outside the control of individuals' that might limit the resources from which saving might plausibly be made. We also consider how much of the dispersion in wealth might be accounted for by different investment choices of savers some more risky, some less risky given lifetime earnings. We find that investment choice is not a major determinant of the dispersion in asset accumulation. It matters about as much as chance events that limit the available resources of households with the same lifetime earnings. We conclude that the bulk of the dispersion must be attributed to differences to in the amount that households choose to save. The differences in saving choices among households with similar lifetime earnings lead to vastly different levels of asset accumulation by the time retirement age approaches...

## Department of "Huh?"

Rick Mishkin is a very good choice for a Fed governor.

But who is Jeannine Aversa? And why is she let loose with a typewriter?

Bush Nominates Mishkin to Fed Board: By JEANNINE AVERSA: WASHINGTON -- President Bush is pressing a deeper imprint on the Federal Reserve Board, the largely secretive institution that sets America's monetary policy. Bush on Friday nominated Frederic Mishkin, currently the Alfred Lerner Professor of Banking and Financial Institutions at Columbia University's Graduate School of Business, to serve there. Mishkin also has been a professor at the University of Chicago, Northwestern University and Princeton University. He received his bachelor's degree and his Ph.d from the Massachusetts Institute of Technology.

The Fed determines the course of interest rates, which affect investors large and small. It also is responsible for making sure the nation's financial system remains safe and sound.

The board increasingly has the Bush look. He chose Ben Bernanke, who became the Fed chairman on Feb. 1, replacing Alan Greenspan, and Bush has either appointed or reappointed each of the people on the Fed's board...

The "largely secretive institution"? Google 105,000,000" search results for Federal Reserve; Google news reports "about 38,600." Directional microphones are aimed at Ben Bernanke every time he leaves his house, in the hope that they will pick up some of his mutterings.

Where do they find these people?

Why oh Why can't we have a better press corps?

## Mishkin Is Tapped for Fed Board

An excellent choice:

WSJ.com - Mishkin Is Tapped for Fed Board: By HENRY J. PULIZZI June 30, 2006 4:09 p.m.: President Bush Friday nominated Columbia University professor Frederic S. Mishkin to be a member of the Federal Reserve's board of governors, adding another expert on inflation targeting to the central bank's leadership. If confirmed by the Senate, Mr. Miskin will fill the seat vacated by Roger Ferguson, who resigned in April, and serve the remainder of a 14-year term expiring in January 2014.

Mr. Mishkin, currently the Alfred Lerner Professor of Banking and Financial Institutions at Columbia University's Graduate School of Business, has a well-established relationship with Fed Chairman Ben Bernanke. In 1999, the two men, along with two others, authored a book on inflation targeting. The choice of Mr. Mishkin is likely to heighten speculation that the central bank may eventually embrace the strategy. Inflation targeting involves setting an explicit, numerical target for the inflation rate that the central bank tries to achieve.

"We like to joke that Ben Bernanke wrote the book on inflation targeting, but actually he co-wrote it with Frederic Mishkin," said Lehman Brothers economist John Shin. Mr. Bernanke has supported setting an explicit inflation objective, an idea that former Fed Chairman Alan Greenspan feared would limit the central bank's flexibility...

## Tom Maguire Loses His Identity

Tom Maguire loses his identity. He forgets that he is an American patriot, and for a moment becomes a cynical Republican partisan:

JustOneMinute: GD Hamdan - Careful What You Wish For: The Supreme Court's ruling in Hamdan may represent a Pyrrhic victory for the Democrats - since Bush is now likely to go to Congress for enabling legislation, Dems may be forced into a series of potentially awkward votes just a few months before the election...

Hamdan is not a "Pyrrhic victory" for Democrats. Hamdan is a full-fledged victory for freedom, America, and constitutional government. "Hamdan" says that the United States is not an elective dictatorship, but rather a republic in which there is a legislative branch which legislates and an executive branch that executes the laws--executes the laws, doesn't do what it likes while ignoring Congress.

May Tom Maguire remember who he is soon.

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

Why oh why did Jack Danforth protect and promote this clown?

ThinkProgress: Thomas attacks Stevens in Hamdan opinion.

Justice Clarence Thomas refers to Justice John Paul Stevens's "unfamiliarity with the realities of warfare" in his dissenting opinion. ACSBlog notes: "Stevens served in the U.S. Navy from 1942 to 1945, during World War II. Thomas's official bio, by contrast, contains no experience of military service."

Danforth had better start rehearsing the answer he is going to give come the Day of Wrath. It had better be a good one.

## Hank Paulson Is Now in the Hot Seat

David Wessel wonders why Hank Paulson took the Treasury job:

WSJ.com - Capital: Three Big Questions: Now that he has been confirmed by the Senate, Henry M. "Hank" Paulson Jr. moves into the U.S. Treasury with higher expectations for his performance than anyone since -- well, since Paul O'Neill.... Despite a perfect mix of government and corporate experience and old ties to Vice President Dick Cheney, Mr. O'Neill was done in by an abrasive personality and an unyielding White House grip on policy. Mr. Paulson believes he can do better, and also believes he'll have more clout than current secretary John Snow, who became a traveling salesman for policies made by others....

Mr. Paulson faces (at least) three big questions.

Can he square the deficit circle? President Bush is at risk of leaving the government's long-term fiscal health worse than he found it, the result of an insistence on tax cuts, an expansion of Medicare, an inability to restrain spending on benefits and a post-Sept. 11 surge in defense spending. Mr. Paulson gets that.... [H]e needs to persuade the president that a strategy of (a) pressing to make Bush tax cuts permanent and (b) attacking annual appropriated spending, other than defense and homeland security, won't achieve the desired end.... [A] Republican president can hope to restrain spending on Social Security, Medicare and Medicaid only if he can bring some Democrats along. And the only way to bring Democrats along is to put taxes on the table -- maybe not increasing tax rates, but raising revenues by simplifying the tax code, closing loopholes, targeting corporate subsidies, broadening the tax base or whatever brings in more money.

Can he steer anything through Congress? Even if Mr. Paulson gets more negotiating flexibility than his predecessors, there's Congress. Republicans are rebellious; Democrats eager to deny Mr. Bush any victory. Business executives turned Treasury secretaries are often vexed by the peculiarities of Congress. Mr. Paulson has only a few months to figure out the game.... Mr. Paulson acknowledged: "It would be quite naive to say that these could be addressed and solved in a 2½-year period." But unless he thought he had a shot, why take the job?

Can he find the right words to cushion the dollar's fall?... With so many economists anticipating a downward drift in the dollar as the global economy turns, Mr. Paulson will need to choose his mantra carefully. Swearing mindless fealty to "a strong dollar" in the current economic climate could undermine his credibility. Appearing to favor a weak dollar could start an unwelcome avalanche. And the megaphone he has been handed is far more powerful than he probably realizes.

Of course, luck helps, and there's an early sign he may be lucky. No senator asked Mr. Paulson (net worth: north of $700 million) to defend repeal of the estate tax. ## The Latest GDP Release Good news about inflation, bad news about distribution: WSJ.com - GDP Is Revised Upward To 5.6% Rate in 1st Quarter: Gross domestic product rose at a 5.6% annual rate January through March, the Commerce Department said Thursday. A month ago, Commerce estimated GDP grew by 5.3%. Corporate profits were adjusted much higher, while gauges within the report indicated prices rose less than earlier believed, the report showed. The reason for the upward adjustment to GDP was that imports didn't increase as much as earlier thought.... The Federal Reserve is meeting Thursday to decide on monetary policy. Despite earlier indications they might pause their tightening, bankers were widely expected by Wall Street analysts to raise their federal funds rate target to 5.25%. The economy doesn't seem to have slowed in the quarter that ends Friday as much as previously feared, and inflation is seen rising.... Price inflation estimates were mixed. The government's price index for personal consumption rose 2.0%, the same as previously estimated but below the fourth quarter's 2.9% climb. The PCE price gauge excluding food and energy was also unrevised at 2.0% but lower than the fourth-quarter rate of 2.4%. The price index for gross domestic purchases, which measures prices paid by U.S. residents, rose at a 2.6% rate, revised from a previously estimated 2.8% increase and below the fourth-quarter rate of 3.7%. The chain-weighted GDP price index increased at a 3.1% rate, down from the previous estimate for the quarter of 3.3% and lower than the fourth quarter's 3.5% rate of appreciation. ## Juan Cole Looks at the Habermasian Public Sphere Juan Cole watches his favorite media outlet: Informed Comment: I was... sorry to hear that Martin Peretz at The New Republic, which he occasionally hijacks from its seasoned professional journalists for petty vendettas and cranky editorials underwritten by his wife's Singer Sewing Machine money has presided over an attempt to smear Markos.... Likewise, Kos was attacked, very unfairly, by David Brooks of the NYT, who comes off sounding like a conspiracy theorist from the McCarthy period.... Smear campaigns, underpinned by just making things up about people, are the viruses of blogosphere politics. Memes in cyberspace are easy to get started and hard to knock down.... I can't figure out what wrong Markos is actually alleged to have committed. It is falling down funny to imagine that anyone "controls" bloggers, especially progessive bloggers... for the most part a blogad goes for less than a 3-line classified ad in a small town newspaper does.... Billmon thinks that the attacks on Kos and his cyber-community may in part be coming from the section of the Democratic Party that leans toward Neoconservative philosophy and policies, and who, for instance, are disturbed by the prospect that Lieberman will be unseated by a Democratic challenger. This point makes sense. But I think that the struggle is larger.... A lot of Americans work for corporations, which would just fire anyone who became so outspoken in public as to begin to affect their company's image. Look at how many bloggers are anonymous! Purveyors of opinion in the mass media, who use their real names, are employed by, or in some way backed by, media moguls.... [T]hose attacking Kos work for Martin Peretz and Arthur Shulzberger, Jr., and if they didn't they would not have their current influential perches.... [S]o much can be controlled at choke points. Journalists can just be fired, editors and other movers and shakers bought or intimidated. Look what happened to MSNBC reporter Ashleigh Banfield, who dared complain about the propaganda in the US new media around the Iraq War. Phil Donohue, who presided over MSNBC's most popular talk show, was apparently fired before the war because General Electric and Microsoft knew he would be critical of it, and did not want to take the heat.... A grassroots communication system such as cyberspace poses a profound challenge to the forces of hierarchy and hegemony in American society. Now anyone with an internet connection and some interesting ideas can potentially get a hearing.... Kos and his community, in short, are at the center of a discourse revolution. Now persons making a few tens of thousands of dollars a year can be read by hundreds of thousands of readers with no mediation.... The lack of choke points in cyberspace means that people like Kos can't just be fired. How then to shut them up? Why, you attempt to ruin their reputation, as a way of scaring off readers and supporters.... [C]reatures of the old choke-point hegemonies are projecting their own hierarchical system inaccurately on Kos... ## More Intellectual Garbage Pickup... Ah. Time to pick up some of the garbage strewn about by the National Review--this time from Nick Schulz: Nick Schulz on Tax Cuts & Jonathan Chait on NRO Financial: Even economist Brad DeLong — whose tirades about conservatives are even more cartoonish than Chait’s — says [Bill] Niskanen’s findings are statistically insignificant. Perhaps this, and not mental illness, is the explanation for why conservatives have been too silent for Chait’s taste regarding Niskanen’s claims... What I actually said: Brad DeLong's Semi-Daily Journal: Bill Niskanen and Starve the Beast: Niskanen's point--that since 1981 tax cuts go with spending increases, not spending restraint--is a fact. It is not a statistically significant fact, however--it may well be just our bad luck, where piece one of bad luck is named "Reagan" and piece two is named "Bush." In my view, it's not that tax cuts provoke spending increases, it's that politicians--overwhelmingly Republican politicians these days--who seek to unbalance the budget unbalance it on both sides: tax cuts for the rich and Medicare spending that enriches PhRMA... Schulz claims that I am providing a reason for ignoring Niskanen's point--that over the past quarter century tax cuts are associated with upward, not downward pressure on federal spending. I am not. What I wrote is not a dismissal of Niskanen's point. It is not a criticism of it. It is an interpretation of it. But apparently I wasn't clear enough. Bill Niskanen is a serious thinker trying his best to think through important issues and make arguments about what would make America a better place. His writings should be taken very seriously. Nick Schulz--the most charitable interpretation of what he does is that he has hungry children. His writings should not: he can't even parse a paragraph correctly. Bill Niskanen is a genuine libertarian conservative. Nick Schulz is a scumsucking corporate lobbyists' pawn. Why do they lie like this? For the same reason that male canids licks their organs of generation: because they can. Why oh why can't we have a better press corps? That remains a great mystery. ## Introduction - Comments More web services: Co.mments: co.mments helps you stay on top of the conversation by keeping you updated of new comments. Just bookmark, track and follow. ## Malkiel and Bogle Cheer for Index Funds Malkiel and Bogle cheer for index funds: WSJ.com - Turn on a Paradigm?: By JOHN C. BOGLE and BURTON G. MALKIEL: As index funds gain an increasing share of the portfolios of mutual funds, institutional equity and bond funds, academics and practitioners are hotly debating how these portfolios should be composed. Capitalization-weighted indexing, until now the dominant approach, has come under fire for overweighting portfolios with (temporarily) overvalued stocks and underweighting them with undervalued ones. Eugene Fama and Kenneth French have suggested that higher returns can be generated by indexed portfolios of stocks with small capitalizations and low price-to-book-value ratios. Robert Arnott has argued that a better method for indexing is to weight the stocks in the index not by their total capitalization, but rather by certain "fundamental" factors such as sales, earnings or book values. Jeremy Siegel has proposed that the "fundamental factor" should be the dividends that companies pay. These analysts have all argued that fundamentally weighted indexes represent the "new paradigm" for index-fund investing. Are they correct? We think not. There is no doubt that fundamentally weighted indexes have outperformed capitalization-weighted indexes during the past six years, which witnessed the collapse of the "new economy" bubble and partial recovery. But we need to be cautious before accepting any "new paradigm" that implicitly suggests that the "old paradigm" -- reflected in more than$3 trillion of capitalization-weighted index investment funds -- is in error....

