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June 2008

Financial Regulation in the Twenty-First Century

Yesterday I felt obliged to strongly dissent from Greg Mankiw's claim that Austan Goolsbee, in endorsing his boss Barack Obama's position on the regulation of investment banks, had sold his share of the grand Chicago intellectual tradition for a mess of political pottage. Mankiw wrote, of Austan:

Greg Mankiw's Blog: George Stigler rolls over in his grave: Remember when the University of Chicago used to be the intellectual center of the deregulation movement? No more. A reader alerts me to this news: "Investment banks that obtain Federal Reserve Bank loans during a financial crisis should face much closer regulatory scrutiny, a key economic adviser to Democratic presidential candidate Sen. Barack Obama said. Austan Goolsbee, an economics professor at the University of Chicago and one of Sen. Obama's closest advisers on economic issues, said the senator believed strongly in enhanced regulation of any financial institution that has access to the Fed's discount window..."

This claim of Mankiw's seemed to me to be (i) simply wrong in its understanding of the Chicago tradition on financial regulation, as I argued yesterday, (ii) wrong in its analysis of why the Federal Reserve believes it needs authority to both lend to and regulate non-bank banks, as Mark Thoma argued yesterday, and (iii) wrong in its misidentification of the source of the push for enhanced regulatory authority--which comes not out of Barack Obama and the Democratic Party as a partisan issue but out of the Federal Reserve as a technocratic issue. This last is, I think, especially important: getting financial regulation right to deal with financial crises is not properly a partisan or ideological issue, and nobody should try to make it one.

And lo and behold, in this morning's Financial Times we have New York Fed President Tim Geithner explaining what he believes needs to be done: enhanced regulation of any financial institution that has access to the Fed's discount window--with which institutions have access something determined by the regulators in the interest of system stability: Since last summer, we have lived through a severe and complex financial crisis.... Many assets were financed with significant leverage and liquidity risk and many of the world's largest financial institutions got themselves too exposed to the risk of a global downturn. The amount of long-term illiquid assets financed with short-term liabilities made the system vulnerable to a classic type of run. As concern about risk increased, investors pulled back, triggering a self-reinforcing cycle of forced liquidation of assets, higher margin requirements, increased volatility.

What should be done to strengthen the system in the future? First, when we get through this crisis we have to increase the shock absorbers... more exacting expectations on capital, liquidity and risk management for the largest institutions that play a central role in intermediation and market functioning. They should be set high enough to offset the benefits that come from access to central bank liquidity, but not so high that they succeed only in pushing more capital to the unregulated part of the financial system.

Second, we have to... [take] some of the risk out of secured funding markets, increasing resources held against default in the centralised clearing house, and encouraging more standardisation, automation and central clearing....

Third, the regulatory framework cannot be indifferent to the scale of leverage and risk outside the supervised institutions. I do not believe it would be desirable or feasible to extend capital requirements to leveraged institutiions such as hedge funds. But supervision has to ensure that counterparty credit risk management in the supervised institutions limits the risk of a rise in overall leverage....

Fourth, we need to streamline and simplify the US regulatory framework.... The institutions that play a central role in money and funding markets - including the main globally active banks and investment banks - need to operate under a unified framework that provides a stronger form of consolidated supervision, with appropriate requirements for capital and liquidity. To complement this, we need to put in place a stronger framework of oversight authority over the critical parts of the payments system - not just the established payments, clearing and settlements systems, but the infrastructure that underpins the decentralised over-the-counter markets.... At present the Fed has broad responsibility for financial stability not matched by direct authority and the consequences of the actions we have taken in this crisis make it more important that we close that gap.

Finally, we need a stronger capacity to respond to crises...

Thoma vs. Mankiw on Opt-Out Financial Regulation

I score this one for Mark Thoma. Mark Thoma is... puzzled, I think is the word... by Greg Mankiw's claim that there is something intellectually wrong with Austan Goolsbee's endorsement of the idea that there should be "enhanced regulation of any financial institution that has access to the Fed's discount window.... Mr. Goolsbee said that an Obama presidency would ensure that investment banks are regulated as closely as commercial banks." Mankiw writes:

George Stigler rolls over in his grave: Remember when the University of Chicago used to be the intellectual center of the deregulation movement? No more.... This story seems to confirm the fears of Vince Reinhart [that the Fed's actions in Bear Stearns will be used to argue for more spending and more regulation...]

Mankiw is wrong here on a bunch of levels.

First, George Stigler is not rolling over in his grave. On matters of financial regulation, George Stigler showed great deference to Milton Friedman, and Milton was in favor of extremely tight regulation of any financial institution whose liabilities served as part of the economy's stock of liquid assets--as those of us who did the reading that Tom Sargent assigned and read Friedman's Program for Monetary Stability know: the restrictions that Friedman thinks should be imposed on what reserves banks must keep, what assets banks can hold, and what promises banks can make about the liquidity of their liabilities are absolutely draconian.

Second, Mankiw is mistaken in portraying the belief that additional regulation of not just commercial but investment banking as Obama's initiative. Here Obama is simply backing Ben Bernanke, who said last month:

Ben Bernanke, Liquidity Provision by the Federal Reserve, May 13, 2008: Although central banks should give careful consideration to their criteria for invoking extraordinary liquidity measures, the problem of moral hazard can perhaps be most effectively addressed by prudential supervision and regulation that ensures that financial institutions manage their liquidity risks effectively in advance of the crisis. Recall Bagehot's advice: "The time for economy and for accumulation is before. A good banker will have accumulated in ordinary times the reserve he is to make use of in extraordinary times" (p. 24).... In light of the recent experience, and following the recommendations of the President's Working Group on Financial Markets (2008), the Federal Reserve and other supervisors are reviewing their policies and guidance regarding liquidity risk management.... [F]uture liquidity planning will have to take into account the possibility of a sudden loss of substantial amounts of secured financing.... [I]f moral hazard is effectively mitigated, and if financial institutions and investors draw appropriate lessons from the recent experience about the need for strong liquidity risk management practices, the frequency and severity of future crises should be significantly reduced...

Mankiw appears to be trying to portray this as Obama, and it's not: it's Bernanke and Geithner and Kohn and company.

Third, Mankiw does not grasp the reason that Ben Bernanke believes that the Fed needs additional regulatory tools. Mankiw asks:

George Stigler rolls over in his grave: Here's a question for Austan: Can an investment bank avoid such regulation if it promises never to use the discount window? Or is this insurance-regulation combo a mandate?

And here I want to turn the mike over to Mark Thoma, who starts out:

Economist's View: Is Austan Goolsbee Betraying the Chicago Tradition? If So, is That Bad?: [A]ccess to the Fed's lending facilities should come with regulatory restrictions. The question is whether banks should be allowed to move outside the regulatory umbrella if they voluntarily give up access to the discount window...

And then Mark puts his finger on it:

A bank would also have to promise that it would not become "too big to fail" for the commitment from the Fed to prohibit access to the discount window to be credible. If a bank does become too big to fail and if it runs into trouble and asks the Fed for help, then the Fed will be forced to bail them out... no matter what the prior agreement had been. Sending the economy into a tailspin and deep recession simply to honor a past promise to prohibit access to the window would not be the best policy at that point.... [B]anks [that] can grow large enough to threaten the overall economy... [require] a regulatory solution... either... regulate the size of banks... [and] intervene if a bank grows too large. Or... allow banks to grow large... because large banks have desirable efficiency properties, but [then] impose regulations to reduce the chances that they will need [help]... limit their ability to damage the overall economy...

The key which Mankiw does not recognize is that access to the discount window is not a favor that the central bank provides that is good for the bank in return for the bank's acquiescing in a regulatory power grab. Granting access to the discount window is a step the central bank takes in the interest of avoiding the mass unemployment that would be produced by bank failures that disrupted the payments and investment-finance system. The central bank is then required to take the next regulatory step to try to curb the moral hazard that its guarantee generates.

The last people to offer the financiers freedom from regulation in exchange for freedom from financial support in a crisis were Herbert Hoover and his Treasury Secretary Andrew Mellon, with Mellon's cry to let the Great Depression roll forward to its natural free-market conclusion. To quote Hoover:

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

That did not turn out so well. Ever since monetary policy has been made--and monetary theory made as well--in the shadow of the Great Contraction. That was why Stigler deferred to Friedman so completely on issues of financial regulation. And that was why Friedman was so anxious to make sure that no financial institution that provided a share of the economy's liquid, spendable assets had enough freedom from regulation to make large leveraged bets that would take it down in a crisis.

Los Angeles Times Death Spiral Watch

Ezra Klein:

EzraKlein Archive | The American Prospect: A week ago, I laughed off fears that any reporters in America would be dim enough to argue that Barack Obama and John McCain, contrary to what they say and what their policies suggest, are actually quite close to each other ideologically. Today, the LA Times takes a shot at proving me wrong. Happily, the Times' editorial page isn't quite able to convince itself of this bit of tomfoolery, but they give it a go. I hereby promise to never again underestimate the media's ability to turn any campaign into an ideas free contest of personalities.

