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February 2007

Right-Wing Anti-New Deal Litigation Strategy in the 1930s

The Switch in Time that Saved Nine: While getting ready for my classes this spring on the Great Depression and the coming of the mixed economy, I found myself noticing something in Robert Stern's classic article on "The Commerce Clause and the National Economy" that I had not noticed before: the presence of Frederick H. Wood, formerly general counsel for the Southern Pacific Railroad (the "Octopus") and principal litigation partner at Cravath in the 1930s.

He is there arguing in front of the Supreme Court in both Schechter Poultry and Carter Coal, in both of the cases that are the high-water mark of the judicial resistance to Roosevelt's New Deal before Roosevelt's reelection and the consequent switch in time that saved nine--the shift of Chief Justice Hughes and Justice Roberts to the New Deal side, and then the replacement of two of the dinosaurs by Hugo Black and Stanley Reed:

http://www.jstor.org/cgi-bin/jstor/printpage/0017811x/ap040472/04a00020/0.pdf?backcontext=page&dowhat=Acrobat&config=jstor&userID=a9e52087@berkeley.edu/01cce4406500501b847ee&0.pdf: Robert L. Stern (1946), "The Commerce Clause and the National Economy, 1933-46," Harvard Law Review 59:5 (May), pp. 645-93: Mr. Joseph Heller, the Schechters' original counsel, effectively convinced the Court of the trivially local nature of some of the practices involved.... [H]umor was not ineffective in ridiculing the code provisions involved. The defendants' argument was concluded by Mr. Frederick H. Wood, of a large New York firm which represented substantial business interests and which came into the case at the last moment; he oratorically contended that such matters should be regulated only by the states...

[...]

James W. Carter brought suit... against the Carter Coal Co., his father, and its other officers, to enjoin the company from accepting the Coal Code.... The case was argued in the district court for two full days by Mr. Frederick H. Wood and Mr. whitney for the plaintiff.... Justice Adkins rendered his oral opinion.... [H]e was compelled by the Schechter case to hold that "as a matter of law" the effect upon interstate commerce of wages and labor relations was... not within the commerce power.... The case was argued [before the Supreme Court] in March [1936] by Mr. Wood.... Mr. Justice Sutherland, speaking for five members of the Court... sidestep[ped] the... constitutionality of the price-fixing provisions... by holding them inseparable from the labor provisions and holding the latter unconstitutional...

[...]

Finally the opinion reached the crucial point. Did labor relations in the vast Jones and Laughlin steel-manufacturing enterprise sufficiently affect interstate commerce? Gone was the verbalism of the Carter [coal] case, the reliance upon such metaphysical concepts as proximate or intermediate causation.... "Actual experience," actual relation to commerce, was henceforth to be the criterion.... Mr. Justice McReynolds, in a bitter dissent... [joined by] Van Devanter, Sutherland, and Butler, accused the majority of abandoning the precepts of the Schechter and Carter decisions.... For the second time in two weeks the Court had in substance overruled cases decided less than one year before on major constitutional issues. No serious effort had been made to distinguish... Carter.... There had been no change in the membership.... What had induced Mr. Justice Roberts to switch?... What of the Chief Justice?...

No one who did not participate in the conferences of the Court will know.... But few attributed the difference in results... to anything... in the cases... their facts, the arguments presented, or the authorities cited. Perhaps the series of violent strikes had educated Mr. Justice Roberts as to the close relationship between labor relations and interstate commerce. But the consensus... was that the Chief Justice and Mr. Justice Roberts believed that the continued nullification of the legislative program demanded by the people and their representatives... would lead to acceptance of the President's Court [packing] plan, and that this would seriously undermine the independence and prestige of the federal judiciary....

At the end of the term, Mr. Justice Van Devanter announced his retirement.... Senator [Hugo] Black successed Mr Justice Van Devanter at the beginning of the October Term, 1937. Mr. Justice Sutherland retired in January, 1938, and Solicitor General Stanley Reed took his place...

Frederick H. Wood shows up in front of the Supreme Court ten times during the New Deal years: NORMAN v. BALTIMORE & O.R. CO. (1935); YOUNGSTOWN SHEET & TUBE CO. v. UNITED STATES (1935); A.L.A. SCHECHTER POULTRY CORPORATION v. UNITED STATES (1935); CARTER v. CARTER COAL CO. (1936); four times in various MORGAN v. U.S. proceedings; FORD MOTOR CO. v. NATIONAL LABOR RELATIONS BOARD (1939); and UNION STOCK YARD & TRANSIT CO. OF CHICAGO v. U.S.

There is an oral tradition at Cravath that Wood headed up a sophisticated long-term anti-New Deal litigation strategy: the fact that the named plaintiffs in the big anti-NRA case were orthodox butchers from Brooklyn is said to be no accident, but instead a successful attempt to pin Louis Brandeis by making him see the case as state power vs. the little guy from his minority religion, and not only to swing his vote but to curb his tongue from having its influence on the rest of the liberal wing of the court. And, indeed, in Schechter the NRA went down 9-0 (a blessing for the country).

Wood and company's victory in Schechter in 1935 on the limits of the Commerce Clause and of the federal government's ability to regulate the national economy was extended the following year in Carter Coal, before collapsing in 1937 with the switch. I find myself wanting to know more about this: did they think that they were going to win--stop the New Deal long enough and that when the dust cleared the 1920s would come back?

I should get myself over to the Boalt Hall Library and hope that their copy of Robert T. Swaine (1946), The Cravath Firm and Its Predecessors is still there, because amazon wants $395 for a copy.

Surprisingly--or maybe not surprisingly--the best short things on the web I see about this come from Time Magazine, back when it was an edgy startup interested in informing its viewers and not an organization that saw pleasing its insider sources as job #1. Consider:

Especially good is Time's series of short pieces on the Gold Clause cases, watching as Chief Justice Charles Evans Hughes twists and turns to avoid repudiating the actions of the Roosevelt administration with respect to government debt while also damning those actions as reprehensible:

http://www.time.com/time/printout/0,8816,787934,00.html: Businessmen knew it, Congress knew it, the Brain Trust knew it, Mr. Homer Stille Cummings knew it: The Justices of the Supreme Court would do their duty as they saw it. Yet somehow nearly everyone had overlooked the obvious fact that the nine potent, grave and reverend judges would first take a good look at that duty. Last week when the Court in unmistakable fashion began that scrutiny, business fell into a dither, Congress chattered, the Brain Trust fretted and the Attorney General blushed.... For years the U. S. Government and most corporations promised to repay lenders their principal and interest "in gold coin of the present standard of weight and fineness." On June 5, 1933 Congress, having authorized the President to suspend the gold standard, forbade the writing of any more gold clauses, declared in effect that all those previously written were legally out of bounds. Hence came the four issues before the Supreme Court last week.

Norman C. Norman, 39, a bachelor in the jewelry manufacturing business with his father in Manhattan, demanded $16.60 from Baltimore & Ohio Railroad. He held a coupon of one of the railroad's bonds calling for an interest payment of $22.50 in gold. Since the railroad could not pay in gold he wanted $39.10 in devalued currency. Lower courts had upheld the railroad's refusal to pay Norman C. Norman the additional $16.60...

http://www.time.com/time/printout/0,8816,754528,00.html: The Court upheld the right of Congress--under the Constitutional power of regulating money--to void gold clauses in private bonds. But no such clean bill of health was given the Government in abrogating the gold clauses of its own bonds. Government bondholders were denied the right to sue in the Court of Claims on the somewhat extraordinary grounds that it is impossible to tell how much damage they have suffered since it is now illegal to own gold. However, the Court did not uphold the propriety of the Government's offering devalued money.... In short, Government bondholders have now the right but no legal opportunity to collect, and morally the Government is no better than a malefactor who takes refuge behind a legal technicality—-in this case the right not to be sued without its own consent. No pretty position is this for any government to be in. It posed a problem in New Deal morals.

Almost as disconcerting to citizens was the news that the legality of the country's monetary policy was approved by only five of the nine Justices of the Court. New Dealers were pleased that Chief Justice Hughes had joined with Liberals Brandeis, Cardozo, Roberts and Stone to give them comfort. Little did they care about the dissent of four Justices, for they look down very long Liberal noses at the four Conservatives: Justices Sutherland, Van Devanter, Butler and McReynolds—in particular at Justice McReynolds.... [T]he majority opinion, upholding the Government in every case without exception, would have seemed stronger had Mr. Hughes not thundered so loud... the dissenting opinion would have borne more weight had it been written by a less uncompromising reactionary than Mr. McReynolds... [who] launched not into an opinion but into an elegy for honesty and good government.

"It seems impossible to overestimate the result of what has been done here this day. . . . God knows, I do not want to talk about such matters but it is my duty. . . . The Constitution is gone. . . . This is Nero in his worst form. We are confronted with a dollar which has been reduced to 60¢ which may be 30¢ tomorrow, 10¢ the next day and 1¢the day following. "We have tried to prevent its entrance into our legal system but have tried in vain..."

I remember listening once to the aged Paul Freund reminisce about working for the Solicitor General in the 1930s. He talked about the government's own litigation strategy, and about Charles Evans Hughes's twists and turns as he found that the government had broken its contract with its bondholders but there were no damages, but he never mentioned Frederick H. Wood.


Bookmarked at Del.icio.us on 2007-02-17


Bad Industrial Production News

From Marketwatch:

Industrial production falls sharply in Jan. - MarketWatch : By Greg Robb & Rex Nutting, MarketWatch: U.S. industrial production fell in January by the largest amount since Hurricane Katrina devastated the Gulf Coast in September 2005, the Federal Reserve reported Thursday. Industrial output of the nation's factories, mines and utilities fell 0.5% in January, the fourth decline in the past five months. Automakers and other producers are slashing production to bring down their inventories of unsold goods. The decline in factory output was even steeper, with production down 0.7%. Production of motor vehicles and parts fell 6%. Vehicle assemblies fell to their lowest level in nearly a decade. The decline in factory output was broad based. Factory output excluding vehicles fell 0.4%.

The report was "dismal," wrote Stephen Stanley, chief economist for RBS Greenwich Capital, although he judged that the January downturn was a "temporary weather-related bump in the road," not a fundamental shift in the economy. "The sector is in recession," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics, noting that output fell 1.7% annualized in the fourth quarter and is heading for a decline in this quarter as well.

The weak report "not only eliminates any chances for Fed hikes but opens the way for rate cuts as early as May," wrote Ashraf Laidi, chief currency analyst for CMC Markets, in an email to clients. Capacity utilization fell to 81.2% in January from 81.8% in December. This is the lowest level since last February. The Fed had been worrying about high rates of capacity utilization feeding into inflation.


Menzie Chinn: Budget Deficits and Trade Deficits

He writes:

Econbrowser: The December Trade Release: Beyond the Surprise: let me step back from the micro aspects of the trade balance, and think about how fiscal policy affects the trade deficit.... [W]ith multiple shocks, even in a simple Keynesian model, the two can diverge. What is true is that when fiscal shocks predominate, the two series will tend to covary.... [I]n a simple Keynesian model with investment, a positive shock to investment will drive up tax receipts and drive down the trade balance. When fiscal shocks are large (such as after 2001), we see a correlation, albeit with a lag...


Bad Housing News...

Dean Baker tells us that one economic number tells us little, but what little this housing number does tell us is bad:

Beat the Press: Housing Starts Plunge, What Will the "Experts" Say?: The Census Bureau reported that housing starts fell 14.3 percent between December and January and now stand 37.8 percent below their year ago level. I always caution about making too much of a single month's data and housing starts are an especially erratic number. Still, it is worth noting that the sharp declines in starts were in the South and West, regions that were not affected by any obvious bad weather for the month.


Why Oh Why Can't We Have Better Right-Wing Thank Tanks?

Ezra Klein thinks that it is "cheap irony" that the American Enterprise Institute is following a talk on the Great Depression and the "forgotten man" with a wine-and-cheese reception:

Ezra Klein: Department of Cheap Irony: I'm not really sure what's being discussed at this AEI forum, but it's sort of awesome to host an event on "The Forgotten Man: A New Look at the Great Depression" and follow it up with a wine and cheese reception...

He doesn't know the half of it. It's Amity Shlaes, who you remember--who will be remembered until the disastrous presidency of George W. Bush fades from the memory of humanity--for this commentary on Hurricane Katrina:

The Thought of George W. Bush Is a Spiritual Atom Bomb of Infinite Power!: Amity Shlaes: It is early to be getting partisan about New Orleans. We are still too close to the awfulness of the hurricane.... Still, Iraq has not caused the US to botch Katrina -- either the preparation or response. On the contrary, the fact that the country and President Bush personally were already mobilised for disaster has saved lives.... September 11 changed Mr Bush and the country.... Mr Bush grew into a new role of leader in emergencies.... In addition to its old Federal Emergency Management Agency, [the government] created the Office of Homeland Security to co-ordinate local, state and federal responses. The level of preparedness for a giant storm may not have been obvious outside the country. But the US was prepared for Katrina. All the old and new federal offices worked together and confronted the storm early...

She's coming to AEI to talk about her forthcoming book about the Great Depression--a book blurbed not by an economist or a historian, but by party-line-toeing right-wing hyena-novelist Mark Helprin:

http://www.cfr.org/content/bios/Shlaes%20NarBio%20January%202006.pdf: Novelist Mark Helprin has said of The Forgotten Man, “Were John Kenneth Galbraith and Milton Friedman to spend a century or two reconciling their positions so as to arrive at a clear view of the Great Depression, this would be it.” Her last book, The Greedy Hand: Why Taxes Drive Americans Crazy (Random House/Harvest paperback), was a national bestseller. Miss Shlaes also recently coauthored, with the late Robert Bartley of the Wall Street Journal, the contribution on tax philosophy in Intellect into Influence, a Manhattan Institute retrospective volume...

What does the book say?:

The Forgotten Man: A New History of the Great Depression: Challenging conventional history, Amity Shlaes offers a striking reinterpretation of the Great Depression.... Hoover and Roosevelt failed to understand... heaped massive burdens on the country.... From 1929 to 1940, federal intervention helped to make the Depression great by forgetting the men and women who sought to help themselves. In this illuminating work of history, Shlaes follows the struggles of those now forgotten people, from a family of butchers in Brooklyn who dealt a stunning blow to the New Deal, to Bill W., who founded Alcoholics Anonymous, and Father Divine, a black cult leader. She takes a fresh look at the great scapegoats of the period, from Andrew Mellon to Sam Insull of Chicago.... Authoritative, original, and utterly engrossing...

Original? Certainly. Engrossing? Perhaps. Authoritative? I've always liked Samuel Insull--an excellent engineer, a good manager, and a risk-loving speculator who was in the end taken down by the Morgans. The Supreme Court did a good deed by striking down Roosevelt's NIRA in Schechter Poultry, but the oral tradition at Cravath is said to be that the orthodox "family of butchers in Brooklyn" were chosen as plaintiffs by Frederick H. Wood as part of his long-run anti-New Deal litigation strategy, in this case to swing the vote of Louis Brandeis. But Andrew Mellon?

