Grasping Reality on TypePad, by Brad DeLong

Auld Lang Syne Blogging

From the archives: What Orpington High Street has to say to Berkeley. Perhaps the funniest message ever to arrive in my email inbox.

| hello
|
| i would add exclamation marks but i cant find them
|
| anyway....
|
| i am drunk and in orpington high stteet.
|
| theres a pubkic email booth thing herre and i thoigh id send u all a msg
|
| ooooo touchscreentastic.
|
| will write again when at
| a proper xompitor
|
| eloo yis is pete a mate fpof chtis cant see f*** THINK I BRKE THE
| KYBOARD TE E DONT WORK

This I think, te definitive answer to Thoreau's question:

It is alleged that upon being told that through the telegraph a man in Maine could instantly send a message to a man in Texas, Thoreau asked, "But what do they have to say to each other?"

links for 2008-01-01

• Kevin Jon Heller: Bilal Hussein's Kangaroo Court
• James Doran and Richard Wachman: Merrill seeks more funds to avoid crisis
• Econbrowser: Home sales and prices continue to fall
• Horses Mouth December 31, 2007 10:17 AM
• Matthew Yglesias
• Donald Gregg: George Smiley's War
• Sheera Claire Frenkel: Seven hurt in punch-up at Church of the Nativity

New York Times Death Spiral Watch

Why oh why can't we have a better press corps? Matthew Yglesias watches Sam Tanenhaus's book review on Jonah Goldberg:

Matthew Yglesias: If You've Got Nothing Nice to Say: 31 Dec 2007 09:04 a: I just hope The New York Times Book Review is as kind to my book when the time comes as they were to Jonah Goldberg (of course, realistically we're all just desperately hoping to be reviewed at all): "Yet the title of his book aside, what distinguishes Goldberg from the Sean Hannitys and Michael Savages is a witty intelligence that deals in ideas as well as insults — no mean feat in the nasty world of the culture wars." Yes, that's right, Liberal Fascism is a step away from the nastiness of the culture wars. The reviewer, David Oshinsky, does concede that Goldberg's main thesis is false but that didn't seem to bother him....

Swordsmith writes:

I TA'd for David Oshinsky while doing my grad work at Rutgers, so I may be a little biased (he and I were probably the only two Red Sox fans on campus at the time), but I think MY misses the point a little here. It's pretty standard in writing critiques to point out the things you like about the book first before proceeding on to the problems, and Oshinsky spanks the content of the book pretty thoroughly - basically he says that it's cleverly written and fun to read but completely worthless intellectually.

The ending of the review was puzzling and abruptly shifted tone in a way that was un-Oshinsky-like, though; I suspect it was clumsily edited to soften his ending a bit. Oshinsky himself was an interesting choice for the review, since he's an expert on McCarthyism, and has built a career on the study of people who use terror and bullshit to scare their way into power.

Liquidity vs. Minor-Solvency vs. Major Solvency Crises--No--Panic vs. Interest-Rates-Are-too-High vs. The-Financial System-Is-Totally-B***ered Crises--No--I Need Better Names!

Calculated Risk has insightful comments on my Project Syndicate article. Here is one:

Calculated Risk: Delong: Three cures for three crises: I don't think it's quite that bad. Even if the losses for investors and lenders reach $1 trillion (a possibility), I think the financial system can absorb those losses. Sure, some players might disappear, and others might have to sell significant assets (or dilute their shareholders), but I don't think the choice is between serious inflation and depression.

Still, I think the "Yikes" tag fits...

And CR points us to Mark Thoma, who points us to an even-more-insightful than usual piece by the brilliant and hard-working Greg Ip:

Economics Blog : Liquidity Threat Eases; Solvency Threat Still Looms: As 2007 winds down, the much-feared year-end liquidity crisis appears to have been averted thanks to aggressive action by central banks.... Libor rates have dropped sharply since Thursday... [but] are still high relative to the expected federal funds rate because banks still have an ongoing demand for cash to fund new obligations and residual concerns about each others’ creditworthiness.

Nonetheless, as Lou Crandall, chief economist at Wrightson ICAP LLC said today, “Things are unfolding smoothly.” The first quarter is likely to start much as the fourth quarter did, with reduced concerns now that the statement date has passed. Balance-sheet strains will continue to create concerns about the price and availability of short-term funds, Mr. Crandall said. But for the most part, “We’ve moved beyond... liquidity concerns. The focus has moved to that part of the financial fallout that central banks can’t address through technical operations.”

In other words, as 2008 begins, it’s solvency, not liquidity, that threatens the economy... a likely decline in housing prices that will further undermine credit quality. Making banks more confident of their own ability to raise funds is not going to resolve a generalized shrinkage of lending driven by declining collateral values.

looming threat is an expected hit to housing demand as Fannie Mae and Freddie Mac impose new fees to buy or guarantee mortgages once considered prime... customers putting down less than 30% on a home and with credit scores below 680. Bianco Research... estimates “over one-third of prime] home buyers are going to get ‘crunched’ by tougher standards, much bigger downpayments and interest rate ’surcharges.’” The fees apply to mortgages the companies buy after March 8....

“We believe home prices will continue to fall,” Bianco wrote. “This is the cause of the credit crisis.” The collapse in issuance of mortgage-backed collateralized debt obligations is itself merely a result of falling home prices.

On the other hand, maybe home prices don’t have much further to fall.

I do badly need better names for my three-part classification of financial crises:

• Liquidity crises
• Solvency crises that are easily cured by easier monetary policy that boosts asset values
• Solvency crises that aren't easily cured by easier monetary policy

I also need to figure out what kind of crisis we are having. Let's get out the envelope and start scribbling...

Since 2000, roughly 3 million extra new homes have been built over and above those that would have been built if things had followed long-run trends. Figure $300K per extra home. That's an extra $900 billion of investment in housing that's 100% leveraged and currently occupied by the 3M American households that were priced out of the pre-bubble housing market. If the lenders foreclose on those 3M, they then will find themselves trying to sell the 3M houses to 3M other households that are even less-rich and less-credit worthy. So the best strategy is for the lenders to sit down and negotiate. Maybe the Fed can help more by lowering interest rates further. But some chunk of that $900B is going up in smoke.

Then there are all those who saw their houses rise in value and took out home-equity loans. We know there are a lot of them--household savings rates did not get driven to zero by accident. But how many of them are going to default on their home equity loans, and how big will the losses the lenders eat going to be?

My guess right now is $500B in total loan losses for both tranches of the crisis. But that's just a guess, and an unbacked guess at that...

Three Different Cures for Three Types of Financial Crises

From the Taipei Times -- Project Syndicate:

Three cures for three crises by J. Bradford Delong: Tuesday, Jan 01, 2008, Page 9:

A full-scale financial crisis is triggered by a sharp fall in the prices of a large set of assets that banks and other financial institutions own, or that make up their borrowers' financial reserves. The cure depends on which of three modes define the fall in asset prices.

The first -- and easiest to handle -- mode is when investors refuse to buy at normal prices not because they know that economic fundamentals are suspect, but because they fear that others will panic, forcing everybody to sell at fire-sale prices.

The cure for this mode -- a liquidity crisis caused by declining confidence in the financial system -- is to ensure that banks and other financial institutions with cash liabilities can raise what they need by borrowing from others or from central banks.

This is the rule set out by Walter Bagehot more than a century ago: Calming the markets requires central banks to lend at a penalty rate to every distressed institution that would be able to put up reasonable collateral in normal times.

Once everybody is sure that, no matter how much others panic, financial institutions won't have to dump illiquid assets at a loss, the panic will subside. And the penalty rate means that financial institutions can't profit from the investment behavior that left them illiquid -- and creates an incentive to take due care to guard against such contingencies in the future.

In the second mode, asset prices fall because investors recognize that they should never have been as high as they were, or that future productivity growth is likely to be lower and interest rates higher. Either way, current asset prices are no longer warranted.

This kind of crisis cannot be solved simply by ensuring that solvent borrowers can borrow, because the problem is that banks aren't solvent at prevailing interest rates. Banks are highly leveraged institutions with relatively small capital bases, so even a relatively small decline in the prices of assets that they or their borrowers hold can leave them unable to pay off depositors, no matter how long the liquidation process.

In this case, applying the Bagehot rule would be wrong.

The problem is not illiquidity but insolvency at prevailing interest rates. But if the central bank reduces interest rates -- and credibly commits to keeping them low in the future -- asset prices will rise. Thus, low interest rates can make the problem go away, while the Bagehot rule -- with its high lending rate for banks -- would make matters worse.

Of course, easy monetary policy causes inflation, and the failure to "punish" financial institutions that exercised poor judgment in the past may lead to more of the same in the future. But as long as the degree of insolvency is small enough that a relatively minor degree of monetary easing can prevent a major depression and mass unemployment, this is a good option in an imperfect world.

The third mode is like the second: A bursting bubble or bad news about future productivity or interest rates drives the fall in asset prices. But the fall in values is larger. Thus easing monetary policy won't solve this kind of crisis, because even moderately lower interest rates cannot boost asset prices enough to restore the financial system to solvency.

When this happens, governments have two options. First, they can simply nationalize the broken financial system and have the Treasury sort things out -- and ideally reprivatize the functioning and solvent parts as rapidly as possible. Government is not the best form of organization for financial intermediation in the long term, and even in the short term it is not very good. It is merely the best organization available.

The second option is simply inflation. Yes, the financial system is insolvent, but it has nominal liabilities and either it or its borrowers have some real assets. Print enough money and boost the price level enough, and the insolvency problem goes away without the risks entailed by putting the government in the investment and commercial banking business.

The inflation may be severe, implying massive unjust redistributions and at least a temporary grave degradation in the price system's capacity to guide resource allocation. But even this is almost surely better than a depression.

Since late summer, the US Federal Reserve has been attempting to manage the slow-moving financial crisis triggered by the collapse of the US housing bubble.

At the start, the Fed assumed that it was facing a first-mode crisis -- a mere liquidity crisis -- and that the principal cure would be to ensure the liquidity of fundamentally solvent institutions.

But the Fed has shifted over the past two months toward policies aimed at a second-mode crisis -- more significant monetary loosening, despite the risks of higher inflation, extra moral hazard and unjust redistribution.

As Fed Vice Chair Don Kohn recently put it: "We should not hold the economy hostage to teach a small segment of the population a lesson."

No policymakers are yet considering the possibility that the financial crisis might turn out to be in the third mode.

links for 2007-12-31

• Tanta: Let the Short Sale Scams Begin
• Kerwin Kofi Charles and Jonathan Guryan: Prejudice and the Economics of Discrimination
• Gordon's Notes: Music industry sows the wind
• Digby: Bipartisan Zombies

The New York Times Hires Lord Haw-Haw--Excuse Me, William Kristol

The death spiral of the New York Times begins:

Kristol Clear: Times' editorial page editor Andy Rosenthal defended the [hiring of William Kristol]. Rosenthal told Politico.com.... “The idea that The New York Times is giving voice to a guy who is a serious, respected conservative intellectual — and somehow that’s a bad thing,” Rosenthal added. “How intolerant is that?”...

Many people would be interested in reading a newspaper that publishes the writings of a serious, respected conservative intellectual. But how many people oughty to read a newspaper that regards its mission as giving platforms to lying propagandists? The clueless Mr. Rosenthal and his equally clueless bosses have a problem: they cannot tell one from another. And this makes one wonder why anybody thinks they have any business running a newspaper.

Let's give the mike to Kristol himself, via Anonymous Liberal:

Kristol in March 2003: We are tempted to comment, in these last days before the war, on the U.N., and the French, and the Democrats. But the war itself will clarify who was right and who was wrong about weapons of mass destruction. It will reveal the aspirations of the people of Iraq, and expose the truth about Saddam's regime. It will produce whatever effects it will produce on neighboring countries and on the broader war on terror. We would note now that even the threat of war against Saddam seems to be encouraging stirrings toward political reform in Iran and Saudi Arabia, and a measure of cooperation in the war against al Qaeda from other governments in the region. It turns out it really is better to be respected and feared than to be thought to share, with exquisite sensitivity, other people's pain. History and reality are about to weigh in, and we are inclined simply to let them render their verdicts...

I suppose the Times could still recover if it broke its contract with Kristol and fired Andy Rosenthal in the next week. Otherwise... let's start the countdown: I say ten years before the Times as we knew it is gone.

---

But let's go visit Anonymous Liberal some more:

Bill Kristol: Pundit Superstar: Here's a sampling of some of Kristol's most impressive contributions to our political discourse....

August 26, 2002: Reading the Scowcroft/New York Times "arguments" against war, one is struck by how laughably weak they are. European international-law wishfulness and full-blown Pat Buchanan isolationism are the two intellectually honest alternatives to the Bush Doctrine. Scowcroft and the Times wish to embrace neither, so they pretend instead to be terribly "concerned" with the administration's alleged failure to "make the case"...