First let us put to rest the canard that the remarkable success of traditional market-weighted indexing rests on the notion that markets must be efficient. Even if our stock markets were inefficient, capitalization-weighted indexing would still be -- must be -- an optimal investment strategy. All the stocks in the market must be held by someone. Thus, investors as a whole must earn the market return when that return is measured by a capitalization-weighted total stock market index.... Beating the market, in principle, must be a zero-sum game.... For the typical actively managed equity mutual fund, annual operating expense ratios are well over 100 basis points (one percentage point). Add in the hidden costs of portfolio turnover and sales loads, where applicable, and effective annual costs are undoubtedly considerably higher, perhaps as much as 200 to 250 basis points. In total, simply because the average actively managed fund must underperform the capitalization-weighted market as a whole by the amount of financial intermediation costs that are deducted from the gross return achieved, active investing must be, and is, a loser's game....

Purveyors of fundamentally weighted indexes also tend to charge management fees well above the typical index fund....

Every method of fundamental indexing tends to overweight smaller capitalization stocks and so-called value stocks. Consider the rationale for fundamental indexing. If, during some speculative bubble, money pours into high-tech stocks, their weight in a cap-weighted index increases. Since their price rise generally exceeds any fundamental measures of value, such as dividends or book value, such stocks will tend to have increased cap weights versus fundamental weights.

Consequently, fundamental weighting will tend to produce portfolios that give more weight to companies that are smaller in size (capitalization) and that have "value" characteristics such as low prices relative to earnings, dividends, sales and book values. Fundamental indexing will tend to do well in periods when small-cap stocks and "value" stocks tend to outperform. Thus it is not surprising that most of the long-term excess return attributed to fundamentally weighted portfolios was achieved between 2000 and 2005 alone, one of the best periods in history for the relative returns of dividend-paying stocks, "value" stocks and small-cap stocks....

While we have witnessed many "new paradigms" over the years, none have persisted. The "concept" stocks of the Go-Go years in the 1960s came, and went. So did the "Nifty Fifty" era that soon followed. The "January Effect" of small-cap superiority came, and went. Option-income funds and "Government Plus" funds came, and went. High-tech stocks and "new economy" funds came as well, and the survivors remain far below their peaks. Intelligent investors should approach with extreme caution any claim that a "new paradigm" is here to stay. That's not the way financial markets work.

Dividends are, in a sense, a function of firm managers' beliefs about the sustainable payout that the firm can maintain. Capitalize the sustainable payout and you have a measure of the firm's fundamental value. Surely Bogle and Malkiel don't wish to argue that the market's estimate of fundamental value should have a 100% weight and the firm managers' estimate a 0% weight in choosing a porfolio, do they?

## Driving in New Delhi

Alex Tabarrok writes:

Marginal Revolution: Corruption: Joel Waldfogel covers an interesting new study of corruption in the motor vehicle department in India. Some eight hundred Indians were randomly assigned to one of three groups: the first group got a cash bonus for getting a license, the second group was given driving lessons, the third group was a control.... [T]he first group bribed their way to a license. In addition to taking the shortest period of time, most of the first group never even had to take a test!

Waldfogel has more details. He misses, however, what I think is the most important finding of the study. The delay in the Indian DMV is "endogeneous," i.e. it's not due to torpor or constraint but instead is a result of corruption. How can the Indian bureaucrats make the most of their control over licenses? First, make the line long. But that can increase the bribe-price only so much - especially given how cheap it is to hire someone in India to wait in line for you. The real value is in the license itself so the Indian examiners randomly fail many applicants, even those with good driving skills. Paying the bribe, therefore, is really the only route to a license. The net result is long lines and unsafe drivers.

Corruption like this is endemic throughout the world. Libertarians should take note, however, the problem in this case is not so much that there is too much government but that government is too weak.

Does Corruption Produce Unsafe Drivers?: Marianne Bertrand, Simeon Djankov, Rema Hanna, Sendhil Mullainathan: We follow 822 applicants through the process of obtaining a driver's license in New Delhi, India. To understand how the bureaucracy responds to individual and social needs, participants were randomly assigned to one of three groups: bonus, lesson, and comparison groups. Participants in the bonus group were offered a financial reward if they could obtain their license fast; participants in the lesson group were offered free driving lessons. To gauge driving skills, we performed a surprise driving test after participants had obtained their licenses. Several interesting facts regarding corruption emerge. First, the bureaucracy responds to individual needs. Those who want their license faster (e.g. the bonus group), get it 40% faster and at a 20% higher rate. Second, the bureaucracy is insensitive to social needs. The bonus group does not learn to drive safely in order to obtain their license: in fact, 69% of them were rated as "failures" on the independent driving test. Those in the lesson group, despite superior driving skills, are only slightly more likely to obtain a license than the comparison group and far less likely (by 29 percentage points) than the bonus group. Detailed surveys allow us to document the mechanisms of corruption. We find that bureaucrats arbitrarily fail drivers at a high rate during the driving exam, irrespective of their ability to drive. To overcome this, individuals pay informal "agents" to bribe the bureaucrat and avoid taking the exam altogether. An audit study of agents further highlights the insensitivity of agents' pricing to driving skills. Together, these results suggest that bureaucrats raise red tape to extract bribes and that this corruption undermines the very purpose of regulation.

Three points:

• This shows a high degree of collective action on the part of corrupt bureaucrats--one that one would (incorrectly) think would not survive even cursory scrutiny by the state.
• The problem is not that the state is too strong: the state is totally unable to control its own functionaries. A state that cannot control its own functionaries is by definition weak.
• The problem is that the state is weak in the wrong places and strong in the wrong places: weak in its control of its own functionaries (where it should be strong) and strong in its control of and ability to hassle the public in order to extort money (where it should be weak).