Matthew Yglesias:

Except for Disagreements, They Agree: There was a bizarre editorial in the LA Times yesterday about how Obama and McCain are really pretty similar dudes and it's awesome that they're both so centristy and the same. One could debunk this contention, but the editorial itself doesn't really argue for it. They concede, for example, that McCain and Obama have serious disagreements about:

Iraq, Iran, Health care, Taxes, Trade, Abortion rights, Gun control

That's a lot of disagreement! They also concede that the two candidates "have different plans to solve the mortgage crisis." What's more, after asserting that Obama and McCain "support the same policies" on the environment, they immediately acknowledge that they support different policies, "Obama's would reduce them to 80% below 1990 levels by 2050, while McCain's would cut them by 60%" though they fail to note the difference between auctioning permits and giving them away. In the course of acknowledging disagreement about abortion, they note that Obama and McCain would appoint different kinds of judges, but they don't seem to consider the fact that the federal judiciary actually deals with all kinds of issues other than abortion. Nor do they mention Social Security, which is kind of a big deal.

One could go on like this, but I'm not sure what the point would be. Clearly, though, there's a substantial difference between the candidates and I have no idea why the press would think that obscuring that is a good idea -- conflict sells papers! And it's true!

Berkeley Political Economy "Concentrations"

From: Brad DeLong, Chair, Political Economy Group Major
To: Current and Future Political Economy Majors and Other Interested Parties
Subject: Political Economy Major "Concentrations"
Date: June 8, 2008

The concentration requirement in Berkeley's Political Economy major is meant to force students to deepen their understanding of the nature of the relationship between politics and economics as it relates to a particular issue. You are graduating with a Political Economy degree. That means you know a little about each of history, sociology, political science, economics, possibly philosophy, rhetoric, anthropology, geography or other disciplines as well. You should know a lot about something. the Concentration requirement forces you to define that something, and then to learn about it.

To fulfill the requirement, each student chooses an existing or potential issue or problem in international political economy, and takes four courses bearing on that issue or problem. The courses need to inform the student's study of the concentration topic. In a better world than this, the concentration would also include a required senior honors thesis on some aspect of the concentration topic. (My concentration was "Economic Thought and Economic Reality in the Age of the Industrial Revolution." My senior thesis was The Classical Economists Perceive the Industrial Revolution. You can read it here:

The key to the concentration requirement is that it is your own: the concentration is self-defined. You must develop a topic that is an existing or potential issue or problem in international political economy. You then choose four courses to inform inform your view and increase your knowledge. Select courses from different departments. Note that courses listed in the Political Economy Student Handbook will automatically be approved for appropriate concentration topics--but courses not listed in the handbook can be taken for the concentration: all you have to do is make the case that it is appropriate for the concentration. And, of course, no double dipping: courses taken for your concentration cannot be double-counted towards another major requirement.

The Political Economy staff are aware of reality. We are not lost in cloud-cuckoo-land. Courses that you wanted to take for your concentration are suddenly canceled, or you are excluded from them, or another opportunity opens that you find irresistible but that conflicts with your concentration courses. We will be flexible--we don't require that you fulfill the concentration you sign up to do, but only that when you receive your degree you can look back and say to yourself: "Wow, I really do know a lot about fill in concentration topic here..."

Here are fifteen largely-randomly-selected four-course "concentrations" that Berkeley Political Economy Majors are currently pursuing. Note that these are not the best possible courses offered at some Platonic Ideal of Berkeley for this concentration--these are real-world courses that students can actually get into and take for their respective concentrations:

Democracy, Globalization, and China

  • Mass Comm 102: Effects of Mass Media
  • Soc 172: Development and Globalization
  • Soc 183: Contemporary Chinese Society
  • Poli Sci 143C: Chinese Politics
  • Poli Sci 143D: Democracy and China

The Euro

  • Econ 161: International Trade
  • Hist 158C: Modern Europe, 1914-Present
  • Poli Sci 147H: The Domestic Politics of Postwar Western Europe
  • Soc 122: Comparative Perspectives: US and Europoe
  • Hist 160: The International Economy of the Twentieth Century

The European Union: Rhetoric and Reality

  • Rhet 150: Rhetoric of Contemporary Politics
  • Rhet 172: Rhetoric of Social Theory
  • Poli Sci 147: Western European Politics
  • Hist 158C: Modern Europe: 1914-Present

Economic Development and Human Rights

  • Econ 171: Economic Development
  • PS 139B: Politics of Development
  • PACS: Human Rights
  • Poli Sci 146AB: African Politics

Sustainable Development

  • IAS 115: Global Poverty
  • ESPM 161: Environmental Philosophy and Ethics
  • ESPM 167: Environmental Health and Development
  • Geo 130: Natural Resources and Populations
  • EEP 153: Population, Environment, and Development

International Power: Economic, Political, and Military

  • Poli Sci 124A: War
  • Poli Sci 124C: Justice in International Affairs
  • Econ 181: International Trade
  • Poli Sci 138B: Market Economics
  • EEP 152: Development and International Trade

Political Economy of Northeast Asia

  • Poli Sci 1230A: International Relations
  • History 113B: Modern Korean History
  • Poli Sci 128: Chinese Foreign Policy
  • UGBA 118: International Trade
  • Hist 118C: Japan: The Late Nineteenth Century to the Present

Economic Development in the Information Age

  • IFS 100D: Introduction to Technology, Society, and Culture
  • DS 100: Development in Theory and History
  • Info 190: Technology and Poverty
  • Am Stud 134: Information Technology and Society
  • Poli Sci 138D: Governance of the E-conomy

Barriers to the Delivery of health Care Services in the United States

  • PH 150D: Intro to Health Policy and Management
  • ESPM 162: Bioethics and Society
  • Econ 157: Health Economics
  • GWS 150: Gender and Health

Decolonization and the Political and Economic Development of the Middle East

  • Hist 109C: History of the Middle East
  • MES 130: Jews and Muslims
  • Poli Sci 124A: Middle Eastern Politics
  • Soc 172: Development and Globalization

Behavioral Economics and Economic Planning

  • Env Des 100: The City
  • EEP C151: Economic Development
  • Pub Pol 101: Intro to Policy Analysis
  • Econ C175: Economic Demography
  • CRP 118AC: Community and Economic Development

Cosmopolitanism and International Development

  • IAS 150: Cosmopolitanism
  • Poli Sci 138B: The Politics of Market Economies
  • UGBA 118: International Trade
  • UGBA 178: Introduction to International Business
  • Econ 104: Game Theory

American Political and Economic Imperialism in Latin America

  • LAS 150: Latin American Development and World Markets
  • PACS 149: Global Change and World Order
  • Anthro 139: Controlling Processes
  • Hist : Latin American History

Law, Politics, and Development in the Middle East

  • Phil 115: Political Philosophy
  • Leg Stud 145: Law and Economics
  • Poli Sci 149C: Modernization in Iran, Turkey, and Afghanistan
  • Poli Sci 139B: Development Politics

Immigration Law and Policy

  • Soc 111: Sociology of the Family
  • Poli Sci 198A: Latin American Politics
  • Leg Stud 176: American Legal History
  • Chic Stud 159: Mexican Immigration

I have sorted the courses that have recently proved popular among Political Economy majors for their four-course "concentrations" into nine rough groups:

  • The Political Economy of Post-Industrial Societies
  • Today's Global Economic World System
  • Asia Stands Up
  • Economic Development
  • The U.S. and Europe
  • Malthus, Resources, and Environments
  • The Transition from Really Existing Socialism to Capitalism in Eastern Europe;
  • Peace and War in the Twenty-First Century
  • The U.S. and Latin America

plus a residual category.