April 4, 2003: There's been a certain amount of pop sociology in America ... that the Shia can't get along with the Sunni and the Shia in Iraq just want to establish some kind of Islamic fundamentalist regime. There's almost no evidence of that at all. Iraq's always been very secular...

April 28, 2003: The United States committed itself to defeating terror around the world. We committed ourselves to reshaping the Middle East, so the region would no longer be a hotbed of terrorism, extremism, anti-Americanism, and weapons of mass destruction. The first two battles of this new era are now over. The battles of Afghanistan and Iraq have been won decisively and honorably. But these are only two battles. We are only at the end of the beginning in the war on terror and terrorist states...

March 22, 2004: [T]here are hopeful signs that Iraqis of differing religious, ethnic, and political persuasions can work together. This is a far cry from the predictions made before the war by many, both here and in Europe, that a liberated Iraq would fracture into feuding clans and unleash a bloodbath. The perpetually sour American media focus on the tensions between Shiites and Kurds that delayed the signing by three whole days. But the difficult negotiations leading up to the signing, and the continuing debates over the terms of a final constitution, have in fact demonstrated something remarkable in Iraq: a willingness on the part of the diverse ethnic and religious groups to disagree--peacefully--and then to compromise. This willingness is the product of what appears to be a broad Iraqi consensus favoring the idea of pluralism...

July 26, 2004: What the Bush administration did say--and what so many reporters seem to have trouble understanding--is that Iraq and al Qaeda had a relationship that, by its very existence, posed a potential threat to the United States...

March 7, 2005: Just four weeks after the Iraqi election of January 30, 2005, it seems increasingly likely that that date will turn out to have been a genuine turning point. The fall of the Berlin Wall on November 9, 1989, ended an era. September 11, 2001, ended an interregnum. In the new era in which we now live, 1/30/05 could be a key moment--perhaps the key moment so far--in vindicating the Bush Doctrine as the right response to 9/11. And now there is the prospect of further and accelerating progress...

April 4, 2005 (re: Terri Schiavo) After all, we are a "maturing society," as the Supreme Court has told us. Perhaps it is time, in mature reaction to this latest installment of what Hugh Hewitt has called a "robed charade," to rise up against our robed masters, and choose to govern ourselves. Call it Terri's revolution...

November 7, 2005: Last week the Bush Administration's second-term bear market bottomed out...

November 30, 2005 (column titled "Pelosi's Disastrous Miscalculation"): All this made me think the 2006 elections could result in a Speaker Pelosi. I now think that unlikely. Pelosi's endorsement today of the withdrawal of U.S. troops from Iraq makes the House Democrats the party of defeat, the party of surrender. Bush's strong speech today means the GOP is likely to be--if Republican Congressmen just keep their nerve--the party of victory. Now it is possible that the situation in Iraq will worsen over the next year. If that happens, Bush and the GOP are in deep trouble. They would have been if Pelosi had said nothing. But it is much more likely that the situation in Iraq will stay more or less the same, or improve. In either case, Republicans will benefit from being the party of victory...

April 4, 2006: What was striking, following the mosque bombing, was the evidence of Iraq's underlying stability in the face of attempts to undermine it. The country's vital institutions seem to have grown strong enough to withstand even the provocation of the bombing of the golden mosque..

links for 2007-12-30

• Dahlia Lithwick: The Bush administration's dumbest legal arguments of the year
• Brad DeLong in his office.
• The current financial crisis rolls forward…
• Economist's View: Glenn Rudebusch of FRBSF: National Economic Outlook
• Health Beat: The New York Times “Gets Cracking” on Rising Health Care Costs
• Paul Krugman: Carbon Emissions Graph
• Hilzoy: The Army’s unwillingness to accept openly gay soldiers has always struck me as not just bigoted, but incredibly dumb.
• Paul Krugman: Blindly Into the Bubble
• Economics Blog: Fed to Continue Auctions 'As Long as Necessary'
• Tom Watson: Battle-Testing Hillary Clinton
• Paul Kedrosky: Hedge Funds: Why Stop Reporting Performance?
• Martin Wolf - The dangers of living in a zero-sum world economy
• Angus Maddison: Contours of the World Economy 1-2030 AD: Essays in Macro-Economic History
• Ambrogio Lorenzetti's Effect of Good Government
• Don Kohn, “Financial Markets and Central Banking,” November 28, 2007
• Matthew Yglesias (December 26, 2007) - Innumeracy (Media)
• Publius: We know about Jim Crow, but we don’t know about it...
• Ed Glaeser on Ha-Joon Chang
• Paul Krugman: While the United States has long imported oil and other raw materials from the third world, we used to import manufactured goods mainly from other rich countries...
• Kerwin Kofi Charles and Jonathan Guryan, “Prejudice and The Economics of Discrimination”
• Calculated Risk: New Home Sales
• David Brooks: The Sidney Awards II
• 1 gigabyte in 1987 and 2007: via blog.gadgetlite.com
• David Wescott: It's Not a Lecture: If I Were a Congressional Staffer...
• Rainy Grey Afternoon Female Vocalist Blogging
• Paul Krugman: The housing bust has lived up fully to my expectations...
• USS DeLong (Destroyer # 129, later DD-129), 1919-1922
• The Oil Trade
• From Eric Umansky: Krak des Chevaliers
• Mike Terry: Not to say the dollar is in trouble, but the gas station I stopped at on my way to work has a sign advertising 2 Krispy Kreme donuts for $2, which means that the all-important dollars to donuts exchange rate is now one to one...
• Note to Self: John Kenneth Galbraith: Sisyphus as Social Democrat
• DeLong Smackdown Watch Update: Henry Farrell on Brad DeLong, Friedrich Hayek, Ludwig von Mises, James Scott, High Modernism, Jane Jacobs, the collectivization of agriculture, Karl Polanyi, rubber tomatos, the despised medieval Jewish Maghribi traders, and
• Tumblr: Settings and Goodies - Reviews by PC Magazine
• Davidville
• Geek to Live: Instant, no-overhead blog with Tumblr
• Evhead: Will it fly? How to Evaluate a New Product Idea
• Tariq Ali: A tragedy born of military despotism and anarchy
• Dean Foster and Peyton Young: Hedge Fund Wizards
• Saeed Shah: McClatchy Washington Bureau: Attendee at Bhutto rally: 'There was pandemonium'
• Anuj Gangahar, Guy Dinmore, Bertrand Benoit, and Peggy Hollinger: Poor Christmas sales leave stores hungry
• Kevin Drum on Michael Barbero of the New York Times: Question: why does this happen so routinely? Wages that are up 3% in a period when inflation is running 4% aren't actually up. Spending that's up 3% in a period when inflation is running 4% isn't actual
• Duncan Black: They Knew They Were Right: From the publicity material for Jacob Heilbrunn's new book, subtitled "The Rise of the Neocons": "Heilbrunn argues that neoconservatism has been unfairly demonized. Indeed, their ambitious vision of a democratic Ir

DeLong Smackdown Watch Update: Henry Farrell

Henry Farrell on Brad DeLong, Friedrich Hayek, Ludwig von Mises, James Scott, High Modernism, Jane Jacobs, the collectivization of agriculture, Karl Polanyi, rubber tomatos, the despised medieval Jewish Maghribi traders, and the cheap restaurants of Florence, Italy:

Crooked Timber » » DeLong, Scott and Hayek: I think that [DeLong] is fair up to a point – [James] Scott should develop his critique of bureaucratic capitalism in [Seeing Like a State] much more explicitly than he does. But I also think that doing what Brad wants him to do would have led him to write a very different book. Seeing Like a State is in large part an intervention in an internal argument within the left, arguing against the grand planners and for the Jane Jacobs types and the anarchists. Introducing a proper critique of Hayek, Mises and the rest would have greatly lessened its impact within that debate, by allowing the targets of Scott’s critique to focus on the mean things Scott would have probably said about pro-market types who they dislike, while ignoring the flights of arrows intended to pierce their own hides. I should note that I’m an unimportant member of one of the broad groups that Scott is attacking (I like and use rational choice theory; this doesn’t change the fact that Seeing Like a State is the only book in the social sciences I have read in the last ten years that made me want to write a fan letter to the author after reading it).

What Scott argues, as I understand it, is as follows: First – that processes of rationalization lead to the destruction of metis, or local knowledge if you would prefer, and the prioritization of codifiable, quantifiable, epistemic knowledge. Second, that this process involves obvious and (sometimes quite important) trade-offs, but may often be worth it – e.g. there is no point in idealizing serf-like conditions that preserve local knowledge at the expense of human freedom. Third, that the real problem is when the creation of epistemic knowledge is combined with high modernist attempts to engage in social engineering. This arrives at similar conclusions to Hayek etc about how terrible collectivization processes are, but from different premises. Specifically, what Hayek etc would see as the result of state planning, Scott sees as the result of broader forms of rationalization (hence, perhaps, the linkages to Foucault that Brad worries about) when they coincide with a certain kind of state hubris (the hubris doesn’t necessarily follow from the creation of codifiable knowledge).

Thus, I think there is a argument against the Hayekians which is not very far from the surface of Seeing Like a State and which can be drawn out quite easily. First – Scott makes it clear that the processes of market development and of state imposition of standards goes hand in hand. Brad talks about how the very first example that Scott draws on – German scientific forestry in the nineteenth century – is intended to show the failures of state planning. But as Scott makes clear, the relevant failures are driven as much by the market as by the state – Scott writes about how the “utilitarian state could not see the real, existing forest for the (commercial trees)” and about how the

forest as a habitat disappears and is replaced by the forest as an economic resource to be managed efficiently and profitably. Here, fiscal and commercial logics coincide; they are both resolutely fixed on the bottom line.

This is an important sub-theme of the book, and indeed of our understanding of how states and markets have developed hand-in-hand. Sometimes, the state has sought to impose its view for reasons of its own interest and survival (whether this be the promotion of ‘public order,’ the increase of fiscal revenues or whatever), sometimes at the behest of market actors who are interested in standardization, and sometimes for rationales that blur these two together.

Scott doesn’t draw this out as a critique of the Austrians, but it is still clear evidence of his profound difference from them. He is much more interested than they are in the actual political processes through which markets come into being. To misquote Tilly, markets make the state and the state makes markets. This is something that is touched on by the new institutional economics in its own way (cf. Doug North) but that doesn’t, to my knowledge, get any proper attention in the Hayekian or von Misean corpus. I stress the words “to my knowledge” since Hayek’s arguments on this theme are scattered across various books – but I strongly suspect that there isn’t anything that is really germane to this. More generally, I think that there’s a kind of selective blindness in the Austrian corpus to the question of exactly how active states are in constituting markets, because this would raise all sorts of awkward theoretical and political problems. Markets – even and perhaps especially Hayekian markets – don’t exist in an institutional vacuum – and the institutions on which they rely are going to shape the extent to which they succeed or fail in making use of local knowledge. In particular, markets that involve interaction between people who don’t know each other (impersonal exchange) require substitutes for personal knowledge and relationships(in the form of mutually understood standards and enforcement mechanisms).

This leads on to the second point – that a lot of what Scott argues is correct. His claim, as I read it is less about the specific problems of state-created institutions, than the ways in which a large variety of abstracting institutions or standards miss out on, and perhaps undermine important forms of local knowledge. As I understand him, any standards sufficient for impersonal exchange are likely to abstract away the actual relationships that people have with their environment. Here, Scott is less a closet-Hayekian than a more-or-less-overt Polanyian, who develops some of Polanyi’s arguments (especially his claims about the institutional consequences of long distance trade, and the economy as an instituted process) to make them sharper and more interesting.

I think that Scott’s claims are more credible than Brad suggests. Again, modern markets require long distance exchange between people who don’t know each other, and hence require impersonal forms of knowledge that are instantiated in commonly held standards of one sort or another. My favourite example of this is the Codex Alimentarius’s standard lexicon describing different stages of putrescence in fish. These standards have to substitute for more intimate and more direct forms of knowledge – large scale markets typically can’t work without them.

A good example of this is credit markets. It used to be that they depended primarily on personal knowledge of the borrower and his character (here, I’m borrowing from the work of Bruce Carruthers). Now, they depend on a variety of formal metrics, risk scores and pseudo-quantified assessments by credit rating agencies and the like. This is by no means necessarily a bad thing – it has resulted in a vast expansion of credit, and allowed many people to borrow money who couldn’t previously. But it does mean that some forms of knowledge that may have been valuable, and that were available in an era when bank managers knew all their customers personally, have been lost. It also may result in a fetishization of the quantifiable and a lack of attention to the realities underlying abstract metrics (which is arguably part of the reason for the recent crash in mortgage lending markets – the metrics that markets used were palpably insufficient to describe the underlying risks of particular complex financial instruments).