The fear is that the large current U.S. trade deficit--$800 billion a year or do, 6% of GDP plus--is setting us up for a possible big financial crisis. Large trade deficits, the argument goes, don't stay large for long periods of time. When they shrink, they often shrink because of (a) sharp currency declines or (b) deep recessions. CEA Chair Eddie Lazear uses misdirection to try to calm this fear. And he manages to snooker Greg Mankiw--which is, as a rule, quite hard to do. Greg writes: Greg Mankiw's Blog: Lazear on the Trade Deficit: CEA Chair Eddie Lazear testified at the Joint Economic Committee today. An interesting excerpt: I would like to point out the historic record suggests that countries can be in a current-account deficit or a surplus situation for very long periods of time. New Zealand and Australia have had deficits for decades. Australia in particular has been running a current account deficit that has created a level of foreign indebtedness equal to about 72 percent of their GDP, whereas our foreign indebtedness was only about 21 percent of GDP in 2004 (most recent available published data). Yet, the Australian economy has been very strong and growing at robust rates over the past decades. Australia's real GDP has grown at an average rate of 3.5 percent over the last decade. Note that Eddie is not saying that a country can run a very large trade deficit "for very long periods of time... decades.... Australia in particular..." He is saying that a country can run a very large current-account deficit--the sum of the trade deficit plus the net flow of income payments on net domestically-owned capital located abroad. Australia has a large current account deficit: 5.9% of GDP. Australia has a relatively small trade deficit: 1.9% of GDP. The difference--4% of Australian GDP--is the net flow of interest, dividends, and retained earnings that Australia pays to foreign owners of Australia-located capital. Why does this matter? Let me turn the microphone over to the excellent John Quiggin: The Economists' Voice: John Quiggin, University of Queensland: [M]uch analysis confuses the current account deficit and the goods and services deficit.... A number of countries — notably Australia and New Zealand — have run current account deficits of this magnitude for years.... This has led some commentators to suppose that the present U.S. position can be sustained indefinitely. But as time passes and income payments owed to foreigners mount, the current account deficit will become larger than the goods and services deficit. In order to have a stable current account deficit, a country must run a goods and services surplus to keep its net foreign debt from growing faster than GDP.... A substantial current account deficit can continue indefinitely. A substantial goods and services deficit cannot, because it generates an exploding current account deficit.... The U.S. current account deficit must be stabilized relative to GDP, and this means that the goods and services account must sooner or later return to balance or surplus. But what will the adjustment process look like?... Any significant reduction in the [trade deficit]... appears likely to require very large changes in market prices or U.S. income levels... Let's back up. What's going on here? Eddie Lazear and his political masters hope that listeners will take Eddie's (correct) statement that countries can run large current-account deficits for a long time, infer (incorrectly) that the large U.S. trade deficit can also be sustained for a long time, and conclude that there is today little reason to fear that the U.S. trade deficit might trigger a macroeconomic catastrophe. Did it work? Yes--at least on Greg Mankiw. For the title of Greg Mankiw's post is "Lazear on the Trade Deficit." Not "Lazear on the Current Account Deficit." Lazear says the current account deficit can continue for a long time. Mankiw hears him to be saying that the trade deficit can continue for a long time. The statement Lazear says is true. The statement Mankiw hears is false. Pay close attention, Grasshopper. See the misdirection? Watch carefully, and you too might grow up to be Chair of the Council of Economic Advisers under a Republican president... ## People Who Live in Glass Houses Shouldn't... Let me agree that science-fiction writer Charlie Stross's Glasshouse may be his best book yet. The villains are a bit undermotivated... and a bit stupid... but if they hadn't been stupid, the ending would have been a real downer... and I presume their motivations are left sketchy as sequel-bait... ## The Unitary Article II Executive and the Earl of Strafford Orin Kerr writes: Orin Kerr on the Unitary Executive: Article II and the Notice Question: It seems to me that the Bush Administration's approach to Article II powers has two features: (1) an unusually broad view of Article II powers and (2) a refusal to explain in detail the Administration's broad view of Article II powers. Most criticism of the Administration's approach has focused on (1). I'm no expert on these issues, but my sense is that, from a structural perspective, the real difficulty is the combination of (1) and (2). Imagine the Administration changed course on (2), and was very explicit about its interpretation of Article II.... Congress could respond.... Congress could cut funding to the Administration's efforts that go beyond Congress's prohibitions. The details of this may be tricky, but the basic idea is sound: When the feedback loop exists, Constitutional checks and balances can adjust to the President's vision of Article II powers.... The problem with Presidential signing statements in their current practice is that they announce that the President will follow a constitutional vision that no one outside the Executive Branch understands. Take the McCain Amendment. Here is the Presidential signing statement that accompanied it: The executive branch shall construe Title X in Division A of the Act, relating to detainees, in a manner consistent with the constitutional authority of the President to supervise the unitary executive branch and as Commander in Chief and consistent with the constitutional limitations on the judicial power, which will assist in achieving the shared objective of the Congress and the President, evidenced in Title X, of protecting the American people from further terrorist attacks. Does anyone actually know what that means? We can read John Yoo's scholarship and take some guesses... but... we don't really know. And that's the difficulty: Less that the Administration takes a strong view of Article II than that it won't disclose precisely what that strong view is. Without the feedback loop, it's hard for the other branches to respond. Anyway, this is an oversimplified take on a complex topic that is outside my area of expertise. But I thought I would flag the issue, offer a tentative take, and open it up for comments. As always, civil and respectiful comments only. I think that the extremely sharp Orin Kerr is wrong. We do know what the signing statement means. It means that George W. Bush will do whatever he wants, notwithstanding whatever laws or restrictions on funding Congress "passes" and Bush signs. It means that George W. Bush won't tell the Congress what he is doing unless he wants to. And anybody who doesn't like what the Bush administration does should shut up. Bush can hold at least 2/3 of the Republican senators in any Senate impeachment trial. Whether the Bush administration will stick to this maximalist interpretation after November is unclear. I think it will--that in 2007 we will see a lot of congressional subpoenas denied, a lot of executive privilege asserted, a lot of laws ignored, and some Supreme Court decisions ignored or evaded. I don't think the Congress will impeach and remove from office. And Congress has no other weapon it can use. Perhaps the constitutional prohibition on Bills of Attainder a la Strafford was a mistake. Things would be very different now if McCain and Hatch could threaten to attaint those servants of the president who are now making McCain's anti-torture amendment a dead letter. ## Robert Reich's Blog: On Turning 60 Robert Reich is 60: Robert Reich's Blog: On Turning 60: I'm sixty years old today. So is Cher. That's old as hell, but not as old as it used to be. In 1946, when I was born, life expectancy in the United States was 62.9 years. So I'm glad I'm sixty now and not then. Eligibility for Social Security began at 65 then, which made Social Security a rather unsatisfactory deal for the majority of the population who never became old enough to enjoy it. I'm at the early edge of the baby boom bomb that started when Ed Reich and millions of other returning GI's impregnated their wives. By 1964, when the boom ended, 76 million boomer babies had been born. Now I and my other early-edge boomer colleagues are seven years away from collecting Social Security, five years away from getting Medicare. In actuarial terms, we'll live until we're about 80. You don't have to be a math wizard to see the problem. The economy will probably grow fast enough to keep the Social Security trust fund adequate to the task, but Medicare will go bust unless the nation does something to reign in rising health-care costs. That something is actually three things: (1) reduce the huge administrative costs of health care, which include soaring advertising and marketing expenses designed to identify and sign up young and healthy people and avoid older and sicker people; (2) slow the growth of new spending on new medical and pharmaceutical technologies, which are also driving up costs; and (3) devise some system to limit medical spending on extremely sick elderly people who would, at most, have their lives prolonged for only a few months anyway... I would disagree with (2). Perhaps we want to slow the growth of spending on new medical and pharmaceutical technologies, but we don't want to slow the development and application of new medical and pharmaceutical technologies. I, for one, am confident that Bob will be with us, raising the banner of twenty-first-century liberalism, for decades yet. I'm newly back from the memorial service for my grandfather Earl H. DeLong, born in 1909, who made it to 96--and was pissed when people came to his 95th birthday party because he thought it expressed a lack of confidence that he would make it to 100. ## Purple America Why oh why can't we have a better press corps? The all-purpose David Brooks takedown: Philadelphia Magazine: Restaurants, Shopping, Events, Best of Philly: Boo-Boos in Paradise: Wayne-bred David Brooks is the public intellectual of the moment. But our writer found out he doesn’t check his facts: By Sasha Issenberg: "In Red America churches are everywhere. In Blue America Thai restaurants are everywhere. In Red America they have QVC, the Pro Bowlers Tour, and hunting. In Blue America we have NPR, Doris Kearns Goodwin, and socially conscious investing." Brooks... was... bringing sweeping social movements to life by zeroing in on... "status detail."... There’s just one problem: Many of his generalizations are false. According to Amazon.com sales data, one of Goodwin’s strongest markets has been deep-Red McAllen, Texas. That’s probably not, however, QVC country. "I would guess our audience would skew toward Blue areas of the country," says Doug Rose, the network’s vice president of merchandising and brand development. "Generally our audience is female suburban baby boomers, and our business skews towards affluent areas."... Brooks could be dismissed as little more than a snarky punch-line artist, except that he postures as a public intellectual--and has been received as one.... In January, I made my own trip to Franklin County, 175 miles southwest of Philadelphia, with a simple goal: I wanted to see where David Brooks comes up with this stuff. One of the first places I passed was Greencastle Coffee Roasters, which has more than 200 kinds of coffee, and a well-stocked South Asian grocery in the back with a product range hard to find in some large coastal cities: 20-pound bags of jasmine rice, cans of Thai fermented mustard greens, a freezer with lemongrass stalks and kaffir-lime leaves. The owner, Charles Rake, told me that there was, until a few years back, a Thai restaurant in Chambersburg, run by a woman who now does catering. "She’s the best Thai cook I know on Planet Earth," Rake said. "And I’ve been to Thailand."... "In Montgomery County we have Saks Fifth Avenue, Cartier, Anthropologie, Brooks Brothers. In Franklin County they have Dollar General and Value City, along with a plethora of secondhand stores," Brooks wrote. In fact, while Franklin has 14 stores with the word "dollar" in their name--plus one Value City--Montgomery County, Maryland, has 34, including one that’s within walking distance of an Anthropologie in Rockville. As I made my journey, it became increasingly hard to believe that Brooks ever left his home. "On my journeys to Franklin County, I set a goal: I was going to spend$20 on a restaurant meal. But although I ordered the most expensive thing on the menu--steak au jus, ‘slippery beef pot pie,’ or whatever--I always failed.... I went through great vats of chipped beef and ‘seafood delight’ trying to drop $20. I waded through enough surf-and-turfs and enough creamed corn to last a lifetime. I could not do it." Taking Brooks’s cue, I lunched at the Chambersburg Red Lobster and quickly realized that he could not have waded through much surf-and-turf at all. The "Steak and Lobster" combination with grilled center-cut New York strip is the most expensive thing on the menu. It costs$28.75.... The easiest way to spend over $20 on a meal in Franklin County is to visit the Mercersburg Inn, which boasts "turn-of-the-century elegance." I had a$50 prix-fixe dinner, with an entrée of veal medallions, served with a lump-crab and artichoke tower, wild-rice pilaf and a sage-caper-cream sauce. Afterward, I asked the inn’s proprietors, Walt and Sandy Filkowski, if they had seen Brooks’s article. They laughed. After it was published in the Atlantic, the nearby Mercersburg Academy boarding school invited Brooks as part of its speaker series. He spent the night at the inn. "For breakfast I made a goat-cheese-and-sun-dried-tomato tart," Sandy said. "He said he just wanted scrambled eggs."...

Last fall, Pottery Barn opened stores in Huntsville, Alabama, and Franklin, Tennessee, and the New York Times has introduced home delivery in Colorado Springs. It likely won’t be long before Franklin County gets both; yoga classes have already arrived....

I went through some of the other instances where he made declarations that appeared insupportable. He accused me of being "too pedantic," of "taking all of this too literally," of "taking a joke and distorting it." "That’s totally unethical," he said...

## Federal Reserve: What We Have Here Is a Failure to Communicate

Via Mark Thoma:

Economist's View: Repeat After Ben: John Berry explains the Fed's struggle to find an effective communication strategy:

Fed Officials Confront a Failure to Comprehend, by John M. Berry, Bloomberg: Five months into the term of Chairman Ben S. Bernanke term he and his colleagues haven't figured out how to get financial markets to understand what they are trying to do with monetary policy in today's volatile economic setting. It's now a foregone conclusion that the Federal Open Market Committee will raise its target for the overnight lending rate by a quarter-percentage point, to 5.25 percent, on Thursday. The issue is how to draft a statement that explains the committee's thinking that leaves it free to respond to new economic data without giving some stubborn traders the impression that the Fed is soft on inflation....

Some officials, convinced that economic growth is slowing and that inflation will settle down again soon, would really rather not raise the target this week for the 17th time in a row. Even those officials feel they have no choice because investors, shaken by recent inflation reports, fully expect them to do so....

The major concern among officials at this point is the small rise in inflation expectations shown by a variety of measures the Fed follows. Officials want to keep expectations capped....

Nevertheless, unless inflation momentum is much stronger than most Fed officials think it is, at some point soon, they are going to want to leave the lending rate target unchanged. What some traders can't seem to comprehend is that if the FOMC were to do that, it wouldn't mean that the committee might not raise the target at a subsequent meeting. A pause wouldn't mean the Fed was done....

Obviously, no one knows exactly what the policy path will be for the rest of the year, including Bernanke and his colleagues. What the officials fervently hope is that they can find the right words to persuade the markets to leave them free to analyze incoming economic data and make their policy decisions accordingly...

## A Hearty Welcome from the Reality-Based Community to Ben Stein!

Ben Stein seems... well, shrill. I hereby offer him a commission as lieutenant colonel commanding the 17th Keyboarding Battalion (Paul Krugman's Own), the "Fighting Fiscal Conservatives," with a cross appointment as Junior Sub-Deacon Shoggoth in the Order of the Shrill:

Note to the New Treasury Secretary: It's Time to Raise Taxes - New York Times: By BEN STEIN: You almost certainly don't remember little me... you were an intense and clearly brilliant young man. Since then, time has proven you to be a brilliant and intense middle-aged man.... But now you have your work cut out for you as Treasury secretary. You are facing what is, in many ways, the most dangerous economic future since the Depression. Danger is coming on many fronts, only dimly seen by the powers that be in Washington....

Can you imagine, Mr. Paulson, what it will mean to Americans in terms of our currency's value, in terms of the interest we will have to pay to foreign creditors, if our bonds reach junk status? Can you imagine just how crippling a burden this will be on taxpayers?