Here are the courses people have taken that have proved enduring and popular:

The Political Economy of Post-Industrial Societies
CRP110 Introduction to City Planning
CRP112 The Idea of Planning
CRP113A Economic Analysis for Planning
CRP113B Community and Economic Development
ECON113 American Economic History
ECON121 Industrial Organization and Public Policy
ECON136 Monetary and Financial Economics
ECON151 Labor Economics
LEGAL145 The Common Law
LEGAL147 Law and Economics
LEGAL182 Law, Politics, and Society
PP101 Introduction to Public Policy Analysis
PS124 Ethics and the Impact of Technology on Society
UGBA105 Introduction to Organizational Behavior
UGBA106 Marketing
UGBA107 The Social, Political, and Ethical Environment of Business
Today's Global Economic World System
ECON115 The World Economy in the Twentieth Century
ECON181 International Trade
ECON183 Topics in International Economics
GEOG110 Economic Geography of the Industrial World
GWS141 Interrogating Global Economic "Development"
PS120A International Relations
PS138G National Success and Failure in the Age of the Global Economy
SOC172 Development and Globalization
UGBA118 International Trade
UGBA178 Introduction to International Business
UGBA188 Introduction to International Business
Asia Stands Up
AS150 Asian Studies Special Topics
ECON162 The Chinese Economy
GEOG164 The Geography of Economic Development in China
HIS116D Twentieth Century China
HIS118C The Twentieth Century in Japan
LEGAL161 Chinese Law and Society
PS128 Chinese Foreign Policy
PS143A Northeast Asian Politics
PS143B Northeast Asian Politics
SOC183 Contemporary Chinese Society
Economic Development
CRP115 Urbanization in Developing Countries
DS100 Development Studies
ECON171 Economic Development
ECON172 Economic Development Case Studies
ECON173 Seminar on Economic Development
EEP151 Development Economics
GEOG112 History of Development and Underdevelopment
IAS115 Global Poverty
PS139B Development Politics
The U.S. and Europe
HIS158C Old Europe, New Europe 1914-2005
PS122A Politics of the European Union
PS138E Varieties of Capitalism
SOC122 Comparative Perspectives on U.S. and European Societies
Malthus, Resources, and Environments
DEMOG126 Population Issues
ECON175 Economic Demography
EEP131 Environmental Economics and Policy
GEOG130 Natural Resources and Population
The Transition from Really Existing Socialism to Capitalism in Eastern Europe
ECON161 Transition Economics
HIS171C Russia since 1917
PS129B Russia After Communism
PS141C Politics and Government in Eastern Europe
Peace and War in the Twenty-First Century
IAS180 U.S. Foreign Policy After 9/11
PACS149 Global Change and World Order
PS127A International Law
The U.S. and Latin America
GEOG159AC Mexican Immigration
LAS150 Latin American Studies Advanced Topics
Not Elsewhere Classified
EAP Education Abroad Program
IAS120 International and Area Studies Selected Topics
IAS150 International and Area Studies Special Topics

Shut Up and Calculate!

Eliezer Yudkowsky wonders aloud just what the Born probabilities in quantum mechanics are. It is, I think, an object lesson that nobody should try to understand quantum mechanics: it simply cannot be done.

We hope he recovers someday:

Overcoming Bias: The Born Probabilities: One serious mystery... is where the Born probabilities come from, or even what they are probabilities of.  What does the integral over the squared modulus of the amplitude density have to do with anything?... A professor teaching undergraduates might say:  "The probability of finding a particle in a particular position is given by the squared modulus of the amplitude at that position."

This is oversimplified in several ways. First, for continuous variables like position, amplitude is a density, not a point mass.  You integrate over it.  The integral over a single point is zero. (Historical note:  If "observing a particle's position" invoked a mysterious event that squeezed the amplitude distribution down to a delta point, or flattened it in one subspace, this would give us a different future amplitude distribution from what decoherence [theory] would predict.  All interpretations of QM that involve quantum systems jumping into a point/flat state, which are both testable and have been tested, have been falsified.  The universe does not have a "classical mode" to jump into; it's all amplitudes, all the time.)

Second, a single observed particle doesn't have an amplitude distribution.  Rather the system containing yourself, plus the particle, plus the rest of the universe, may approximately factor into the multiplicative product of (1) a sub-distribution over the particle position and (2) a sub-distribution over the rest of the universe.  Or rather, the particular blob of amplitude that you happen to be in, can factor that way. So what could it mean, to associate a "subjective probability" with a component of one factor of a combined amplitude distribution that happens to factorize?...

If a whole gigantic human experimenter made up of quintillions of particles interacts with one teensy little atom whose amplitude factor has a big bulge on the left and a small bulge on the right, then the resulting amplitude distribution, in the joint configuration space, has a big amplitude blob for "human sees atom on the left", and a small amplitude blob of "human sees atom on the right.... [T]he Born probabilities seem to be about finding yourself in a particular blob, not the particle being in a particular place. But what does the integral over squared moduli have to do with anything?  On a straight reading of the data, you would always find yourself in both blobs, every time.  How can you find yourself in one blob with greater probability?  What are the Born probabilities probabilities of?  Here's the map - where's the territory?

I don't know.  It's an open problem.  Try not to go funny in the head about it. This problem is even worse than it looks because the squared-modulus business is the only non-linear rule in all of quantum mechanics...

What Does John McCain Think?

Digby writes:

Hullabaloo: A reader sent me this link to the Cunningrealist from May 5 and I was surprised by what it contained. Were you aware that John McCain wrote the foreward to an edition of The Best And the Brightest? And were you aware that it said this?

It was a shameful thing to ask men to suffer and die, to persevere through god-awful afflictions and heartache, to endure the dehumanizing experiences that are unavoidable in combat, for a cause that the country wouldn’t support over time and that our leaders so wrongly believed could be achieved at a smaller cost than our enemy was prepared to make us pay. No other national endeavor requires as much unshakable resolve as war. If the nation and the government lack that resolve, it is criminal to expect men in the field to carry it alone.

Will anyone ask him about this?

Washington Post Death Spiral Watch (Richard Cohen Edition)

Outsourced to Publius of Obsidian Wings:

Obsidian Wings: Robert E. Lee - Not a "Bitter-Ender": Richard Cohen pens an odd column today arguing that Clinton’s refusal to stop campaigning is evidence of her “leadership qualities.” Great leaders, Cohen argues, don’t quit. But then he uses a rather odd historical example to support his point — Robert E. Lee:

In the end, no one begrudges a bitter-ender. Robert E. Lee is not vilified because he fought on too long, wasting lives -- and all of it, mind you, in the cause of slavery.

Maybe I’m being nitpicky, but one of Lee’s greatest virtues is that he quit long before he actually needed to. In this respect, Lee directly refutes Cohen’s argument.

In April 1865, Lee had a fateful choice. Sure, the war couldn’t be won in the traditional sense. But Lee could have turned his battle-hardened army into a guerrilla outfit that could have harassed federal armies for decades. To his eternal credit, he declined to do so. Choosing guerrilla war would have made post-war North/South tensions even more poisonous than they were (with longer lasting effects).

In short, the United States would have had a dramatically different history — not for the better — if Lee had indeed been, as Cohen claims, a “bitter-ender.”

Making the Case for Globalization

Trapped in the Middle -

Source: Thomas Piketty and Emmanuel Saez, via Wall Street Journal

Mark Thoma reads Tyler Cowen:

Economist's View: "This Global Show Must Go On": Tyler Cowen on globalization:

This Global Show Must Go On, by Tyler Cowen, Economic View, NY Times: The last 20 years have brought the world more trade, more globalization and more economic growth than in any previous such period in history. ... More than 400 million Chinese climbed out of poverty between 1990 and 2004... India has become a rapidly growing economy, the middle class in Brazil and Mexico is flourishing, and recent successes of Ghana and Tanzania show that parts of Africa may be turning the corner as well.

Despite these enormous advances, however, there is a backlash against globalization... Ordinary people often question the benefits of international trade, and now many intellectuals are turning more skeptical.... The globalization process has had its bumps, of course, as reflected recently by rising commodity prices... Countries like China have become richer so fast that global production of energy and food have been unable to match the pace.... Trade advocates focus on the benefits of goods arriving from abroad, like luxury shoes from Italy or computer chips from Taiwan. But new ideas are the real prize. By 2010, China will have more Ph.D. scientists and engineers than the United States. These professionals are... are creators, whose ideas are likely to improve the lives of ordinary Americans, not just the business elites. ...

We urgently need new biotechnologies, a cure for AIDS and a cleaner energy infrastructure, to name just a few. Trade is part of the path toward achieving those ends. A wealthier China and India also mean higher potential rewards for Americans and others.... A product or idea that might have been marketed just to the United States and to Europe 20 years ago could be sold to billions more in the future....

Christian Broda and John Romalis... cheap imports from China have benefited the American poor disproportionately.... Despite all these gains, the prevailing intellectual tendency these days is to apologize for free trade. A common claim is that trade liberalization should proceed only if it is accompanied by new policies to retrain displaced workers or otherwise ameliorate the consequences of economic volatility. Yes, the benefits of a good safety net are well established, but globalization is not the primary source of trouble for most American workers....

What’s really happening is that many people, whether in the United States or abroad, are unduly suspicious about economic relations with foreigners. These complaints stem from basic human nature.... One approach is to appease these sentiments by backing away from trade just a bit, or by managing it, so as to limit the backlash.... It is wrong to play down the costs of globalization, but the reality is that we’ve been playing down its benefits for a long time. Politicians already pander to Americans’ suspicion of foreigners. There is no need for the rest of us to jump on this bandwagon. Instead, we need more awareness of the cosmopolitan benefits of trade and the often hidden — but no less real — gains for ordinary Americans....