Here's Herbert Hoover's couldn't-be-harsher view of:

the “leave it alone liquidationists” headed by [my] Secretary of the Treasury Mellon, who felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” He insisted that, when the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said: “It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people”...

Milton Friedman likes--alas! liked--to quote R.G. Hawtrey of the British Treasury, who said that Mellon and the others who thought in 1930-1933 that the big danger was excessive inflation were "crying 'Fire! Fire!' in Noah's Flood." A nationwide banking panic is altogether a bad thing. In this dismissal of Mellon's economic policy Friedman was in complete agreement with John Maynard Keynes:

Keynes: It seems an extraordinary imbecility that this wonderful outburst of productive energy [over 1924-1929] should be the prelude to impoverishment and depression [today, in 1932]. Some austere and puritanical souls [like Mellon] regard it both as an inevitable and a desirable nemesis on so much overexpansion, as they call it; a nemesis on man's speculative spirit. It would, they feel, be a victory for the mammon of unrighteousness if so much prosperity was not subsequently balanced by universal bankruptcy. We need, they say, what they politely call a 'prolonged liquidation' to put us right. The liquidation, they tell us, is not yet complete. But in time it will be. And when sufficient time has elapsed for the completion of the liquidation, all will be well with us again...


Martin Wolf Sees Social Democracy in America's Future

Martin Wolf takes a look in his Magic-8 ball at America's future and sees... social democracy:

FT.com / Columnists / Martin Wolf - Why America will need some elements of a welfare state: Is globalisation a leading cause of rising inequality in high-income countries? The outcome of the debate on this question may determine whether the US will remain open to trade. If policymakers do not craft an imaginative response, protection against imports may be the outcome, regardless of its (non-existent) merits....

Mr Bernanke mentions the three standard hypotheses: skill-biased technical change; “winner-take-all” markets for the most talented; and globalisation. The last, in turn, would include trade, migration and rewards available to smart players in globalised capital markets.

Mr Bernanke himself comes to the standard and, in my view, largely correct, conclusion that “the influence of globalisation on inequality has been moderate and almost surely less important than the effects of skill-biased technological change.”...

This has long been the persuasively argued view of Jagdish Bhagwati of Columbia University.... Prof Feenstra notes that new possibilities for specialisation in tasks along the value chain may increase demand for skilled labour in both richer and poorer trading partners. But his empirical evidence still suggests that technology is more significant....

What, if anything, should be done? At first glance, the trend towards greater inequality should not worry a person with Mr Bernanke’s principles. But that response would be quite wrong... rising inequality causes declining equality of opportunity... makes losing a job costlier, more objectionable and so more resisted.... In a country in which much social insurance has historically been supplied by employers, the loss of jobs and the closure of businesses is particularly traumatic. Protectionism then emerges as the politically correct form of resistance to the market....

There are two possible responses. One is to insist that people are simply on their own. The present administration will, I predict, be the high water mark of this conservative tide. The other is to create a system of support that does not destroy incentives... greater funding of education for the disadvantaged (ideally, with private supply) and universal health insurance. The left will also want higher minimum wages and generous subsidisation of low earnings.

I am not suggesting that the US should embrace Europe’s interventionist follies. But without more generous government-financed services, the US may be unable to maintain a dynamic, internationally open and socially mobile society. That may seem a paradox. It is not.

I wish I could see it. But I am having a hard time doing so. American politics aren't... logical.

One would have thought that the rise in the value of a sheepskin from a 30% lifetime wage premium over a high-school diploma in 1975 to a 90% premium in 2005 would have called forth an extraordinary wave of public support and public funding for investment in education that would have pushed that premium down somewhat: lots more Americans should be getting a higher education now than were getting one in the mid-1970s. But they aren't.

One would have thought that the increasing importance of pension and health benefits in a more medically-capable and longer-lived society would have made American workers enthusiastic about the "flexicurity" agenda pursued by Labor Secretary Bob Reich and others in the first phase of the Clinton administration. But they weren't--at least not in a manner visible to me or to decisive legislative votes like Sen. Breaux or Rep. Tauzin. And the Labor leaders weren't either. "Burial insurance. We don't want burial insurance" was the refrain that I heard from my spear-carrier perch in the back of the room.

One would have thought that initiatives like Barney Frank's "grand bargain"--the left supports trade liberalization if the right supports social democracy--would have gained more traction with a left that realizes that trade restrictions are negative-sum when they aren't smoke-and-mirrors and a right that recognizes the potential economic and soft-power security gains from an even more interdependent world. But they haven't.

Lots of things that make obvious and indisputable sense in America simply don't happen for one or another strange political reason.

In my view, those who benefit the most from America's open economy are consumers, elderly home-sellers, middle aged mortgage-borrowers, construction workers, and those producing and selling high-end consumer goods who benefit from consumer spending ultimately and indirectly burt surely financed by low interest loans from the People's Bank of China. They don't know how much they gain. Those who lose the most from America's open economy are manufacturing and other workers who find themselves competing with imports. They know how much they lose.

A substantial and relatively rapid fall in the dollar unaccompanied by macroeconomic distress would, I think, make a big difference. But absent that, I don't see any political coalition assembling in America for freer trade. Maintaining stasis will be the best we can hope to do.

So I share Martin Wolf's sense of where the U.S. should go--I have shared it for a couple of decades, at least. What I don't see is how to get there.


Note to Self: "Ability" and the Return to Education...

To my knowledge, Orley Ashenfelter and Ceci Rouse http://www.mitpressjournals.org/doi/pdfplus/10.1162/003355398555577 are still state-of-the-art in investigating whether the returns to education diminish with "ability." They find that at least at current levels of education they do not: the returns to those of relatively low "ability" of an additional year of education appear to be at least as high as to those of high "ability"...

Is there anything to show that there is any gender-ethnicity-"ability"-education cell in the American distribution that would not find its life-chances materially and significantly boosted if we could somehow get them an extra year of education?


Economist's View: Kenneth Rogoff: Why Hasn't the Dollar Crashed Yet?

Mark Thoma watches as Ken Rogoff wonders why the dollar hasn't collapsed yet:

Economist's View: Kenneth Rogoff: Why Hasn't the Dollar Crashed Yet?: Many people have been asking why the dollar hasn't crashed yet. Will the United States ever face a bill for the string of massive trade deficits...?... [S]taggeringly, US borrowing now soaks up more than two-thirds of the combined excess savings of all the surplus countries in the world.... Foreigners are hardly reaping great returns on investing in the US. On the contrary, they typically get significantly lower returns than Americans get on their investments abroad. ...

[T]he central banks of Japan and China are holding almost two trillion dollars worth of low-interest... US treasury bonds and mortgages. This enormous subsidy to American taxpayers is, in many ways, the world's largest foreign aid program....

Most sober analysts have long been projecting a steady trend decline in the dollar.... So why hasn't more adjustment taken place already? The first answer, of course, is that the trade-weighted dollar has fallen--by more than 15% in real terms since its peak in early 2002. Yet the US deficits have persisted, and even risen, since then.

The real driving force has been two-fold. First and foremost, America's government and consumers have been engaged in a never-ending consumption binge. On the consumer side, this is quite understandable.... 25 years of stunning prosperity punctuated by only two mild recessions... Americans feel pretty confident about their economic situation.... People have enjoyed such huge capital gains over the past decade that most feel like gamblers on a long winning streak. By now, they see themselves as playing with the house's (or their houses') money.

It is less easy to rationalise... the US government.... When a... government launches a war, it typically cuts back... and raises taxes. The Bush administration did the opposite... good politics, for a time....

In order for the US economy to run deficits with the world, other countries must be willing to... supply... savings.... [T]here is global investment shortfall... due to... medium-term institutional roadblocks to investment in many developing countries, where long-term returns now seem to be by far the highest. The net result is that money is being parked temporarily in low-yield investments in the US, although this cannot be the long-run trend.

What then is future of the dollar? As long as the status quo persists... the US can continue to borrow... without immediate consequence.... Nevertheless, it is not hard to imagine... dollar collapses. Nuclear terrorism, a slowdown in China, or a sharp escalation of violence in the Middle East could all blow the lid off the current economic dynamic....

[T]he fact that the US trade balance has defied gravity for so many years has made it possible for the dollar to do so, too. But some day, the US may well have to pay the bill... [and] pray that their creditors will be as happy to accept dollars as they are now.


Econ 210a: We Are Puzzled...

Why didn't either Barry Eichengreen or I assign our joint "The Marshall Plan: History's Most Successful Structural Adjustment Programme" http://econ161.berkeley.edu/pdf_files/Marshall_Large.pdf for Econ 210a this year? Neither of us can remember why it fell off...

It is one of the only two big articles we have written together. You'd think our bilateral bargaining would ensure that both of them got on the reading list...


A (Graduate) Teaching Note on Barro's (2005) "Rare Events and the Equity Premium" and Rietz's (1988) "The Equity Premium: A Solution"

Robert Barro should have called his 2005 "Rare Events and the Equity Premium" paper something like "Rare Events and the Low Riskfree Rate" instead...

http://papers.nber.org/papers/w11310.pdf

Barro's paper follows Rietz (1988) and uses the possibility of future disastrous falls in economy-wide consumption and in payouts on equities to explain the high premium equity return relative to bonds, and the low real return on bonds as well.

The primary channel is not what you probably think: it is not that the fear of future catastrophe depresses the price and hence raise the in-sample--we here in the United States haven't seen the real catastrophes the lurk out there--average return to equities.

The primary channel is that fear of future catastrophe raises desired savings to carry purchasing power forward in time in case of need. But, since assets are in fixed supply in the Lucas-tree model Barro uses, this outward shift in savings demand drives the prices of real bonds up and the returns on real bonds down. It also--for risk-aversion parameters greater than one--drives the prices up and the returns down on equities as well (but not as much). A greater fear of future catastrophe is a source of high, not low, price-dividend and price-earnings ratios.

Hence the story implicit in Barro (2005): the implicit story is that stock market multiples were much higher in 1999 and 1929 than they were in 1982 and 1922 because the likelihood of a macroeconomic catastrophe greater than the Great Depression was much higher in 1999 and 1929 than it was in 1982 and 1922. Hence people were desperate to save for the future to insure against the greater likelihood of macroeconomic catastrophe. And that was the force underpinning the 1990s stock market boom.

This is, I think, a trap set for us by using the Lucas-tree model as a workhorse. Its lack of production and accumulation is, I think, a much bigger drawback than is sometimes recognized...

For more, see:

http://delong.typepad.com/print/20070213_note_barro_rietz.pdf

http://spreadsheets.google.com/pub?key=p_zylRhg4towFfq53r00UBA

http://iqf.spreadsheets.google.com/ccc?id=o10139353287986855167.293945291708464645.00201072644673038280.7435041177140253871

http://spreadsheets.google.com/ccc?key=p_zylRhg4tow3sK3GKkYrKg


George Tenet Tests Out His Chainsaw...

George Tenet really isn't helping himself here:

Long a Target Over Faulty Iraq Intelligence, Ex-C.I.A. Chief Prepares to Return Fire - New York Times: By MARK MAZZETTI and JULIE BOSMAN: George J. Tenet has maintained a determined silence even as senior White House officials have laid the blame for the prewar mistakes about Saddam Hussein on him.... Vice President Dick Cheney... pin[ned] the mistake about the Iraq intelligence squarely on him.

Now... Tenet... will use the book to juggle a host of agendas: polishing his legacy, settling scores and explaining just what he meant when he said it was a "slam dunk" that Mr. Hussein had unconventional weapons.... Friends and former colleagues... say... top aides with whom Mr. Tenet clashed in the past, including Secretary of State Condoleezza Rice, are... targets of criticism....

Mr. Tenet is not expected to take on Mr. Bush, with whom he developed a close bond during early morning intelligence briefings in the Oval Office. But Mr. Tenet's friends said he had been surprised when Mr. Cheney and Ms. Rice, appearing on Sunday talk shows last September, fingered him in justifying Mr. Bush's decision to go to war with Iraq....

One person who has read early drafts of the book said Mr. Tenet defended himself by carefully parsing the "slam dunk" comment: he said he was not telling Mr. Bush that there was rock-solid evidence that Mr. Hussein had chemical and biological weapons, only that the president could make a "slam dunk" case to the American public about these weapons programs.

If true, Tenet appears to have forgotten who he was supposed to work for.


Why Oh Why Are We Ruled by These Fools?

Kevin Drum: John Bolton tells the truth (for once)!

The Washington Monthly: NORTH KOREA WATCH.... Over at The Corner, Andy McCarthy, who thinks the North Korea deal stinks, says:

Don't take my word for it. Take John Bolton's.

Um, sure. Still, maybe he has a point. Here's Bolton:

This is the same thing that the State Department was prepared to do six years ago. If we going to cut this deal now, it's amazing we didn't cut it back then.

The man's got a point. And six years ago this deal would have come without an already built stockpile of nuclear weapons. Perhaps there's a lesson there?


Five Germanys Fritz Stern Has Known

Doug Merrill reviews Fritz Stern's Five Germanys I Have Known http://www.amazon.com/exec/obidos/asin/0374155402/braddelong00:

afoe | A Fistful of Euros: Five Germanys I Have Known by Fritz Stern: Fritz Stern was born in what was then Breslau, Germany, grandson of Jews who converted to Christianity, son and grandson of physicians and researchers, at a time when medicine was truly becoming a science and Germany was leading the way. His godfather and namesake was Fritz Haber, who discovered how to fix atmospheric nitrogen, won a Nobel, led research into poinson gas as a weapon, and died shortly after his forced emigration from Germany.

Stern emigrated with his family to the United States in late 1938, in the proverbial nick of time... became a distinguished historian of Germany and Europe... an active participant in transatlantic relations... liberal perspective.

The book begins with background on Breslau, the emancipation of Jews in the 19th century, industrialization, science and what all of these meant for his immediate ancestors. The five Germanys he has known are Weimar, the Third Reich, the Federal Republic, the GDR and the post-unification Federal Republic. He tells his stories vividly, mixing a historian's detachment with a memoirist's recollection and commitment.

My academic background is in political science and German history, so this is a bit of intellectual homecoming.... Stern is... something like an academic great-uncle. I've never met him, but the closer he got to the present, the more names he mentioned that I either knew, or knew at one remove.

The sixth Germany -- the one his parents and grandparents lived in -- is the one that I learned the most about. The turn to modernity is fascinating, and seeing how it happened in one family is a great way to understand the changes and disruptions involved.... The five Germanys in 500 pages are as good an overview of the period as any, and a good deal livelier than a survey without the memoir. Plus Stern is a delightful, lively writer, and his life has been full of unexpected connections. Allen Ginsberg was a good friend from his first day of college...