It gets worse. The annual trade deficit with the rest of the world is approaching $1 trillion.... [W]e have to transfer ownership of roughly$1 trillion of our assets to foreigners every year to cover our excess of international purchases over sales. But the total worth of all the assets in the United States is not greatly more than $50 trillion.... [W]e are basically transferring the value of an average of one of our 50 states to foreign investors every year.... Right now, inflation is moving out of the Federal Reserve's comfort zone.... To raise rates enough to slow down our economy and thus bring down commodity prices amid skyrocketing demand in developing economies is certainly not easy. To do this correctly, you'd need to be a brain surgeon of monetary policy and a cardiac ace of fiscal policy. In other words, there is a great, great deal to be worried about. May I respectfully suggest that in this environment, ending the estate tax is not a major sensible priority? May I suggest that having the lowest taxes in 65 years on high-income taxpayers is not really as prudent as it might be if we were not running stupendous deficits, with far worse in the future? I know you are a Republican, and so am I. Now and then, scornful fellow Republicans ask me what kind of Republican I am, since I'm for higher taxes on the rich. I tell them that I am an Eisenhower Republican, the kind who wants to leave a healthier America to posterity. That includes an economy not headed for the status of a banana republic's economy. Now, I know that a truly great man, Ronald Wilson Reagan, when asked if he were not worried that his tax cuts would burden posterity with a heavy weight, supposedly asked, "What has posterity ever done for me?" Those of us with teenage children certainly know what he meant. But the problem is no longer quite as funny... ## Strategy Secrets of Grand Moff Tarkin Matthew Yglesias points out that Bush grand strategy really did come from the Dark Side: Star Wars and International Relations | TPMCafe: I've been reading John Ikenberry's book, After Victory: Institutions, Strategic Restraint, and the Rebuilding of Order After Major Wars and it's really great. Certainly, the ideas merit wider exposure and even though it was published in 2000 it sheds a ton of light on more recent events. But it's done in a bit of a dense, academic style. So it occurred to me that one of the main themes is actually captured pretty well in a famous bit of Star Wars dialogue.... What Tarkin's talking about here is... do[ing] away with the former constitutional order... to create a hegemonic one.... Tagge is skeptical that this will work -- the political processes may be cumbersome, but they're actually necessary to maintain the system's stability. It would actually be even more cumbersome for the center to be constantly trying to impose its will on everyone without the assistance of the bureacracy. Tarkin's counterproposal is that the development of the Death Star has changed the situation -- use it once on Alderaan to make an example of them, and in the future fear will keep the local systems in line.... [S]omething of this sort was motivating the Bush administration in 2002-2003. The key decisionmakers took the view that technological developments (the "revolution in military affairs") had radically enhanced America's ability to overthrow foreign governments. Rather than simply keep this power in our back pocket for use when circumstances clearly warranted it (as in Afghanistan) there was a palpable desire to make an example out of Iraq to send a message.... Except, of course, it hasn't worked very well. The alternative order-building strategy of liberalism and institutions was undermined by the war, while the war itself has had perverse effects. Countries... well-disposed toward us regard our actions as erratic and unreliable, making them less disposed to cooperate... countries... ill-disposed toward us regard our actions as essentially ineffectual and are also less disposed to cooperate. ## PGL at Angry Bear Is Shrill The PGL reads National Review, and reacts in the appropriate fashion: Angry Bear: Tax Cut Nuts: Nick Schulz has a flair for titles. The latest defense of free lunch supply-side insanity starts by noting the William Niskanen regression - which suggests that the starve-the-beast rationale for tax cuts has not been operative as far as the U.S. economy over the past 25 years: The question at hand regards whether tax cuts prompt more government spending or less. Some conservatives have argued for tax cuts with the belief that the resulting loss of revenue - and hence increased deficits - would yield spending cuts.... [R]esearch from economist William Niskanen of the Cato Institute suggests that tax cuts prompt more spending, undercutting the starve-the-beasters. For the sake of argument, let's say that Niskanen's analysis is correct. Chait says that, as a result, "the factual basis for [conservatives'] entire domestic strategy" has now been "exposed as a fraud." As Chait sees it, since conservatives continue to insist on tax cuts, even though they lead to more government spending, conservatives must be "crazy." But "starve the beast" is [not] the only conservative argument for tax cuts.... Moral arguments about economic growth and undue burdens posed by excessive taxation animate conservative arguments in favor of tax cuts. The most articulate and successful advocates of tax cuts... all argued for cuts to prompt higher economic growth. A moral argument? The issue is... economic... do the modest incentive benefits from lower tax rates outweigh the crowding-out effects from reduced national savings? Most economist would argue they do not, so the free lunch fiscal policies that folks like Jack Kemp advocate lower long-term growth. Schulz next asks us to read the explanation provided by Jeffrey Miron. I would suggest that the folks at the National Review read the whole explanation, which begins with: Most economists agree that large and persistent budget deficits are bad for the economy. Deficits mean government borrowing, which implies higher interest rates, lower investment, reduced capital accumulation, and slower growth. Miron believes that incentives matter. I agree. But he also begins his discussion with noting that cutting taxes without cutting government spending leads to crowding-out. If Mr. Schulz wants to cite Jeffrey Miron as an authority on this economic issue - might I simply ask that Mr. Schulz bother to read what Miron has written. Why oh why can't we have a better press corps? ## Outsourcing: Time to Talk Back to the Media... The world is a complex and intricate place. How is anyone to understand it--even a particular piece of it, for example the United States government in Washington DC and its economic policies? It is a big problem, for the standard sources that I was taught (perhaps wrongly) as a child to rely on--the Washington Post, the New York Times, Walter Cronkhite on the evening news--are breaking down. So it is time to build new institutions. And one way is to take advantage of the fact that those of us whom Jay Rosen calls The People Formerly Known as the Audience are no longer on the receiving end of a media system that runs one way only. We can talk back--fight ignorance with information, fight truthiness with truth, fight media narratives with the real story. For example... Back in early February of 2004, then U.S. Council of Economic Advisers chair N. Gregory Mankiw spent some time trying to explain the issues around "outsourcing" to America's elite Washington political news reporters. Greg Mankiw's standard paragraph about outsourcing is very much like mine--like that of any neoclassical and neoliberal economists--and goes something like this: As with any change in technology that increases the volume of international trade in goods and services, the "outsourcing" of service-sector jobs creates winners and losers--but almost surely more and bigger winners than losers. Big winners are workers in poor countries who get better jobs working for firms that can now export services to rich core countries like the United States. The major losers are those who previously held the now-outsourced service-sector jobs in the United States, who must now find new and different jobs and almost surely find that their skills are worth less. But even in the United States the losses to the losers are outweighed by gains to winners: American workers who find their skills in industries in higher demand as foreigners spend their increased dollar earnings, American consumers who see the prices of what they buy fall, and American shareholders and managers who see the profits of their companies increase. We should worry about the distributional consequences of "outsourcing" and how policies can cushion and offset them. But we should never overlook that--as is almost surely the case with expanded trade--"outsourcing" increases the total size of the economic pie. Greg Mankiw failed. On February 10, 2004, he woke up to an unpleasant news story in the Washington Post: Bush Report Offers Positive Outlook on Jobs: February 10: Wading into an election-year debate, President Bush's top economist yesterday said the outsourcing of U.S. service jobs to workers overseas is good for the nation's economy.... Mankiw's comments come as the president struggles to shore up support in manufacturing states that have lost millions of jobs and Democratic rivals make economic nationalism a centerpiece of their attacks on the administration.... Mankiw's conclusions may prove discordant during an election year, when many workers remain concerned about their prospects... It happened again on February 11: Bush, Adviser Assailed for Stance on 'Offshoring' Jobs: Democrats from Capitol Hill to the presidential campaign trail lit into President Bush's chief economist yesterday for his laudatory statements on the movement of U.S. jobs abroad.... Rep. Donald Manzullo (R-Ill.) called for the resignation of N. Gregory Mankiw.... "I know the president cannot believe what this man has said," Manzullo said. "He ought to walk away, and return to his ivy- covered office at Harvard"... February 12: Hastert Rebukes Bush Adviser: House Speaker J. Dennis Hastert... rebuked the chairman of President Bush's Council of Economic Advisers.... The speaker's statement, headlined "Hastert Disagrees With President's Economic Advisor On Outsourcing."... "I understand that Mr. Mankiw is a brilliant economic theorist, but his theory fails a basic test of real economics," Hastert said.... A chorus of Democrats preceded Hastert in condemning Mankiw's argument.... The controversy is embarrassing for Bush... And February 13: Bush Parts Ways With Aide on Job Losses: President Bush... distanced himself from his chief economist, who this week spoke approvingly of jobs moving overseas. The president... did not mention the aide by name but expressed his concern about the expatriation of jobs.... Several economists, including some Democrats, have defended Mankiw, a Harvard economist, for speaking the economic truth. But his remarks have become a political liability for the president... Now the Washington Post's news reporters here--Jonathan Weisman, Mike Allen, and Dana Milbank--know, on some level, that they are being unfair to Mankiw. They don't say that what he said was inaccurate, or short-sighted, or analytically unsound. The descriptive terms they use are things like "discordant," "embarrassing," "political liability" that hint that they know that they are giving Mankiw a raw deal, and that flag that fact for careful reasons. But can you find anything of the standard neoclassical-neoliberal analysis of outsourcing in their stories? I can't. Greg Mankiw thought a bunch of reporters were coming to talk to him about the state of the economy and the analysis made by the Council of Economic Advisers in its 2004 Economic Report of the President. WRONG! The last thing the Washington Post's reporters wanted to do was to convey a thumbnail summary of Mankiw's analysis of outsourcing. That's simply not the business they saw themselves as being in. To get even a hint of what the issues are, you have to abandon the news pages of the Washington Post for Bob Davis in the news pages of the Financial Times or the Wall Street Journal: WSJ.com - Some Democratic Economists Echo Mankiw on Outsourcing: [A]mong Democratic economists... Mr. Mankiw's remarks were mainstream. "Basically I agree with Greg's thrust," said Janet Yellen, who was President Clinton's chief economist. "In the long run, outsourcing is another form of trade that benefits the U.S. economy by giving us cheaper ways to do things." But Ms. Yellen added that many moderately paid U.S. workers are suffering because of outsourcing.... Said Laura Tyson... another of Mr. Clinton's former chief economists: "The traditional economic response does sound hard-hearted and can be criticized for not taking nearly as seriously the dislocation as one should."... "On efficiency grounds, he [Mr. Mankiw] is right," said former Clinton Labor Secretary Robert Reich, meaning that the economy becomes more efficient when costs are reduced through trade. But Mr. Reich... said the administration hadn't made "a serious attempt to deal with the profound structural problems of an economy in transition."