Mark comments:

I agree on the benefits from trade. But I... [believe] the net impact on the welfare of middle and lower income households... is more negative than Tyler indicates... I am more convinced than he is that maintaining political support for increased openness will require that the gains from trade and technological change be shared more equitably, and that economic risk be dispersed... through... enhanced social insurance.

We can, as Tyler is doing, try to convince people they are wrong.... But I don't think they are going to be convinced by the Wal-Mart argument. Over the longer run... education... fix health care, and... "bad banking practices"... structural issues... but that will take time.... [Now] we also need to listen to what people are telling us and address their concerns, and they do not believe that the economy as it is currently functioning is working for them. Telling people they just don't understand how much trade benefits them is just as likely to produce a negative backlash as it is to convince people that their views are wrong.

But if their views are wrong, we are under an obligation to try to convince them that their views are wrong--that globalization is at most a bit player in the rise in inequality within the United States, if it is in fact true that it is at most a bit player. Tyler has three arguments that this is the case. First, the biggest benefits of globalization for the world as a whole come from bringing more minds up to speed at the technology research frontier and thus from faster global economic growth--something that is not a driver of increasing inequality in the world economy's post-industrial core but instead an all-boats-lifting rising tide. Second, that the distributional impact of globalization for the world as a whole is positive, not negative--it is poor people in China, India, Indonesia, and Mexico who gain the most. Third, that there is something wrong with the Stolper-Samuelson intuition--which Dani Rodrik put best, somewhere I cannot now find--that freeing up trade must create losers and that trade can have big benefits only if it creates big losers.

Let me pass over the first two (as I don't have anything terribly original to say right now) and focus on the third, which I have thought about before: Let me summarize:

In the neoclassical Heckscher-Ohlin-Vanek framework, freeing up trade is good for owners of "abundant" factors of production in the trading country and bad for owners of "scarce" factors. The efficiency gains from trade--the increase in the size of the pie--goes roughly with the square of the differences in factor proportions between countries, but the redistributive gains and losses go roughly linearly with the differences in factor productions. Thus for freeing up trade to be bad for the greater part of the citizens in the country, two things must all be true:

  • The bulk of the people must have little "ownership" of the abundant factors which reap the gains from freeing up trade--their income must depend overwhelmingly on the returns to the "scarce" factors of production.
  • The differences in factor proportions that generate the possibility of gains from trade must be small in order to make efficiency gains small relative to redistributional shifts.

The argument as applied to the United States cannot be that differences in factor proportions are small: differences in capital-labor ratios across the U.S. in China are on the order of 20-to-1. So the argument must be that the abundant factors of production are things like capital, organization, and technology, which have concentrated ownership. The scarce factor of production is labor. Hence free trade will be bad for the majority of voters because their incomes depend only on returns to the "scarce" factor--and those returns will drop with free trade. This goes against the likelihood that the trully scarce factors of production tend to be, well, scarce. and so not many potential voters will own a lot of them.

But in actual fact to argue that the incomes and living standards of the bulk of Americans depend on the real wages of raw labor and of raw labor alone seems to me to be equally implausible. A very large number of factors give Americans a substantial stake in the returns to--a degree of "ownership" of--the "scarce" factors. First there is the government, which is the property of all but which raises its money by disproportionately taxing the incomes of the "scarce" factors (for that is, after all, where the money is). Second, there are all the degree of formal and informal cross-ownership institutions like labor rent sharing, efficiency wages, local monopolies, and other deviations from perfect competition that give all stakeholders rather than formal equity owners alone a share in the value of the capital, the technology, and the organization: we are all stakeholders in Wal-Mart, if only through the pressure its competition exerts on other businesses' prices.

I suspect that we are, right now, seeing the peak of anti-globalization economic agitation in the United States. The fall in the real value of the dollar against European currencies and its coming real value fall against Asian currencies mean that export and import-competing sectors are likely to be expanding their employment rapidly over the next several years. It would be a pity if a look back deranged our policy going forward, especially if it is because trade is perceived to be a problem by politicians even though it has ceased to be perceived as a problem by voters.

Positive and Negative Liberty: Who the Friends of Liberty Are and How They Fight the Warmongering Panopticonist Theocrats

"And then... it came to me... connect plus to minus... and minus to plus..."

Jim Henley proposes a strategic alliance of all the Friends of Liberty:

A Part of the Possible: I want to make sure to point people toward Will Wilkinson’s recent essay on taking the openness of Hayek, Friedman and Buchanan toward a social safety net seriously. No time for me to say more right now - it’s past midnight and I just finished my work work for the day and I’m very very sleepy.... Franklin Harris... cuts to the nub, I think:

I really think it comes down to this: libertarians who are irreligious or generally secular in outlook would much rather argue economics with our liberal friends over drinks than get into messy arguments about morality with conservatives, especially when you’re arguing with them over drinks, because they’re angry drunks. Plus, you still end up arguing economics with conservatives because of their cognitive dissonance regarding military spending, “energy independence,” immigration, and, increasingly, trade.

I’d add untrammeled police and internal-”security” power to Franklin’s list...

Sign me up!

Ignoble Lies

Daniel Koffler:

Neocons For Obama? | As I've noted before, taking Bill Kristol at face value, rather than with a view to the agenda he's trying to advance, is perilous. So Kristol's remarks at AIPAC arguing that "[t]here are actually no [significant foreign policy] disputes...with the exception of Iraq" between Barack Obama and John McCain --- a scant month and a half after Kristol accused Obama of being a crypto-Communist, and the very same day that he accused Obama of being insufficiently patriotic --- are baffling on several levels. Fortunately, John Schwenkler very nearly found the decoder ring:

[C]ould it be - could it be? - that, sly, unscrupulous, and politically sensitive weasel that he is, Mr. Kristol is aware that, on pretty much every foreign policy issue at stake in this election (including, of course, those issues with respect to which the candidates' disagreements are obviously inescapable), the voting populace is largely in sympathy with (what are at least perceived to be) the views of Senator Obama? Could it be that Ezra Klein's greatest dream - that the media will actually report on the differences between the presidential candidates - is Bill Kristol's worst nightmare, and that for this reason he is taking steps to prevent this from happening?

That's almost exactly right up until the last point. Yes, it's true that throwing up a wall of bullshit to deflect attention from your candidate's deeply unpopular views is a potentially effective means of helping him creep to victory on the strength of contentless non-issues --- like, say, whether his opponent is an insufficiently patriotic crypto-Communist. But to conclude that's all Kristol is up to doesn't give him nearly enough credit for a long-term vision, at least when it comes to tactical moves in the Republican party's internal turf wars. Campaigning on xenophobia, guilt by association, and red-baiting has desperate and unintentionally self-parodic qualities this year that it didn't have as recently as 2004. The likelihood is that John McCain will lose; if and when he loses, the multilateral truce among neos, paleos, reformists, and GOP hacks --- which is about as fragile as the truce in Basra to begin with --- is going to shatter before Obama's victory speech ends.

The neocons are in a decidedly weak position... their foreign policy more than anything else that has made the name of the GOP radioactive --- and... destroyed the party's nearly 40-year-old, frequently decisive advantage on national security.... Honest neocons like Lawrence Kaplan readily concede that neoconservatism's future rests on McCain's shoulders. Kristol, on the other hand, is trying to reframe the debate to obscure its ramifications for his ideology in case McCain loses.

Uh-Oh! Now It Does Look a Lot Like a Recession...

Loading 201CEconbrowser: Is this a recession and do we care?201D

How deep a recession remains an open question...

Jim Hamilton has some interesting thoughts on business-cycle asymmetry:

Econbrowser: Is this a recession and do we care?: [T]here are a number of economic models quite popular among academics today that... presuppose linear dynamic systems in which a "recession" is indeed just an arbitrary definition you would make up to characterize a string of bad luck.... I argued [instead] that recessions represent distinct and objectively identifiable episodes in which the usual dynamic factors that drive economic growth--technological progress, population growth, and capital accumulation--are replaced by a distinctly different dynamic in which lost income in some sectors feeds back into declines in output for others. One of the defining characteristics of this phenomenon is the rapid rise in the unemployment rate that we've seen in every historical recession. It's very difficult to generate that kind of pattern from a system governed solely by linear dynamics, or interpret it from a perspective in which there's nothing special going on during a true economic recession....

I was therefore quite alarmed by the 5.5% unemployment rate reported yesterday... the increase last month is the biggest monthly change that we've observed in over 20 years.... I personally share the more pessimistic interpretations of Jared Bernstein, Calculated Risk, Michael Mandel, and Mark Thoma; (you can find other interesting discussion from Phil Izzo, Barry Ritholtz, Andrew Samwick, and Angry Bear).... [W]e've now seen 5 consecutive months in declining nonfarm employment as estimated from the BLS establishment survey, putting the overall level essentially back to where it was a year ago. Year-on-year employment stagnation is another thing we just don't see outside of an economic recession.