Eddie Lazear Is a Productivity Optimist

Eddie Lazear is an aggregate productivity-growth optimist:

White House Sees Strong Productivity - WSJ.com: JOHN D. MCKINNON February 12, 2007; Page A6 WASHINGTON -- President Bush's economic team predicts rapid gains in U.S. productivity can continue for the foreseeable future.... From 2000 to 2005, productivity -- a measure of the goods and services produced per hour of work -- has increased at about 3% a year, higher even than the 2.5% growth during the late 1990s....

In recent months, White House economists said productivity gains finally have begun delivering another benefit: higher real earnings for ordinary workers. Administration officials are optimistic they will see more productivity-driven earnings growth in the years ahead....

Most economic forecasters, however, doubt the U.S. economy can maintain a 3% productivity pace in the next decade, and there are signs that productivity growth is tapering off. The new White House budget relies on an economic forecast -- largely comparable with private-sector predictions -- that implicitly sees productivity growth of about 2% a year for the next five years.... Going forward, productivity gains will depend on continued strong investment and increased efficiency but also on increasing workers' skills, the report said.... Future breakthroughs in alternative energy sources and improving efficiency in the health-care sector could provide big sources of productivity gains, comparable to the high-tech revolution of the 1980s and 1990s, Mr. Lazear said...


Why Is Michael Gordon Still Employed by the New York Times?

Why oh why can't we have a better press corps? Yet another New York Times edition. Judy Miller doesn't work at the New York Times any more. Why does Michael Gordon?

Democracy Now! | New York Times Trumpets Pentagon's Claims Over Iran Sending Bombs to Iraq: AMY GOODMAN: The new accusations of Iranian-supplied bombs in Iraq first appeared in Saturday's New York Times. The article was headlined "Deadliest Bomb in Iraq is Made by Iran, US Says." Some media critics immediately compared the New York Times piece to its articles on Saddam Hussein's alleged weapons program that were used by the Bush administration to make the case for invading Iraq.

These critics have pointed out two similar features between Saturday's article and those before the war: near complete reliance on unnamed government sources and the byline of New York Times reporter Michael R. Gordon.

Gordon and former New York Times reporter Judith Miller co-authored the infamous September 8, 2002 piece, alleging Iraq attempted to purchase aluminum tubes towards developing nuclear weapons. The New York Times later singled out the article as part of its editor's note apologizing for its inaccurate coverage of Iraq and WMDs. Well, Michael Gordon appeared on Democracy Now! last March. During our interview, I asked him about his reporting in the lead-up to the US invasion of Iraq.

MICHAEL GORDON: There was no agency in the American government that said Saddam was not involved in WMD. You know, the State Department, although it's turned out to be correct, certainly on the nuclear issue, did not turn out to be -- you know, didn't challenge the biological case, the chemical case, and I'm going to offer you this last thought, and I'm happy to respond to any questions you have, but you know, there are a number of complicated WMD issues --

AMY GOODMAN: Let me just ask something on that. Are you sorry you did the piece? Are you sorry that this piece --

MICHAEL GORDON: No, I'm not. I mean, what -- I don't know if you understand how journalism works, but the way journalism works is you write what you know, and what you know at the time you try to convey as best you can, but then you don't stop reporting.

AMY GOODMAN: Well, let me, let me --

MICHAEL GORDON: Can I answer your question, since you asked me a question?

AMY GOODMAN: Well, no, I wanted to get --

MICHAEL GORDON: No, wait a second, if you ask me a question -- I'm happy to answer all your questions, but what I'm trying to explain to you is one thing. That was what I knew at the time. It's true that it was the key judgment. It's the same information they presented to Colin Powell, by the way, and it's what persuaded him to go to the United Nations and make the case on the nuclear tubes. I wrote the contrary case, giving the IAEA equal time. They disputed it. I don't have a dog in this fight. I didn't know what was the ultimate truth. When the IAEA came out in January and disputed it, I reported it.

AMY GOODMAN: Michael Gordon, let me just respond. We don't -- we have limited time in the program, but I just --

MICHAEL GORDON: Well, then you should let me answer your questions.

AMY GOODMAN: I did.

MICHAEL GORDON: No, you haven't let me answer your question.

AMY GOODMAN: Are you sorry then, that the New York Times was sorry that this piece appeared as it did on the front page of the New York Times.

MICHAEL GORDON: I don't think "sorry" is the word the New York Times used.

AMY GOODMAN: That was the New York Times reporter Michael Gordon speaking on Democracy Now! last March. I'm joined in studio now by Rick MacArthur, publisher of Harper's....

RICK MACARTHUR: ...[W]hat's interesting about Michael Gordon is that when he did the reporting on the phony aluminum tube story with Judith Miller four years ago, he somehow escaped unharmed and is now thriving.... [H]e's going around acting like he's an expert on Iraq, when, in fact, he's still playing the role of conduit for the official line, the Army line or the government line, depending on who he's talking to on what day....

[W]hat's interesting is the play that they gave his story on Saturday.... They put it on the top of the front page... the lead story.... [N]ot far down in the... Monday story -- you find a paragraph where they say -- and this is very interesting -- that they don't have any real evidence, any direct evidence, that any of this is true.... Newsday, a perfectly respectable newspaper, puts "US: Iran is Arming Shia" on page 22 on Monday.... They report what the military officials [in Washington] are claiming, but in the second paragraph, they say the military command in Baghdad denied, however, that any newly smuggled Iranian weapons were behind the five crashes of US military helicopters... shot down by insurgent gunfire.... [T]hat is what journalism is, contrary to what Michael Gordon says. It's putting the story in perspective, pointing out that the... [insurgency is] dominated by Sunni, not by Shia.... [T]he most damning omission... is complete lack of perspective on who's fighting whom, who's shooting at whom in Iraq. Does the Iranian government really have an interest in destabilizing what's now a Shiite-dominated government? Doesn't make any sense.... [T]here's no logic to it... just this massive omission...


Econ 210a: February 21: Question: Why Isn't the Whole World Developed?

Econ 210a: February 21: Question: Why Isn't the Whole World Developed? The economic history of the world both in the post-WWII period 1945-1990 and, in broader perspective, over the past two centuries has been one in which the world has shrunken enormously in distance along every conceivable measurement, and yet in which income and productivity differences between societies have grown enormously. What, in your judgment, are the possible big-picture theories for explaining this phenomenon that are worth investigating?


May I Have My Context Back, Please?

Ummm... Greg? Greg?! GREG!!

Greg Mankiw writes:

Greg Mankiw's Blog: More on Inequality: Ben Bernanke gives a talk on inequality, concluding that

the challenge for policy is not to eliminate inequality per se but rather to spread economic opportunity as widely as possible.

By contrast, Brad DeLong concludes

An unequal society cannot help but be an unjust society.

These quotations go to the heart of the policy divide behind right and left. The key question: To what extent is inequality of outcomes a source for concern in and of itself? People will always differ in productivity. Should policymakers act to offset these innate differerences, or should their goal be to give everyone the same shot and not be surprised or concerned when outcomes differ wildly? To a large extent, policymaking often comes back to Rawls vs Nozick.

And quoting often comes back to giving the reader the proper context.

Greg shoulda quoted my whole paragraph. It says:

An unequal society cannot help but be an unjust society. The most important item that parents in any society try to buy is a head start for their children. And the wealthier they are, the bigger the head start. Societies that promise equality of opportunity thus cannot afford to allow inequality of outcomes to become too great...

Jeebus.


Abraham Lincoln's Birthday Blogging: "[T]he issue that will continue in this country when these poor tongues of Judge Douglas and myself shall be silent..."

Abraham Lincoln's birthday blogging: from the last Lincoln-Douglas debate: "That is the issue that will continue in this country when these poor tongues of Judge Douglas and myself shall be silent. It is the eternal struggle between these two principles.... The one is the common right of humanity and the other the... spirit that says, 'You work and toil and earn bread, and I'll eat it'":

I have stated upon former occasions, and I may as well state again, what I understand to be the real issue in this controversy between Judge Douglas and myself. On the point of my wanting to make war between the free and the slave States, there has been no issue between us. So, too, when he assumes that I am in favor of introducing a perfect social and political equality between the white and black races. These are false issues, upon which Judge Douglas has tried to force the controversy. There is no foundation in truth for the charge that I maintain either of these propositions.

The real issue in this controversy--the one pressing upon every mind--is the sentiment on the part of one class that looks upon the institution of slavery as a wrong, and of another class that does not look upon it as a wrong. The sentiment that contemplates the institution of slavery in this country as a wrong is the sentiment of the Republican party. It is the sentiment around which all their actions--all their arguments circle--from which all their propositions radiate. They look upon it as being a moral, social and political wrong; and while they contemplate it as such, they nevertheless have due regard for its actual existence among us, and the difficulties of getting rid of it in any satisfactory way and to all the constitutional obligations thrown about it. Yet having a due regard for these, they desire a policy in regard to it that looks to its not creating any more danger.

They insist that it should, as far as may be, be treated as a wrong, and one of the methods of treating it as a wrong is to make provision that it shall grow no larger. [Loud applause.] They also desire a policy that looks to a peaceful end of slavery at sometime, as being wrong. These are the views they entertain in regard to it as I understand them; and all their sentiments--all their arguments and propositions are brought within this range. I have said and I repeat it here, that if there be a man amongst us who does not think that the institution of slavery is wrong in any one of the aspects of which I have spoken, he is misplaced and ought not to be with us. And if there be a man amongst us who is so impatient of it as a wrong as to disregard its actual presence among us and the difficulty of getting rid of it suddenly in a satisfactory way, and to disregard the constitutional obligations thrown about it, that man is misplaced if he is on our platform. We disclaim sympathy with him in practical action. He is not placed properly with us.

On this subject of treating it as a wrong, and limiting its spread, let me say a word. Has any thing ever threatened the existence of this Union save and except this very institution of Slavery? What is it that we hold most dear amongst us? Our own liberty and prosperity. What has ever threatened our liberty and prosperity save and except this institution of Slavery? If this is true, how do you propose to improve the condition of things by enlarging Slavery--by spreading it out and making it bigger? You may have a wen or cancer upon your person and not be able to cut it out lest you bleed to death; but surely it is no way to cure it, to engraft it and spread it over your whole body. That is no proper way of treating what you regard a wrong. You see this peaceful way of dealing with it as a wrong--restricting the spread of it, and not allowing it to go into new countries where it has not already existed. That is the peaceful way, the old-fashioned way, the way in which the fathers themselves set us the example.

On the other hand, I have said there is a sentiment which treats it as not being wrong. That is the Democratic sentiment of this day. I do not mean to say that every man who stands within that range positively asserts that it is right. That class will include all who positively assert that it is right, and all who like Judge Douglas treat it as indifferent and do not say it is either right or wrong. These two classes of men fall within the general class of those who do not look upon it as a wrong.

And if there be among you any body who supposes that he, as a Democrat can consider himself "as much opposed to slavery as anybody," I would like to reason with him. You never treat it as a wrong. What other thing that you consider as a wrong, do you deal with as you deal with that? Perhaps you say it is wrong, but your leader never does, and you quarrel with any body who says it is wrong. Although you pretend to say so yourself you can find no fit place to deal with it as a wrong. You must not say any thing about it in the free States, because it is not here. You must not say any thing about it in the slave States, because it is there. You must not say any thing about it in the pulpit, because that is religion and has nothing to do with it. You must not say any thing about it in politics, because that will disturb the security of "my place." There is no place to talk about it as being a wrong, although you say yourself it is a wrong.

But finally you will screw yourself up to the belief that if the people of the slave States should adopt a system of gradual emancipation on the slavery question, you would be in favor of it. You would be in favor of it. You say that is getting it in the right place, and you would be glad to see it succeed. But you are deceiving yourself. You all know that Frank Blair and Gratz Brown, down there in St. Louis, undertook to introduce that system in Missouri. They fought as valiantly as they could for the system of gradual emancipation which you pretend you would be glad to see succeed. Now I will bring you to the test. After a hard fight they were beaten, and when the news came over here you threw up your hats and hurraed for Democracy. More than that, take all the argument made in favor of the system you have proposed, and it carefully excludes the idea that there is any thing wrong in the institution of slavery. The arguments to sustain that policy carefully excluded it.

Even here to-day you heard Judge Douglas quarrel with me because I uttered a wish that it might sometime come to an end. Although Henry Clay could say he wished every slave in the United States was in the country of his ancestors, I am denounced by those pretending to respect Henry Clay for uttering a wish that it might sometime, in some peaceful way, come to an end. The Democratic policy in regard to that institution will not tolerate the merest breath, the slightest hint, of the least degree of wrong about it. Try it by some of Judge Douglas's arguments. He says he "don't care whether it is voted up or voted down" in the Territories. I do not care myself in dealing with that expression, whether it is intended to be expressive of his individual sentiments on the subject, or only of the national policy he desires to have established. It is alike valuable for my purpose. Any man can say that who does not see any thing wrong in slavery, but no man can logically say it who does see a wrong in it; because no man can logically say he don't care whether a wrong is voted up or voted down. He may say he don't care whether an indifferent thing is voted up or down, but he must logically have a choice between a right thing and a wrong thing.

He contends that whatever community wants slaves has a right to have them. So they have if it is not a wrong. But if it is a wrong, he cannot say people have a right to do wrong. He says that upon the score of equality, slaves should be allowed to go in a new Territory, like other property. This is strictly logical if there is no difference between it and other property. If it and other property are equal, his argument is entirely logical. But if you insist that one is wrong and the other right, there is no use to institute a comparison between right and wrong. You may turn over every thing in the Democratic policy from beginning to end, whether in the shape it takes on the statute book, in the shape it takes in the Dred Scott decision, in the shape it takes in conversation, or the shape it takes in short maxim-like arguments--it every where carefully excludes the idea that there is any thing wrong in it.

That is the real issue. That is the issue that will continue in this country when these poor tongues of Judge Douglas and myself shall be silent. It is the eternal struggle between these two principles--right and wrong--throughout the world. They are the two principles that have stood face to face from the beginning of time; and will ever continue to struggle. The one is the common right of humanity and the other the divine right of kings. It is the same principle in whatever shape it develops itself. It is the same spirit that says, "You work and toil and earn bread, and I'll eat it."

No matter in what shape it comes, whether from the mouth of a king who seeks to bestride the people of his own nation and live by the fruit of their labor, or from one race of men as an apology for enslaving another race, it is the same tyrannical principle. I was glad to express my gratitude at Quincy, and I re-express it here to Judge Douglas--that he looks to no end of the institution of slavery. That will help the people to see where the struggle really is. It will hereafter place with us all men who really do wish the wrong may have an end. And whenever we can get rid of the fog which obscures the real question--when we can get Judge Douglas and his friends to avow a policy looking to its perpetuation--we can get out from among that class of men and bring them to the side of those who treat it as a wrong. Then there will soon be an end of it, and that end will be its "ultimate extinction."