... "Linking outsourcing to aggregate employment decline is a bit of demagoguery that will bite him in the b--- next February if [Kerry] becomes president," Mr. DeLong said. The problem is not that the Washington Post hires people who are unintelligent or lazy while the Wall Street Journal hires whip-smart workaholics. The problem is that conveying accurate information about the economy is high up on almost all the *Journal's* news reporters' and way down on almost all the Post reporters' list of priorities. Making a splash--yes. Saying "Greg Mankiw says that increased outsourcing is like expanded trade: there are winners and losers but more winners" tells the truth but doesn't make a splash. Saying "Greg Mankiw says that outsourcing U.S. jobs to workers overseas is good for the nation's economy" is not truth but truthiness, but it does make a splash. Saying who is one-up politically inside-the-beltway today--yes. Pleasing your editors so they'll give your stories better placement--yes. Pleasing your sources--like Denny Hastert--so they'll keep talking to you first--yes. Informing the public about the functioning of the economy and about the dilemmas of economic policy--what's that? Now there was a little bit of information inside the pages of the Washington Post that week. Steve Pearlstein devoted a couple of columns to arguing that outsourcing was bad for America after all. The editorial board defended Mankiw. But neither offered Greg the 2000 or so words in the high news hole he would have needed to get his points across with the same impact as the stories calling his analysis... not wrong but "discordant" or "embarrassing". On the micro level, it is clear what should be done. If you want to understand Washington DC, the American government, and American economic policy, then: trust the news pages of the Wall Street Journal, trust the Financial Times, trust the political and lobbying coverage of the National Journal. Trust Bloomberg and Knight-Ridder to try as best they can to get the story straight under immense time pressure. Trust nothing else until it is verified. Use yesterday's *Post* for fishwrap. Use today's *Post* to line the kitchen floor while you continue to housetrain the new puppy. On the macro level, it is less clear what can be done. It should be easy. After all, nobody goes into journalism (or few go into journalism) to mislead the public. But it turns out to be very hard. Government is how we, collectively, decide on and choose agents to carry out our common and joint priorities. The right model to cover government is that of how you would report to your siblings on the agent who rents out your mother's condo in Palm Beach. Government is vastly inferior to Hollywood as a venue for glitterati gossip--yet much political news coverage makes the coverage of Brad Angelina's new rugrat look profoundly serious. Government is, after all, vastly inferior to the world series as a sporting spectacle--yet much political news coverage is more "inside baseball" than the most inside of inside baseball itself. ## Leaking Oil, the New Republic Loses Altitude Rapidly... Mark Kleiman has a comment on the New Republic's Jason Zengerle's oath of omerta: The Reality-Based Community: I've heard lots of excuses for continuing to protect sources who supply false information, but the source's own refusal to return phone calls is a new one one me... I emailed Jason Zengerle: Do you really believe that Jerome Armstrong and Markos Moulitsas are running a pay-for-play scheme in which politicians hire Armstrong and then get the support of Kos? The answer I got back: well, it's complicated. i don't know enough to say "yes, i do," but i do know enough so that i can't definitively say, "no, i don't." right now i'm trying to figure out the answer and determine if the stuff that looks kind of fishy really is fishy, or if it's innocent. jz I take Jason's answer to be: "No, but I'm too ashamed to actually say 'No' outright." Why oh why can't we have a better press corps? UPDATE:Jason Zengerle protests over the phone that "I don't know" means "I don't know." ## Fiber to the Bathroom... One thing I learned last weekend. My mother lives a block from a [high executive] at [major telecom company]. Fiber to the bathroom makes a real difference. It gives you access to a higher plane of virtual reality. Lower latency and greater bandwidth than anyplace else in the world unless you lived inside of MAE-West itself... ## The Tree of Tax Hikes and Social Security Privatization Mark Thoma views Jagadeesh Gokhale as Adam viewed the Snake in that old garden--you know, the one that was the source of four rivers: the Pishon,the Gihon, the Tigris, and the Euphrates. Only Jagadeesh is offering Mark a pomegranate containing not knowledge of good and evil but instead a linked package of tax hikes and private Social Security accounts: Economist's View: Everything Old is Still Old: This National Review Online commentary urges Republican leaders to reconsider their opposition to tax increases as part of the solution to growing entitlements. The idea is to trade concessions on taxes for the creation of personal Social Security accounts with the hope that, once the door has been opened slightly, salesmanship can open it further and allow conservatives to reach their goal of privatizing Social Security. Beware of compromise in sheep's clothing: Entitlement-Reform Realities A little conservative compromise will go a long way as we attempt to revamp today's safety-net system, by Jagadeesh Gokhale, NRO: Some conservatives are apoplectic about the prospect of abandoning the "no-tax-hike" pledge as part of entitlement reforms.... Unfortunately, the political and economic arithmetic of entitlement shortfalls does not permit them much hope; remaining wedded to high principles and shunning compromise will only worsen their choices.... Liberals' programs have been in operation for decades and are now supported by a large bloc of voters, making it especially difficult for conservatives to challenge or modify them.... [L]iberals are viewed as having no new ideas... because most of their ideas are already in operation. Liberals are in a peculiar bind. Entitlement shortfalls are growing larger and threatening to undo their legacy.... That presents an opportunity for conservatives to revamp today's safety-net system by introducing their own market-oriented framework, with personal Social Security accounts as the crown jewel. Unfortunately, worsening entitlement shortfalls also make adopting personal accounts more difficult each year. The closer baby boomers come to retirement age, the less likely they are to acquiesce.... Could conservatives do better by agreeing to accept some of the taxes in exchange for removing the cake earlier and replacing a part of future tax increases with personal accounts? The answer of the high priests is "no," which is puzzling given that their choices would only worsen over time. What are the strategic tradeoffs? Three items seem relevant: First, resolving the entitlement shortfall by paring scheduled benefit growth is becoming less feasible.... [I]ntransigence on compromise will make higher taxes more, not less, likely.... Second... personal Social Security accounts do not yet exist and thus cannot compete with the existing system to demonstrate their superiority.... Third, if personal accounts were introduced and proved successful... they would carry strong momentum for expansion as more groups clamored for access to personal accounts. So any arguments that the advantages of introducing personal accounts are not worthy of a few early concessions on taxes appear far from credible.... Mark Thoma wants to turn down the pomegranate: First, there is nothing that necessitates linking tax changes to personal accounts - no such linkage was made when taxes were cut. This is nothing more than a strategy for attaining personal accounts, it is not a solution to the entitlement problem... True, but private accounts as an add-on would be a fine thing for Social Security. Americans need to save more, both individually and collectively. Hence greater "contributions" now and in the future are attractive. And where should those contributions go? The poorer half of Americans have no long position in the stock market. Given that the S&P currently carries a real earnings yield of 6%, that is a scandal and an outrage. Almost all of the richer half of Americans' long positions in the stock market yield them S&P - 2.5% per year, given their mutual fund fees, brokerage fund fees, and the price pressure the herd exerts against itself as it churns its portfolios. That is at least a semi-outrage. My ex-student Konstantin Magin has long argued that the projected equity premium makes policies to boost investments by Americans in the stock market a winner, and has recently pointed out to me that the magnitude of long-run mean-reversion implied by current estimates of return predictability makes long-run passive investments in the stock market the closest to a sure thing of anything except running your own online poker site. Now it is possible to make Social Security private accounts a bad deal for everyone. And it is surely the case that the Bush White House's track record is such that only an idiot would sign on to any proposal designed and implemented by the Bush White House. But if we were offered a slightly different pomegranate. If, say, we were offered a pomegranate that consisted of: (a) contribution increases, (b) well-designed, low-fee private accounts, (c) Treasury Secretary-to-be Paulson with the baton to make the detailed decisions and set the tradeoffs, (d) advised by an Assistant Secretary for Social Security Reform named Jagadeesh Gokhale, who (e) promised to retain enough social insurance in the system to preserve a substantial defined benefit component--then yes, I would eat that pomegranate. And I would advise Mark Thoma to eat it too. ## Social Security Private Accounts: Add-ons and Carveouts Andrew Samwick points out that, in his (and Jeff Leibman's, and Maya MacGuineas's) centrist consensus Social Security reform plan, 5/6 of the funding for private accounts is an add-on to funding currently dedicated to the Social Security trust fund, and only 1/6 is a carve-out. That bringing of an extra 2.5% of taxable payroll to the funding table seems to me to be a huge win for the AARP side, and not something that should generate objections from the left. Andrew writes: Vox Baby: Carveouts: I would say that the most contentious issue at yesterday's AEI presentation was the issue of a "carveout," in which some of the revenues that would otherwise go into the Social Security trust fund are allocated instead to personal retirement accounts. You can hear this very clearly in David Certner's comments. It appears that this may be a "line in the sand" from AARP.... In the LMS plan, contributions of 3 percent of taxable payroll are made to PRAs, with 1.5 percentage points coming from an increase in the payroll tax and 1.5 percentage points coming from the Social Security system. The latter part is the so-called carveout. However, most (about 2/3 over the 75-year projection period) of that contribution is funded by raising the cap on the maximum taxable earnings level. The rest of it is funded by benefit reductions. We believe that we need PRAs of that size in order to get the right-of-center folks to support the plan. But it is worth emphasizing that we are making very minor changes to the projected path of the Trust Fund.... The reductions in the Trust Fund ratios over the next 25 years seem to be a small price to pay to come to a compromise on a plan that, taken as a whole, greatly enhances the retirement security of future generations. ## Department of "Huh?" Where oh where do they find these book reviewers? In the New York Times, Robert Alter writes: Review of 'Reading Leo Strauss,' by Steven B. Smith - New York Times: Liberal democracy lies at the core of [Leo] Strauss's political views.... [P]olitics must be the arena for negotiation between different perspectives, with cautious moderation likely to be the best policy.... Smith... describes Strauss's position as "liberalism without illusions." All this may sound a little antiquated, and Smith is right to associate Strauss with cold war liberals like Raymond Aron, Isaiah Berlin, Walter Lippmann and Lionel Trilling. But it's a view from the middle of the past century that might profitably be fostered in our own moment of political polarization, when a self-righteous sense of possessing assured truths is prevalent on both the right and the left... This paragraph obscures much more than it enlightens. A superior thumbnail summary is provided by M.F. Burnyeat: The New York Review of Books: Sphinx Without a Secret: The leading characters in Strauss's writing are "the gentlemen" and "the philosopher." "The gentlemen" come, preferably, from patrician urban backgrounds and have money without having to work too hard for it: they are not the wealthy as such, then, but those who have "had an opportunity to be brought up in the proper manner." Strauss is scornful of mass education. "Liberal education is the necessary endeavor to found an aristocracy within democratic mass society. Liberal education reminds those members of a mass democracy who have ears to hear, of human greatness." Such "gentlemen" are... ready to be taken in hand by "the philosopher," who will teach them the great lesson they need to learn before they join the governing elite. The name of this lesson is "the limits of politics." Its content is that a just society is so improbable that one can do nothing to bring it about.... [T]he moral is that "the gentlemen" should rule conservatively, knowing that "the apparently just alternative to aristocracy open or disguised will be permanent revolution, i.e., permanent chaos in which life will be not only poor and short but brutish as well"... With footnote: What is Political Philosophy? p. 113, where Strauss indicates that when this argument is applied to the present day, it yields his defense of liberal or constitutional democracy--i.e., modern democracy is justified, according to him, if and because it is aristocracy in disguise. Cf. Liberalism, p. 24. To say that "liberal democracy is at the core of Strauss's political view" is simply not true. However, Strauss would probably have approved of Robert Alter's saying that "liberal democracy is at the core of Strauss's political view": "philosophers" will know that Alter's sentence is false, and it would be good for "the gentlemen" to believe that Alter's sentence is true. Strauss's position is, needless to say, not the position of Raymond Aron, Lionel Trilling, or Walter Lippman, none of whom believed that modern democracy was justified because it was enlightened aristocracy in disguise. ## The Rude Pundit Appeals for Help... He has the last word on the war the New Republic has launched on the axis of evil that is Markos Moulitsas: The Rude Pundit: Update- The Horrible Truth: Markos Moulitsas looks smaller on TV than in person. He is actually seven feet tall, with hands that could crush a bowling ball. He sharpens his teeth by chewing beer bottles, and the rumor is that he shot Billmon just for snoring. He scares us all because he enters our villages and eats