Another, more homely example is food. Brad criticizes Scott’s discussion of the much-cited tasteless tomato arguing that it are an example of market success rather than failure – people bought tasteless tomatoes because they were cheap. This seems to me to have a bit of a flavor of a revealed preferences argument, and also to miss the point. I lived in Florence for three years, a city which has cheap and delicious tomatoes, despite being some distance from the parts of Italy where tomatoes are grown. While I can’t prove it, I strongly suspect that the deliciousness of the tomatoes had a lot to do with informal relationships between the small shops where you bought the tomatoes, the small companies that delivered them, and the small farms from where they were bought. Certainly, this would be consonant with the research that I and many others have done on the Italian political economy and how it works. Italy protects small businesses and local communities in a lot of ways. This means that it misses out badly on certain economies of scale. It also means that certain kinds of high quality production are possible in Italy that are difficult or impossible to replicate elsewhere – a myriad of small firms cooperating to produce final goods through purely informal means. Hence the success, for example, of Italian sunglasses, shoes, and (the rather unglamorous topic of my own research) packaging machinery. All of these build on forms of informal knowledge that would likely be damaged in a more standard market economy, where collaboration happened (to the extent that it did), within the hierarchy of the firm, or through arms-length contracts.

Thus, there are trade-offs. Italian firms in small-firm districts are excellent at gradual innovation and refinement of knowledge – in part because of their reliance on metis. They are not so good at producing profound, industry-changing forms of innovation. They also tend to stick closer to home than their equivalents in other countries (somewhat ironically, they replicate the logic of Avner Greif’s mediaeval Maghribi merchants far more than the behaviour of his Genoese traders).

To return to the more homely example of food, Florence has an excellent restaurant culture, where you can eat out cheaply and incredibly well if you avoid the tourist traps.(1) But it systematically emphasizes local cuisine, along with a few imports from the South (pizza and pasta) and the north (some Bolognese and Milanese dishes). Chinese food in Florence is (or was when I was there) terrible, and Indian food was relatively very expensive and no better than mediocre in quality. In contrast, most US cities of my experience have a lower overall standard of food, but a much greater variety of restaurants producing different cuisines, sometimes at a quite high standard of quality (if rarely as high as in the cuisine’s home countries or regions). US cities are far more open to different kinds of food than Italian cities. I suspect that much of this can be attributed to the dominance of particular forms of local knowledge in Italy, which on the one hand preserve certain traditions of quality that would be infeasible to preserve in the US, but on the other hand make people less likely to branch out into new forms of production and consumption that don’t fit with their prior experience.

This allows me to come back to the roots of my disagreement with Brad. Brad is a fan of markets, and believes that they contribute in very important ways to human freedom. I agree with him on this. But I think that Brad sometimes underemphasizes the real trade-offs that markets may involve, and overstates his criticisms of people who are concerned with these trade-offs. Sometimes, perhaps often, these trade-offs are relatively slight – as Brad says, many forms of redundant local knowledge can be discarded without compunction. Sometimes, these trade-offs are real, but still worthwhile – while we should acknowledge the costs of markets, we should acknowledge that the benefits of introducing them are higher. And sometimes they are not worth paying – there are areas of social life where marketization has more downsides than advantages. (the question of which areas of social life fall under which category is obviously important, but this post is much too long already).

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(1) I seem to remember (although I can’t find the post) Brad rudely disagreeing a couple of years ago with someone who suggested that delicious cheap food was available in European cities in a way that it wasn’t in the US, and claiming that this was an illusion of the upper middle classes who could afford to eat well anywhere, or words to that effect (my memory could be flawed, in which case I apologize in advance). For what it’s worth, as a grad student with a relatively meagre stipend in Florence, I could afford to eat out three nights a week in good restaurants.

*Blush*: David Brooks Gives Me too Much Credit

David Brooks writes:

The Sidney Awards II - New York Times: Three other essays are worth your time.... In the Chronicle of Higher Education, J. Bradford DeLong wrote “Creative Destruction’s Reconstruction” on why Joseph Schumpeter matters to the 21st century...

Blush.

Don't get me wrong--I like the essay I wrote a lot, and Tom McGraw's Schumpeter biography is excellent. But even I don't think it's in the world's top 20 essays for 2007...

And what credit there is should be shared with Alex Kafka, the editor on the piece, who did do a bang-up job, I thought.

Note to Self: John Kenneth Galbraith: Sisyphus as Social Democrat

Note to self: I really need to rethink and expand this. I have the sense that there are absolutely dazzling and important insights back there somewhere that did not make it out of my brain when I wrote:

J. Bradford DeLong (2005), "Sisyphus as Social Democrat," _ From Foreign Affairs, _ (May/June): Review of Richard Parker (2005), John Kenneth Galbraith: His Life, His Politics, His Economics. Farrar, Straus & Giroux, 2005, 820 pp. $35.00.

Summary:  John Kenneth Galbraith's dazzling career as an economist and public intellectual has left an oddly thin legacy. A new biography sets out to explain why -- tracing, in the process, the rise and fall of twentieth-century American liberalism.

J. Bradford DeLong is Professor of Economics at the University of California at Berkeley.

If there were justice in the world, John Kenneth Galbraith would rank as the twentieth century's most influential American economist. He has published several books that are among the best analyses of modern U.S. history, played a key role in midcentury policymaking, and advised more presidents and senators than would seem possible in three lifetimes. Yet today, Galbraith's influence on economics is small, and his influence on U.S. politics is receding by the year.

In this lively and thoughtful biography, Richard Parker sets himself the task of explaining Galbraith's career: why it was so dazzling, and why its long-term impact has turned out to be so much less than expected. The result is not only the story of a smart, witty, and important man, but also a fascinating meditation on the rise and fall of twentieth-century American liberalism...

The Housing and Exports Do-Si-Do

From Paul Krugman:

Why we havent had a recession (so far) - Paul Krugman - Op-Ed Columnist - New York Times Blog: Why we haven’t had a recession (so far) The housing bust has lived up fully to my expectations. So far, however, the economy has held up surprisingly well (ask me again in a few months). How come?

It’s the exports, stupid.

I haven’t seen this chart published elsewhere, but it seems to me that it tells the story. The blue line shows residential investment as a share of GDP (left scale). It has plunged impressively. The red line shows exports as a share of GDP (right scale). Thanks to the weak dollar, they’ve risen almost enough to offset the housing plunge.

Meanwhile, consumer spending has held up, and there has been a modest plus from state and local government spending.

No particular policy moral here, just an observation.

I think that there is a policy moral here. Most of the macroeconomic disaster scenarios I have been painting over the past five years had domestic construction spending falling before exports began rising rapidly. We do seem to have dodged that bullet completely.

God does indeed look after fools, children, and the United States of America...

Rainy Grey Afternoon Female Vocalist Blogging

Rainy grey afternoons are so rare around here, they must be savored appropriately:

Rilo Kiley, "Silver Lining":

Bonnie Raitt, "Angel from Montgomery"

Alison Brown, "Angel"

Liz Phair, "Divorce Song":

links for 2007-12-29

• Paul Krugman: The Trouble With Trade
• AppleInsider: Using iPod & iPhone Video Out: Background and In-Depth Review

A Burning Question Answered!

Many of us have asked over the years: "Was David Ignatius always the clueless ignorant dweeeb he is today?"

The answer is now clear: the answer is "yes":

The Legacy of Benazir Bhutto: by David Ignatius Friday, December 28, 2007; A21: Try to imagine a young Pakistani woman bounding into the newsroom of the Harvard Crimson in the early 1970s and banging out stories about college sports teams with the passion of a cub reporter. That was the first glimpse some of us had of Benazir Bhutto. We had no idea she was Pakistani political royalty...

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

Technological Progress

From http://blog.gadgetlite.com/: 1 Gigabyte in 1987 and 2007:

DeLong Smackdown Watch...

Surely there must be more things worthy of being immortalized in the DeLong Smackdown Watch, mustn't there? Anybody have any favorites? Anybody? Anybody? Bueller?

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DeLong Smackdown Watch archives:

Grasping Reality with Both Hands: Economist Brad DeLong's Semi-Daily Journal: DeLong Smackdown Watch: From D-Squared Digest: The unique Daniel Davies writes:

D-squared Digest -- FOR bigger pies and shorter hours and AGAINST more or less everything else: This is such a big heap of partisan right-wing bullshit that there must be a pony in there somewhere! Just before this slips down the grating; Brad DeLong waves the waggy finger of disapproval at anyone who slurs Milton Friedman's name...

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Grasping Reality with Both Hands: Economist Brad DeLong's Semi-Daily Journal: Mendacious Wacko of the Right Nominated as Undersecretary--DeLong Smackdown Watch: I was saying that James K. Glassman--author of Dow 36000 and now Undersecretary of State-Designate--was the worst of the mendacious wackos of the financial right in the late 1990s. "No, no, no," somebody said. "George Gilder was the worst." Others agreed. They are right...

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Grasping Reality with Both Hands: Economist Brad DeLong's Semi-Daily Journal: DeLong Smackdown Watch: Brad Setser: Brad Setser agrees with Jeff Faux that China's exports to the United States must be cut--but for very different reasons:

Brad Setser: DeLong’s position – that the US needs to position itself as a friend of China’s economic development -- is an appealing one. But it is also one that I suspect glosses over some big issues...

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Grasping Reality with Both Hands: Economist Brad DeLong's Semi-Daily Journal: DeLong Smackdown Watch: Dani Rodrik Strikes Back: The learned and thoughtful Dani Rodrik has a good response. He writes:

Dani Rodrik's weblog: What's different about international trade?: UPDATE: Brad DeLong does not express my views accurately...

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Semi-Daily Journal Archive: DeLong Smackdown Watch...: Why oh why haven't I been reading Blake Hounshell regularly?

Whither Free Trade? - American Footprints: Brad DeLong scoffs at Jacob Weisberg's contention that "free trade is the real election casualty." The good professor says:

Normally, these days, Republican presidents are better on free trade than Democratic presidents. But George W. Bush is not a "normal" president. WCI is right that the appropriate response of other countries to Weisberg's spin is "hollow laughter."

But this is dodging the question...

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Semi-Daily Journal Archive: DeLong Smackdown Watch! ("Are My Methods Unsound?" Edition): Matthew Yglesias demonstrates that he is Il Maestro di Color che Sanno as far as quotes from "Apocalypse Now" are concerned:

Health Care as Opportunity | TPMCafe: An interesting perspective from Brad DeLong.... Brad steals a page from my book, quoting "Apocalypse Now" to describe the Bush approach to public policy, but he mangles the lines. Willard says, "They told me that you had gone totally insane, and that your methods were unsound." Kurtz asks: "Are my methods unsound?" And Willard replies: "I don't see any method at all, sir." (They're surrounded by deep-jungle tribespeople, decapitated heads on sticks, all sorts of corpses, etc.) I think that about sums it up.

In comments, Robert Waldmann piles on as well. Clearly I need to buy a DVD of "Apocalypse Now" if I'm going to run with big dogs...

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Brad DeLong's Website: DeLong Smackdown Watch: Julian Sanchez gives an effective critique of (i) DeLong's version of preference utilitarianism and of (ii) attempts to figure out how to implement it by asking people what makes them happy.

Notes from the Lounge: No problem, say the utilitarian theorists (and economists), we'll switch to preference utilitarianism, wherein "utility" or "happiness" are defined in terms of the satisfaction of preferences. This has the virtue of realigning the object of maximization with what people subjectively value, which makes for a sturdier fact/value bridge. It has the disadvantage of making it much less clear whether that appealingly simple maximizing structure is still a good fit for the task. Even rendering the very different forms of satisfaction and dissatisfaction people are capable of feeling comparable seemed a bit of a stretch. (How many of the bon vivant's wild nights on the town does it take to equal the same amount of "utility" in the monk's serene satisfaction in a day of contemplation?) Preferences over states of the world that need not be experience by the subject who prefers them make things a much bigger tangle. And should we think it's better for people to have more (and more intense) preferences, so that more of them can be satisfied? But I digress.

DeLong's problem seems to be that he's using this second, preference-based sense of "happiness." But this isn't the colloquial sense of the word.... DeLong is like a Ptolemaic astronomer who... [claims] the proposition that the earth revolves around the sun... [is the same as] the absurd proposition that the earth doesn't exist, since "the earth" is defined as the thing at the center of the universe...

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Brad DeLong's Website: DeLong Smackdown Watch: A correspondent writes, challenging my claims about the Stupidest People Alive. I confess that I was in error:

Brad DeLong, you are a fool. Donald Luskin's claim to the "Stupidest Man Alive" crown cannot be shaken...