Whenever the issue can be distinctly made, and all extraneous matter thrown out so that men can fairly see the real difference between the parties, this controversy will soon be settled, and it will be done peaceably too. There will be no war, no violence. It will be placed again where the wisest and best men of the world placed it. Brooks of South Carolina once declared that when this Constitution was framed, its framers did not look to the institution existing until this day. When he said this, I think he stated a fact that is fully borne out by the history of the times. But he also said they were better and wiser men than the men of these days; yet the men of these days had experience which they had not, and by the invention of the cotton-gin it became a necessity in this country that slavery should be perpetual.

I now say that, willingly or unwillingly, purposely or without purpose, Judge Douglas has been the most prominent instrument in changing the position of the institution of slavery which the fathers of the Government expected to come to an end ere this--and putting it upon Brooks's cotton-gin basis--placing it where he openly confesses he has no desire there shall ever be an end of it.


More Bad News on Global Climate Change

John Fialka says that the IPCC report was too optimistic:

Global-Warming Report Gets U.S. Emphasis - WSJ.com: U.S. government scientists Friday said the long-term outlook for global warming may be more dire than suggested by this week's United Nations' report, which they say doesn't fully address the impact of clouds and melting glaciers. Recent evidence of accelerated melting of glaciers in Greenland and the Antarctic ice cap came too late to be included in the report released Thursday by the U.N.-sponsored Intergovernmental Panel on Climate Change.

Glaciers are among the largest sources of fresh water in the world and are contributing to rising ocean levels. Rising sea levels could expose population centers bordering the ocean to more storm damage and could require evacuation in some areas. But the computer models used for the IPCC report based their predictions only on the results of heating of the existing water in the world's oceans, causing the oceans to expand and sea levels to rise, said Tom Delworth, a climate modeler for the National Oceanic and Atmospheric Administration, the government agency in charge of climate science and weather service.

The IPCC report predicts sea levels will rise by between one to two feet over the next 100 years. Mr. Delworth said there remains "much more uncertainty" over how much accelerated melting of glaciers might add to that.

A second area of continuing uncertainty has to do with the impact of clouds on climate change.... [T]he supercomputers the agency uses to model the effect on the earth's climate -- which were also used for the IPCC report -- aren't detailed or fast enough to predict how much clouds are accelerating the problem...


Why Oh Why Are We Ruled by These [BLANKS]?

David Wessel of the Wall Street Journal sees eerie parallels between the Bushies foreign and domestic policy misadventures:

Capital - WSJ.com: Bush's Course on Budget Parallels Iraq: The numbers in President Bush's budget add up -- arithmetically... if Iraq and Afghanistan cost only $50 billion in 2009 and nothing thereafter; if the president and Congress hold growth in annually appropriated domestic spending well below inflation; if they let the alternative minimum tax reach deeper into the middle class or raise taxes on others to prevent that; if Congress squeezes $66 billion (4%) from Medicare over five years.... If former Republican Treasury Secretary James A. Baker III and former Democratic Rep. Lee Hamilton led a budget commission like their Iraq Study Group, what would they say?...

They would hardly need to rewrite their cover letter. "There is no magic formula.... However, there are actions that can be taken to improve the situation and protect American interests," they said in the Iraq report. "Many Americans are dissatisfied, not just with the situation... but with the state of our political debate.... Our country deserves a debate that prizes substance over rhetoric, and a policy that is adequately funded and sustainable."

William Gale of the Brookings Institution.... "The Bush administration's two signature policies have been the war in Iraq and consistent pressure for tax cuts," he argues. "On the surface, they look quite different and were advocated by different parts of the administration. Look a little deeper and some common patterns emerge -- so maybe this says something about the principles or management style of the Bush administration."... "[F]alsely rosy scenarios" about the post-Saddam landscape... unrealistic hope that the budget surplus was large enough to cut taxes without creating deficits... contingency planning was regarded by the Bush White House as a sign of weakness.... Smart critics... disregarded and shunned.... Only true believers remained to give the president advice. Eventually, Mr. Bush changed his team--hiring new secretaries of defense and Treasury--but too late to get credit from the public or to forge bipartisan consensus in Congress.

Imagine what might have happened differently had Mr. Bush installed Josh Bolten as chief of staff, Rob Portman as budget director and Hank Paulson as Treasury secretary at the start of his second term, instead of waiting two years. Might the conversation on Mr. Bush's ideas for limiting tax breaks for health insurance be bearing fruit, not just taking shape?...

OK. Take a breath. The U.S. economy is not Iraq, and today's headlines are upbeat... [thanks to] the unabated willingness of foreigners to lend to the U.S. is keeping interest rates down. But look ahead, and there is an unwelcome parallel between Iraq and the budget. Current policy is unsustainable, but there is no easy way out.... Baker and Hamilton had little apparent effect on the president's Iraq policy. Maybe they would have better luck on economics.

My view--which may be wrong--is that David Wessel is way optimistic when he hopes that Bolten, Portman, and Paulson will rebase the Bush administration's economic policies in reality. Bolten's tenure at OMB was unimpressive, and now Bolten appears to be reduced to wandering around Washington saying that he does too have power, and pointing to his ability to fire Harriet Miers as evidence of his strength. Portman's tenure at USTR was similarly unimpressive, and there are no signs that his influence was able to make the current Bush budget more of a policy and less of a propaganda department. And Cheney appears to have cut Paulson off at the knees and killed Paulson's back-channel Social Security negotiations--with no effective response from Paulson: there has been no statement from Bush that Paulson is Bush's chief economic policy adviser and speaks for him on economic policy issues.

In short, things are worse inside the Bush administration than David Wessel believes.


Gretchen Morgenson Has Eaten Her Wheaties, and Tears into Marty Lipton...

Marty Lipton has driven the New York Times's Gretchen Morgenson into shrillness:

Memo to Shareholders: Shut Up - New York Times: TO all those public company shareholders who are trying to make directors more accountable to owners and more watchful over executives: Cheer up. Your efforts seem to be gaining genuine traction. How do we know? Martin Lipton told us so... founding partner of Wachtell, Lipton, Rosen & Katz... invented the poison pill.... More recently, Mr. Lipton has become the apologist for embattled chief executives who don't like shareholders sounding off on excessive pay and cozy boards.

Last week, he sounded a grave warning at the 25th annual Institute on Federal Securities in Miami. "Today shareholder activism is ripping through the boardrooms of public corporations and threatening the future of American business."... Directors are under siege, he averred, thanks to shareholder activists.... Finally, Mr. Lipton thundered: "We cannot afford continuing attacks on the board of directors. It is time to recognize the threat to our economy and reverse the trend."... Mr. Lipton also asked such fundamental questions as whether qualified people would agree to serve as directors in the current environment and whether directors would become so risk-averse that their companies would suffer.

Those are both worthwhile topics for a reasoned, probing discussion. But the sheer desperation in Mr. Lipton's speech... may have been the best proof yet that shareholders' rightful demands to make directors more accountable are getting results. Mr. Lipton did not return a phone call seeking comment....

"It's almost like listening to a small boy who has lost his favorite toy--in this case the poison pill"... said Herbert A. Denton, president of Providence Capital in New York... adviser to minority shareholders....

If the public corporation is an endangered species, as Mr. Lipton argued, it is not because of shareholders. Those who owned stock in Enron, WorldCom, Adelphia and Tyco did not create the scandals that rocked those companies and sowed mistrust among others. Selfish managers and passive directors did that work handily. Almost everyone gets nostalgic, of course. And Mr. Lipton may pine for the days when the poison pill reigned supreme, his chief-executive clients were safe and boards resided quietly in their Amen corner...


Why Oh Why Can't We Have a Better Press Corps? (Serious Godwin's Law Violation at the New Republic Edition)

Matthew Yglesias says: "It's good to own the magazine":

Matthew Yglesias / proudly eponymous since 2002: It's Good to Own the Magazine: This is pretty sweet. As you may recall, New Republic editor in chief Martin Peretz recently took to the pages of his magazine to accuse George Soros of being a "young cog in the Hitlerite wheel." As Soros points out (follow the link) this charge is false. Peretz, in his response to Soros' response, won't even admit what he accused Soros of doing much less concede that the allegation was false!

It seems to me that when a magazine falsely accuses someone of being a Nazi collaborator that a correction would be warranted.

Is this really true? Could TNR seriously be planning not to run a correction?


Special Super Journamalism Barack-Atah-Adonai-Elohenu-Melech-Ha-Olam Shabbat Candle-Lighting Blogging!!

UPDATE: UPDATE: The Politico appears to have skimped on net infrastructure:

http://dyn.politico.com/comments_all.cfm?uuid=A7248F96-3048-5C12-007B35A127E27946&referer=http%3A%2F%2Fwww%2Epolitico%2Ecom%2Fnews%2Fstories%2F0207%2F2694%2Ehtm: 500 Not enough storage is available to process this command. Not enough storage is available to process this command


Friday at sundown is a fitting moment to take note of a particularly pathetic piece of Journamalism from Mike Allen at the Politico.

You see, Mike Allen begins his trashing of Barack Obama. Understand: Mike Allen isn't doing the trashing--oh no no no. Mike Allen is just saying what the critics of Obama will say.

Let's give Mike the mike, and watch him take his dive:

The Politico: Barack Obama’s free ride is ending.... Obama’s about to endure a going-over that would make a proctologist blush. Why has he sometimes said his first name is Arabic, and other times Swahili?... [T]he long knives will be out for Obama.... Officials at the top of both parties calculate that Obama has risen too fast... “vapid platitudes” that could produce a “soufflé effect.”... “With a couple of pinpricks here and there, the whole thing could fall apart.”...

Even his name offers fodder for the critics. When he was growing up, his family, friends and teachers called him “Barry.” Then as a young man, he started insisting on “Barack,” explaining in a memoir published in 1995 that his grandfather was a Muslim and that it means “blessed” in Arabic. His dad, who was Kenyan, had gone by “Barry” -- probably trying to fit in when he came to the States, his son figured. On the campaign trail during his 2004 Senate race, Obama told reporters that “Barack” was Swahili for “blessed by God.” Whatever its origins, the exotic, multicultural name...

Two minutes of Googling would have told Mike Allen that "barack" is both a Swahili word meaning "blessed by God" and an Arabic word meaning "blessed." There's been lots of trade between Swahili-speaking East Africa and the Arabic-speaking Middle East for millennia. That "barack" is a word in both languages is part of the same process by which the largest Swahili-speaking port in the world has a pure Arabic name--Dar es Salaam, meaning "House of Peace."

But Allen doesn't tell his readers any of this, does he?

And this "exotic, multicultural name" business... "Barack" is so exotic and multicultural that five million Americans are supposed to say it at sundown every Friday night... the same word b•r•k in a Hebrew rather than an Arabic accent: "baruch":

"Baruch atah Adonai Elohenu melech ha'olam, asher kideshanu bemitzvotav vetzivanu l'hadlik ner shel Shabbat." "Blessed are you, O Lord our God, ruler of the universe, who has made us holy by your commandments and told us to light the Sabbath lights."

Five minutes' acquaintance with Judaism would have taught Mike Allen that b•r•k is about as exotic as the synagogue down the street, wouldn't it? About as unusual in America as the last name of Bernard Baruch, advisor to Woodrow Wilson, Franklin Delano Roosevelt, and Harry Truman.

But Allen doesn't tell his readers any of this, does he?

And, of course, the same prayer beginning b•r•k is at the heart of most Christian services:

Blessed are you, Lord, God of all creation. Through your goodness we have this bread of offer, which earth has given and human hands have made. It will become for us the bread of life...

An hour's acquaintance with Christianity, and Mike Allen could have learned other things--for example, that Jesus Christ says b•r•k eight times in a row at the beginning of eight consecutive sentences at the start of the fifth chapter of Matthew when he begins his Sermon on the Mount.

So why doesn't Mike Allen tell any of this to his readers?

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

How much did they pay you, Mike? In what coin?


Could This Be True?

Ethan Zuckerman:

Ethan Zuckerman: Having tea with my friend Abe McLaughlin this afternoon, he mentioned that, of the two hundred fifty foreign correspondents, one hundred are employed by the Wall Street Journal. I wondered about the geographical distribution of that hundred and the other reporters - would we find a huge concentration of journalists in Iraq and Israel? Would we find any in Africa other than in Cairo and Jo'burg?

Could this be true?


Your One-Stop Shop for Historical Materialism Blogging

A comment informs me that Duncan Foley is on the loose, complaining among other things that Marx's Critique of the Gotha Program is too friendly to capitalism, that Marx is too fuzzy in his thought, and as a result Foley thinks Marx's vision of communism is "unintegrated" and Foley is "uncertain" what Marx thinks of the social division of labor.

Here's Foley:

Radical Notes - The Meaning of Adam's Fallacy: An Interview with Duncan K Foley: Marx had a lively sense of the damage capitalist institutions can do to human personality and the potential for human development.... [But] I am not convinced that Marx completely integrated this vision into his... socialist alternatives.... [In] Marx's [Critique of the Gotha Program]... [w]orkers receive compensation in proportion to the labor time they expend, but after the "deduction" of funds for social purposes... [This] look[s] more like capitalism, than, say, traditional agricultural society. Marx may have acknowledged this contradiction in separating the concept of "socialism" as a transitional system from "communism" as a somewhat utopian vision....

This leaves us uncertain as to Marx's attitude toward the division of labor. Does he think socialism or communism can sustain a complex division of labor without the deleterious effects capitalist social relations have on human relations and personality? Or does he believe that society can somehow do without the division of labor altogether, or that it can be sustained by some kind of conscious central direction?

This makes me despair. Somebody has to put their foot down here and defend Marx, and that foot is me.

Marx can be mightily obscure. But not in Gotha. There he is clear as a bell. What Marx thought about these issues when he wrote Gotha is not hard to puzzle out. He doesn't leave unybody uncertain. This is what he thinks:

  • Yes, after the revolution there will still be a lot of capitalist-looking features to the economy, but they are regrettable consequences of the new society's being "still stamped with the birthmarks of the old society from whose womb it emerges"; and they are temporary.
  • Yes, but in the new society the division of labor will not be humanity's destructive master, but rather humanity's servant.
  • No, the new society will be rich enough that nobody will think that efficiency requires that anybody will be turned into a full-time cog in a big machine.
  • No, the new society will be rich enough for us to ultimately get rid of all of the bad habits inherited from capitalism. Ultimately we shall advance beyond the narrow horizon of bourgeois ideas of "rights" and inscribe on our banners: "from each according to her ability; to each according to his needs!"

Here's German Charlie:

http://marx.eserver.org/1875-gotha.critique.txt: What we have to deal with here is a communist society... as it emerges from capitalist society... still stamped with the birthmarks of the old society from whose womb it emerges. Accordingly, the individual producer receives back from society -- after the deductions have been made -- exactly what he gives to it.... [T]he same principle prevails as that which regulates the exchange of commodities [under capitalism].... The right of the producers is proportional to the labor they supply; the equality consists in the fact that measurement is made with an equal standard, labor.