Barack Obama Says...

Apropos of HRC's endorsement:

Barack Obama: Change We Can Believe In: Obviously, I am thrilled and honored to have Senator Clinton's support. But more than that, I honor her today for the valiant and historic campaign she has run. She shattered barriers on behalf of my daughters and women everywhere, who now know that there are no limits to their dreams. And she inspired millions with her strength, courage and unyielding commitment to the cause of working Americans. Our party and our country are stronger because of the work she has done throughout her life, and I'm a better candidate for having had the privilege of competing with her in this campaign. No one knows better than Senator Clinton how desperately America and the American people need change, and I know she will continue to be in the forefront of that battle this fall and for years to come.

And here is HRC:

Well, this isn't exactly the party I'd planned, but I sure like the company.

I want to start today by saying how grateful I am to all of you – to everyone who poured your hearts and your hopes into this campaign, who drove for miles and lined the streets waving homemade signs, who scrimped and saved to raise money, who knocked on doors and made calls, who talked and sometimes argued with your friends and neighbors, who emailed and contributed online, who invested so much in our common enterprise, to the moms and dads who came to our events, who lifted their little girls and little boys on their shoulders and whispered in their ears, "See, you can be anything you want to be."

To the young people like 13 year-old Ann Riddle from Mayfield, Ohio who had been saving for two years to go to Disney World, and decided to use her savings instead to travel to Pennsylvania with her Mom and volunteer there as well. To the veterans and the childhood friends, to New Yorkers and Arkansans who traveled across the country and telling anyone who would listen why you supported me.

To all those women in their 80s and their 90s born before women could vote who cast their votes for our campaign. I've told you before about Florence Steen of South Dakota, who was 88 years old, and insisted that her daughter bring an absentee ballot to her hospice bedside. Her daughter and a friend put an American flag behind her bed and helped her fill out the ballot. She passed away soon after, and under state law, her ballot didn't count. But her daughter later told a reporter, "My dad's an ornery old cowboy, and he didn't like it when he heard mom's vote wouldn't be counted. I don't think he had voted in 20 years. But he voted in place of my mom."

To all those who voted for me, and to whom I pledged my utmost, my commitment to you and to the progress we seek is unyielding. You have inspired and touched me with the stories of the joys and sorrows that make up the fabric of our lives and you have humbled me with your commitment to our country.

18 million of you from all walks of life – women and men, young and old, Latino and Asian, African-American and Caucasian, rich, poor and middle class, gay and straight – you have stood strong with me. And I will continue to stand strong with you, every time, every place, and every way that I can. The dreams we share are worth fighting for.

Remember - we fought for the single mom with a young daughter, juggling work and school, who told me, "I'm doing it all to better myself for her." We fought for the woman who grabbed my hand, and asked me, "What are you going to do to make sure I have health care?" and began to cry because even though she works three jobs, she can't afford insurance. We fought for the young man in the Marine Corps t-shirt who waited months for medical care and said, "Take care of my buddies over there and then, will you please help take care of me?" We fought for all those who've lost jobs and health care, who can't afford gas or groceries or college, who have felt invisible to their president these last seven years.

I entered this race because I have an old-fashioned conviction: that public service is about helping people solve their problems and live their dreams. I've had every opportunity and blessing in my own life – and I want the same for all Americans. Until that day comes, you will always find me on the front lines of democracy – fighting for the future.

The way to continue our fight now – to accomplish the goals for which we stand – is to take our energy, our passion, our strength and do all we can to help elect Barack Obama the next President of the United States.

Today, as I suspend my campaign, I congratulate him on the victory he has won and the extraordinary race he has run. I endorse him, and throw my full support behind him. And I ask all of you to join me in working as hard for Barack Obama as you have for me.

I have served in the Senate with him for four years. I have been in this campaign with him for 16 months. I have stood on the stage and gone toe-to-toe with him in 22 debates. I have had a front row seat to his candidacy, and I have seen his strength and determination, his grace and his grit.

In his own life, Barack Obama has lived the American Dream. As a community organizer, in the state senate, as a United States Senator - he has dedicated himself to ensuring the dream is realized. And in this campaign, he has inspired so many to become involved in the democratic process and invested in our common future.

Now when I started this race, I intended to win back the White House, and make sure we have a president who puts our country back on the path to peace, prosperity, and progress. And that's exactly what we're going to do by ensuring that Barack Obama walks through the doors of the Oval Office on January 20, 2009.

I understand that we all know this has been a tough fight. The Democratic Party is a family, and it's now time to restore the ties that bind us together and to come together around the ideals we share, the values we cherish, and the country we love.

We may have started on separate journeys – but today, our paths have merged. And we are all heading toward the same destination, united and more ready than ever to win in November and to turn our country around because so much is at stake.

We all want an economy that sustains the American Dream, the opportunity to work hard and have that work rewarded, to save for college, a home and retirement, to afford that gas and those groceries and still have a little left over at the end of the month. An economy that lifts all of our people and ensures that our prosperity is broadly distributed and shared.

We all want a health care system that is universal, high quality, and affordable so that parents no longer have to choose between care for themselves or their children or be stuck in dead end jobs simply to keep their insurance. This isn't just an issue for me – it is a passion and a cause – and it is a fight I will continue until every single American is insured – no exceptions, no excuses.

We all want an America defined by deep and meaningful equality – from civil rights to labor rights, from women's rights to gay rights, from ending discrimination to promoting unionization to providing help for the most important job there is: caring for our families.

We all want to restore America's standing in the world, to end the war in Iraq and once again lead by the power of our values, and to join with our allies to confront our shared challenges from poverty and genocide to terrorism and global warming.

You know, I've been involved in politics and public life in one way or another for four decades. During those forty years, our country has voted ten times for President. Democrats won only three of those times. And the man who won two of those elections is with us today.

We made tremendous progress during the 90s under a Democratic President, with a flourishing economy, and our leadership for peace and security respected around the world. Just think how much more progress we could have made over the past 40 years if we had a Democratic president. Think about the lost opportunities of these past seven years – on the environment and the economy, on health care and civil rights, on education, foreign policy and the Supreme Court. Imagine how far we could've come, how much we could've achieved if we had just had a Democrat in the White House.

We cannot let this moment slip away. We have come too far and accomplished too much.

Now the journey ahead will not be easy. Some will say we can't do it. That it's too hard. That we're just not up to the task. But for as long as America has existed, it has been the American way to reject "can't do" claims, and to choose instead to stretch the boundaries of the possible through hard work, determination, and a pioneering spirit.

It is this belief, this optimism, that Senator Obama and I share, and that has inspired so many millions of our supporters to make their voices heard.

So today, I am standing with Senator Obama to say: Yes we can.

Together we will work. We'll have to work hard to get universal health care. But on the day we live in an America where no child, no man, and no woman is without health insurance, we will live in a stronger America. That's why we need to help elect Barack Obama our President.

We'll have to work hard to get back to fiscal responsibility and a strong middle class. But on the day we live in an America whose middle class is thriving and growing again, where all Americans, no matter where they live or where their ancestors came from, can earn a decent living, we will live in a stronger America and that is why we must elect Barack Obama our President.

We'll have to work hard to foster the innovation that makes us energy independent and lift the threat of global warming from our children's future. But on the day we live in an America fueled by renewable energy, we will live in a stronger America. That's why we have to help elect Barack Obama our President.

We'll have to work hard to bring our troops home from Iraq, and get them the support they've earned by their service. But on the day we live in an America that's as loyal to our troops as they have been to us, we will live in a stronger America and that is why we must help elect Barack Obama our President.

This election is a turning point election and it is critical that we all understand what our choice really is. Will we go forward together or will we stall and slip backwards. Think how much progress we have already made. When we first started, people everywhere asked the same questions:

Could a woman really serve as Commander-in-Chief? Well, I think we answered that one.

And could an African American really be our President? Senator Obama has answered that one.

Together Senator Obama and I achieved milestones essential to our progress as a nation, part of our perpetual duty to form a more perfect union.

Now, on a personal note – when I was asked what it means to be a woman running for President, I always gave the same answer: that I was proud to be running as a woman but I was running because I thought I'd be the best President. But I am a woman, and like millions of women, I know there are still barriers and biases out there, often unconscious.

I want to build an America that respects and embraces the potential of every last one of us.

I ran as a daughter who benefited from opportunities my mother never dreamed of. I ran as a mother who worries about my daughter's future and a mother who wants to lead all children to brighter tomorrows. To build that future I see, we must make sure that women and men alike understand the struggles of their grandmothers and mothers, and that women enjoy equal opportunities, equal pay, and equal respect. Let us resolve and work toward achieving some very simple propositions: There are no acceptable limits and there are no acceptable prejudices in the twenty-first century.