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Grasping Reality with Both Hands: Economist Brad DeLong's Semi-Daily Journal: DeLong Smackdown Watch: Doug Elmendorf on the Subprime Meltdown: Hoisted from Comments: Doug Elmendorf writes:

Brad DeLong--Economics Only: What Is to Be Done? (About the Subprime Meltdown, That Is): Thanks for linking to my notes. I think you misunderstand my point #5, where the key word is "federal." Ned Gramlich pointed out that half of subprime mortgages in 2005 were issued by mortgage companies chartered and supervised by the states (compared with essentially no prime mortgages), and that the problem mortgages are heavily concentrated in that sector. He concluded in his book that all mortgage lenders should be covered by a federal supervisor. Others have argued that federal supervision is important for the Fed's ability to restore liquidity to these institutions.

However, in Ned's Jackson Hole remarks, he said that the same regulatory end might be achieved by collaboration among federal and state supervisors, which was already underway...

Calculated Risk on New Home Sales

Calculated Risk writes:

Calculated Risk: More on New Home Sales: Let's start with revisions. This month (November) is one of the few months were the initial report wasn't higher than the previous month. Usually the small reported gain in sales is then revised away in subsequent releases.... [T]he Census Bureau revised down sales for August, September and October. This has been the pattern for most of the housing bust; almost all the revisions have been down. I believe the Census Bureau is doing a good job, but the users of the data need to understand what is happening (during down trends, the Census Bureau initially overestimates sales)....

This graph shows New Home Sales vs. Recession for the last 35 years. New Home sales were falling prior to every recession, with the exception of the business investment led recession of 2001. This is what we call Cliff Diving! And this shows why so many economists are concerned about a possible consumer led recession - possibly starting right now...

It's Not a Lecture: If I Were a Congressional Staffer...

David Wescott writes:

It's Not a Lecture: If I were a congressional staffer...

...the bits of data I'd give the Senator tomorrow would probably include the following:

Home forclosures rose 68 percent in November from the previous November.... Because the US savings rate is so low, people have been relying on their houses as a source of wealth and equity. When adjustable rate mortgages reset, wages remained relatively stagnant, and other costs (like healthcare) continued to rise, people lost their houses. That's a financial and emotional hit that most people won't ever forget.

[Editorial intrusion: foreclosures have risen from a rate of 1.5 million a year last year--about 2.5% of homes being foreclosed upon in a year--to 2.5 milliion a year--about 4% of homes being foreclosed upon in a year--this year. Mortgage resets are proceeding at a pace of about 2 million a year.]

20 million Americans will use credit cards to pay for home heating this winter. This is obviously a double-whammy. Energy costs are up - frankly, due to demand more than anything else - and people don't have the available cash to make up the difference. This cash flow issue (probably caused by higher mortgage and rent costs, higher health care costs, and stagnant wages) will effectively increase home heating costs by up to 20 percent when you consider interest carried over a few months...

More Americans will have catastrophic health expenses in 2008. Nearly 1 in 4 Americans under the age of 65 live in a family that will spend more than 10 percent of that family's pre-tax income on health expenses. More than 80 percent of these people have health insurance. This sounds like a health statistic, but it's unquestionably an "economic indicator" in my book...

[The better statistic for the senator, I think, is "17.8 million non-elderly Americans—-more than three-quarters of whom have health insurance—-are in families that will spend more than 25 percent of their pre-tax income on health care costs in 2008.]

My Most Recent Email

In response to an editorial query:

[D]do you think there's a possibility
of working on it over the next few days?

I reply:

Yes, definitely, but not right now--I have a bad cold, and am feeling miserable in bed. Coherent thought and writing is not possible...

Blogging, however, appears to still be very possible. I wonder what that shows...

John Scalzi Gets Medieval on MSNBC!!

Downright shrill, in fact:

Why We’re All Going to Hell, Part 54,302: A multi-billionaire industrialist donates 97% of his fortune to help fund clean water in Africa, education for blind children, and housing for the mentally ill, and it’s presented by one of the largest news organizations in the world in terms of what it means for Paris Hilton...

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

Josh Micah Marshall and Paul Krugman Have a Request

Josh writes:

Talking Points Memo: The leading Dem candidates for president appear to be in a pitched battle to make the most craven and insipid uses of the Bhutto assassination for immediate political advantage. A true horse race.

Paul writes:

Its not about you: To all the presidential campaigns trying to claim that the atrocity in Pakistan somehow proves that they have the right candidate — please stop.

This isn’t about you; in fact, as far as I can tell, it isn’t about America. It’s about the fact that Pakistan is a very messed-up place. This has very bad consequences for us, but it’s hard to see what, if anything, it says about US policy.

If you’re a tough guy (or gal) who believes in exerting US power — never mind, there are just too many heavily armed people in Pakistan for anyone but Norman Podhoretz to believe that we could throw our weight around. If you believe you can bring new understanding to the world through your enlightened outlook — sorry, there are too many people in Pakistan who don’t want to be enlightened. If you believe that we’d have more influence in the world if we hadn’t squandered our resources and good will in Iraq (which I do) — well, sorry, that influence wouldn’t extend to being able to bring peace and light to Pakistan.

This isn’t about us, and it’s out of our control.

Felix Salmon's First Golden Book of Collateralized Debt Obligations

You see, children, it is very important to understand the differences in the correlation matrixes generated by an amalgamation of BBB bonds that are BBB because of idiosyncratic risk generated by individual local real estate markets, and the correlation matrixes generated by an amalgamation of BBB bonds that are BBB because they themselves are derived securities and hence subject not to local real estate market idiosyncratic risk but instead to the systematic risk that the whole industry will find itself past the second bend in the toilet. The first can be diversified away via the law of large numbers. The second cannot.

Felix Salmon writes:

Explaining CDOs, Overcollateralization Edition - Finance Blog - Felix Salmon - Market Movers - Portfolio.com: [W]hat happened over the past few years was that demand for those AAA-rated CDO tranches went through the roof, and it became harder and harder to find a nice diverse universe of BBB-rated bonds to throw into the cauldron. As a result, the ingredients getting thrown into the cauldron started getting less and less diverse, until it reached the point that all, or nearly all, of them were, in some way or another, ultimately reliant on subprime mortgage payments....

Now remember Fred? He was fourth or fifth in line for subprime mortgage payments, holding a BBB-rated security. And although a triple-B rating is indeed "investment grade", it turns out that Fred's investment wasn't a very good one. The default rate on subprime bonds spiked much more than anybody anticipated, and Fred, standing as he was at the back of the queue, ended up with no money at all.

Now that... would be bad for Fred if he had held on to his bond. But he didn't: he simply turned around and sold it to a CDO which was desperate for BBB-rated paper. As did Frank, and Fergus, and Fraser, and even Ferdinand, whom you might think would have been a bit more bullish. All of them bought BBB-rated subprime debt, and all of them sold it to a CDO, which reckoned that since it was buying lots of different bonds from all over the country, it was thereby diversified.

Oops.

It would be churlish to point out that the fact that one should be extremely leery of arguments that diversification radically improves the safety of bond investments was well known back by Edgar L. Smith and others back in 1923.

The Housing Price-Rent Ratio

Paul Krugman writes:

http://krugman.blogs.nytimes.com/2007/12/28/housing-how-far-is-down/: [T]he housing-rent ratio... [is] comparable to the PE ratio on stocks... it fluctuated in a relatively narrow range until this decade, then took off for the wild blue yonder.... [I]s there any fundamental reason why this ratio shouldn’t go back to historical norms?...

Well, one thing has changed: interest rates, including mortgage rates, are lower, in large part because of huge capital inflows from China and other countries.... But is this enough to justify prices anywhere near current levels? I don’t think so — for three reasons. First, the math doesn’t work.... Second, the average is misleading... in “flatland”, where new housing can easily be built, real prices never rose much; the big rises have come in the “zoned zone,” where land and permits are constrained — and those rises... make no sense even given a maximum allowance for interest rates. Third, we won’t always get lots of free money from China.

So I come down to the view that the price-rental ratio will have to move most if not all the way back to historical norms. And that’s a long, long way down...

"A long, long way down" means, I think, "a fifty percent fall along the coasts."

I would cut that in half for two reasons: not 50% but 25% along the coasts, and much less in the interior. First, the likelihood that savings interested in being invested in the secure-property U.S. will be ample over the next generation is high: we will sell political risk insurance to foreign individuals and governments for quite a while yet. So real interest rates are likely to be lower in the past. Second, the zoned zone is not growing--and America's population still is. The gap between heartland and coastal values is likely to grow over time, and that anticipated capital gain should push up prices now.

Why Oh Why Can't We Have a Better Press Corps? (Elisabeth Bumiller/Robert Dallek/New York Times Edition)

More low comedy from the New York Times this morning, picked up by Scott Lemieux and Matthew Yglesias, who give their snark muscles a power workout by mocking Elisabeth Bumiller and Robert Dallek.

Here is Yglesias:

Fun With Antecedents: By the same token, if earth's yellow sun gave me the powers of a kryptonian, I'd be a super hero. If my blog had Engadget's traffic, I'd be the most popular political blogger. If George Bush could breath underwater, he'd be a fish...

Here is Lemieux:

And If The Devil Rays Win the Next 18 World Series, Their Reputation as an Organization Will Be Greatly Enhanced: Uh, yeah. And if I discover a way of powering cars entirely with oxygen, emitting a vapor that would result in the immediate killing of cockroaches and paralysis in the hands of every Hollywood producer about to sign a contract with Joel Schumacher and Uwe Boll, my reputation as a world-class scientist would be greatly enhanced. I'm reminded of nothing so much as David Adesnik's suggestion that Bush signal his commitment to a rational foreign policy by appointing Dick Lugar...

They are talking about this, from Robert Dallek's review of Elisabeth Bumiller's Condi Rice biography:

Condoleezza Rice: An American Life - Elisabeth Bumiller: Ms. Bumiller understands that Ms. Rice’s place in history will rest... on her record in the Bush administration. And “with 18 months left in office,” Ms. Bumiller wrote as she finished her book, “it was still too early to come to definite conclusions.”... Ms. Bumiller says that if President Bush and Ms. Rice can produce a settlement in the Middle East between Israelis and Palestinians and an end to North Korea’s nuclear program, it would give them claims on success that would significantly improve their historical reputations...

Lemieux says more:

Lawyers, Guns and Money: And If The Devil Rays Win the Next 18 World Series, Their Reputation as an Organization Will Be Greatly Enhanced: [N]othing signals a Must To Avoid more than a positive book review that describes an unreadable book. Such is the case with Robert Dallek's review of a new book about Condi Rice by official Bush administration mash note writer Elisabeth Bumiller. Apparently, we're meant to think that the fact that the book makes no judgments and contains no interesting analysis of Rice's tenure as Secretary of State is a feature, not a bug...

I by contrast, was struck by the striking disjunction between what happens when you start reading Dallek's review from the beginning:

Condoleezza Rice: An American Life - Elisabeth Bumiller: The writer of contemporary history is like the man with his nose pressed against the mirror trying to see his whole body, Arnold Toynbee cautioned. Yet whatever their limitations, books about prominent sitting officials are irresistible, partly driven by an insatiable public appetite for gossip about public figures and an interest in understanding and judging them.... More important, these first drafts of history are indispensable assets... capture... the tone and mood of the day.... Elisabeth Bumiller’s biography of Condoleezza Rice is an excellent case... 10 interviews with Ms. Rice and 150 with other people... a compelling portrait of the country’s first black female secretary of state... its absence of finger pointing or polemics... scrupulously fair.... In Ms. Bumiller’s rendering Ms. Rice is neither hero nor villain but an ambitious woman whose achievements and shortcomings speak for themselves.... Ms. Bumiller refuses to offer any decisive judgments on Ms. Rice’s performance...

and what happens when you start reading Dallek's review backward, from the end:

Condoleezza Rice: An American Life - Elisabeth Bumiller: Ultimately Ms. Bumiller’s book will be seen not just as a discussion of Ms. Rice’s role in shaping one administration’s missteps in foreign affairs but also as a cautionary tale about the gap between ambitious presidential appointees and their unwillingness to speak truth to power.

Inevitably Ms. Rice will be compared to previous national security advisers and secretaries of state, notably Henry Kissinger. Judging from Ms. Bumiller’s account, Ms. Rice, like Mr. Kissinger, was driven more by ambition for high station than fidelity to international realities. Mr. Kissinger’s loyalty to President Richard M. Nixon and Ms. Rice’s to President Bush made them as much political operatives ingratiating themselves with their respective presidents as detached foreign policy analysts serving the national well-being.