But one man is superior to another physically, or mentally, and supplies more labor in the same time, or can labor for a longer time.... This equal right [in the first phase of communist society] is an unequal right for unequal labor. It recognizes no class differences, because everyone is only a worker like everyone else; but it tacitly recognizes unequal individual endowment, and thus productive capacity, as a natural privilege. It is, therefore, a right of inequality, in its content, like every right....

[T]hese defects are inevitable in the first phase of communist society as it is when it has just emerged after prolonged birth pangs from capitalist society. Right can never be higher than the economic structure of society and its cultural development conditioned thereby.

In a higher phase of communist society, after the enslaving subordination of the individual to the division of labor, and therewith also the antithesis between mental and physical labor, has vanished; after labor has become not only a means of life but life's prime want; after the productive forces have also increased with the all-around development of the individual, and all the springs of co-operative wealth flow more abundantly -- only then then can the narrow horizon of bourgeois right be crossed in its entirety and society inscribe on its banners: From each according to his ability, to each according to his needs!

And Foley speaking of Marx's "somewhat utopian vision" of full communism. Somewhat. That's like calling Wal-Mart somewhat profit-seeking, or Dick Cheney somewhat warlike, or Osama bin Laden somewhat murderous.

If you had asked Marx in his old age how this utopian future he foresaw would work, really, on the ground, in detail, he would have answered that he did not know--and that nobody should expect him to know. Would it have been fair to ask a twelfth-century peasant or knight to lay out how the twenty-first century social division of labor that we have functioned and regulated itself? The questions a twelfth-century peasant would have asked about twenty-first century economics institutions would have been things like:

  • Who will be my master?
  • On whose demesne will I work, and for how long each week?
  • How will land be redivided in the village if I have three sons who survive to adulthood?
  • Will my master have the High Justice, or just the Middle and the Low?

The questions a twelfth-century knight would have asked about twenty-first century military institutions would have been things like:

  • What share if a typical lord's mesnie will be made up of household knights, and what share of sub-tenants?
  • How will bailiffs be selected for manors and other honours that the lord has retained and not granted in sub-fief?
  • Will auxilliary troops--bowmen, spearmen, et cetera--be primarily mercenaries or primarily members of knights' households?
  • Will the Truce of God cover just Sundays alone, or extend from Sunday to Wednesday?
  • The crossbow: overrated toy or dangerous menace?
  • Will there be a place for light cavalry on the twenty-first century battlefield?

Marx would say that we can take a look at the line showing the progress of human wealth and liberty from ancient to feudal to capitalist modes of production, extend it, and be confident that in our communist future people will be astonishingly rich and astonishingly free. But he would also say that the questions we formulate today about the full communist future are as silly and as missing-the-point as the questions of the twelfth century peasant and knight are about our social arrangements.


The New Deal: DeLong Smackdown Watch

Jeff Weintraub politely writes in about the New Deal. Being a historical sociologist of Tocquevillean bent, he sees the AFL-CIO and the NLRA as absolutely crucial aspects:

It seems to me that one of the major elements of the New Deal was a set of measures that helped reshape the playing field of labor/management conflict in ways that helped to support the massive upsurge in unionism, especially industrial unionism, during the 1930s. These developments had a very significant and mostly valuable impact on American society and politics (the fact that union members are more likely to vote than other working-class people would be enough, by itself, to make this an important factor--but of course that's only one element of the package), and the gradual erosion of that legacy over the past decades has been one of the more unfortunate and damaging features of our era...

He is right, of course.


The Childish Babbling of a Say Revisited

Over at radicalnotes.com, Dipankar Basu writes:

http://radicalnotes.com/content/view/31/30/: I started looking for the passage in the book where Foley asserts that "technological unemployment is the rule"; I am still searching. Probably DeLong would be so kind as to point to this passage that Foley seems to have forgotten to insert in his book...

The passage I read as (F2) starts on page 10, where Foley has an argument that Say's Law is false, that productivity growth creates technological unemployment, and thus that Adam Smith is wrong to praise the long-run effects of the extended division of labor as unambiguously good:

P. 10 ff: The increasing division of labor with its consequent rise in labor productivity has at least one immediate negative effect: a reduction in the demand for labor in industries undergoing rapid rises in productivity. The reason for this is that the increases in the productivity of labor may run ahead of the widening of the market. Even though more units of the product are being produced and sold, if labor productivity is rising ever faster, fewer workers will be required to produce the output, and unemployment can result.

Smith acknowledges this effect... but argues, on the basis of reasoning that later came to be known as "Say's Law," that in the aggregate there cannot be a chronic excess supply of labor.... The reasoning... is... that the source of demand for commodities... is just the willingness of workers and the owners... to make their resources available for production. In real life, this potential demand can become effective only if money is available to finance the start-up of production.... Smith and his successors who reason on the basis of Say's Law are assuming that the financial system... is flexible enough... belie[ving] in the efficiency of the financial institutions of a capitalist economy.

This is Adam [Smith's] Fallacy in action. The immediate effect of increases in labor productivity is to impose costs (unemployment) on a group (workers) who are in a weak position to protect themselves from these costs..."

What I call (F5) is the game of intellectual three-card-monte that Foley plays in reversing his field: having criticized Adam Smith for assuming that Say's Law operates in the long run, Foley backflips and says that something like Say's Law does operate in the long run: "Over long periods of time... something like Say's Law does operate... there is no long-term drift towards constantly increasing unemployment as a result of technological change..."


Why Oh Why Are We Ruled by These Fools? (Tony Snow Destroys His Brain Department)

Bush Press Secretary Tony Snow has a problem, which he resolves by being as stupid as he can. He is asked a question. How does he answer?

Tony Snow doesn't dare answer: "The President has said that the tax cuts grow the economy and help balance the budget. Next question?" That would kill his remaining credibility with the press corps.

Tony Snow doesn't dare answer: "Because of the tax cuts the deficit is larger than it would have been with higher taxes, but the economy is stronger, and the tradeoff is worth it." That would get him fired by Bush within the week. And

Tony Snow doesn't dare answer: "The administration economists have tried to get Bush to drop the 'tax cuts help balance the budget' line because it is misleading and wrong and it harms the administration each time Bush or Cheney uses it. But they have had no success." That would have the advantage of being the truth, but it would get him fired by Bush within the hour.

So what does he do? He acts as stupid as possible:

http://www.whitehouse.gov/news/releases/2007/02/20070206-6.html: Q Can I ask you about an argument the President made today and has made repeatedly in terms of the tax cuts? He speaks of the economic output that is raised by the tax cuts. But he specifically is crediting his tax cuts for the increased revenues to the U.S. Treasury. Does the President believe that the tax cuts have paid for themselves, or will pay for themselves anytime in the foreseeable future?

MR. SNOW: What you're doing is you're getting yourself into abstruse ground. There are any number of ways of calculating it. By some calculations they have paid for themselves and then some. But what I'd ask to do before getting into that thicket is to find out what you want to use as your base, know what your baselines are, because whenever one gets into games like this, it's all about assumptions. And I don't know what assumptions are embedded in the question.

Q I'm not sure I'd look at it as a game, but when the President says low taxes means economic vitality, which means more tax revenues --

MR. SNOW: Yes.

Q -- does the Treasury tell him that more money is coming in than was lost to the tax cuts?

MR. SNOW: Well, I'm not sure -- the whole point is that the tax cuts generate extra economic activity. All you have to do is -- I would, if you want to --

Q That's a separate issue.

MR. SNOW: Well, no, it's not. It's not a separate issue at all. What it says is when you have greater economic --

Q If the economy is growing more, that's one thing; but whether tax revenues are growing is a separate issue.

MR. SNOW: Well, but tax revenues tend to grow in tandem with economic activity. When you've got a growing economy -- let's take a look at what we have. We have an economy where we've had economic growth for 42 consecutive months. You also have an economy that now has more people working than ever before. You've got higher levels of employment, home ownership, economic activity. Wages, especially in recent months, have shown real significant growth. Real disposable income up 5.4 percent in the fourth quarter of last year. You put all that together, you're going to have more revenue. And the fact is, a good, growing economy is always good for revenues.

Q I'm asking specifically about the budget, which is what the President was arguing about today. And when he says low taxes means more tax revenues --

MR. SNOW: Yes, that's right.

Q -- he is, in a sense, saying that it makes it easier to balance the budget, is he not?

MR. SNOW: Yes. A growing economy always makes it easier to balance the budget.

Q No, that cutting taxes in the way he's done makes it easier to balance the budget.

MR. SNOW: But cutting the taxes -- you're not connecting the dots. Cutting the taxes, in fact, is something that encourages economic growth. And it is that economic growth that ends up generating the revenue, that allows you to balance the budget ahead of time.

Q But has the Treasury told him that the tax cuts enacted on his watch make it easier to balance the budget?

MR. SNOW: I'm not sure that anybody has framed it that way. Call over to Treasury, ask them.

Q I've looked at their analyses; I don't see it, is why I'm asking.

MR. SNOW: Like I said, that's why -- when you talk about pay-for, that really does get into how are you cutting it, and what are you using as your baseline, what's your projection, what are the assumptions. That is not as simple a question as you might think it is. It just isn't. Whenever you get into --

Q I know this debate is to how big the effect is, but I've not seen it --

MR. SNOW: But I've also heard people say, yes, we can say it's paid for. But you're asking me to play the role of economist, and as any first-year economic student will tell you, it's all about assumptions. So if you want to get into that argument, I really would suggest you talk to trained economists at the Department of Treasury or within our economic shop, and they'll be able to give you a more precise readout on it.

Tony Snow talks about what an economist will tell you. Let's find an economist--Dartmouth's Andrew Samwick, who was Chief Economist on Bush's Council of Economic Advisers in 2003-2004. Here's what he says:

Andrew Samwick: To anyone [currently] in the Administration who may read this.... Please stop your boss from writing or saying the following:

It is also a fact that our tax cuts have fueled robust economic growth and record revenues.

You are smart people. You know that the tax cuts have not fueled record revenues. You know what it takes to establish causality. You know that the first order effect of cutting taxes is to lower tax revenues. We all agree that the ultimate reduction in tax revenues can be less than this first order effect, because lower tax rates encourage greater economic activity and thus expand the tax base. No thoughtful person believes that this possible offset more than compensated for the first effect for these tax cuts. Not a single one.

The only bright spot is that Tony Snow doesn't dare back George Bush up. Tony Snow doesn't dare say: "The President has said that the tax cuts grow the economy and help balance the budget. Next question?" That's something--not very much, but something.


Gitmo

Andrew Samwick tells us to go read Neal Katyal

Vox Baby: Reading and Listening: I thought this econoblog was going to be the best thing I'd read all day. It's Brad DeLong and Arnold Kling having a pretty contentious and articulate debate about the legacy of the New Deal. Read the whole thing.But then, realizing that I would have to introduce Neal Katyal at his public lecture last evening, I started reading this article forthcoming in Vanity Fair. And maybe I haven't been keeping up with current events, but I found parts of it truly shocking. The public lecture was fantastic...

http://www.law.georgetown.edu/faculty/nkk/documents/gitmovanityfair.pdf


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

Over at Slate, Seth Stevenson writes about Tim Russert's testimony in the Libby trial:

Tim Russert takes the stand: Twelve minutes after calling Russert to the stand, the prosecutor has no more questions for him. Russert's testimony is clean and simple: He never talked about Valerie Plame with Scooter Libby. Ever. And with that, Russert--a compelling, likable witness if there ever was one--may have buried Libby. Libby has said in his testimony, again and again, that Russert mentioned during this call that Joe Wilson's wife worked for the CIA and that "all the reporters" knew it. Now Russert is testifying, with obvious conviction, that Libby invented this part of the conversation. The jurors will have to decide who to believe. This is the most pointed he said/he said dispute of the case.

Let's assume for a moment that Libby made up his story. Why on earth would he have done so? Here's the prosecution's theory: Libby really learned about Valerie Plame from Vice President Dick Cheney (and other government sources). And he then passed Cheney's information on to various reporters (including Matt Cooper of Time and Judy Miller of the New York Times). Libby worried that this leak constituted a crime (revealing the identity of a covert CIA agent), and that both he and Cheney might face criminal charges for it. So, when the FBI questioned him about it, he said he was simply passing on a tidbit that he'd learned from Tim Russert. If it came from Russert, and not Cheney, there would be no problem. (Fitzgerald describes this as Libby switching the story from "an official to a non-official source.")

Why did Libby think he could concoct a fake conversation with Russert, yet never have Russert contradict him? Because Libby assumed that Russert, as a member of the press, would protect Libby as a source. And in fact Russert did try to get out of testifying--fighting his subpoena on the grounds that testifying would have a "chilling effect" on his ability to get sources to talk to him. Unfortunately for Scooter, Russert lost this battle. And now he's here in court, calling Libby a liar...

And then Stevenson plays what I can only regard as a game of journamalistic three-card monte:

But now let's imagine Libby's telling the truth--that he did talk about Plame with Russert, and that Russert is just misremembering their phone call. Can you imagine how nightmarish today must be for Libby, if this is the case? He's watching Russert throw him under the bus as the result of nothing more than a faulty memory. Russert is stubbornly standing by his hazy recollection of one three-year-old phone call. And Scooter might go to jail over it.

I'm not a journalist. If I were a journalist, I would at this point act differently than Stevenson. I would at this point remind my readers that the case is not about one single he said/he said dispute to which there were no witnesses. It's not about whether Fitzgerald can show beyond a reasonable doubt that Russert accurately remembers this phone call and Libby is lying. According to the indictment, Fitzgerald's case is that Libby has told a story different from all of:

  1. An Under Secretary of State
  2. A senior officer of the Central Intelligence Agency
  3. The Vice President of the United States
  4. Libby's own notes of his meeting with the Vice President.
  5. A briefer from the Central Intelligence Agency.
  6. Libby's then-principal deputy.
  7. Judith Miller.
  8. Tim Russert.
  9. The White House Press Secretary.
  10. The Counsel to the Vice President.
  11. The Assistant to the Vice President for Public Affairs.
  12. "White House Officlal A".
  13. Matthew Cooper.

As I said, I would feel honor bound to remind my readers of this if I were a journalist.

But I'm not a journalist.

Stevenson doesn't remind us. He leaves us with the image of Scotter Libby living a nightmare--"watching Russert throw him under the bus as the result of nothing more than a faulty memory... his hazy recollection of one three-year-old phone call."


More Journamalism! Irony is dead!

More journamalism! Irony is dead! Duncan Black sends us to the amazon page for Jonah Goldberg of National Review's forthcoming book:

Jonah Goldberg (2007), Liberal Fascism: The Totalitarian Temptation from Mussolini to Hillary Clinton: Availability: This title will be released on September 18, 2007. Pre-order now...