You can be so proud that, from now on, it will be unremarkable for a woman to win primary state victories, unremarkable to have a woman in a close race to be our nominee, unremarkable to think that a woman can be the President of the United States. And that is truly remarkable.

To those who are disappointed that we couldn't go all the way – especially the young people who put so much into this campaign – it would break my heart if, in falling short of my goal, I in any way discouraged any of you from pursuing yours. Always aim high, work hard, and care deeply about what you believe in. When you stumble, keep faith. When you're knocked down, get right back up. And never listen to anyone who says you can't or shouldn't go on.

As we gather here today in this historic magnificent building, the 50th woman to leave this Earth is orbiting overhead. If we can blast 50 women into space, we will someday launch a woman into the White House.

Although we weren't able to shatter that highest, hardest glass ceiling this time, thanks to you, it's got about 18 million cracks in it. And the light is shining through like never before, filling us all with the hope and the sure knowledge that the path will be a little easier next time. That has always been the history of progress in America.

Think of the suffragists who gathered at Seneca Falls in 1848 and those who kept fighting until women could cast their votes. Think of the abolitionists who struggled and died to see the end of slavery. Think of the civil rights heroes and foot-soldiers who marched, protested and risked their lives to bring about the end to segregation and Jim Crow.

Because of them, I grew up taking for granted that women could vote. Because of them, my daughter grew up taking for granted that children of all colors could go to school together. Because of them, Barack Obama and I could wage a hard fought campaign for the Democratic nomination. Because of them, and because of you, children today will grow up taking for granted that an African American or a woman can yes, become President of the United States.

When that day arrives and a woman takes the oath of office as our President, we will all stand taller, proud of the values of our nation, proud that every little girl can dream and that her dreams can come true in America. And all of you will know that because of your passion and hard work you helped pave the way for that day.

So I want to say to my supporters, when you hear people saying – or think to yourself – "if only" or "what if," I say, "please don't go there." Every moment wasted looking back keeps us from moving forward.

Life is too short, time is too precious, and the stakes are too high to dwell on what might have been. We have to work together for what still can be. And that is why I will work my heart out to make sure that Senator Obama is our next President and I hope and pray that all of you will join me in that effort.

To my supporters and colleagues in Congress, to the governors and mayors, elected officials who stood with me, in good times and in bad, thank you for your strength and leadership. To my friends in our labor unions who stood strong every step of the way – I thank you and pledge my support to you. To my friends, from every stage of my life – your love and ongoing commitments sustain me every single day. To my family – especially Bill and Chelsea and my mother, you mean the world to me and I thank you for all you have done. And to my extraordinary staff, volunteers and supporters, thank you for working those long, hard hours. Thank you for dropping everything – leaving work or school – traveling to places you'd never been, sometimes for months on end. And thanks to your families as well because your sacrifice was theirs too.

All of you were there for me every step of the way. Being human, we are imperfect. That's why we need each other. To catch each other when we falter. To encourage each other when we lose heart. Some may lead; others may follow; but none of us can go it alone. The changes we're working for are changes that we can only accomplish together. Life, liberty, and the pursuit of happiness are rights that belong to each of us as individuals. But our lives, our freedom, our happiness, are best enjoyed, best protected, and best advanced when we do work together.

That is what we will do now as we join forces with Senator Obama and his campaign. We will make history together as we write the next chapter in America's story. We will stand united for the values we hold dear, for the vision of progress we share, and for the country we love. There is nothing more American than that.

And looking out at you today, I have never felt so blessed. The challenges that I have faced in this campaign are nothing compared to those that millions of Americans face every day in their own lives. So today, I'm going to count my blessings and keep on going. I'm going to keep doing what I was doing long before the cameras ever showed up and what I'll be doing long after they're gone: Working to give every American the same opportunities I had, and working to ensure that every child has the chance to grow up and achieve his or her God-given potential.

I will do it with a heart filled with gratitude, with a deep and abiding love for our country– and with nothing but optimism and confidence for the days ahead. This is now our time to do all that we can to make sure that in this election we add another Democratic president to that very small list of the last 40 years and that we take back our country and once again move with progress and commitment to the future.

Thank you all and God bless you and God bless America.

Paul Krugman on the Definition of "Recession"

He writes:

We need a new business cycle vocabulary: Official recession definitions used to correspond closely with labor market outcomes, because we had “V-shaped” recessions: when they were over, everything sprang up quickly. Here’s the employment-population ratio and recession periods from 1973 to 1990:

Loading 201CWe need a new business cycle vocabulary - Paul Krugman - Op-Ed Columnist - New York Times Blog201D

Back then, when a recession was over, it was really over. But here’s the same variable since 1990:

Loading 201CWe need a new business cycle vocabulary - Paul Krugman - Op-Ed Columnist - New York Times Blog201D

As far as the job market was concerned, the last two recessions lasted literally for years after they were officially declared over.

Now we have what looks and feels like a recession that, from the point of view of the labor market, started before it officially began.

The point, I think, is that the traditional definition of recession only worked well in the face of a jagged business cycle; if we now have smoother, longer curves — maybe due to better inventory management, or whatever caused the Great Moderation — the question, “Is this a recession?”, no longer means much.

Jim Hamilton Becomes a Bear

He writes:

Econbrowser: The oil shock of 2008: Time to reassess the potential for recent oil price increases to contribute to an economic downturn.... [W]hen oil prices started to rise again five years ago, many of us suggested that... because the price was rising much more gradually... [it] should be less disruptive of consumer spending patterns [in the 1970s, and]... oil was still cheaper than it had been historically if you took into account inflation.... [N]either of those claims... [is] true [any longer]....

[E]nergy expenditures had fallen... significantly as a fraction of total income... that, too, is no longer the case... crude oil consumed as a fraction of GDP... fell as low as 1.1% in 1998, but is up to 5.2% so far in the first quarter of 2008.... We've reached the point where American businesses and consumers simply can no longer afford to ignore the price of fuel, and we're getting clear indications of real changes in behavior.... U.S. vehicle miles traveled fell 4.3% in March... gasoline consumption so far in 2008 has been 70,000 barrels/day lower than in the first five months of 2007.... Sales of light trucks manufactured in North America last month were 26% below the level of May 2007... the real value of U.S. motor vehicle production fell by $44 billion between 2007:Q3 and 2008:Q1.... GM this week announced plans to close 4 North American plants, idling an additional estimated 8,000 workers. Ford plans a 15% cut in its 24,000 salaried employees. Continental Airlines announced plans to cut 3,000 jobs in response to higher fuel prices, following similar announcements from United, Delta, and American....

We dodged a recession (at least through most of 2007) despite a dramatic housing downturn. The modern American economy could perhaps also continue to grow through the kind of effects we saw from the oil price spike of 1990. But what if we have to deal with both sets of problems at the same time?

I'm afraid we're about to find out.

Loading 201CEconbrowser: The oil shock of 2008201D

Tyler Cowen May Travel Less--or May Just Buy a Rapid Medevac Insurance Policy

Tyler writes:

Marginal Revolution: "What's Wrong With You?": Don't get sick anywhere but at home:

...doctors in Tanzania complete less than a quarter of the essential checklist for patients with classic symptoms of malaria, a disease that kills 63,000-96,000 Tanzanians each year.  The public-sector doctor in India asks one (and only one) question in the average interaction: "What's wrong with you?".  In Paraguay, the amount of time a doctor spends with a patient has nothing to do with the severity of the patient's illness...these isolated facts represent common patterns...three years of medical school in Tanzania result in only a 1 percentage point increase in the probability of a correct diagnosis...One concern with measuring doctor effort through direct observation is that the doctor may work harder in the presence of the research team.

That is from "The Quality of Medical Advice in Low-Income Countries," by Jishnu Das, Jeffrey Hammer, and Kenneth Leonard, in the Spring 2008 issue of the Journal of Economic Perspectives...

Washington Post Death Spiral Watch (David Broder Edition)

Glenn Greenwald reminds us of the contrast between David Broder and David Broder:

David Broder, June 2008, on George W. Bush: You'll have to forgive me, but I am reluctant to see every big policy dispute [like Bush's lies about Iraq] turned into a criminal or impeachable affair. There needs to be accountability but there also needs to be proportionality. This country is engaged in two wars.... To stop everything and attempt to impeach and remove a president who has less than a year to serve would not strike me as the best use of our energy...

David Broder, September 2006, on William J. Clinton: My view... was that when President Clinton admitted he had lied [about Monica Lewinsky] to his Cabinet and his closest associates, to say nothing of the public, that the honorable thing was for him to have resigned... What bothered me greatly about his actions was... what he told the Cabinet, his White House staff... [a]nd he told the same lie to the American people. When a president loses his credibility, he loses an important tool for governing -- and that is why I thought he should step down...