our livestock at night. Please help us, TNR, please end the tyranny... It will be a cakewalk. ## Reading Beowulf Reading Beowulf: Beowulf mathelode, bearn Ecgtheowes: "Ne sorga, snotor guma! Selre bith aeghwaem thaet he his freond wrece, thonne he fela murne. Ure aeghwylc sceal ende gebidan worolde lifes; wyrce se the mote domes aer deathe; thaet bith driht guman unlifgendum aefter selest." (Beowulf, son of Ecgtheow, spoke: "Wise sir, do not grieve. It is always better to avenge dear ones than to indulge in mourning. For every one of us, living in this world means waiting for our end. Let whoever can win glory before death. When a warrior is gone, that will be his best and only bulwark.") Seamus Heaney, trans. (874), Beowulf (New York: Norton: 0393320979). ## CPI Bias and Economic Growth David Wessel gives us Bob Gordon's View on the Magnitude of CPI Bias: WSJ Washington Wire: Has Anybody Told the Fed?: The Consumer Price Index is still overstating inflation, says Northwestern University economist Robert Gordon.... "My own retrospective view is that the upward bias in the CPI in 1995-96 was if anything higher than the Boskin (commission) estimate of 1.1 percent and was perhaps 1.2 or 1.3 percent," he says. Given the changes made since, and applying an approach similar to Boskin commission, he estimates the CPI currently overstates inflation by about 0.8 percentage points, a view that runs counter to frequent consumer complaints that the CPI understates the inflation rate they face. Gordon says the true bias in the CPI is even larger if one takes full account of the improving quality of the goods and services he adds. "I think that these point estimates substantially understate the value of inventions, new products, and increased longevity. A century ago, our forefathers had to shovel coal, carry water into their dwellings, and heat it manually before bathing or the tedious scrubbing of clothes could take place. The value of running water, water heaters, forced air heating fueled by natural gas and the cleaner air that has resulted, is enormous, even if converted to an annual growth rate over 100 years. "Recent research on the value of increased life expectancy creates growth rates in welfare that swamp the Boskin debates about 10 basis points here or there... Despite global warming, it still snows occasionally in Chicago, but I don't have to touch a snow shovel. My trusty Toro snow blower is a new product from the perspective of 50 years ago. The value of its invention is not included in the CPI. But, not only does it greatly ease the job of removing the snow compared to the old fashioned snow shovel, but it indirectly has contributed to my life expectancy." ## Not All Virtues Are Virtuous Not all virtues are virtuous. A brave thief is, often, a worse thing than a cowardly one. And it would have been much better for the United States if George W. Bush's speechwriter Mike Gerson had been less eloquent and less competent. Or so is David Kusnet's opinion: History News Network: ... rarely also has a president more thoroughly squandered an opportunity to lead a united nation. True, Lyndon Johnson lost the overwhelming support he received after the assassination of John F. Kennedy and in his landslide victory over Barry Goldwater a year later. But Johnson used up his political capital to enact historic civil rights legislation, to continue a war he had inherited, and to create Medicare, Medicaid, and Head Start. Bush, by contrast, will be remembered for tax cuts that almost entirely benefited the wealthy, a failed attempt to privatize Social Security, a botched war of his own choosing, and an inept response to Hurricane Katrina. Yet even as these disasters unfolded, Bush continued to speak in the eloquent voice that Gerson had created. And that, in the end, was the problem with Gerson's achievement: He was, put simply, a better speechwriter than Bush was a president. By making his boss sound plausible as commander-in-chief, he set a standard by which Bush's deeds have been found wanting. At first, Gerson's eloquence made the president seem compassionate, conciliatory, and conservative, all at the same time. When Bush declared in his first inaugural address that "No insignificant person was ever born," it was possible to hope that, in his own way, he would try to help poor people lift themselves up and most Americans win their struggles to stay even. But his policies have not delivered on this promise. And as his appealing, lofty rhetoric began to diverge more and more noticeably from the policies he pursued, Bush's speeches--still elegantly crafted--came to seem more and more like a bag of tricks. He presented policies that would benefit a privileged few as if they were intended to help women, minorities, and the poor; and he embedded his most controversial policies (the Iraq war, tax cuts for the rich) in the most popular initiatives (the fight against terrorism, tax cuts for the middle class). As his presidency has dragged on, these disconnects have become more and more glaring... ## Joe Lieberman Has a Mark Schmitt Problem... Mark Schmitt thinks he ought to be a supporter of Joe Lieberman, but cannot bring himself to do so: My Lieberman Problem -- And Ours | TPMCafe: I ought to be a Lieberman "dead-ender." I've respected him for 30-some years, I don't mind his idiosyncratic positions, I don't demand party loyalty, and I don't insist on any particular position on how to end the war. But I'm not.... [S]omething happened to Lieberman, and it's more than his position on the war. It is not... that he "symbolizes" all the other Democrats who voted for the war.... [I]t's simply his self-righteous anger, his hostility to those who differ. He alone among Democrats seem to think that opponents of the war are not just mistaken, but will cause us to lose. (Just as he alone can continue to describe the choice in the war as "winning" or "losing," as if "winning" were somehow still possible, as opposed to salvaging a bad situation.) He alone would say something like, "We criticize the commander-in-chief at our own peril." And he alone would suggest, as he did to David Broder, that Democrats who criticized Bush on the war were acting from "partisan interest" while he was thinking of "the national interest."... Is that enough of a reason to oppose Lieberman? Sure, because it's a huge error on one of the most fundamental questions of our time. It's an error not of policy or of political loyalty, but of attitude. And it is not an error that I see others making.... Nor do I accept the argument that if Lamont wins, it represents a "purge" or shows that "there's no place in the Democratic Party" for Lieberman. I value competitive elections. Lieberman's not guaranteed a fourth term in the Senate.... If Connecticut Democrats want a Senator who had the right position on the war, or at least doesn't treat those who did have the right position with contempt, they are entitled to it... Lieberman's "we criticize the commander-in-chief at our own peril line" is indeed despicable. More despicable, in my view, is his twenty years of anti-Israel rhetoric. It has been obvious since the late 1970s that for American politicians to coquette with the anexationist fantasies of Likud is to raise the chance that Tel Aviv will become a radioactive abattoir sometime in the next half century. Joe Lieberman surely knows this. But he keeps on coquetting. To curry favor and contributions from AIPAC by doing what you can to undermine the long-run security of Israel--that is truly beneath contempt. ## Greg Mankiw and Clive Crook on Health Care Reform Greg Mankiw endorses universal health insurance at the individual rather than the firm level: Greg Mankiw's Blog: Crook on Health Care Reform: The ever-thoughtful Clive Crook opines on the recent health care initiative in Massachusetts and what it takes to reform health care more broadly. An excerpt: How to do national health reform worthy of the name? First, and most important, create a level playing field tax-wise for individuals and firms, so that nobody has a financial incentive to prefer employer-provided insurance to the individually purchased kind. You could do this by extending Connector-style tax relief to all taxpayers, or by abolishing it for employers. Abolition would be better. It would raise a lot of revenue (which will be needed in my plan) and would jolt people into changing their insurance arrangements. Second, the free-rider problem makes the case for an individual mandate compelling, in my view. Massachusetts is right about that. And the mandate, in turn, makes health subsidies for the poor, which would be desirable in any case, unavoidable. Massachusetts is right about that, too. But to avoid the enormous problems of enforcing and administering the mandate (all in return for less-than-universal coverage in any case), turn this logic around and give everybody a voucher sufficient to buy stripped-down, Connector-style coverage. These two ideas--scrapping the subsidy for employer-provided insurance and instituting an individual mandate--make sense to me. The individual mandate turns the traditional liberal idea on its head: Health insurance is not a right but a responsibility... ## Impeach George W. Bush. Impeach Him Now Hanging judge Matthew Yglesias on the political morality of Andrew Sullivan: Against The Odds | TPMCafe: Andrew Sullivan reminds us that he doesn't support any timetable for withdrawal from Iraq which puts [him] in the excruciating position of supporting a war conducted by an administration whose key players are manifestly incompetent and reckless. In addition, he doesn't have an alternative master-plan to win either and while there are various policy shifts he would support, as long as Bush, Cheney and Rumsfeld are running the show, I cannot say I am optimistic that such a sane strategy will be employed or that it will succeed. They say the definition of insanity is trying the same thing and expecting different results... as Andrew also says... his point of view ... is fairly widely held... by the saner Republicans as well as your hawkish Democrats. It's also a little crazy.... In January 2009 when a new administration takes office, the war will have been going on for five and a half years, virtually the entire span of time between Hitler's invasion of Poland and the Nazis' surrender.... Andrew doesn't believe we'll actually make any serious amount of progress between now and then.... [A]... fundamental point of political morality -- it's wrong, seriously wrong and seriously irresponsible, to support military action that has no likely prospects of success. It's one thing to ask young men and women to kill and die for a good cause. It's another thing entirely to ask them to kill and die as a token of your support for a good cause. Clearly, my first-choice scenario for the world would be one in which the nominal goals of American Iraq policy -- killing terrorists, preventing a civil war, building a stable liberal democracy -- are achieved. But I can't support the war -- can't say it was a good idea to launch it, and can't say I think it's a good idea to continue it -- precisely because I don't think the war is... stands a good chance of accomplishing... and... ever did stand a good chance of accomplishing [these goals]. Under the circumstances, a symbolic stand in favor of what the war's supposed to be about is, in practice, not much more than a stand in favor of continued torture and pointless bloodshed. ## The Minimum Wage From Max Sawicky. We have, in relative terms, cut the minimum wage enormously over the past generation (and have not seen any significant improvement in employment). The question is whether we should continue to let inflation and productivity growth cut the relative value of the minimum wage further, or be satisfied with the relative cuts we have already seen. Max Sawicky quotes Dean Baker: MaxSpeak, You Listen!: ARE YOU NEED ARE TWO SENTENCES: Courtesy of Deano, apparently posted at 5:16 a.m. (was this before he went to bed, or after he got up?), why we should raise the minimum wage: The minimum wage bill currently being pushed by Senator Kennedy would raise the minimum wage to$7.25 by 2009. By comparison, the minimum wage was almost 8.00 an hour (in 2006 dollars) in the late sixties. This means that if Kennedy's bill were approved, the real value of the minimum wage in 2009 would still be more than 10 percent lower than it was in the late sixties, even though productivity will have increased by more than 120 percent over this period... ## Cage Match! Pass the Popcorn! The New Republic launches a four-front offensive against weblogs in general, and Markos Moulitsas i particular: The New Republic's Lee Siegel: Lee Siegel on Culture: It's a bizarre phenomenon, the blogosphere. It radiates democracy's dream of full participation but practices democracy's nightmare of populist crudity, character-assassination.... It puts some people, like me, in the equally bizarre position of wanting desperately for Joe Lieberman to lose the Democratic primary to Ned Lamont so that true liberal values might, maybe, possibly prevail, yet at the same time wanting Lamont, the hero of the blogosphere, to lose so that the fascistic forces ranged against Lieberman might be defeated... The New Republic's Jason Zengerle: The Plank: Are Jerome Armstrong and Markos Moulitsas (of the famous Daily Kos) engaged in a pay-for-play scheme in which politicians who hire Armstrong as a consultant get the support of Kos?... Why the strange silence in the face of such damning allegations? Well, I think we now know the answer. It's a deliberate strategy orchestrated by Kos.... [W]what was Kos's message to this group that secretly plots strategy in the digital equivalent of a smoke-filled backroom?... So far, Kos's friends in the fiercely independent liberal blogosphere seem to have displayed a sheep-like obedience to his dictat.... [W]hy did so many... follow Kos's orders to stay silent?... Kosola allegations.... [L]et's not underestimate their financial allegiances.... Kos runs... Advertising Liberally... gets to decide which blogs belong--and don't belong--to Advertising Liberally, which means a lot of these blogs' financial health hinges upon staying in Kos's good graces. Is it any wonder they're so obedient?... The New