And Duncan also sends us to Jonah Goldberg today:

The Corner on National Review Online: I've "matured" or "grown up." And the truth is I have.... I'm basically burnt out on the smash-mouth stuff.... I don't do that stuff very much any more because it's cliched and boring to me (in much the same way I dropped most of the Simpsons and French-bashing stuff the moment it threatened to become a catch-phrasey schtick).... Simply as a writer, when I see the nasty stuff now, on both the left and the right, my first reaction is to think how easy -- and therefore uninteresting -- it is.... That's why I harp so much lately on the issue of good faith in writers.... I'm more interested in arguments than posturing for your own side.... I have a similar attitude toward the highchair pounders on our side like, say, Michael Savage (assuming he's still alive)...


Dan Froomkin Meets the Journamalists

And in spite of everything he knows and has seen, Dan Froomkin seems shocked at the extent of the feckless corruption of the Washington political-news press corps. Informing their readers and viewers is simply not on their agenda.

Froomkin watches Tim Russert:

Dan Froomkin - Washington Journalism on Trial - washingtonpost.com: If you're a journa[mal]list, and a very senior White House official calls you up on the phone, what do you do? Do you try to get the official to address issues of urgent concern so that you can then relate that information to the public? Not if you're NBC Washington bureau chief Tim Russert. When then-vice presidential chief of staff Scooter Libby called Russert on July 10, 2003, to complain that his name was being unfairly bandied about by MSNBC host Chris Matthews, Russert apparently asked him nothing.

And get this: According to Russert's testimony yesterday at Libby's trial, when any senior government official calls him, they are presumptively off the record.That's not reporting, that's enabling. That's how you treat your friends when you're having an innocent chat, not the people you're [covering]....

Many things are "on trial" at the E. Barrett Prettyman federal courthouse right now.... Libby's boss, along with the whole Bush White House, for that matter, is being held up to public scrutiny as well.And the behavior of elite members of Washington's press corps -- sometimes appearing more interested in protecting themselves and their cozy "sources" than in informing the public -- is also being exposed for all the world to see.

For Russert, yesterday's testimony was the second source of trial-related embarrassment in less than two weeks. The first came when Cathie Martin, Cheney's former communications director, testified that the vice president's office saw going on Russert's "Meet the Press" as a way to go public but "control [the] message." In other words... Russert could be counted on not to knock the veep off his talking points -- and, in that way, give him just the sort of platform he was looking for.

Russert's description of how he does business with government officials.... [D]efense attorney Theodore Wells sounded incredulous that Russert wouldn't have asked Libby some questions. After all, former ambassador Joseph Wilson had gone public just four days earlier with his provocative charge that the administration manipulated intelligence about Saddam Hussein's weapons programs to justify an invasion of Iraq. Wilson had done that in a New York Times op-ed -- and on "Meet the Press" itself. "You have the chief of staff of the vice president of the United States on the telephone and you don't ask him one question about it?" Wells asked. "As a newsperson who's known for being aggressive and going after the facts, you wouldn't have asked him about the biggest stories in the world that week?"

Russert replied: "What happened is exactly what I told you."

Froomkin watches Howard Kurtz carry water for Tim Russert:

Howard Kurtz writes in today's Washington Post that Russert "emerged relatively unscathed yesterday." But I think Kurtz was more dead-on in his CNN show on Sunday when he broke from the role of neutral moderator and said: "Well, here's my two cents. I mean, anonymous sources are absolutely vital for investigative reporting for the exposing of corruption, health and safety problems, and that sort of thing. But journalists have gotten so promiscuous on granting anonymity on routine political stories that it makes us look bad."

It doesn't make you people "look bad," Howard. You are bad. Own it.

And Froomkin watches Arianna Huffington:

Arianna Huffington had this to say on PoliticsTV.com after Russert's testimony:

This assumption that somehow any conversation with a government official is automatically assumed to be highly confidential... gives the sense to the average citizen that this is a kind of club, to which government officials and major news reporters belong. And that anything discussed between them is automatically off the record, no matter whether it is of public interest or not...

That's putting it too softly. It's not a problem of the impression the average citizen receives. It's a problem of what Russert and company do. It doesn't "give the sense to the average citizen"; it, rather, informs the average citizen of the reality.

This is important: The elite political news journalists of Washington have known since 2000 of the fecklessness, incompetence, disconnection from reality, mendacity, and malevolence of George W. Bush and the highest levels of his administration. They have heard the same stories as I have--and they have heard more of them. I have listened to some of them dine out on those stories. Yet the number who have worked to incorporate what they know from whispered off-the-record conversations into what they report to the public is very small indeed.

In their New York Times story, Neil Lewis and David Johnston do challenge Russert--in the twenty-sixth and final paragraph of their article:

As Neil A. Lewis and David Johnston write in the New York Times, Wells "also challenged Mr. Russert about initial efforts to avoid testifying. Mr. Russert had said in an affidavit that it was a matter of journalistic principle to refuse to divulge his conversation with Mr. Libby. But Mr. Wells, who also displayed this affidavit on-screen, noted that when Mr. Russert was first reached by telephone by an F.B.I. investigator, weeks before the affidavit, he spoke freely about it."


Timothy Burke: Zimbabwe's Future Is Really Grim

Timothy Burke writes that Zimbabwe's future is really grim, no matter what:

Obsidian Wings: Zimbabwe Melts Down: Much as I think Mugabe is loathsome, and that his loathsomeness was consistently underestimated by many observers and commenters of Zimbabwe's politics in the 1980s, it's important not to overlook the more systemic problems in the postcolonial Zimbabwean state. Mugabe is not in fact a charismatic authoritarian who somehow overwhelmed an otherwise competent or well-functioning liberal democracy and drove into ruin. He's certainly an autocratic and unscrupulous control freak, and has been ever since he first entered politics. But what has happened to Zimbabwe since the late 1980s has as much to do with a wider circle of people around Mugabe, both in the ruling party and in important and powerful institutions, including the military.

When Mugabe dies, I wouldn't expect things to get magically better. First, because much of what gave Zimbabwe a promising economic and social outlook circa 1988 has been thoroughly and structurally destroyed. Second, because at least some of the people around Mugabe have instincts just as self-destructive and have every reason to inhibit good management or democratization (as they will likely be the ones prosecuted by a vengeful reformist regime).

The problem with fantasizing about unilateral military action in this case is connected to this problem. You could drop a bunch of Special Forces guys on the presidential palace in Harare, take out Mugabe, and change absolutely zero. Frankly you could occupy the country with UN forces and change absolutely zero. What's needed is a huge change in the fundamental architecture of the Zimbabwean state and a change in the basic composition of the thin upper range of the most powerful elite. Those are not transformations which occupiers can readily bring about (something which I'd think should be screamingly apparent to everyone by now).

About the only positive short-term scenario is that some of the younger, smarter, more competent guys in ZANU-PF who have been carefully keeping their heads low through the last decade will move aggressively on Mugabe's death to push aside hacks like Didymus Mutasa and clean out the bureaucratic house. But to really succeed at that, they'd have to reverse a lot of brain-drain and draw back competent managerial and professional elites who have (wisely) left for other countries.


We Don't Need Another Hero: Another Note on a GRIM Game of Repeated Prisoner's Dilemma...

Repeated Prisoner's Dilemma: We don't need another hero...

Hoisted from Comments:

Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal: A Note on a GRIM Game of Repeated Prisoner's Dilemma...: "But why restrict ourselves to Axelrod's 63 strategies? Why not follow Linster (1990, 1992) in beginning with all finite automata with at most two states?"

Because "all finite automata with at most two states" is just a fancy and round-about way of saying "all strategies with only a single turn memory". GRIM beats TFT in this environment because no strategy has a long enough memory to distinguish punishment from exploitation.

It's also worth noting that GRIM doesn't have a "Road Warrior" effect. Since GRIM is a "nice" strategy, a mostly GRIM population is characterised by mutual cooperation.

Posted by: pete | February 08, 2007 at 03:54 AM

GRIM is "nice" to itself and to other don't-defect-first strategies that it cannot distinguish from itself. GRIM wages total thermonuclear war against everything as soon as it recognizes that what it is playing is not-GRIM. That seems Mad Max-like to me...


R.I.P. Nelson Polsby, 1934-2007

Nelson Polsby died yesterday. I sat next to him at lunch last month, just after the opening of the new congress.

"Why isn't Nancy Pelosi not now the head of the U.S. government?" I asked. "The House was set up with the powers the British House of Commons held in 1787. Since then because the Commons grabbed the purse--the financing--power has leaked from the Crown and the Lords into the Commons so that now it has it all. The U.S. House of Representatives has the same purse power--all tax bills must originate there. So why hasn't power flowed to the House?"

"Ah," he said. "I see you are more of a formalist than I thought. It's not formal power to initiate: it's democratic legitimacy. Power has flowed to the British House of Commons because it is the only elected and representative branch. In the U.S., power remains divided because the President and the Senate are elected."

"I grant you the President," I said. "A newly-elected President in full panoply of plebiscitory power is an awesome force. But the Senate? It's so malapportioned."

And I went on: "Within the Senate why hasn't power flowed to the most populous states? Why aren't the Senators from California automatically committee chairs? And why do we put up with this? Why don't we select 300,000 of us Californians by lot, and have them all move to the Rockies in the summer of 2008 to sway the balance and elect us three extra Senators?"

"That I can answer," he said. "That's been tried. Bleeding Wyoming. Pottawatamie under the Tetons..."

Rest in Peace, Nelson.


Econ 210a: February 14: Question: Europe's Post-WWII Golden Age

A growing literature develops explanations for 'Europe's golden age' (the European economy's fast growth in the third quarter of the 20th century). Is this effort misguided? In other words, do we really need fancy explanations for a straightforward phenomenon that is easily explained in terms of convergence and delayed structural change?


Preliminary Inequality Reading List

A Preliminary Inequality Reading List:

Thomas Piketty and Emmanuel Saez (2004), "Income Inequality in the United States, 1913-2002" http://elsa.berkeley.edu/~saez/piketty-saezOUP04US.pdf

Samuel Bowles and Herbert Gintis (2002), "The Inheritance of Inequality" http://www.umass.edu/preferen/gintis/intergen.pdf

Lisa Barrow and Cecilia Rouse (2005), "Does College Still Pay?" http://www.bepress.com/cgi/viewcontent. cgi?article=1097&context=ev

Paul Krugman (1993), "The Rich, the Right, and the Facts" http://www.pkarchive.org/economy/therich.html

Paul Krugman (1992), "Inequality and Ignorance" http://www.pkarchive.org/economy/IgnoranceInequality.html

Paul Krugman (1996), "The Spiral of Inequality" http://www.motherjones.com/news/feature/1996/11/krugman.html

Paul Krugman (2002), "For Richer" http://www.motherjones.com/news/feature/1996/11/krugman.html

Paul Krugman (2006), "Graduates vs. Oligarchs" http://www.truthout.org/cgi-bin/artman/exec/view.cgi/48/17995

Thomas Lemieux (2004), "Residual Wage Inequality: A Re-Examination" http://emlab.berkeley.edu/users/webfac/saez/e291_s04/lemieux.pdf

Orley Ashenfelter and Cecilia Rouse (1998), "Schooling, Intelligence, and Income in America: Cracks in the Bell Curve." November, 1998. http://www.irs.princeton.edu/pubs/pdfs/407.pdf

Cecilia Rouse (1997), "Further Estimates of the Economic Return to Schooling from a New Sample of Twins." July, 1997. http://www.irs.princeton.edu/pubs/pdfs/388revised.pdf

Claudia Goldin and Ceci Rouse (2000), "Orchestrating Impartiality: The Impact of Blind Auditions on Female Musicians,"American Economic Review, 90, no. 4 (September 2000): 715-741. http://www.jstor.org/view/00028282/ap000014/00a00030/0?currentResult=00028282%2bap000014%2b00a00030%2b0%2c01%2b20000900%2b9995%2b79999099&searchID=8dd55340.10893069360&frame=noframe&sortOrder=SCORE&userID=8070c9f8@princeton.edu/018dd5534000501264bc2&dpi=3&viewContent=Article&config=jstor

Mark Thoma reads Edward Bellamy on inequality: http://economistsview.typepad.com/economistsview/2006/12/how_inequality_.html

Bookmarks on del.icio.us tagged with "inequality" by jbdelong: http://del.icio.us/jbdelong/inequality


Arnold Kling vs. Brad DeLong on the New Deal

UPDATE: Bruce Bartlett writes:

I just read your WSJ piece and you make one mistake. If Hoover had been re-elected in 1932, Ogden Mills would have been Treasury secretary, not Andrew Mellon. Mills became secretary on Feb. 13, 1932.


Arnold Kling vs. Brad DeLong on the New Deal at the Wall Street Journal's website.


Here are my first drafts for the exercise:

Let me start with our collective best guess about what would have happened in an alternate history--one in which the press discovers and publishes the full details of FDR's polio injuries and irregular family life , and in which in November 1932 Herbert Hoover is reelected to a second term with a narrow margin, and "stays the course" with his first-term economic policies...

In that alternate universe, a group of Harvard economists headed by Joseph Schumpeter were brought down to the White House to advise Herbert Hoover what do about the banking crisis in the winter of 1933. They argued that banks are failing because their fundamentals are unsound, and that it would be improper to rescue bankers who have run their businesses into the ground or depositors who have not been prudent enough at watching the character of the people with whom they have deposited their money. Supported by the articulate Treasury Secretary, Andrew Mellon, they carried they day: "Liquidate labor, liquidate stocks, liquidate the farmes, liquidate real estate," said Mellon. A full-fledged panic would not be a bad thing: It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people..." But the consequence was not people working harder and living a more moral life. Instead, the consequence was an intensification of the Great Depression as the transmission channels analyzed by Ben Bernanke (1983), "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression," grew much stronger than they were in our actual history.

As more and more banks failed and more and more of the deposits of Americans vanished, the downward spiral of economic activity continued through 1933, 1934, and 1935. Increasing economic uncertainty and fear drove an acceleration of gold outflows from the U.S. accelerated throughout 1933 and 1934. The Federal Reserve--itself under Mellon's, responds by following gold standard orthodoxy: an outflow of gold is a sign that your interest rates are too low and need to be raised. Contractionary open market operations to raise interest rates further reduced the money stock, and this falling-money-stock channels for the intensification of the Great Depression that was stressed by Milton Friedman and Anna Schwartz (1963), A Monetary History of the United States, grew much stronger than they were in our actual history.

As the unemployment rate rose from 25% in 1933 to 33% in 1934 to 40% in 1935, Herbert Hoover vainly tried to restore confidence. "America must cling to the gold standard, for it is our only life raft," Hoover argued. Only confidence that the dollar would stay as good as gold could produce the confidence in the future of America that would induce entrepreneurs to start investing in America once again and so bring about recovery. But as Eichengreen and Sachs were to argue in their 1986 "Exchange Rates and Economic Recovery in the 1930s," Hoover had it exactly backward: no country could even begin to halt the downward spiral that was the Great Depression until it abandoned the gold standard, devalued its exchange rate, boosted its exports, expanded its money stock, and lowered its interest rates.