In David Broder's world, it's OK if you are a Republican.

Glenn Greenwald comments:

No matter how many times one sees it, it will never cease to amaze that the exact same media mavens who righteously strutted around demanding that Bill Clinton be impeached or forced to resign because the "honor" of our political system demanded that continue casually to dismiss every crime of the last seven years as nothing more than a garden-variety, good faith "policy dispute" which only shrill rabble want to see "turned into a criminal or impeachable affair."... [T]he Senate issues a report documenting that the President and Vice President repeatedly made false statements to induce the citizenry to support a war against another country that has left hundreds of thousands of people dead for no reason -- added on to the piles of outright lawbreaking under this administration -- and to David Broder, those are just mere "policy disputes" which (unlike Bill Clinton's grave crimes) merit no punishment.

Four years, at most, for the Washington Post. Four years.

Political Misogyny

"Ogged" (whom I still have never met in person, in spite of Scott Eric Kauffman's and Tedra Osell's attempts to convince me that he is not personally dangerous) makes a good observation:

Unfogged: Not watching cable news, and not reading any feminist blogs regularly, my appreciation of the misogyny Hillary Clinton faced was mostly abstract and I was a little surprised at the intensity of the anger some women were expressing over her treatment. I don't want to get into another argument about why she lost, etc. etc. Just watch the compilation below to get a better sense of where some people are coming from.

Will Wilkinson Tells Me I Am a Friedmanite

He is largely--but not completely--correct:

Will Wilkinson / The Fly Bottle » Blog Archive » Liberaltarianism: Back the Future: Here are the sort of political/economic thinkers whose substantive views I find most congenial: Friedrich Hayek, Milton Friedman, James M. Buchanan. If I tell most highly-educated people that these are the thinkers whose views of desirable institutions are most like mine, they might infer that I am some kind of rabid libertarian ideologue. But when I actually defend something like the arguments for an economic safety net each of these giants of libertarian thought actually set forth, lots of libertarians accuse me of not really being libertarian at all. And many liberals act surprised, as if I’m being saucily iconoclastic by wandering so far off the reservation. I can tell them that Hayek was actually in favor of a guaranteed minimum income and that Friedman basically invented the idea behind the EITC, but they’ll still think I’m some kind of congenial squish. But what I am is a market liberal just like Hayek, Friedman, and Buchanan — the same intellectual role models who make me a rabid libertarian ideologue. So, which is it?

Frankly, “liberaltarianism” and “progressive fusionism” don’t really amount to much beyond what Hayek, Friedman, and Buchanan thought anyway. So the fusionism here isn’t really a fusion of anything. It’s just seeing our way back to a pre-existing economically literate political liberalism.

Here’s my conjecture about why this now looks more like an attractive position than it might have a few years back.

The 20th century libertarian-conservative alliance was based on anti-communism/socialism. The reasonable, sophisticated consequentialist pragmatism of the great 20th century market liberals seemed an insufficient bulwark against the slippery slope from the liberal, capitalist welfare state to full-on illiberal, totalitarian socialism. (Indeed, Hayek himself made the slippery slope argument powerfully, though unsoundly.) So there was a good deal of motivation for radical anti-socialists to coordinate around strongly categorical prohibitions against state coercion.

Misean economics, disinfected of the open-minded empirical consequentialism of Mises’ Liberalism, and filtered through Ayn Rand and Murray Rothbard’s peculiar views of rights and coercion delivers a powerfully moralized brief for capitalism that calls into question even taxation for the purpose of financing genuine public goods. That Rothbardians and Randians have wasted so much time fighting with each other on the question of the minimal state versus anarcho-capitalism obscures their unity on a rights-based bulwark against the slide from the welfare state to socialism. Sadly, “libertarianism” has become identified rather strongly with this ideology — an ideology some of the thinkers most strongly identified with libertarianism, like Hayek and Friedman, never shared.

The death of socialism as a viable competitor to the liberal-capitalist welfare state makes continued slippery-slope-to-socialism thinking look densely anachronistic. Other liberal welfare states, like the UK, Sweden, Denmark, Australia, New Zealand, etc., have moved in a rather more market-liberal direction, becoming rather less of a soft-socialist middle-ground between the American model and full-on economic socialism. The question these days is whether the U.S. will have the good sense to adopt more rational market-based old-age pension policies, like Sweden or Australia, or lower corporate tax rates to a level more in line with the rest of the wealthy world. Slightly higher personal tax rates and slightly more redistribution is a possibility, but a slide into socialism just isn’t on the table. In this context, the negative income tax looks much less like a dangerous concession to the world-historical forces of evil.

Meanwhile, with the obsolescence of the anti-communist alliance with conservatives, many libertarians have sloughed off much of their previously tactically useful sympathy for socially conservative initiatives. Freed to be full-on social liberals, many libertarians are left sensing a much deeper cultural affinity for the left than the right. And this leads naturally to seeing more clearly their ideological affinities with welfare liberals. And then you read thinkers like Hayek, Friedman, and Buchanan, and you think: Oh, yes. This is extremely sensible. And now that the welfare-liberal elite has become rather more economically literate and is no longer sighing over five year plans, there is no reason to think they cannot find this sensible, too.

So that’s where I’m at. An old-fashioned market liberal who thinks Hayek, Friedman, and Buchanan get it right, and who thinks Rawlsian welfare liberals should be able to recognize themselves in these thinkers.

Espionage Author Alan Furst on the Radio...

Aauuggh! I missed this: (I was in the podiatrist's office at the time):

KQED | Programs A-Z: Forum: Home: Alan Furst -- "Spies of Warsaw": The lives of aristocrats, soldiers, spies and lovers intertwine in pre-World War II Europe in Alan Furst's "Spies of Warsaw" -- his latest historical espionage novel. Furst joins us for a conversation about the book. His other books include "Night Soldiers," "The Polish Officer" and "The Foreign Correspondent."

Daniel Davies, Diet Coach

He writes:

Daniel Davies: Fat Hominid: There’s a paper to be written at some point on the economics of fad diets... a rich source for the self-organising systems literature and a good case study of how irrational and somewhat self-destructive beliefs spread through proselytisation.... [N]early everyone’s digestive system is different.... Different foods agree and disagree with different people.... [F]ad diets... can... be modelled as more or less spanning the possible combinations of foods.... [E]very now and then, someone is going to come across a fad diet which really really really works, for them, because it happens to not include whatever food is giving them their current digestive troubles.

Someone like that is very likely to become an evangelist for their preferred fad diet; after all, they have first-hand empirical evidence that it really really really works. And sudden relief from digestive discomfort, or very rapid weight loss, is an experience the emotional impact and profundity of which should not be underestimated....

Of course, the vast majority of people on fad diets are getting no real benefit from them, other than from the incidental factor that most of them are basically calorie controlled (either by design or, per Atkins Diet, de facto by simply being such inconvenient and unpleasant ways to eat). Thinking about these sorts of things and their spread through the community gets you onto the subject quite quickly of Charles Mackay and Extraordinary Popular Delusions, which is why it’s a bit of a disappointment to me to see that a sharp cookie like Nassim Nicholas Taleb appears to have fallen hook line and sinker for a fad diet...


Derek Powazek writes:

The Quest for Perfect iPhone Earbuds: V-Moda Vibe Duo. PRICE: $101. PROS: Best sound of all: big bass, clear highs, love it. I like the style of it, especially the feel of the cords. And they’re way comfy in the ear. CONS: The sharp metal bits can scratch the iPhone if you put it all in the same pocket. The clicker button can be difficult to find without looking. By far worst reliability of any headphones I’ve tried. I’ve gone through four pairs now. Each time, one of the earbuds stops working after a few months. Returning them for replacement is easy enough, but still a hassle. VERDICT: My favorite earbuds of the bunch. They must be - I’m on my fifth pair. (Aside to V-Moda: You must know about the failure rate by now. Fix the damn things.)

Michelle Goldberg Meditates on Hillary Rodham Clinton

She writes:

3 A.M. For Feminism: A strange narrative has developed, abetted by [Hillary Rodham] Clinton and some of the mainstream feminist organizations. In it, the will of the voters was thwarted by chauvinistic party leaders in concert with a servile media, and Obama's victory represents a repeat of George W. Bush's in 2000. It's a story in which Obama becomes every arrogant young man who has ever edged out a more deserving middle-aged woman, and Clinton, hanging on until the bitter end, is not a spoiler but a feminist martyr.

This conviction, that sexism cost Clinton the nomination, is likely to be one of the more toxic legacies of this primary season....

It didn't start out this way. In February of 2007, Gloria Steinem pushed back against the mushrooming discussion of identity politics, publishing an op-ed in The New York Times titled "Right Candidates, Wrong Question." She argued that queries about whether Americans were more prepared to elect a woman or a black man were "dumb and destructive." "[M]ost Americans are smart enough to figure out that a member of a group may or may not represent its interests," she wrote. "This time, we . . . could double our chances by working for one of these candidates, not against the other." When reporters asked if she was supporting Clinton or Obama, she said, "I just say yes."