“Some of Rice’s friends,” Ms. Bumiller writes, “were stunned that she actually seemed to believe Bush’s argument in the final days of the war buildup that a liberated Iraq could spread freedom across the Middle East.” Ms. Rice also believed that “the postwar phase would be like the successful occupation of Germany after World War II, and that it would be possible to plant democracy in a shattered Iraq.” Either Ms. Rice knew less than she should have about pre- and post-1945 German history, or she was carried away by false optimism.

By the start of the invasion in March 2003, the Rice of early 2000, who had published an article in Foreign Affairs decrying the Clinton administration’s “moral impulse to spread American democracy,” had morphed into a forceful public advocate of bringing down Saddam Hussein, whom she pictured as intent on acquiring nuclear weapons that could lead to “a mushroom cloud” over the United States...

It is still unclear to me--and I have talked to her about this--whether Elisabeth Bumiller that that her mash notes to the Bush administration were what she was supposed to do as a White House correspondent, or understood that she was not doing the job the New York Times's readers had hired her to do but was too much of a coward to do it.

It is clear to me that Robert Dallek understands what the job the readers of the New York Times have hired him to do is--read backwards, the review is pretty good and informative. But that's not the review Dallek writes. Instead, he puts what he thinks are the most important things he has to say at the end of the newspaper story, where they are least likely to be read, and stuffs the most-read beginning with fluff: "indispensable asset... excellent case... a compelling portrait... scrupulously fair.... In Ms. Bumiller’s rendering Ms. Rice is neither hero nor villain but an ambitious woman whose achievements and shortcomings speak for themselves..."

Robert Dallek is simply a coward.

links for 2007-12-28

• Glenn Greenwald: Favorite quotes of 2007

links for 2007-12-27

• William F. French: Auden’ s Moral Comedy: A Late-Winter Reading
• Buce: The Meaning of Chrstmas
• Don Kohn, Financial Markets and Central Banking
• Troll (Internet) - Wikipedia
• Evolving Bigger Brains through Cooking: A Q&A with Richard Wrangham

Presenting National Review's Weblog About Jonah Goldberg's "Liberal Fascism"

The book variously called Liberal Fascism: The Secret History of the American Left, From Mussolini to the Politics of Meaning, Liberal Fascism: The Totalitarian Temptation From Hegel to Whole Foods, and Liberal Fascism: The Totalitarian Temptation from Mussolini to Hillary Clinton has a weblog.

Here is the weblog, in its entirety:

Liberal Fascism on National Review Online:

Monday, December 17, 2007

A third one  

Here's the third

12/17 10:49 AM

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Another Entry

here's another

12/17 10:48 AM

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First Post Title     First Post Text

12/17 10:09 AM

Santa Clause Did Not Come to Felix Salmon This Year

So Felix Salmon needs a visit from the html markup wysiwyg fairy:

felixsalmon.com: — Merry Christmas Bleg: Merry Christmas to you. As for me, all I want for Christmas is...

...a very simple WYSIWYG HTML editor. Why can't I find one?

I spend most of my days writing blog entries.... If I really wanted to, I could hand-code all this stuff in a text editor – well, all of it except the tables, anyway, where a WYSIWYG editor is invaluable. But I'm not the kind of geek who loves to look at code: I'm much happier looking at something which more or less resembles what it is I'm trying to write. Plus hand-coding hyperlinks is always a bore, and I'm perfectly happy to leave it to my HTML editor to remember what all my special characters are in HTML.

Then, once it's written, I want to be able to copy and paste the raw HTML into a web interface in order to publish it. How hard can that be?

I have tried out a few HTML editors. Some, like MarsEdit, are ridiculously bare-bones: they're basically text editors with blog-publishing features. Others are designed for people putting together complicated websites, and are great at creating stylesheets and beautiful pages and whatnot, but are really bad at generating ultrasimple HTML. Others, like KompoZer and GoodPage, also fall short of what I want. SeaMonkey is not even close.... I use ecto quite a lot, and I like it.... But... you can't create a table in it, and it has an incredibly annoying habit of slapping an http:// onto the beginning of anything you put in a hyperlink, even if you don't want one there.

Now there is a program which does everything I want: it's called Dreamweaver, it costs $400, and it also does a gazillion things I don't want. But is there some other app I can use without going down the ridiculously-overspecced Dreamweaver road?

I say that MarsEdit http://marsedit.com/ in Markdown mode http://daringfireball.net/projects/markdown/ hits the sweet spot here...

And surely Conde Nast has a site license for Dreamweaver?

Ed Glaeser on Ha-Joon Chang

Ed writes:

Those Who Do Not Know the Past - December 26, 2007 - The New York Sun: Mr. Chang alleges, with scant evidence, that [America and Britain] grew great because of these tariff barriers.... Mr. Chang... argues that since rich countries have public ownership and deficits, it is rank hypocrisy for us to try to forbid them to the poor. An alternative view is that economists shouldn't be required to endorse the worst policies of their own countries. While it is easy to quibble with some of Mr. Chang's more bizarre statements about American political history, such as his claim that "slavery was not as divisive an issue in antebellum politics as most of today believe it to have been," he is certainly correct that America was quite protectionist.... The most curious thing about Mr. Chang's retelling of American history is his suggestion that there is anything secret about this history of American protectionism. The Tariff of Abominations and the Smoot-Hawley Tariff are both mainstays of high school history classes....

The book would have made a more serious contribution if it shed more light on whether American or English protectionism helped or harmed these countries. Post hoc does not imply propter hoc.... The high physical costs of crossing the Atlantic in the age of sail made it natural, with or without tariffs, for the Lowells to want to weave cotton on this side of the pond. Mr. Chang is going to have to do better than just point out that Americans and Englishmen had tariffs to make the case that tariffs produced growth.

There is a substantial empirical literature that looks at the relationship between trade openness and economic development.... My own research in this area found that openness had little impact on middle income places, but is particularly valuable for the poorest places. Certainly, there is no empirical consensus that openness is either good or bad for growth.

The lack of consensus on the connection between growth and openness does not imply that Mr. Chang's protectionism is equally attractive as the open borders urged by the Washington consensus. Adam Smith and David Ricardo didn't urge free trade because trade begets growth, but because trade makes goods cheaper for ordinary people.... Even if protectionism does encourage industrial growth, it only does so by hurting ordinary people, who have to pay more to buy the goods of inefficient domestic producers.

Mr. Chang's protectionist brief suggests that the costs that tariffs impose on ordinary consumers are worth paying since the government can use tariffs to promote the right industries. Smith would have been skeptical about putting such faith in the government, and today's developing countries certainly deserve no more trust than the government of George III.... The best thing to come out of this book is its challenge to the advocates of free markets to explain why England and America did so well despite embracing policies that were not always that free...

Now What Should I Buy?

An email request for documentation sends me back to the NR Archives on National Review Online, which reminds me that I have a credit of eight articles in the National Review archives.

I have already bought such classics as George F. Will's declaration that the leading lights of the "new conservatism" are "Governor [Jerry] Brown of California... and... Daniel Patrick Moynihan... [all] splendid from National Review's point of view"; James Burnham's flat-out declaration that "Francisco Franco was this century's most successful ruler"; William F. Buckley's declarations that Franco was "an authentic national hero" and that "history will attest" that Franco "did save Spain in her greatest crisis"; Robert Moss's declaration that General Augusto Pinochet Ugarte and his colleagues were "pro-American"; Brent Bozell's claim that those being chased by dogs and sprayed by water cannon in Birmingham were "Negro rioters" engaged in "insurrection, domestic violence, unlawful combination or conspiracy... [so that a] class or part of its people is deprived of a right, privilege, immunity, or protection named in the Constitution and secured by law"; Wilmoore Kendall's Straussian attack on Abraham Lincoln as a fascist tyrant; Wilmoore Kendall's declaration that "by no stretch of the imagination can the freedom-of-speech clause be construed as prohibiting society its use of... techniques for keeping itself non-open... by which society ultimately defends itself against the corruption of its orthodoxy"; the declaration by someone--"A.H.M."--who has never dared to reveal his identity that "Martin Luther King will never... keep a rabble awake, if it were past its bedtime"; Joseph McCarthy's review of Dean Acheson's books; Frank Meyer's declaration of Joe McCarthy that "His was not a common role... he was a prophet"; Brent Bozell's declaration that the sainted Joe McCarthy was "temperamentally incapable of bearing personal malice"; James Burnham's declaration that anti-McCarthyism was "the broadest and most successful" Communist front operation in this country; et cetera.

What else? Anybody have any other favorites I should add to my collection?

links for 2007-12-26

• Scylla: Straight Dope Message Board - I waterboard!
• Michael Desch: Declaring Forever War: Giuliani has surrounded himself with advisors who think the Bush Doctrine didn’t go nearly far enough...
• Alisa Rubin and Damien Cave: In a Force for Iraqi Calm, Seeds of Conflict
• Dean Baker: The NYT Invents "Basic Economics" to Cover Upward Redistribution
• Angus Maddison: Contours of the World Economy 1-2030 AD: Essays in Macro-Economic History

links for 2007-12-25

• Brian Riedl: Omnibus Earmarks Out: President Bush Should Cancel Congress's Pork Spending

Christmas Eve Jesse Tree Blogging

The Prophet Isaiah says:

Isaiah 11 English Revised Version: 1 And there shall come forth a shoot out of the stock of Jesse, and a branch out of his roots shall bear fruit:

2 And the spirit of the LORD shall rest upon him, the spirit of wisdom and understanding, the spirit of counsel and might, the spirit of knowledge and of the fear of the LORD;

3 And his delight shall be in the fear of the LORD: and he shall not judge after the sight of his eyes, neither reprove after the hearing of his ears:

4 but with righteousness shall he judge the poor, and reprove with equity for the meek of the earth: and he shall smite the earth with the rod of his mouth, and with the breath of his lips shall he slay the wicked.

5 And righteousness shall be the girdle of his loins, and faithfulness the girdle of his reins.

6 And the wolf shall dwell with the lamb, and the leopard shall lie down with the kid; and the calf and the young lion and the fatling together; and a little child shall lead them.

7 And the cow and the bear shall feed; their young ones shall lie down together: and the lion shall eat straw like the ox.

8 And the sucking child shall play on the hole of the asp, and the weaned child shall put his hand on the basilisk's den.

9 They shall not hurt nor destroy in all my holy mountain: for the earth shall be full of the knowledge of the LORD, as the waters cover the sea.

10 And it shall come to pass in that day, that the root of Jesse, which standeth for an ensign of the peoples, unto him shall the nations seek; and his resting place shall be glorious.

11 And it shall come to pass in that day, that the Lord shall set his hand again the second time to recover the remnant of his people, which shall remain, from Assyria, and from Egypt, and from Pathros, and from Cush, and from Elam, and from Shinar, and from Hamath, and from the islands of the sea.

12 And he shall set up an ensign for the nations, and shall assemble the outcasts of Israel, and gather together the dispersed of Judah from the four corners of the earth.

13 The envy also of Ephraim shall depart, and they that vex Judah shall be cut off: Ephraim shall not envy Judah, and Judah shall not vex Ephraim.

Unfortunately, Isaiah doesn't seem to get the point of this "world peace" business:

14 And they shall fly down upon the shoulder of the Philistines on the west; together shall they spoil the children of the east; they shall put forth their hand upon Edom and Moab; and the children of Ammon shall obey them.

15 And the LORD will utterly destroy the tongue of the Egyptian sea; and with His scorching wind will He shake His hand over the River, and will smite it into seven streams, and cause men to march over dry-shod.

16 And there shall be a highway for the remnant of His people, that shall remain from Assyria, like as there was for Israel in the day that he came up out of the land of Egypt...

Peace on earth. Good will to men. Merry Christmas, everyone.

Bruce Bartlett Democratic Party Quotation Highlights!