In 1932 Herbert Hoover had unleashed General Douglas MacArthur to deal with the Bonus March. At his command, Major George F. Patton's 3rd cavalry and other units had driven them with tear gas, swords, and bayonets across the Potomac River bridges and fired their camps, defeating what MacArthur called a communist attempt to overthrow the government of the United States. In 1934 the Bonus Marchers came back--and this time not coming unarmed. In our history Eleanor Roosevelt went down to their camp and had coffee with the Marchers, and Franklin Roosevelt signed up many of them to work on extending U.S. Route 1 through the Florida Keys. Not in the history where Hoover stayed president. Employing marchers by increasing the deficit would destroy confidence, Hoover said. In fact, Hoover declared at the end of 1934, balancing the budget had to take priority over relief, and the federal government would leave all relief expenditures in the hands of the states. Food riots broke out at the start of 1935 in scattered cities.

The Marchers camped in Arlington Cemetery through the winter of 1934-1935. The camp grew, as they were joined by followers of Louisiana's Huey Long, who cried "Share Our Wealth!" and "Nail 'Em Up!" and followers of radio Priest Charles Coughlin, who believed that Herbert Hoover had ruined America in the interest of enriching Wall Street, the international bankers, and the Jews. They placed themselves under the command of retired Marine General Smedley Butler. In March 1935 General MacArthur told President Hoover that he could wait no longer. MacArthur's chief of staff, D.D. Eisenhower, had had grave misgivings in 1932 when MacArthur sent Patton to attack the Bonus Marchers. On March 24, 1935, Eisenhower went to visit General Butler...

[to be continued]


I, at least, think that as far as recovery was concerned the macroeconomic good done by the New Deal vastly outweighed the structural bad. Any reasonable counterfactual involving no New Deal that I can see has things a good deal worse in the middle and late 1930s than they were in our reality.

But there is an argument to be made that an even better New Deal would have been possible, and ought to have been attainable.

Had Milton Friedman been special assistant to and whispering in the ear of Fed Chair Marriner Eccles in 1936-1938, he would have successfully headed off Eccles's boneheaded idea of raising reserve requirements on banks. Then the late 1930s would have been a much happier time. Had FDR given his baton in 1933 to trustbuster Thurman Arnold rather than to cartelizer Hugh Johnson and had the initial round of the New Deal increased rather than decreased the degree of competition in the American economy, then... well, the neoclassical part of my brain thinks that 1934 and 1935 would have been somewhat happier--but the Fundie Keynesian part of my brain thinks that Hugh Johnson's NRA was irrelevant because aggregate demand was a much bigger problem then than aggregate supply.

Arnold Kling, however, wants to talk about the legacy of the institutions and practices created in the New Deal for us today. For example, do we really need a Securities and Exchange Commission in the form it was cast in 1933 and 1934. Back then everybody, unfairly, blamed Wall Street for the Great Depression. Remember Roosevelt declaration in his inaugural address that the "practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men....The money changers have fled from their high seats in the temple of our civilization."

The New Deal essentially dusted off and implemented the unsuccessful Progressive Era program for the reform of American finance that had been pushed by the likes of Louis Brandeis during the 1900s and the 1910s. And Louis Brandeis was definitely on the side of the upwardly-mobile and the smart and technically competent, as opposed to the side of old wealth and new thrift.

Was dusting-off and implementing Louis Brandeis's generation-earlier plan a very smart idea?There are powerful arguments that in the long run it was not. Financial markets function well for the economy only when they do a good job of seeking out and transmitting information about the likely future of enterprises and industries and getting that information crystalized into prices. This requires that people be incentivized to seek out and uncover important pieces of information by being able to profit handsomely from doing so--which requires that there be a bright visible line between what you can do and what you can't, between legitimate research and illegitimate insider trading.

The SEC as born in the New Deal has always found it relatively difficult to draw such a bright visible line, because its crisis origins have led it to focus on a different problem. You see, financial markets also function well only when they mobilize great masses of savings from scattered individuals by giving them confidence that their investments are liquid in that they can be bought and sold at a fair price. This requires that you not be buying share of a company from a cousin of one of its directors who knows that its market share has collapsed in the current quarter, and not be selling to somebody who knows that the latest sample assayed was extremely encouraging.

Smart financial regulation attains a point of balance. There is not general agreement but at least a general worry that the system the New Deal has left us pays too much attention to the desirability of a level playing field for buyers and sellers, and not enough to the desirability of having truly informed buyers are sellers in the market, and that it gives too much power to entrenched managers and not enough power to insurgent financiers.

It is not possible for even an abnormal person to defend somebody like Chase's Albert Wiggin, who by massively shorting Chase's stock gave himself a mammoth financial incentive to manage the bank as badly as possible, or New York Stock Exchange President Richard Whitney, who reported to Sing Sing in April 1938 for embezzling from the New York Yacht Club as well as others including his own father-in-law. But the neoclassical part of my brain whispers that times of crisis are not the times to design the best institutions for normal times when other and different considerations than those of the then-current crisis should carry greater weight.


Let me agree with Arnold that deposit insurance was badly handled. But let's not lose sight of the fact that even badly-handled as it was, really-existing deposit insurance was a mammoth improvement over no deposit insurance at all. I think that that is a good thumbnail summary of the entire New Deal: badly-handled, but a vast improvement over the preceding system and over the politically-viable alternatives--with the exception, I would argue, of Agriculture Support and the NRA, which did little if any good at immense long-run cost.

But Arnold now wants to hunt other game: "Just as we revere the constitution as the basis for our government and we revere Abraham Lincoln for ending slavery and preserving the union, we are supposed to revere the New Deal as somehow providing the basis for our modern prosperity. Yet the policies of the New Deal are quite a mixed bag.... Social Security, and its offspring Medicare, are going to be the next great financial crisis in this country." Let me protest the phrase "its offspring, Medicare." Medicare and Medicare are Lyndon Johnson's Great Society--not FDR's New Deal. And let me note that whenever I do the math that back in 2000--before Bush II--the long-run non-health program finances of the federal government looked to be in fine shape. At least as I did the math, even factoring in the forthcoming recessionary period 2001-2003, with then-current tax laws the long-run on-budget surpluses significantly outweighed the long-run off-budget Social Security deficits.

It's more accurate, I think, to say that the U.S. federal government has two fiscal problems: (a) the Bush II administration--with its insistence on not paying for the spending it insists on undertaking (including both the Iraq War and Medicare Part D)--and our long-run health financing problem.

And the health programs... One way to look at it is that it is not a problem but an opportunity. If we restricted Medicare and Medicaid to offer to beneficiaries in the future the levels of care that Medicare and Medicaid recipients received in 2000, we wouldn't have a long-run health-care financing problem. We have one because we expect that Medicare and Medicaid will pay for more care in the future than has been possible in the past; because we expect our doctors, nurses, pharmacists, and researchers to learn how to do amazing things; because we expect these amazing things to also be amazingly expensive; and because we expect America to want to provide access to future medical miracles on the basis not of heal-the-rich-sick but of heal-the-sick.

Does our belief that in general medical care should not be rationed according to ability-to-pay spring from the New Deal, or does it have deeper cultural roots?


If I can rephrase Arnold Kling's position, it is that the partial success of the New Deal--the recovery from 25% unemployment to roughly 10% unemployment, the recovery from 50% of 1929 industrial production to approximately 120% of 1929 industrial production before WWII began, and then the production and employment (albeit not private consumption) boom of WWII accompanied by total victory--taught us Americans bad lessons about the role of government, or lessons that will be bad for us in the future.

We now believe, I think Arnold thinks, that it is the government's job to provide for us in our medical care, in our old age, and when things go wrong in our work or family life. As a result, we now save too little, have too few children to support us when we get old, and work too little (because we face substantial marginal tax rates). We would be a better society if people knew that if they didn't save for retirement they would be poor in their old age, that if they didn't save for future medical care needs they would die prematurely, that if they didn't have dutiful chldren they would be alone and unnursed in their old age, and if they did not pile up large lumps of precautionary savings then they would lose their middle-class status if they had a heart attack, lost their job, or got divorced.

I find myself agreeing with Arnold Kling to the extent that I think Social Security would work better as a real forced-saving program than it does as a pure pay-as-you-go program. I agree with Arnold Kling in fearing that the health-care financing system we have grown will lead us to fumble a good deal of the opportunities for extending human happiness that are going to be opened up by biomedical research in the next two generations.

But as for the rest of it... Well, I am reminded of my teacher Shannon Stimson's lectures on early Victorian political economy. She noted that to the Victorians private charity should be ample (because that was what Jesus taught, and to keep the poor from starving in masses the streets) but never comprehensive, so that there would always be a few of the poor visibly starving in the streets, so that the poor would know that charity was not something they could count on, so that the poor had the proper incentive to work, to save, to stay married, to have children and bring them up properly. She tries hard to recover this mode of thought, in which the purpose of the economy is to create morally prudent servants who live in the Fear of the Lord. And her students--hedonists living in the California sun early in the 21st century--find it very strange: the purpose of the economy is obviously to enable people to realize their human potential and to satisfy their needs, wants, and dreams.

We California-sun hedonists will readily admit that moral hazard--people gaming the system and not contributing their share--is a pronounced danger in all kinds of insurance programs, especially social insurance. But consider: America is already on the libertarian end of the spectrum of advanced industrial economies. Further leaps in a libertarian direction would make us more the odd one out. The payoffs in increased savings from making the old and the sick who haven't saved poor would have to be demonstrated to be very large before I would conclude that the big problem with American government is that the incentives facing Americans in the economy are too soft and encourage too much slacking. And I haven't seen that demonstrated yet.


Links:

I like J. Bradford DeLong's Journal of Economic Perspectives article http://econ161.berkeley.edu/pdf_files/Keynesianism_Pennsylvania.pdf and his still unpublished attempt to get at the guts of the economic advice Joseph Schumpeter and others were giving in 1933 http://econ161.berkeley.edu/pdf_files/Liquidation_Cycles.pdf--what John Maynard Keynes called "extraordinary imbecility." An online for-pay version of Joseph Schumpeter et al. (1934), The Economics of the Recovery Program is at http://www.questia.com/library/book/the-economics-of-the-recovery-program-by-douglass-v-brown-edward-chamberlin-seymour-e-harris.jsp. Schumpeter and company were fiercely critical of the New Deal. A contemporary review of their book by Princeton's Otto Nathan is here http://links.jstor.org/sici?sici=0022-3808%28193408%2942%3A4%3C537%3ATEOTRP%3E2.0.CO%3B2-D.

Wikipedia has good background entries on Huey Long http://en.wikipedia.org/wiki/Huey_Long, the Bonus March http://en.wikipedia.org/wiki/Bonus_march, and Father Coughlin http://en.wikipedia.org/wiki/Charles_Coughlin.

For Eichengreen and Sachs on the gold standard and the Great Depression: "Exchange Rates and Economic Recovery in the 1930s" http://scholar.google.com/scholar?num=100&hl=en&lr=&safe=off&c2coff=1&client=safari&q=Eichengreen+and+Sachs&btnG=Search

Ben Bernanke's analysis of the role played by unstemmed financial panics, industrial bankruptcies, and bank closings is Ben Bernanke, Ben, "Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression," American Economic Review, 73, (June) pp. 257-76 at google scholar http://scholar.google.com/scholar?num=100&hl=en&lr=&safe=off&c2coff=1&client=safari&q=Nonmonetary+Effects+of+the+Financial+Crisis+in+the+Propagation+of+the+Great+Depression&btnG=Search. Ben has a nice speech about money, gold, and the Great Depression http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm.

Milton Friedman and Anna Schwartz's account of the role played in the Great Depression by gold-standard and other policies that contributed to the sharp decline in the money supply is in the "Great Contraction" chapter of their Monetary History of the United States http://scholar.google.com/scholar?num=100&hl=en&lr=&safe=off&c2coff=1&client=safari&q=Monetary+History+of+the+United+States&btnG=Search.


http://econ161.berkeley.edu/pdf_files/Keynesianism_Pennsylvania.pdf: Joseph Schumpeter, 1934: "[There is a] ...presumption against remedial measures [like cutting taxes, increasing spending, or lowering interest rates]... [because] policies of this class are particularly apt to...produce additional trouble for the future.... [Depressions are] not simply evils, which we might attempt to suppress, but...forms of something which has to be done, namely, adjustment to...change... [and] most of what would be effective in remedying a depression would be equally effective in preventing this adjustment..."


The 2008 Federal Budget: Radio: KQED Forum 88.5 FM 9:00 AM Wednesday, February 7, 2007

The 2008 Federal Budget: Radio: KQED Forum 88.5 FM 9:00 AM Wednesday, February 7, 2007

This Year's Federal Budget Forum discusses President Bush's federal budget plan for 2007 and the anticipated Congressional response.

Host:

  • Michael Krasny

Guests:

  • Annelise Anderson, senior research fellow with the Hoover Institution
  • Brad Delong, professor of economics at the University of California at Berkeley
  • Deborah Solomon, Wall Street Journal reporter

KQED Audio Archive: http://www.kqed.org/epArchive/R702070900

Audio File: http://www.kqed.org/.stream/anon/radio/forum/2007/02/2007-02-07a-forum.mp3


Wow. I certainly ate my wheaties this morning...

I think what I objected to most was the enthusiasm with which Annelise Anderson repeated the White House talking points:

  • Bill Clinton balanced the budget by starving the military!
  • Bush's deficits arose not because he is feckless but because he is defending America!
  • A little spending restraint by congress, and the budget will be balanced by 2012!
  • Congress makes budget balance impossible because whenever taxes are raised it increases spending!

None of which are true. And a former associate director of OMB has no excuse for not knowing when staying reality-based requires throwing out the White House's talking points...

People are entitled to their opinions and judgments, but not to their own facts.


Ben Bernanke on Inequality

Mark Thoma directs us to David Wessel's summary of Ben Bernanke's Omaha speech:

David Wessel: Federal Reserve Chairman Ben Bernanke cautioned that widening inequality may make Americans "less willing to accept the dynamism... so essential to economic progress," but warned politicians to avoid responding by limiting the flexibility of labor markets or erecting barriers to international trade and investment.

Wiser responses, he said, would be to improve education and training and cushion the dislocations caused by technology and globalization, such as making health and pension benefits more portable and offering retraining and job-search assistance to displaced workers....

"Although average economic well-being has increased considerably over time," he said "the degree of inequality in economic outcomes has increase as well... for at least three decades," he said, wandering beyond the boundaries of the aspects of the economy over which the Fed has direct influence.... [Bernanke] documented the inequality trend and detailed reasons behind it -- from the extra wages that employers are willing to pay workers with formal education to the decline of unions to the impact of globalization, which he said has been "moderate and almost surely less important than the effects of... technological change."...

[H]e offered three principles that he said are "broadly accepted in our society" -- economic opportunity should be as widely distributed and equal as possible, economic outcomes needn't be equal but should be linked to a person's contributions and people should get some insurance against "the most adverse economic outcome."