Republic's Jon Chait: Daily Kos excommunicates TNR--again: Markos Moulitsas Zuniga says nice things about Mark Warner, which means he's really just a pragmatist (or easily co-opted, but the effect is the same). All this is mostly true. What this interpretation misses, however, is that the radicalism of the lefty bloggers lies not so much in their ideological platform but in their ideological style. They think like sectarians.... More than two years ago, Kos launched what he called his "anti-TNR campaign," in which he declared us to be enemies of the people. Wait, sorry, wrong jargon... The New Republic's Martin Peretz: Forgive me. But I never read Daily Kos until today. Well, now that I've read it, the first thought that came to me is how illiterate Kos is, just plain illiterate. There has been other not-with-a-pick-axe-but-with-a-bludgeon left-wing journalism in the English speaking world, the American PM, for example, or the British Tribune. If you look them up (they must be some place on the Web), you'll see how elegant surgical argument can be. OK, that's not what the Daily Kos is. Daily Kos is actually a rant, Kos's own rant and then his comrades. And his rant against us, well, borders on a nut case's. When a high-minded or, rather, high-strung moralist is accused by The New York Times of journalistic hanky-panky and then by TNR of running an ideological censorship bureau, reminiscent of the old Catholic Legion of Decency, he will go off the rails. And he did. Matthew Yglesias looks on with bemusement, and gives this round of the cage match to Markos: TAPPED: The really great thing about the Daily Kos versus New Republic war is that the more each side opens their mouths, the worse you think of them. Markos's initial impulse to stay silent in the face of Chris Suellentrop's allegations seemed sound. Suellentrop didn't really have the goods. Let some time pass and the goods would either surface or not and there was nothing worth saying about it. But then Jason Zengerle started spinning a rather implausible conspiracy theory. Folks were rising to Kos' defense, but then Kos chose to ruin everything by penning a laughably self-regarding response (as I've been muttering around the office, the only real scandal in Kosland is that Markos is a bit of an egomaniac, but I assume you'd have to be in order to succeed in creating a massive online community) in which the key metric for judging TNR's degree of progressivism isn't their warmongering, but... their opinion of Markos. As of late afternoon yesterday, I was ready to declare TNR the winner on points for having been less embarrassingly ridiculous about this, but then this morning I saw Lee Siegel's contribution to the debate explaining that not only Markos but "the blogosphere" generally is -- wait for it, emphasis will be added -- "hard fascism with a Microsoft face." Because, of course, Mussolini was well known for posting strident critiques of his political foes on the internet. Or maybe that was Hitler? Franco? Who knows. And what's soft fascism anyway? ## A Dialogue on the Anthropic Cosmological Principle Zoticus: What is this Anthropological Cosmological Principle? Paracelsus: You mean "Anthropic Cosmological Principle. Zoticus: I do? Anthropic Cosmological Principle. Paracelsus: Did you see the sun rise this morning? Zoticus: I did. 5:45. Rising over the north part of the Diablo Ridge. The dog is always puzzled by the sunrise. She stops and looks around, as if the sudden increase in brightness conveys some opportunity or threat... Paracelsus: OK. The sun rose the furthest north it ever does--in your experience at least--right? Zoticus: Yes. Paracelsus: And 5:45 is the earliest the sun ever rises, at least around here, yes? Zoticus: Yes. Paracelsus: And if I asked you to explain to me why it was that the sun rises earliest, 5:45, and furthest north on June 21, and does this every year, what answer would you give? Zoticus: Well, I would say that humans could only evolve on a planet of roughly 4,000 miles in radius in an orbit roughly 93 million miles from a G-type star.... That we could only evolve on a planet that was rotating, hence days and nights.... That the axis of rotation would not be perfectly aligned with the normal to the plane of earth's orbit, hence sometimes the days are longer. And June 21 just happens to be the day that the earth's axis of rotation points closest to the sun. Paracelsus: So days are of different length--with June 21 the longest--because? Zoticus: Spontaneous symmetry breaking--some day has to be the longest. Paracelsus: And 5:45? Zoticus: No significance: it depends on exactly how tilted the earth's axis of rotation is and what latitude we are at. Paracelsus: So in answer to the question, "Why does the sun rise at 5:45 on June 21, which is the longest day of the year?" you give an answer that relies partly on spontaneous symmetry breaking, partly on chance and accidents, and partly on the Anthropic Sunrise Principle: Sunrises are very rare in this universe--go to a point at random and you will have to wait a long time to see one--but sunrises are common in places where humans have evolved. Hence given that we are humans who have evolved here, we should not be surprised to see a sunrise once a day. Zoticus: But this doesn't explain why the sunrise is something that everybody sees... Paracelsus: But "everybody" doesn't see the sunrise, if by "everybody" you mean "observers at every point in space." Only a very few observers in very particular places see the sunrise--hence the right explanation has to be one in terms of chance, contingency, and the Anthropic Sunrise Principle. Zoticus: But that is unsatisfying. Apollonius: Permit me, then, to interrupt. June 21 is the longest day of the year because that is the day the sun enters the constellation of the Dioscuri. The stars Castor and Pollux have a unique attraction to Helios--remember, Castor was the horse-tamer, and they were both sons of Leda the Swan, and brothers of Helen of Troy. Helios--the sun--gathers strength from proximity to Castor and Pollux, and so June 21 is the day that the sun stays up the longest because it is the strongest. Our trained astrologers are hoping to find a way to renormalize our calculations so that we will be able to post-dict your 5:45 number, but there are a substantial number of technological mathematical problems yet to be resolved. We hope that new developments in mathematics--the "zero" it is called--will improve the accuracy of our calculations. Paracelsus: But that's completely false! Apollonius: It is, however, satisfying in a way that the Anthropic Sunrise Principle is not. Zoticus: And the relevance to the Anthropological... Paracelsus: Anthropic Zoticus: Anthropic Cosmological Principle. Paracelsus: Just this: the answers to the big questions physics is now asking may be equally unsatisfying--that the laws of nature are very different elsewhere in places beyond are vision, and are what they are by chance and contingency, and we're here to see them via evolution and the environment we need to survive. Zoticus: But that's very unsatisfying... ## "Some [of those in Guantanamo]... are Cold-Blooded Killers" Duncan Black has passed beyond shrill into calmness: Eschaton: Some. I was struck by these comments by Bush for rather obvious reasons: Mr Bush forestalled the Europeans by raising the issue of Guantanamo Bay at the summit, saying that he understood their concerns. He spoke of his "deep desire to end the program", adding: "I'd like to end Guantanamo. I'd like it to be over with." Some of the inmates would be returned to their home countries, he said. But "there are some that need to be tried in US courts. They are cold-blooded killers. They will murder someone if out on the street." So, presumably Bush believes that "some" or even "most" are not "cold-blooded killers." In fact, it sounds like they haven't even committed offenses which would merit being tried in a court. How long have they been there? Four years. Impeach George W. Bush, Richard Cheney, Donald Rumsfeld, Condi Rice, Stephen Hadley, and the rest of them. Do it now. ## The Minimum Wage: Some Aircover for Gene Sperling... Gene Sperling could use some aircover. Greg Mankiw writes: Greg Mankiw's Blog: Sperling on the Minimum Wage: Gene Sperling, former economic adviser to Bill Clinton, tries to get President Bush to endorse a minimum-wage increase. Gene dismisses worries about adverse effects on employment. He writes: No one has yet rebutted convincingly David Card and Alan Krueger's study that compared fast-food jobs on the border of New Jersey and Pennsylvania, and found no decrease in lower-wage jobs after New Jersey raised its state minimum wage. The key word here is "convincingly." Gene is, apparently, not convinced by the Neumark-Wascher study that reevaluated the Card-Krueger work.... To me, Gene looks like a doctor prescribing a drug relying on a single controversial study that finds no adverse side effects, while ignoring the many reports of debilitating results. Some air cover is provided by two non-big-fans of the minimum wage whose take on the evidence on employment effects coincides with Gene's: Some more air cover if provided by Card and Krueger. I, at least, thought the issue was settled in Card and Krueger's favor by their rebuttal of Neumark and Wascher. And Jason Furman tells me to go read Daron Acemoglu and Jörn-Steffen Pischke on the minimum-wage-and-training issue: Daron Acemoglu and Jörn-Steffen Pischke (2001), "Minimum Wages and on-the-Job Training (Bonn: IZA Working Paper 384): Becker’s theory of human capital predicts that minimum wages should reduce training investments for affected workers because they prevent these workers from taking wage cuts necessary to finance training. In contrast, in noncompetitive labor markets, minimum wages tend to increase training of affected workers because they induce firms to train their unskilled employees. We provide new estimates on the impact of the state and federal increases in the minimum wage between 1987 and 1992 on the training of low wage workers. We find no evidence that minimum wages reduce training, and little evidence that they tend to increase training. We therefore develop a hybrid model where minimum wages reduce the training investments of workers who were taking wage cuts to finance their training, while increasing the training of other workers. Finally, we provide some evidence consistent with this hybrid model. And also Daron Acemoglu, “Good Jobs vs. Bad Jobs”: Daron Acemoglu (2001), "Good Jobs versus Bad Jobs," Journal of Labor Economics 19:1, pp. 1-21: This article develops a model of noncompetitive labor markets in which high-wage (good) and low-wage (bad) jobs coexist. Minimum wages and unemployment benefits shift the composition of employment toward high-wage jobs. Because the composition of jobs in the laissez-faire equilibrium is inefficiently biased toward low-wage jobs, these labor market regulations increase average labor productivity and may improve welfare. ## Department of "Huh?" A commentary on the Enron case: White Collar Crime Prof Blog: A Hint About How Causey's Guilty Plea Affected the Skilling Defense: Count 14 charging Skilling with securities fraud... how the guilty plea of former Enron chief accounting office Richard Causey right before trial affected [Skilling's] defense. The government's evidence of fraud included the so-called "Global Galactic" memo handwritten by former Enron CFO Andrew Fastow and purportedly initialed by Richard Causey... who apparently planned to question at trial whether the initials on the document were his. Once Causey entered a guilty plea to a single count of securities fraud, he was no longer available to dispute the authenticity of the document or question his connection to it. Right before trial, Judge Lake denied Skilling's motion to have an expert review the original of the memo to determine whether the initials really were Causey's, on the ground that the motion was untimely. At trial, Fastow testified that Skilling orally acknowledged the "Global Galactic" memo that set forth side deals (including the infamous Nigerian Barge transaction with Merrill Lynch) removing certain risks from Enron's balance sheet, the cornerstone of the government's securities fraud charge. According to Skilling's motion, this was a material variance from the indictment that misled him as to the importance of the "Global Galactic" memo because the indictment only charged him with liability as a conspirator and not as a participant in the transaction. Therefore, the denial of the motion to have an expert examine the document meant he had no effective defense to the government's evidence to support a different theory of liability... An interesting question is why, if Skilling's lawyers really believed the initials of Causey were forged, the defense did not call him as a witness.... It seems clear that the defense strategy before Causey's guilty plea was to make Fastow the focus of the case and raise questions about the authenticity of the only document close to being a contemporaneous "smoking gun." Once Causey switched sides, the defense was left with rebutting Fastow through cross-examination and the testimony of Skilling and Ken Lay, which did not appear to have much beneficial effect. The "Global Galactic" memo stood out as one of the few pieces of documentary evidence linking Skilling to improper accounting at Enron... For the defense to call Causey to the stand and ask him whether the initials are in fact his would seem to be a very "effective defense"--in the counterfactual world in which Skilling is in fact innocent, in which Causey's initials are forged, and in which Skilling did not verbally OK the deals, that is. ## Larry Summers on the International Financial Situation John Berry reports on Larry Summers's views of the international financial situation: Former Treasury Secretary Lawrence H. Summers said last week that the800 billion U.S. current account deficit represents a risk to the global economy and that if its decline isn't carefully managed, it could lead to a world recession.... In contrast, several of the other conference speakers, including Harvard economist Richard N. Cooper and economist Peter Garber of Deutsche Bank, portrayed the deficits as relatively benign....