Bruce Bartlett quotes Jimmy Carter:

OpinionJournal - Extra: "I'm not going to use the federal government's authority deliberately to circumvent the natural inclination of people to live in ethnically homogeneous neighborhoods. . . . I have nothing against a community that's made up of people who are Polish or Czechoslovakian or French-Canadian or blacks who are trying to maintain the ethnic purity of their neighborhoods." --Jimmy Carter, 1976. President, 1977-81. Winner of the Nobel Peace Prize, 2002

Bruce Bartlett quotes James Webb:

"The Confederate Memorial has had a special place in my life for many years. . . . There were many, many times that I found myself drawn to this deeply inspiring memorial, to contemplate the sacrifices of others, several of whom were my ancestors, whose enormous suffering and collective gallantry are to this day still misunderstood by most Americans." --James Webb, 1990. Now a Democratic Senator from Virginia

Bruce Bartlett quotes Fritz Hollings:

"Everybody likes to go to Geneva. I used to do it for the Law of the Sea conferences and you'd find these potentates from down in Africa, you know, rather than eating each other, they'd just come up and get a good square meal in Geneva." --Sen. Ernest F. Hollings (D., S.C.) 1993. Chairman, Commerce Committee, 1987-95 and 2001-03. Candidate for the Democratic presidential nomination, 1984

Bruce Bartlett quotes Chris Dodd:

"I do not think it is an exaggeration at all to say to my friend from West Virginia [Sen. Robert C. Byrd, a former Ku Klux Klan recruiter] that he would have been a great senator at any moment. . . . He would have been right during the great conflict of civil war in this nation." --Sen. Christopher Dodd (D., Conn.), 2004. Chairman, Committee on Banking, Housing and Urban Affairs. Candidate for the Democratic presidential nomination, 2008

Bruve Bartlett quotes Joe Biden:

"You cannot go into a Dunkin' Donuts or a 7-Eleven unless you have a slight Indian accent." "My state was a slave state. My state is a border state. My state has the eighth largest black population in the country. My state is anything [but] a Northeastern liberal state." "I mean, you got the first mainstream African American [Barack Obama] who is articulate and bright and clean and a nice looking guy." "There's less than 1% of the population of Iowa that is African American. There is probably less than 4% or 5% that is, are minorities. What is it in Washington? So look, it goes back to what you start off with, what you're dealing with." Sen. Joseph Biden Jr., (D., Del.), 2006-07. Chairman, Committee on the Judiciary, 1987-95. Chairman, Committee on Foreign Relations. Candidate for the Democratic presidential nomination, 2008.

I say: Bartlett's got Biden, Hollings, and Carter. I'm calling an intellectual foul on Bartlett for his quotation of Dodd, however: Dodd is saying that Robert C. Byrd would have been a Lincoln-voting Republican in 1860 and a solid Republican supporter during the Civil War.

And I'm calling an intellectual foul on Bartlett's quotation of Webb as well, for Webb is saying something different than Bartlett's quotation suggests. Here is some broader context:

James Webb: Speech at the Confederate Memorial, 1990: This is by no means my first visit to this spot.

The Confederate Memorial has had a special place in my life for many years. During the bitter turbulence of the early and mid-1970's I used to come here quite often. I had recently left the Marine Corps and was struggling to come to grips with my service in Vietnam, and with the misperceptions that seemed rampant about the people with whom I had served and what, exactly we had attempted to accomplish. And there were many, many times that I found myself drawn to this deeply inspiring memorial, to contemplate the sacrifices of others, several of whom were my ancestors, whose enormous suffering and collective gallantry are to this day still misunderstood by most Americans.

I used to walk the perimeter of this monument, itself designed by a man who had fought for the Confederacy and who, despite international fame as a sculptor, decided to be buried beneath it, and I would comprehend that worldwide praise can never substitute for loyalties learned and tested under the tribulations of the battlefield. I would study the inscription:

NOT FOR FAME OR REWARD, NOT FOR PLACE OR FOR RANK, NOT LURED BY AMBITION OR GOADED BY NECESSITY, BUT IN SIMPLE OBEDIENCE TO DUTY AS THEY UNDERSTOOD IT, THESE MEN SUFFERED ALL, SACRIFICED ALL, DARED ALL, AND DIED

Words written by a Confederate veteran who had later become a minister, and knew that this simple sentence spoke for all soldiers in all wars, men who must always trust their lives to the judgment of their leaders, and whose bond thus goes to individuals rather than to stark ideology, and who, at the end of the day that is their lives, desire more than anything to sleep with the satisfaction that when all the rhetoric was stripped away, they had fulfilled their duty -- as they understood it. To their community. To their nation. To their individual consciences. To their family. And to their progeny, who in the end must not only judge their acts, but be judged as their inheritors.

And so I am here, with you today, to remember. And to honor an army that rose like a sudden wind out of the little towns and scattered farms of a yet unconquered wilderness. That drew 750,000 soldiers from a population base of only five million-less than the current population of Virginia alone. That fought with squirrel rifles and cold steel against a much larger and more modern force. That saw 60 percent of its soldiers become casualties, some 256,000 of them dead. That gave every ounce of courage and loyalty to a leadership it trusted and respected, and then laid down its arms in an instant when that leadership decided that enough was enough....

We often are inclined to speak in grand terms of the human cost of war, but seldom do we take the time to view it in an understandable microcosm. Today I would like to offer one: The "Davis Rifles" of the 37th Regiment, Virginia infantry, who served under Stonewall Jackson. one of my ancestors, William John Jewell, served in this regiment, which was drawn from Scott, Lee, Russell and Washington counties in the southwest corner of the state. The mountaineers were not slaveholders. Many of them were not even property owners. Few of them had a desire to leave the Union. But when Virginia seceded, the mountaineers followed Robert E. Lee into the Confederate Army.

1,490 men volunteered to join the 37th regiment. By the end of the war, 39 were left. Company D, which was drawn from Scott county, began with 112 men. The records of eight of these cannot be found. 5 others deserted over the years, taking the oath of allegiance to the Union. 2 were transferred to other units. of the 97 remaining men, 29 were killed, 48 were wounded, 11 were discharged due to disease, and 31 were captured by the enemy on the battlefield, becoming prisoners of war. If you add those numbers up they come to more than 97, because many of those taken prisoner were already wounded, and a few were wounded more than once, including William Jewell, who was wounded at Cedar Mountain on August 9, 1862, wounded again at Sharpsburg (Antietam) on September 17, 1862, and finally killed in action at Chancellorsville on May 3, 1863.

The end result of all this was that, of the 39 men who stood in the ranks of the 37th Regiment when General Lee surrendered at Appomattox, none belonged to Company D, which had no soldiers left.

The Davis Rifles were not unique in this fate. Such tragedies were played out across the landscape of the South. To my knowledge, no modern army has exceeded the percentage of losses the Confederate army endured, and only the Scottish regiments in World War One, and the Germans in World War Two, come close. A generation of young men was destroyed. one is reminded of the inscriptions so often present on the graves of that era: "How many dreams died here?"

There are at least two lessons for us to take away from such a day of remembrance. The first is one our leaders should carry next to their breasts, and contemplate every time they face a crisis, however small, which puts our military at risk. it should echo in their consciences, from the power of a million graves . It is simply this: You hold our soldiers' lives in sacred trust. When a citizen has sworn to obey you, and follow your judgment, and walk onto a battlefield to defend the interests you define as worthy of his blood, do not abuse that awesome power through careless policy, unclear objectives, or inflexible leadership.

The second lesson regards those who have taken such an oath, and who have honored the judgment of their leaders, often at great cost. Intellectual analyses of national policy are subject to constant re-evaluation by historians as the decades roll by, but duty is a constant, frozen in the context of the moment it was performed. Duty is action, taken after listening to one's leaders, and weighing risk and fear against the powerful draw of obligation to family, community, nation, and the unknown future.

We, the progeny who live in that future, were among the intended beneficiaries of those frightful decisions made so long ago. As such, we are also the caretakers of the memory, and the reputation, of those who performed their duty -- as they understood it -- under circumstances too difficult for us ever to fully comprehend.

Of the soldiers of the Confederate Army, I would say that they fought as bravely and nobly as any group of men ever fought--and for as bad and evil a cause as well.

Jeff Weintraub Goes for Chinese Food...

A San Franciso tradition I keep wanting to get to some year:

Holiday theater offerings: Kung Pao Kosher Comedy Shelley Berman headlines the 15th annual celebration of Christmas in the traditional Jewish manner, in a Chinese restaurant with Jewish comedy, with Lisa Geduldig, Scott Blakeman and Esther Paik Goodhart. Dec. 22-25; New Asia Restaurant, 772 Pacific Ave., San Francisco; (925) 275-9005, http://www.koshercomedy.com/

Jeff Weintraub comments:

Jeff Weintraub: Jewish Christmas - The Chinese connection: My friend Andy Markovits passed along to me a very funny YouTube video that has been making the rounds. It touches on an intriguing aspect of American social history--the curious affinity of Jews for Chinese food. Ever since Eastern European Jewish immigrants began arriving in large numbers about a century ago, they showed a special inclination to go to Chinese restaurants whenever they went out to eat non-Jewish food.

There was always something a little odd about this, since many of them normally avoided non-kosher food, and Chinese food is anything but kosher--certainly no more kosher than, say, Italian or Irish or generic-American food. (In recent years some Chinese restaurants have adapted by going kosher, but such cases used to be vanishingly rare.) Perhaps the sauces that smothered and disguised the food, which also tended to be finely chopped up, made a certain degree of denial easier? (Through most of the 20th century, the kind of Chinese food that American Jews were eating was usually some version of gloppy American-Cantonese.) And perhaps the special attractiveness of Chinese restaurants had something to do with the fact that Chinese--unlike a number of other ethnic groups in the US--had no history of, or reputation for, anti-semitism? One can only speculate.

Here are some informed socio-historical speculations by two Jewish sociologists, Gaye Tuchman & Harry Levine, in "'Safe Treyf': New York Jews and Chinese Food". (For those of you who come from the dominant culture, "treyf" or "treif" means non-kosher.):

Three themes predominate. First, Chinese food is unkosher and therefore non-Jewish. But because of the specific ways that Chinese food is prepared and served, immigrant Jews and their children found Chinese food to be more attractive and less threatening than other non-Jewish or treyf food. Chinese food was what we term "safe treyf." Chinese restaurant food used some ingredients that were familiar to Eastern European Jews. Chinese cuisine also does not mix milk and meat; indeed it doesn't use dairy products at all. In addition, anti-Semitism, anti-Chinese racism, and the low position of the Chinese in American society also (perhaps paradoxically) made Jews feel safe and comfortable in Chinese restaurants.

Second, Jews construed Chinese restaurant food as cosmopolitan. For Jews in New York, eating in Chinese restaurants signified that one was not a provincial or parochial Eastern European Jew, not a "greenhorn" or hick. In New York City, immigrant Jews, and especially their children and grand-children, regarded Chinese food as sophisticated and urbane.

Third, by the second and third generation, Jews identified eating this kind of non-Jewish food--Chinese restaurant food--as something that modern American Jews, and especially New York Jews, did together. "Eating Chinese" became a New York Jewish custom, a part of daily life and self-identity for millions of New York Jews.

As they sum it up:

Chinese food was attractive to Jews in part because its ingredients were somewhat familiar, and because it did not instinctively repel. [....] Jews were also attached to Chinese food because they perceived it as sophisticated, non-Christian, and a bargain. In subsequent generations, these associations then became overlaid with memories of family meals in Chinese restaurants--where, after 1950, New York Jewish families ate far more often than they did in Jewish restaurants. In different ways, for different reasons, for four generations of New York Jews, Chinese restaurant food has continued to be part of what Federico Fellini called "the soft and gentle flavors of the past."

Whatever the reasons, this connection between American Jews and Chinese food has long been a solidly established social fact. (I don't know whether this has also been true for Jews in Montreal & Toronto, or whether there are any parallels outside North America.) And I am told by people who know about such things (not just professionally, but from relevant sociological research) that this connection has long been a self-conscious part of Chinese-restaurant lore as well. If someone wanted to start a Chinese restaurant, the best bet was to have a Chinese community nearby--but, failing that, everyone knew that the second-best situation was to open the restaurant near a supply of Jewish customers.

As part of this pattern of ethnic symbiosis, one special Christmas custom (we might almost call it a tradition) that emerged among American Jews was to go out to a Chinese restaurant for Christmas. Again, the explanation is no doubt complex. Since most Chinese didn't celebrate Christmas as a religious or family holiday, Chinese restaurants were likely to be open when other restaurants were closed. I would also guess that it's easy to get a reservation at your favorite Chinese restaurant when the goyim are mostly having Christmas dinner at home. And the movie theaters are often emptier, too--so why not go to the movies while you're at it?

Perhaps the Best Argument for the Destruction of the Music Companies Ever Made

DymaxionWorldJohn

Cogitamus: The Music Industry's talking points: "Hey, we're obsolete.": via Matt, the RIAA gives consumers holiday advice:

Watch for Compilations that are “Too Good to Be True": Many pirates make “dream compilation” CDs, comprised of songs by numerous artists on different record labels who would not likely appear on the same legitimate album together.

So, if you see an album with all of your favourite artists on it, performing the songs you love, for the love of God don't buy it -- it's probably pirated!

, this is their press release.  And in it, they explicitly state that pirates are putting together products that people want more than the legitimate variety.  This, of course, is why teenagers should be sued in to penury, rather than something as revolutionary as the music industry putting together its own compilations that people want to buy.