"We... believe," he said, "that no one should be allowed to slip too far down the economic ladder, especially for reason beyond his or her control."

Mr. Bernanke... avoided any mention of tax policy, a favorite tool of Democrats interesting in reducing the inequality produced by market forces.


Robert Nozick Reads My Mind...

Julian Sanchez quotes a passage from Robert Nozick. Curiously enough, it describes exactly how I feel about Nozick's Anarchy, State, and Utopia:

Notes from the Lounge: "One form of philosophical activity feels like pushing and shoving things into some fixed perimeter of specified shape. All those things are lying out there, and they must be fit in. You push and shove the material into the rigid area getting it into the boundary on one side, and it bulges out on another. You run around and press in the protruding bulge, producing yet another in another place. So you push and shove and clip off corners from the things so they'll fit and you press in until finally almost everything sits unstably more or less in there; what doesn't get heaved far away so that it won't be noticed.... Quickly, you find an angle from which it looks like an exact fit and take a snapshot; at a first shutter speed before something else budges out too noticeably..."


Why Oh Why Can't We Have a Better Press Corps? (Washington Post/Anne Applebaum Edition)

Each day that the Washington Post publishes Anne Applebaum diminishes its longevity by a week. Here she drives Kevin Drum into shrill unholy madness:

The Washington Monthly: IT'S A NEWSPAPER, NOT A MIRROR....I'm really tired of this kind of thing. Here is Anne Applebaum's sneering column today about the latest IPCC report on global warming:

"Worse than we thought." The headline in the British Guardian newspaper on Saturday was almost gloating about the bad news. The tone of the article that followed was no different....Among the coastal cities threatened by the higher ocean levels caused by melting ice caps, the paper noted -- not without a degree of satisfaction -- are London, New York, Tokyo and Hong Kong.

"Almost gloating"? I defy you to read either the headline or the Guardian's brief report (here) and find even a hint of gloating. Sure, the news they're reporting is dismal, but that's because the IPCC report was pretty dismal and they're reporting what the IPCC report actually said. As for the melting ice caps, the Guardian summarizes the likely consequences of a 4 degree rise in global temperature at the end of the piece. Here's the full paragraph on flooding:

Sea levels rise by up to 59cm. Bangladesh and Vietnam worst hit, along with coastal cities such as London, New York, Tokyo, Hong Kong, Calcutta and Karachi. 1.8m people at risk from coastal flooding in Britain alone.

This was reported "not without a degree of satisfaction"? She must be kidding. That's as telegraphic a style as you're ever likely to see in a modern newspaper. I recommend that in the future Applebaum leave the faux psychoanalysis to Charles Krauthammer. It suits him better.


The Washington Monthly: GLOBAL WARMING, TAKE 2....Now that I've vented my annoyance with Anne Applebaum's mind reading performance in today's Post, a reader suggests I should follow this up by mentioning that her substantive position is actually perfectly reasonable:

Any lasting solutions will have to be extremely simple....Fortunately, there is such a solution....It's called a carbon tax, and it should be applied across the board to every industry that uses fossil fuels, every home or building with a heating system, every motorist, and every public transportation system. Immediately, it would produce a wealth of innovations to save fuel, as well as new incentives to conserve. More to the point, it would produce a big chunk of money that could be used for other things.

Quite so, and virtually every serious analyst I've read agrees that a carbon tax is one of the primary building blocks for any effective global warming policy. Considering the results of this poll (see page 2), it's especially welcome to hear this kind of sensible talk from a conservative.

Of course, this makes the mockery in Applebaum's opening paragraph even more inexplicable. If she agrees that global warming is real, and that it may have catastrophic consequences, and that serious action is justified to fight it, why was she so dismissive of a newspaper report that implied the exact same thing? Very mysterious.


Why Oh Why Can't We Have a Better Press Corps? (David Stout/New York Times Edition)

Why should anybody pay for the New York Times?

Here's a real story on Bush's budget proposal--a paraphrased and compressed version of one of the newsletters that flows across my desk every day:

The Bush administration FY08 budget proposal is more honest than previous Bush efforts because it accounts for SOME war funding. It achieves paper balance in FY 2012, long after Bush is out of office, in a way that will not attract bipartisan support.

This year more than ever, the Bush budget proposal is a political document. Bush achieves paper budget balance in five years through highly optimistic revenue estimates, cuts to domestic programs with powerful lobbies, and reductions in Medicare spending. Even so, Bush found it difficult to put the budget in balance by 2012. Much proposed savings come from entitlement program cuts and unrealistic forecasts of war funding and of the AMT fix. Remember that similar cuts could not pass even when the GOP had a majority in both houses. Bush proposes cuts to discretionary spending but doesn't provide details.

The apparently-manageable budget deficit of around 2% of GDP masks future fiscal shortfalls since Social Security is still running a surplus which will diminish quickly as baby boomers start to retire. Also masked are the costs of the wars in Iraq and Afghanistan after 2008, and of continuing the AMT fix.

Here's a fake story--David Stout in the New YorK Times:

Bush Releases Budget Aimed to Erase Deficit - New York Times: President Bush sent his proposed $2.9 trillion budget for next year to Capitol Hill today, where it was immediately criticized by the Democrats who control both houses but are by no means all-powerful. The president's spending proposal, for the fiscal year that begins on Oct. 1, is the first he has submitted to a Democratic Congress and the last he will submit before the 2008 elections dominate political calendars and calculations. It calls for big increases in military spending, including the campaigns in Iraq and Afghanistan, and much more modest increases in most domestic spending.

Crucially, the budget package projects no spending on Iraq and Afghanistan after 2009. "There will be no timetables set," Mr. Bush said in a question-answer session after a Cabinet meeting this morning. "We don't want to send mixed signals to an enemy, or to a struggling democracy, or to our troops."

The president's budget also calls on lawmakers to make permanent the tax cuts Mr. Bush pushed through Congress earlier in his presidency, when the Senate and House were controlled by Republicans. And the document assumes that, even with spending on military and homeland security needs, the government will balance its books by 2012.

For the 2008 fiscal year, Mr. Bush foresees a $239 billion deficit, about $5 billion less than that projected for the current fiscal year. The $2.9 trillion compares with the roughly $2.78 trillion that the White House sees in total spending for the current fiscal year.

"Our economy is strong and growing," Mr. Bush said in an introduction. "Federal revenues are robust, and we have made significant progress in reducing the deficit" The president said his goal of achieving a balanced budget by 2012 reflects the priorities of battling terrorism, keeping the economy strong through low taxes and controlling spending while making federal programs more effective.

But Senator Harry Reid of Nevada, the Democratic majority leader, said the budget "uses deception to hide a massive increase in debt, and its priorities are disconnected from the needs of middle-class Americans."

The senator said Democrats still hoped to work with Republicans "to address the priorities of the American people in a fiscally responsible manner."

Senator Kent Conrad, the North Dakota Democrat who heads the Senate Budget Committee, was similarly dismissive. "The president's budget is filled with debt and deception, disconnected from reality and continues to move America in the wrong direction," Mr. Conrad told The Associated Press.

The top Republican on the budget panel, Senator Judd Gregg of New Hampshire, agreed that the budget as presented has little chance. "I don't think it has got a whole lot of legs," he told The A.P. "The White House is afraid of taxes, and the Democrats are afraid of controlling spending."

But Senator Charles E. Grassley of Iowa, the ranking Republican on the Senate Finance Committee, said Mr. Bush deserved credit. "It's easy to talk about closing the tax gap in the abstract," Mr. Grassley said. "It's harder to enact concrete proposals that may be politically unpopular. The president deserves credit for proposing concrete solutions."

While the budget outlined today will surely be changed through political conflict and negotiation in the months ahead, the spending plan is noteworthy as a statement of priorities and principles -- and the reactions to them. The budget, in several books the size of telephone directories, contains a vast array of items: food stamps, student loans, veterans' benefits, crop insurance, space travel, park beautification, crime-fighting and so on.

The proposed basic budget for the Defense Department is $481.1 billion, a 62 percent increase over 2001, Mr. Bush's first year as president, and an increase of $49 billion over what Congress provided for this fiscal year. But the figure does not include more than $93 billion in supplemental money in this fiscal year and about $145 billion in the next fiscal year for the Iraq and Afghanistan campaigns.

Democrats as well as Republicans, whether they back the administration's Iraq campaign or not, have emphasized that they stand behind American's sons and daughters in uniform. But it was clear that Pentagon spending would be scrutinized in the Capitol.

"The sums involved in the defense budget are staggering," said Representative Ike Skelton, the Missouri Democrat who heads the House Armed Services Committee. "We cannot provide an adequate national defense on the cheap, but neither can we afford to simply ratify the president's request without performing the due diligence and oversight our Constitution requires."

As staggering as the Pentagon figures are, they are topped by the proposed spending for the Department of Health and Human Services -- some $700 billion -- and for the Social Security Administration, about $656 billion.

But Democrats attacked the spending on many social programs as inadequate. For instance, Mr. Bush is asking for cutbacks of some $70 billion in Medicare and Medicaid over the next five years, an idea that Representative Charles B. Rangel of New York, the new chairman of the House Ways and Means Committee, said was "just asking for controversy."

Senators Charles E. Schumer and Hillary Rodham Clinton, New York Democrats, assailed the proposed health care cuts. "The president only cares about funding the war and funding tax cuts," Mr. Schumer said, while Ms. Clinton said the budget sends the message that "we're shutting the doors on the kind of country we've been."

Representative Rahm Emanuel of Illinois, chairman of the House Democratic caucus, said the president has apparently not heeded the lessons of the November elections. "Democrats will produce a budget that makes real progress toward balancing the budget, makes wise choices and supports the troops and our seniors," he said.

When Mr. Bush gained Congressional passage of "temporary" tax cuts in 2002 and 2003, he and his advisers doubtless knew that lawmakers would be wary of letting them expire, for fear of incurring the wrath of taxpayers.

Democratic leaders have said there is no need, yet, to revisit the tax cuts, because they are not set to expire until the end of 2010. Meanwhile, they argue, the government can bring in billions more a year by being more aggressive about collecting taxes owed but not paid.

But there are dangers in predicting too far ahead. In the 1990s, for instance, politicians and journalists were talking and writing about the "peace dividend," the great reservoir of surplus money being generated by the end of the cold war and the booming economy.

As the president was taking office in January 2001, the Congressional Budget Office projected that the federal budget would run a surplus in excess of $5.6 trillion between 2002 and 2011. But a recession, the president's tax cuts and wars in Iraq and Afghanistan dashed those expectations -- as did the terrorist attacks of Sept. 11, 2001.


Arlen Specter Needs to Make His Apologies to James Madison

Could Arlen Specter please resign in order to make his apologies to James Madison?

TPMmuckraker February 6, 2007 10:50 AM: Specter: "I Do Not Slip Things In" By Paul Kiel - February 6, 2007, 10:50 AM: Sen. Arlen Specter (R-PA) angrily addressed his insertion of a measure that changed the law governing the selection of U.S. Attorneys during this morning's hearing on the issue.... This morning, Specter said that he found the report "offensive" and proclaimed, "I do not slip things in." If an item is potentially controversial, he argued, he makes it a practice of alerting other senators to the issue.....

Specter explained that the request for the language's insertion came from a Justice Department representative, Brett Tolman, who is now the United States Attorney for Utah, and that the principal reason for the change was to resolve "separation of power issues."... As he has before, Specter said this morning that he supports changing the law back to its previous version....

Later Update: OK. In later remarks in response to Feinstein, Specter said that he actually didn't know about the added provision until Feinstein approached him recently about the issue. After Feinstein's inquiry, Specter says, he asked his chief counsel about the issue, who then explained what had happened. So according to him, Specter's staff was responsible for the provision, but Specter himself didn't know about it.


Second Gilded Age Cultural Studies Watch, or O Michael Berube! Thou Shouldst Be Blogging in This Hour!

Second Gilded Age Cultural Studies Watch, or O Michael Berube! Thou Shouldst Be Blogging in This Hour!

In a Super Bowl commercial--a commercial that I thought was astonishing for a company that is in the process of a slow-motion layoff of half of its hourly workers--GM broadcast the Robot's Loser's Progress yesterday:

GM Reveals Its Obsession in Super Bowl XLI Ad - AutoMotoPortal.com: Everyone at General Motors obsesses about quality these days - even the robots in the assembly plants. During the CBS telecast of Super Bowl XLI on Feb. 4, GM will launch the next phase of a corporate campaign that began last fall with the introduction of the GM 100,000 Mile Warranty. A new 60-second TV spot, called "Robot," will tell consumers about GM's continuing focus on quality. Created with GM by Deutsch LA, the spot features a small robot that is part of a GM assembly line. Unfortunately, the robot makes a tiny mistake: it drops a screw. The line shuts down and the employees in the plant banish the little robot from the premises. The robot's anguish over its mistake helps to remind consumers that every 2007 GM car and light-duty truck is now covered by a 100,000 mile/five-year powertrain limited warranty, and illustrates GM's obsession about quality...

What AutoMotoPortal.com doesn't tell you is the robot's post-firing Loser's Progress: the robot works a succession of lower-paid jobs, gets increasingly depressed, and at the end of the commercial commits suicide by throwing itself off a bridge--before waking up and realizing that it was all a bad dream.

In another Super Bowl commercial, Kevin Federline dreams about being a rap star while in "reality" he works the fryolater at a fast-food restaurant:

BBC NEWS | Entertainment | Federline advert causes offence: A US advert starring Britney Spears' estranged husband, Kevin Federline, has angered a fast food trade group. The 28-year-old pokes fun at his stalled music career as he daydreams of hitting the big time while serving French fries at a takeaway. The National Restaurant Association says the advert suggests restaurant work is "demeaning and unpleasant". But advertiser Nationwide Mutual Insurance insists Federline is the only one being mocked.

The commercial will be shown on 4 February during the Super Bowl - US TV's highest-rated broadcast, commanding the highest fees for advertising. Rapper Federline, also known as K-Fed, launched his music career amid a blaze of publicity but only sold 6,500 copies of his debut album, Playing with Fire, in the first week of its release...

I am not imagining this, am I? The underlying background assumption of these commercials is contempt for the men and women who serve the fast food and work the loading docks and deliver the pizzas and staff the call centers of America, isn't it? The exectives of GM and Nationwide Insurance and their creative ad professionals think that denying the dignity of labor is the road to selling annuities and SUVs to the fiftysomethings with spare cash watching the Super Bowl, isn't it? This is a Sign of the Apocalypse for our current Second Gilded Age, isn't it? Or am I overreacting?

This is out-of-my-league. We need a Trained Professional Cultural... Studies Person... A Trained Professional Cultural Student... A Trained Professional Cultural Studier... We need Michael Berube or Bitch Ph.D. or Bad Subjects or The Valve here, as soon as possible.


Robot:

Federline: http://www.nationwide.com/nw/featured-ads/index.htm?WT.srch=1&WT.mc_id=bgs00023