Summers was skeptical about both the smoothness of the adjustment and its timing. In recent years, numerous economists have predicted the foreign investors and central banks whose purchases of U.S. stocks and bonds, direct investments in companies and bank loans have financed the current account deficits would become reluctant to continue doing so. That could have forced up interest rates and caused the deficits to decline. That hasn't occurred, of course, and now some of those economists are wondering if it ever will....

"Since the conventional view hasn't been right, that's evidence that view is wrong," or so that argument goes, Summers said. To the contrary, there's "more risk now" than previously that a crisis could erupt, he said.

On June 15, the Boston Federal Reserve Bank's president, Cathy E. Minehan, asked how many of the participants expected a smooth correction of the deficits at some point. So many hands went up that she didn't ask who disagreed. The next day, the bank's research director, Jeffrey C. Fuhrer asked how many thought there was at least a 10 percent to 20 percent probability that a financial crisis would force the adjustment to occur. A similarly large majority held up their hands to that as well.

I put the probability of something going wrong much higher than 20 percent because so many things have to happen to avoid a crisis.

Either way, smooth or rough, American households are going to feel a lot of pain when the adjustment does occur. It isn't going to be much comfort either that the pain elsewhere, particularly in Europe, is likely to be worse...

You have to look at the whole distribution. We are probably going to be OK--although other countries may not be. There is a chance--I would put it at 25%--that we are going to have a serious financial crisis.

## Michael Berube Is Shrill

No, he is not shrill because of the Bush administration--not right now. He is shrill because Noam Chomsky says that those primarily responsible for the Srebenica Massacre are... the Dutch government:

Michael Berube: My friend Danny Postel, senior editor of OpenDemocracy, calls my attention to this recent interview with Noam Chomsky in the New Statesman. Specifically, to this passage:

"Remember, the Milosevic Tribunal began with Kosovo, right in the middle of the US-British bombing in late '99 . . . Now if you take a look at that indictment, with a single exception, every charge was for crimes after the bombing.

"There's a reason for that. The bombing was undertaken with the anticipation explicit [that] it was going to lead to large-scale atrocities in response. As it did. Now there were terrible atrocities, but they were after the bombings. In fact, if you look at the British parliamentary inquiry, they actually reached the astonishing conclusion that, until January 1999, most of the crimes committed in Kosovo were attributed to the KLA guerrillas.

"So later they added charges [against Milosevic] about the Balkans, but it wasn't going to be an easy case to make. The worst crime was Srebrenica but, unfortunately for the International Tribunal, there was an intensive investigation by the Dutch government, which was primarily responsible--their troops were there--and what they concluded was that not only did Milosevic not order it, but he had no knowledge of it. And he was horrified when he heard about it. So it was going to be pretty hard to make that charge stick."

OK, this kind of thing really has to stop. Now.

For three reasons: one, because it is a pack of lies, and as a wise man once said, the job of the intellectual is to tell the truth and expose lies.

Two, because the defend-Milosevic crew has been getting more and more outlandish and bizarre every year, and, like unto loony LaRouchies, they have sometimes been discovered messing with legitimate progressive organizations. If real progressives don't speak out on this, it won't be long before we'll be hearing that poor Slobodan cried bitter tears of sorrow when he heard about the massacre of Srbrenica, even though it never really happened in the first place. And, insult upon injury, we'll be hearing about this from so-called "leftists."...

## The Revolt of the Fiscalists, Continued...

Kevin Hassett draws a line in the sand: unless Judd Gregg's resurrection of Gramm-Rudman--Gregg's Stop Over-Spending bill--becomes law before congress recesses at the end of September, Hassett says there is no reason for him or any other conservative to vote for this bunch of Republicans ever again:

AEI - Short Publications: Republicans Have Last, Best Chance to Limit Pork. By Kevin A. Hassett: For the past six years, the federal government has spent with more reckless abandon than a drunk with a platinum credit card. Between the 2000 and 2005 fiscal years, real spending increased an astonishing $415 billion, a 23 percent increase. Under the latest projections, by 2015 government outlays will be almost$2 trillion more than when President George W. Bush took office....

So what can they do about it?

In Homer's Odyssey, when Odysseus sailed past the sirens, he had his crew put wax in their ears and lashed him to the mast so he could listen to the song without being lured to his doom. In the past, politicians have enacted budget rules... 1985... Gramm-Rudman-Hollings... 1990... Budget Enforcement Act... pay-as-you-go rules... discretionary spending caps. These provisions were allowed to expire in 2002.

Did those budget rules work?... James Poterba concluded that budget rules do work. While Congress could in principle ignore budget rules, in practice they have tended not to do so, which have historically led to smaller deficits....

The most important feature of [Judd Gregg's] bill is that it gives the president a line-item veto.... Why would any senator or representative take all the negative publicity about a bridge to nowhere'' if the president is going to nix it? After that, the bill establishes a goal of reducing the deficit to 0.5 percent of gross domestic product.... Should Congress be unable to control itself... the bill would require that virtually all spending be reduced across the board.

The bill addresses the profusion of emergency spending bills by capping emergency spending at a low level....

[S]ome of his colleagues might not be rejoicing about his skillful budget play. The problem is, Gregg may force the hand of big government Republicans, and put them on the record before the next election.... Should these reforms become law, then Republicans may yet convince voters to continue to support them.

But if, because of their appetite for pork, they torpedo these reforms, then it is hard to imagine why any conservative would support this particular cast of characters in November -- or ever again, for that matter.

## Why Oh Why Can't We Have a Better Press Corps?

Outsourced to the Horse's Mouth:

The Horse's Mouth: TIMES SHAFTS KERRY. Today's Times front-page piece about Democratic debate over Iraq is quite a piece of work. First it bungles a key fact.... Kerry repeatedly described the war as a mistake.... What really happened was that he "supported" the President's request for the authorization to use force in Iraq if the President deemed it necessary. Then Kerry repeatedly criticized the President's use of that authorization to invade the way he did as a mistake. Is it too much to ask from The Times that they make this not-terribly-complex distinction?

Then the paper indulges in some highly questionable sourcing as it strains mightily to portray Kerry as calculating and political:

Senate Democrats have been loath to express their opinions publicly, determined to emphasize a united front. But interviews suggest a frustration with Mr. Kerry, never popular among the caucus, and still unpopular among many Democrats for failing to defeat a president they considered vulnerable. Privately, some of his Democratic peers complain that he is too focused on the next presidential campaign. (Emphasis added.)

Interviews "suggest" a frustration; his "peers" say he's political, though no "peer" is quoted saying so, even anonymously. Meanwhile, the piece also adds high up in the story that Kerry's position leaves Dems "open to Republican taunts that they are cutting and running' in Iraq" without letting any Dem rebut that argument until the end of the piece. And of course the story features an obligatory reference to Kerry's "I was for it before I was against it" campaign gaffe.

This is really cheap stuff -- thinly sourced, factually questionable and bordering on snide -- and it's truly surprising that it got past any Times editor.

--Greg Sargent

UPDATE: In their piece on Dem division, The Washington Post does The Times one better, literally reprinting a GOP press release: "GOP leaders took obvious pleasure in the Democrats' disarray, issuing a stream of press releases with headlines such as, Democrats Divided On The Meaning Of Their Own Amendments.'"

When I tell my children that there was a time when saying you worked for the Washington Post or the New York Times added rather than subtracted from your credibility, they refuse to believe me...

## Why Oh Why Are We Ruled by This Dorkface?

Just why did George H.W. Bush ever imagine that it would be a good thing for him to give his oldest son his rolodex and his blessing to run for president?

The Carpetbagger reports:

Carpetbagger Report: Diplomacy still isn't his strong point: At a press conference in Vienna, Austria, this morning, a reporter, speaking to the president, noted that only 14% of Austrians believe the United States is good for peace and more British citizens see Bush's policies as a destabilizing force in the world than Iran's. The reporter asked Bush to explain why, from his perspective, he's failed to win over the Europeans' "hearts and minds."

Time for the president to go into diplomatic mode, right? Turn on the charm? Well, not exactly.

"Look, people didn't agree with my decision on Iraq. And I understand that. For Europe, September the 11th was a moment; for us it was a change of thinking.... "I believe in the universality of freedom. Some don't. I'm going to act on my beliefs so long as I'm the president of the United States. Some people say, 'It's OK to condemn people to tyranny.' I don't believe it's OK to condemn people to tyranny, particularly those of us who live in the free societies."

He's quite a diplomat, isn't he?... He uses the exact same baseless, straw-men demagoguery against his critics in Europe as he does against his critics in the U.S. If you disagree with Bush, you don't understand 9/11 and you want to condemn people to tyranny. Where have I heard that before?

As for Bush's standing in Europe, I had foolishly assumed that he couldn't get any less popular. The president, once again, is able to go well beyond my expectations.

## The Financial Times Is the Best Newspaper in the World

I agree:

Paul Kedrosky's Infectious Greed: Redesigned FT is a Winner: As a quasi-journalistic aside, the Financial Times site has been redesigned and I like it. While the WSJ still beats the FT for breaking business and financial news, the FT does a better job of context and commentary, and the new site makes that even more obvious.

## No Native Criminal Class Save for Congress

David Leonhardt has a good piece on credits for fuel-efficient vehicles:

U.S. Hybrids Get More Miles Per Congress - New York Times: David Leonhardt: [H]ybrid cars have basically been a luxury item. If you owned one, you could feel good about using less gasoline and being a trendsetter, but you couldn't expect the fuel savings to make up for the thousands of extra dollars that the hybrid cost.... But in the last few months, something important has changed. Gas prices have settled in at close to $3 a gallon, which is enough to make a few hybrids almost worth it, if not quite. And since the start of the year, the federal government has been giving generous tax credits to hybrid buyers.... If you're deciding between a Prius and a regular Camry, the Prius, which gets a$3,150 credit, will start saving you money in just a few years.

The point of a tax policy like this -- the point of a lot of tax policy, in fact -- is to give people an incentive to change their behavior, and persuading Americans to use less oil certainly sounds like one of Washington's priorities these days. Yet, astoundingly, many of the tax credits are about to be taken away. So if you are thinking of buying a Prius or Camry Hybrid, do it soon, as in this month or maybe next.... [T]he hybrid tax credit... was never really intended to reduce oil imports from the Middle East or slow the effects of global warming. The credit was created to prop up Detroit while giving conservation a nod.

Last summer... it was clear that any tax credit would go overwhelmingly to buyers of Japanese cars. So members of Congress, with help from Detroit's lobbyists, came up with an ingenious solution. They created a cap, a maximum number of hybrids that any single manufacturer could sell -- 60,000 -- before a clock started ticking, causing the credits for that carmaker to begin disappearing two quarters later. The idea, Mark Kemmer, a G.M. lobbyist, told Automotive News, was to keep any one company from getting "a runaway benefit."

Toyota hit the 60,000 mark last month, less than five months after the Jan. 1 start of the program, and the credits for its hybrid buyers will be cut in half on Oct. 1.... Honda... will probably hit the cap next year. And the Big Three? Combined, they have sold fewer than 15,000 eligible vehicles so far, all by Ford.... Come next year, then, the government will pay you to buy a Silverado hybrid (which gets about 16 miles per gallon) or a Ford Escape Hybrid (which gets about 26, according to Consumer Reports), but not a Prius (44)....

But I think there is a larger lesson here.... What the government can do that nobody else can, however, is set up a simple system of rewards and penalties -- with the single goal of reducing oil use, regardless of the means -- and then let the marketplace work it out. Economists tend to prefer a gas tax, but it's not the only option.... Google has a nice template: it gives \$5,000 to employees who buy a car that gets at least 45 m.p.g. in the government's ratings, a threshold that only the Prius and two Honda hybrids now meet.

I know this might sound like one more nail in Detroit's coffin, but it doesn't have to be one. The Big Three have the engineering expertise to build vehicles that can go a long way on a gallon of gas. If Washington would only nudge people to buy cars like that, Detroit would start making them.

The implications with respect to the congressional leadership are obvious: vote them out of office; vote them out of office as soon as possible.

## Does Insanity Run in the Hitchens Family?

The answer appears to be yes. Peter Hitchens believes that the West lost the Cold War:

Mail online - Peter Hitchens: British passport? That won't do nicely: Nothing does more to bring a holiday to an abrupt end than arrival at one of Britain's grim airports, especially the ones surrounding London. The windowless corridors with their low ceilings are like the reception halls of some vast liberal prison, which in a way they are.

But the experience is also interesting, if you are observant. For years, the passport gates have been divided between "EU Passport Holders" and "Non-EU Passport Holders". This distinction made it rather too plain that there is now no such thing as a British subject, that we do not control our borders and that former British subjects now have no more right to enter their own country than the citizens of nearly three dozen assorted countries, some of them until recently Communist dictatorships. Commonwealth citizens are even worse off.

As in all socialist paradises, only money or privilege can get you past these clogged queues. If you aren't able to get into the 'fast track', you must wait for ages while parties of retired Estonian KGB colonels are waved into the country ahead of you...