*SNORT!!*

About Ron Paul:

Dec. 23: Ron Paul - Meet the Press, online at MSNBC - MSNBC.com: MR. RUSSERT: I read a speech you gave in 2004, the 40th anniversary of the Civil Rights Act.  And you said this:

Contrary to the claims ofsupporters of the Civil Rights Act of '64, the act did not improve race relations or enhance freedom.  Instead, the forced integration dictated by the Civil Rights Act of '64 increased racial tensions while diminishing individual liberty....

REP. PAUL:  Well, we should do, we should do this at a federal level, at a federal lunch counter it'd be OK or for the military.  Just think of how the government, you know, caused all the segregation in the military until after World War II.  But when it comes, Tim, you're, you're, you're not compelled in your house to invade strangers that you don't like.  So it's a property rights issue.  And this idea that all private property is under the domain of the federal government I think is wrong.  So this--I think even Barry Goldwater opposed that bill on the same property rights position, and that--and now this thing is totally out of control. If you happen to like to smoke a cigar, you know, the federal government's going to come down and say you're not allowed to do this.... [T]he federal government's taken over property--has nothing to do with race relations.  It just happens, Tim, that I get more support from black people today than any other Republican candidate, according to some statistics.  And I have a great appeal to people who care about personal liberties and to those individuals who would like to get us out of wars.  So it has nothing to do with racism, it has to do with the Constitution and private property rights.

MR. RUSSERT:  I was intrigued by your comments about Abe Lincoln.  "According to Paul, Abe Lincoln should never have gone to war; there were better ways of getting rid of slavery."

REP. PAUL:  Absolutely.  Six hundred thousand Americans died in a senseless civil war.  No, he shouldn't have gone, gone to war.  He did this just to enhance and get rid of the original intent of the republic.  I mean, it was the--that iron, iron fist..

MR. RUSSERT:  We'd still have slavery.

REP. PAUL:  Oh, come on, Tim.  Slavery was phased out in every other country of the world.  And the way I'm advising that it should have been done is do like the British empire did.  You, you buy the slaves and release them.  How much would that cost compared to killing 600,000 Americans and where it lingered for 100 years?  I mean, the hatred and all that existed.  So every other major country in the world got rid of slavery without a civil war.  I mean, that doesn't sound too radical to me.  That sounds like a pretty reasonable approach.

How Did Morgan Stanley Lose That $9.4 Billion Anyway?

Yves Smith considers a mystery:

naked capitalism: So How Did Morgan Stanley Lose That $9.4 Billion?: I usually rely on public information, but I've had two not-so-public (well, one is public but second-hand) data points converge, and they are consistent with the MSM information on the matter at hand, namely, how Morgan Stanley came to post a $9.4 billion loss on the actions of one trading desk, which in turn led to a first time quarterly loss of $3.85 billion. The reports in the press are not terribly specific but consistent. For instance, from the Guardian:

The outcome is particularly galling for Morgan Stanley because it spotted early signs of the looming sub-prime mortgage crisis and took steps to hedge its trading positions to protect itself against financial damage. But poor execution allowed these hedges to fall away – a failure which prompted internal soul-searching and the recent departure of the bank's co-president, Zoe Cruz....

I heard tonight from a Morgan Stanley employee... [that] the losses... resulted from error, pure and simple. Someone made a mistake and put a BBB hedge on an AAA subprime position... no one notice[d] that the hedge was incorrect.... Mind you, I only got the sketchiest of outlines of what transpired, but the part that was very clear was "mistake" and specifically that someone, somehow misread BBB for AAA (or vice versa). The fact that short mezzanine was described as a hedge for long AAA whas been confirmed in the press. I'm sure real traders who have access to real data can interpolate better.

Then we get to the more interesting question of what sort of managerial failure this represents... bad management information systems... that didn't closely or clearly show how long positions and supposed hedges relate... overly large desk limits... failings in firm-wide risk management processes Even if the trade was put on incorrectly, how in God's name was it allowed to keep going south until the losses reached $9.4 billion?...

Christmas Eve Grocery-Shopping Dungeness Crab Inventory Management Blogging

"Father Christmas, why are we waking up at 5:52??"

"Because we want to be at Whole Foods at 7:00, when it opens."

"Father Christmas, why do we want to be at Whole Foods at 7:00, when it opens?"

"Because it's Christmas Eve!"

"And what's at Whole Foods at 7 AM on Christmas Eve? I know! Santa!!"

"No, not Santa. You are punchy."

"You took me to see Before the Devil Knows You're Dead last night--a movie without an ounce of redemption or even a hint of a happy ending."

"But [character X] and [character Y] get together and escape to Rio with the money at the end, and live happily ever after."

"They do?"

"Well, they might. At least, we are not certain that they are dead."

"Not being sure that they are dead is not quite we see them find true love."

"True."

"And so I couldn't get to sleep until 2 after that. And now I'm up at 6:12. And I get to see Santa!"

"No. If we hit Whole Foods at 7, we get to see it and we will get to not see all the people who will be at Whole Foods at 2 PM are. We will get a parking space. And the lines will be less than hours long."

"But no Santa."

"Let's take the dog. We can walk the dog around Whole Foods and its parking lot before it opens. The smells will be a vision of heaven for the dog..."

---

"This seafood line looks to be half an hour long already."

"Well, the store has been open for fifteen minutes."

"You were the one who wanted to bring the dog--which meant that we were fifteen minutes away on foot when the bell sounded."

"But one of us can stay in line, and one can run about the store."

"Grated Parmesan, two cups Mozzarella, and a little Gorgonzolo..."

"I'm on it..."

---

"Well this looks like a convivial seafood line. Are they passing out shrimp cocktail? Or mimosas?"

"We're talking about what we will make if we get to the front and discover that there's no crab for us sluggards and slatterns--that there's only crab for the do-be pre-orderers."

"And is their crab for the non-do-bes?"

"They don't know. The crab is being unloaded right now. They're not sure how much there is--whether there is just enough for the pre-orderers or whether there's extra."

"Oh."

"They are envious of my runner though. They compliment me and talk about what tasks they would assign if they had a runner."

"Well, in this culture, if you are a man, you don't have to do very much to get a lot of credit."

"You got it."

---

"Did you get the lasagna noodles?"

"Whole Foods doesn't seem to be a lasagna place. They don't seem to think that lasagna fits their ethos. The lasagna demographic is not their demographic."

"Did you get the lasagna noodles?"

"What I could find was brown rice gluten-free lasagna noodles. So I got those."

"Oh."

"But I did get Bible spaghetti! Ezekiel 4:9 sprouted whole wheat spaghetti!"

"Oh."

"'In the year that George W. Bush's Secretary of State Condi Rice said that the Western Alliance had never been in better shape, I saw also the LORD seated upon a throne. Around him flew the seraphims: with two wings each covered his face, and with two wings each covered his feet, and with two wings each did fly.'"

"You are having so much fun I won't tell you that's not Ezekiel but Isaiah."

"'And one one of the seraphims cried unto another, and said: "Swipe your credit card now..."'"

---

"What number are they on?"

"They called 54. But then they called 51."

"We're backtracking. People don't hear or have wandered off. And they are really upset if they find that they've missed their number."

"Oh."

"Yesterday I had somebody completely break down. They were gossiping by the cheese counter when their number was called. They were distraught. We nearly had to call the paramedics."

"It is loud in here. And many of these customers look like their ears are not the sharpest."

"True. So we backtrack."

52? 52? 53? 53? 54? 54? 55?"

"55!! WE'RE 55!! WE'RE HERE!!"

"Actually, we're 57."

"Oh. Don't mind me, I'm punchy."

"We don't mind."

"55? 55? 56? 56? 57?"

"WE'RE 57!!!"

"We're refugees from Whole Foods, where they have crab only for the virtuous pre-orderers, not for the likes of us sluggards and slatterns. Do you have any crab?"

"If so, could we get one big one?"

"They're not too big, and they are already cracked and cleaned."

"Two small ones, then."

"Here at Diablo Foods we cleaned and cracked 6000 lbs. of crab yesterday to get ready for this day."

"For this one store?"

"For this one store."

links for 2007-12-24

• Saskia Scholtes: On Wall Street: Helping hand could prolong subprime pain
• Yves Smith: So How Did Morgan Stanley Lose That $9.4 Billion?

Trust and Don't Verify!

Rogers Cadenhead:

Long Bet Winner: Weblogs vs. The New York Times | Workbench: In 2002, blogging evangelist Dave Winer made a long bet with New York Times executive Martin Nisenholtz: "In a Google search of five keywords or phrases representing the top five news stories of 2007, weblogs will rank higher than the New York Times' Web site."...

Winer predicted a news environment "changed so thoroughly that informed people will look to [expert non-journalist] amateurs they trust for the information they want." Nisenholtz expected the professional media [like the New York Times] to remain the authoritative source for "unbiased, accurate, and coherent" information....

But Rogers Cadehead says that both were wrong. Today:

our most trusted source on the biggest news stories of 2007 is a horde of nameless, faceless amateurs who are not required to prove expertise in the subjects they cover.

What is it? Wikipedia.

Winer wins the bet [he made against Nisenholtz] 3-2, but his premise of blog triumphalism is challenged.... In the five years since the bet was made, a clear winner did emerge, but it was neither blogs nor the Times.

Wikipedia, which was only one year old in 2002, ranks higher today on four of the five [top] news stories [of 2007]: 12th for Chinese exports, fifth for oil prices, first for the Iraq war, fourth for the mortgage crisis and first for the Virginia Tech killings...

Congratulations to Jimmy Wales and company!

I'm going to have to revive my wikipedia account and start contributing...

Hoisted from Comments: Kate G. on Ron Paul

Hoisted from Comments: Kate G. writes:

Grasping Reality with Both Hands: Economist Brad DeLong's Semi-Daily Journal: I think the phrase "tonal in content" is exactly right. When you talk to very energetic supporters of someone who comes out of nowhere, like Ron Paul, you find that they are, essentially, a blank screen onto which their supporters (even half hearted or backhanded ones like Jerry) project their dissatisfactions with other candidates. Their actual political histories and policy prescriptions are either not understood at all or misunderstood. But even more to the point their anti-glamor is a kind of plus. In a year when each of the other parties is struggling directly to appeal to some kind of typical charisma seeking voter (you like blacks--we've got a great one! you like women--here's your chance to vote for one! You like guys on tv? Here's one!) the "outsider" candidate is always one who is stunningly, almost bizarrely out of step with glamor. Ralph Nader? Dean? (although I loved him!)and Ron Paul appeal to the "illuminati are running everythign" crowd. Their very lack of sex appeal, their insistence on being an outsider--old, thin, ugly, tired, cheap, no photos with babes etc..etc...etc...--is their shtick. Anti glamor is a kind of glamor. And that is all their followers see.

To the retort that their followers actively like one stand or another that the candidate actually takes (I love the gold standard! I'm all for state's rights! blah blah) the thing to remember is that Ron Paul's followers are not more intelligent or more historically informed or more anythign than the regular run of voters. Just like people voted for Bush thinking that "clear skies" meant he was really an environmentalist people will vote for Ron Paul thinking, somehow, that he wouldn't allow a national ban on abortions or that he isn't a stormfront stooge. People just can't face up to the actual realities of our political offerings and the cognitive dissonance is too great. Only someone totally disaffected from the system can recognize that even the alternative candidates are terrible and no real alternative....

[G]e[ting]t charged with being racists, misogynists, and anti semites... are, historically, a badge of honor for republicans, certainly. They may have turned the "anti semite" thing around by working closely with the ADL and with the very vocal AIPAC but that doesn't mean that they don't market basic anti semitic storylines to the other rubes in the Republican alliance. But neither "racism" nor "misogyny" or downright sexism has ever proven a drawback for right wing politicians in other than a general election or a brief scrum of hysteria in the papers. For their base saying, for example, that blacks are genetically inferior to whites or that women shouldn't vote are actually calling cards--check out the bell curve and its defenders and Ann Coulter's oeuvre for everything else. She may be on the way out as a saleswoman but while she was hot she was very, very, hot and her quips and cracks marketing a hard line racism and sexism were very, very, popular.

What does all this have to do with Ron Paul? Well, he's still running as a Republican and attempting to appeal to a Republican party base, isn't he? The fact that some Democrats and third party progressive types are willing to be gulled by him and his followers doesn't impress me. Politics is like a game of telephone combined with a nigerian internet scam, for some people. They are always willing to believe a half understood rumor of great riches (or a noble post political candidate) more than they are willing to do their own homework and study up on the candidates actual history and policy proposals.

Ron Paul is a republican and any Republican who hasn't left the republican party officially out of shame can't get my vote for dog catcher. Is he also a racist and a misogynist? Well, sure it takes more than one quote from a few years ago though 1992 isn't really the dark ages for information technology and apologies but I know that David Neiwert, whose work I respect, has linked him with Storm front and I doubt it it is attributable to one phony quote. But Racism isn't the half of it. How about the sexism and the poor judgement to pander to a right wing base using code words like "state's rights" to attack women's rights and put pregnant women and families at the mercy of right wing anti abortion lunatics? I choose my words wisely. It has long been shown that "state's rights" is a dog whistle phrase used specifically and solely to garner attention and respect from both racists and sexists. Other areas of "state's rights" like the "right to die" or liberal drug laws or, hell, even EPA waivers are simply not politically important. Because they don't serve as code words for racist and sexist base politics.

We "turned gay marriage" over to the states in MA. and we've been hammered for it ever since by right wing anti gay activists who demand a national law on this matter. The existence of an "honest libertarian" like an honest republican has yet to be demonstrated. In my brief lifetime I've yet to meet either one and I doubt I've found one in Ron Paul.

Our Slow-Motion Financial Crisis

Paul Krugman writes:

Search for security: One of the truly amazing things about the current financial environment has been the way investors are parking their money in government debt, even at very low yields, because they’re afraid to lend to private entities that may be holding toxic waste.

And it’s not getting better. Here’s the yield on one-month U.S. Treasury bills, which is back down close to its low from the August panic.

---

Tthe implicit overnight bankruptcy probabilities implied by these spreads are remarkable. As I said before, the odds that any given major bank borrowing Eurodollars will collapse tomorrow have gone from something that you expect to happen roughly once every 3000 years to once every 500 years.

Paul Krugman thinks that we now face not a liquidity crisis to be solved by flooding the system with liquidity and thus pushing down interest rates on safe assets but a solvency crisis that can only be solved by recapitalizing the banking system. I say: why take chances? Do both. The Fed should ease monetary policy and the Fed and other regulators should require financial system recapitalization.

Ron Paul

There have been requests for what I think of Ron Paul. This, I think, makes important points:

It comes from Ezra Klein, who also says this:

EzraKlein Archive | The American Prospect: THE ODD APPEAL OF RON PAUL: As Dana says, it's a bit hard to square the immense affection Ron Paul receives from putative civil libertarians with his intensely restrictive attitude towards such issues as whether a woman will be forced to use her body as a vessel for childbearing. But, as Peter Suderman argues, it's probably a mistake to focus too intensely on policy when trying to evaluate the appeal of Paul. Rather, Paul provides a home for those who feel alienated, misled, lied to, and marginalized by mainstream politics. As one of my commenters said, "It's like he's quietly amassing and army of outcasts from the Perot and Nader campaigns." Add in outcasts from whomever the Libertarian party tends to run and I think you've got a pretty good sense of the coalition.

With Paul, the positions aren't the point. His candidacy is tonal, aesthetic in nature. It's a movement united behind Howard Beale: They're mad as hell at politics, and not going to take it anymore. The force of that statement is far more important than whether Beale's political opinions or likely comportment in office precisely match up with what his supporters would desire. Paul's candidacy is an indictment of the system, not an argument for who would best administer it.

links for 2007-12-22

• Nicholas Antongiavannini: Curtains for the Necktie?
• Matthew Yglesias: He recommends Thomas Keneally's A Commonwealth of Thieves: The Improbable Birth of Australia
• Calculated Risk: BofA: Attitudes Changing Towards Default
• Dana Ford: Tent city in suburbs is cost of U.S. home crisis
• Daniel Gross: What steakhouses reveal about the weakness of the U.S. economy
• George Anders: Now, Even Borrowers With Good Credit Pose Risks
• David Enrich and Diya Gullapalli: Banks to Abandon Super-SIV Plan

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It's Duncan Black Day!

First, he writes "Hop on Huckabee":

Eschaton: Hop on Pop: Awesome:

Who is your favorite author?” Aleya Deatsch, 7, of West Des Moines asked Mr. Huckabee in one of those posing-like-a-shopping-mall-Santa moments.

Mr. Huckabee paused, then said his favorite author was Dr. Seuss.

In an interview afterward with the news media, Aleya said she was somewhat surprised. She thought the candidate would be reading at a higher level.

“My favorite author is C. S. Lewis,” she said.

He then writes about the Washington Post Joel Achenbach and the Romney Pizza Menace:

Eschaton: Lord Please Make Them Stop

Maybe millionaire Mitt Romney should film a commercial of him sitting on the couch in his boxing shorts watching bowling on the teevee with one hand clasping a beer and the other one in a bag of pork rinds.... There really is practically nothing worse about campaign coverage than Beltway elites imagining how "reglar folks" live and eat and then demanding that presidential candidates pretend that they're just like that!

Who the f--- cares how Mitt Romney eats his pizza?

Just kill me.

Black is not misrepresenting Joel Achenbach. Here's some of Achenbach's broader context:

Achenblog: The morning thought: Wouldn't it be nice to read a book. And have nothing else to do, no work obligations, no need to scramble for last-minute presents. Imagine if "read a book" were your only agenda item, and that the book lived up to its end of the bargain, and told a good story well....

Last night I had dinner at the Continental with a bunch of reporters, who knew all kinds of interesting and amazing things about the campaign that had somehow eluded my foggy brain....

No one really knows how significant the results here in Iowa will be. They sure love Huckabee here, but how will his message play in places like New York and California?

I heard the other day that Mitt Romney is so careful with his weight that he will pick the cheese off his pizza. Then I heard from another source that he eats pizza with a knife and fork. That's two sources, two angles: That's practically confirmation.

I just can't imagine the American people electing as president someone who does that to pizza. I'm not saying a president has to have a special knack for eating pizza - what you call "pizza talent" - but he or she has to respect the pizza, and look comfortable with it....

That's one reason people like Bill Richardson: He looks like a good eater. They liked that about Bill Clinton, too.

When you ask people in Iowa what they look for in a candidate, the response is almost invariably a version of "Someone who's down to Earth. A real person. Honest. The kind of person who'll look you in the eye and tell the truth. A straight shooter."

And they don't need to add: "Someone who knows how to scarf down a slice of pizza."

Years ago I heard an anecdote about Mike Dukakis, and I'm sure I'll mangle it, but here's the gist as I dimly recall it: Coupla big union guys, beefy fellows, came to see Dukakis at his home in Brookline, thinking about endorsing him. Dukakis asked them if they wanted a beer. Sure, they said. So he gets out a beer and two glasses, and pours half the beer in one glass and half the beer in the other.

Lost the election right there.

That Duncan Black actually reads people like Joel Achenbach and does not go stark raving bonkers is testimony to his intestinal fortitude. Remember: HE DOES IT SO WE DON'T HAVE TO!!

Next Duncan reminds us that Circuit City's firing all its experienced sales staff isn't working out so well:

Eschaton: Couldn't Happen to a Nicer Company: Circuit City:

Dec. 21 (Bloomberg) -- Circuit City Stores Inc., the second-largest U.S. consumer-electronics retailer, reported a fifth straight loss and said it won't make money this quarter, when it typically generates most of its annual profit. The chain dropped 32 percent in early New York trading. The loss widened to $207.3 million, or $1.26 a share, from a loss of $20.4 million, or 12 cents, a year earlier. Sales dropped 3.1 percent to $2.94 billion, the Richmond, Virginia- based company said today in a statement. It was the third consecutive quarterly revenue decline.

Circuit City, which cut 10 percent of its U.S. workforce this year and hired people willing to work for less, is losing market share to larger rival Best Buy Co. Sales in stores open at least 12 months fell 5.6 percent in the third quarter.

Duncan Black is bemused at all the priest-maddened right-wingers for whom Christmas is a season of hate:

Eschaton: Deep Thought of the Day: Christmas seems to make a lot of conservatives really angry. ...for example...

And snarks at the real estate industry:

Eschaton: Jingle All The Way: The economically rational thing for many underwater homeowners is to put the keys in the mail and walk away. I think it's pretty funny that the industry is hoping that social norms will prevent people from doing so. Perhaps they should spend a little time worrying about their own social norms which led them to hand out all of those bullshit loans in the first place...

Outsourced to Minipundit: Why Oh Why Can't We Have a Better Press Corps?

Minipundit reads the Washington Post so we don't have to:

Minipundit: Paging Brad DeLong: Michael Gerson, on evolution:

I have little knowledge of, or interest in, the science behind this debate.

He then proceeds to write an entire 800-word column about said debate. Awesome. The next sentence is a gem too:

Can gradual evolutionary changes account for the complex structures of cells and the eye?

Yes. This has been another edition of simple answers to simple questions.

Is there any reason for anybody to pay for this? Anybody? Anybody? Bueller?

Yet More Cholesterol-Reducing Statins Blogging

I am not sure how serious Daniel Gross is in claiming that steakhouse chains are a leading indicator:

What steakhouses reveal about the weakness of the U.S. economy: If you want to understand how high energy prices are impacting the economy, you could spend your days reading the Wall Street Journal or consulting with economists. Or you could go have a really expensive New York strip steak at the Palm or Morton's.

High-end steakhouses have expanded rapidly in recent years thanks to an economic expansion, the popularity of cholesterol-reducing statins such as Lipitor, and the low-carb/high-protein Atkins/South Beach diet crazes. You'll now find outposts of Morton's, Ruth's Chris, and several competitors in all the best suburban strip malls, edge-city shopping districts, and gentrified downtowns.

The financial results of these testosterone-filled cow palaces reveal much about several trends affecting the U.S. economy. First, they are a neat case study in the unexpected collateral effects of high energy prices. The high price of oil has spurred demand for ethanol, which in turn has boosted the price of corn. Corn is a primary "input"—or as we say in English, "food"—for beef cattle. (Here are charts showing the rising prices of corn futures and cattle prices over the last several years.) The combination of higher grain and energy prices has led to burgeoning inflation in food. In the first quarter of 2007, food prices rose at an annualized rate of 7.1 percent, according to the Bureau of Labor Statistics. Like many businesses, steakhouses face the classic choice of swallowing the higher costs—and accepting lower margins—or raising prices.

Some beef boîtes are boosting prices. The New York Times recently reported that "The Palm steakhouse chain has raised the price of its steaks by $2, and side dishes have gone up 50 cents to help compensate for the price of the beef." The company's chief operating officer told the paper: "I don't think our customers have noticed." (Note: If customers haven't noticed a sly price increase, you might want to refrain from broadcasting it to the New York Times' readers.) At Peter Luger, the Brooklyn landmark whose very name causes this writer to salivate, the price of the iconic porterhouse for two has risen from $79.90 to $81.

But most of the big meat chains seem to be eating the costs, as shown by their falling margins. At Morton's margins fell from 9.8 percent to 9 percent in the first quarter, thanks in part to rising costs. Ruth's Chris reported that first quarter 2007 operating income fell from 13.8 percent of revenues to 10.1 percent of revenues. Rare Hospitality, which owns 280 Longhorn Steakhouse outlets, saw first quarter 2007 operating income fall to 8.6 percent of revenues, down from 9.8 percent in the first quarter of 2006.

To aggravate matters, the rising cost of beef appears to be accompanied by slowing demand. At Morton's steakhouses, same-restaurant sales rose by a meager 0.5 percent in the first quarter of 2007. For the year, Morton's expects same-restaurant revenue growth of between 1.5 percent and 3 percent. When Ruth's Chris reported first-quarter sales in April, it reduced expectations of same-store sales growth substantially. At Rare Hospitality, same-store sales actually fell 1 percent in the most recent quarter. For the remaining three quarters of fiscal 2007, the company sees same-store revenue growth of between 0 percent and 2 percent for its Longhorn Steakhouse outlets.... Not surprisingly, given the shrinking margins and slowing revenue growth, the... stocks of the major public steakhouse companies have done poorly in recent months....

Steakhouses thrive on expense accounts. Their sales are tied to the exuberance of (mostly) men in the corporate world, and their business is largely discretionary... steak stocks become more like leading indicators. If profits are humming, M&E budgets are in rude health, and prospects look good, you'd expect businesspeople to use steakhouses for meetings, deal-closing dinners, and recruitment lunches. When business slows down a lot—as it has in many sectors of the economy—it becomes much harder to justify a $250 lunch for three. Wall Streeters and hedge-fund guys may still be splurging for Kobe, but think about all those real estate and mortgage brokers, car dealers and consumer products salesmen, retailers and contractors who may be nibbling on takeout burritos because of slowing demand.

Right now, the steakhouse damage seems confined to the chains. The next trouble spot, however, could be the highest quality, most—um—rarefied steak joints. For decades, Peter Luger has been the epitome of high-end, high-quality, consumer-unfriendly steak: no credit cards, brusque waiters, and a remote location. So long as the economics of the steak business were friendly, the restaurant could afford to be standoffish. If the portly waiters in Williamsburg start wishing you a nice day and loudly tout the fact that Luger's proudly accepts the American Express card, start praying.