Eleven months later... she argued, "Gender is probably the most restricting force in American life, whether the question is who must be in the kitchen or who could be in the White House." When the time came to choose a candidate, it turned out identity politics mattered. "We have to be able to say: 'I'm supporting her,' " she concluded, " 'because she'll be a great president and because she's a woman.' "

Like Steinem, much of the second-wave women's movement would move from enthusiasm for both candidates to dismay and solidarity as Clinton was eclipsed and dismissed. They watched professional media types sing smitten fanboy hymns to Obama and, at the same time, spend hours dissecting Clinton's laugh and cleavage....

Meanwhile, Clinton, who'd previously avoided presenting herself as the woman's candidate, brought gender to the forefront of her campaign as never before. On May 19, in a Washington Post interview, she spoke out for the first time about the sexism she's faced throughout the race, calling it "deeply offensive to millions of women." The press, she suggested, had failed to decry "incredible vitriol that has been engendered by the comments by people who are nothing but misogynists." She began injecting feminist and civil rights language into her arguments for seating the Michigan and Florida delegates.... More and more, she was tying her campaign to the grand narrative of women's emancipation.... Some have suggested that the DNC's reluctance was in itself a sign of covert sexism. "There's a strong feeling that this would have been handled differently if Hillary Clinton hadn't won [those] states," says Kim Gandy, president of NOW.

Feminists who supported Obama were incredulous. Harvard Law professor and civil rights activist Lani Guinier suggests that Clinton's supporters were trying to turn her into the Al Gore of 2008. "It appears that some of Hillary's supporters want to externalize the problem, which is why the analogy to 2000 seems to work," she says. "Then they can say it wasn't anything wrong with her candidacy--instead, it was an injustice that was done to women."...

[W]hat accounts for this through-the-looking-glass split?

Partly, it's a response to simple longing. The prospect of a female president who is also a feminist would have been a shining triumph.... In the mid-'70s, elite young women were already pondering who could break the ultimate glass ceiling, and among their candidates was an impassioned young lawyer, Hillary Rodham, deemed an icon of her generation by Life magazine after her 1969 Wellesley commencement speech.... Betsey Wright, later Bill Clinton's gubernatorial chief of staff, imploring Bill not to marry Hillary, take her off to Arkansas, and thus spoil her chance at becoming the first female president. "I really started in on how he couldn't do that. He shouldn't do that," Wright said. "That he could find anybody he wanted to be a political wife, but we'd . . . never find anyone like her" to run for office.

For young feminists, who have largely gone for Obama, their first encounter with Hillary came when she defended Bill from charges of philandering during the 1992 presidential campaign; for them, her case for leadership was never clear-cut. But, for many of those who remember Hillary Rodham, her reemergence as a political power in her own right seems a kind of generational redemption. "She's the candidate that I have wanted for decades," says Allida Black. "I had heard about Hillary for a good fifteen years before Bill ran in '92, and I was for Bill because of Hillary."

For these supporters, Clinton's portrayal during the campaign has been anything but inspirational. They say the press has demonized and degraded her, and almost any zealous supporter can reel off a list of journalistic insults. The media is the real target of their rage, while the anger at Obama comes from the sense that he's benefited from it and failed to denounce misogyny the way he does racism.

"We thought we'd gotten past a lot of this stuff, and it turns out that we were deluding ourselves," Black says. "When CNN calls Hillary a white bitch, when they talk about her cleavage, when the metaphor to describe her presentation is, oh, she reminds me of my wife when she's angry and tells me to take out the garbage, or when they mock that Hillary has the support of white women . . . I've been stunned by it. I've been flabbergasted by it."...

When it came to the deeper narratives of the campaign, Clinton benefited, as do many women in politics, from her good fortune of having married a successful political man. Hillary Clinton has spent only four more years than Obama in the Senate, but she was consistently assumed to be a more plausible commander-in-chief than her rival based on her time as First Lady.... The slimy right-wing rumor mill that tormented the Clintons in the '90s has directed its venom toward Obama: He's the one who has been depicted as a Muslim Manchurian candidate in a smear campaign that has gotten a dispiriting degree of traction....

This psychic wound is not Obama's fault, but it is his problem. Establishment feminism has not done itself proud using its noble struggle for social justice as an alibi for political hardball. But it represents women whose frustration and sense of unfairness are deeply felt, and those feelings need to be addressed...

Friends Don't Let Friends Vote Republican

Outsourced to Matthew Yglesias and commenters:

Matthew Yglesias: "How Do We Beat The Bitch?": Mark Kleiman suggests that revisiting this appalling episode in McCainiac misogyny might be a useful party unity exercise:

John McCain -- kind of an appalling guy.

Comments (62)....

Don't forget his alleged -- but multiple-sourced -- verbal rebuke of Mrs. McCain when she teased him about his hair. Charming. Posted by Andy | June 6, 2008 10:17 AM.

Even worse, as Kleiman notes, is McCain's appalling joke about Chelsea Clinton and Janet Reno. That is something he actually said. Every Democratic pundit or guest who appears on cable TV bring this up, and ask: "how can anyone vote for someone this repellent?" Posted by Jim W | June 6, 2008 10:23 AM

The Monthly Employment Sitch

As bad as expected, but no worse than expected:

Employment Situation Summary: The unemployment rate rose from 5.0 to 5.5 percent in May, and nonfarm payroll employment continued to trend down (-49,000), the Bureau of Labor Statistics of the U.S. Department of Labor reported today.... The number of unemployed persons increased by 861,000 to 8.5 million in May, after seasonal adjustment, and the unemployment rate rose by 0.5 percentage point to 5.5 percent. A year earlier, the number of unemployed persons was 6.9 million, and the jobless rate was 4.5 percent....

The number of persons who worked part time for economic reasons, at 5.2 million in May, was essentially unchanged over the month but was up by 764,000 over the past 12 months. These individuals indicated that they were working part time because their hours had been cut back or they were unable to find full-time jobs.... In May, about 1.4 million persons (not seasonally adjusted) were marginally attached to the labor force, about the same as a year earlier. These individuals wanted and were available for work and had looked for a job sometime in the prior 12 months. They were not counted as unemployed because they had not searched for work in the 4 weeks preceding the survey. Among the marginally attached, there were 400,000 discouraged workers in May, little changed from a year earlier. Discouraged workers were not currently looking for work specifically because they believed no jobs were available for them....

Total nonfarm payroll employment continued to trend down in May (-49,000). Thus far in 2008, payroll employment has declined by 324,000....

In May, the average workweek for production and nonsupervisory workers on private nonfarm payrolls was unchanged at 33.7 hours, seasonally adjusted. The manufacturing workweek also was unchanged at 41.0 hours....

In May, average hourly earnings of production and nonsupervisory workers on private nonfarm payrolls rose by 5 cents, or 0.3 percent, to $17.94, seasonally adjusted.... Over the past 12 months, average hourly earnings increased by 3.5 percent, and average weekly earnings rose by 3.2 percent...

Answers to Easy Questions (Why Oh Why Can't We Have a Better Press Corps New York Times Pitiful Embarrassment Department)

Marty Lederman asks:

Marty Lederman: Today's New York Times story about the arraignment of Khalid Shaikh Mohammed concludes with this sentence: "C.I.A. officials have said that Mr. Mohammed was one of three detainees who were subjected to the simulated-drowning technique known as waterboarding during interrogation, which is described by some as torture." If the Attorney General insisted that the sun rises in the west, would the New York Times treat it as a contested question?

Answer: Yes.

The New York Times death spiral continues.

Impeach George W. Bush. Impeach Richard Cheney. Impeach Them Now

David Kurtz writes:

Talking Points Memo | Phase II: Here are the key points from the reports, according to a press release from Sen. Jay Rockefeller's office:

  • Statements and implications by the President and Secretary of State suggesting that Iraq and al-Qa'ida had a partnership, or that Iraq had provided al-Qa'ida with weapons training, were not substantiated by the intelligence.
  • Statements by the President and the Vice President indicating that Saddam Hussein was prepared to give weapons of mass destruction to terrorist groups for attacks against the United States were contradicted by available intelligence information.
  • Statements by President Bush and Vice President Cheney regarding the postwar situation in Iraq, in terms of the political, security, and economic, did not reflect the concerns and uncertainties expressed in the intelligence products.
  • Statements by the President and Vice President prior to the October 2002 National Intelligence Estimate regarding Iraq's chemical weapons production capability and activities did not reflect the intelligence community's uncertainties as to whether such production was ongoing.
  • The Secretary of Defense's statement that the Iraqi government operated underground WMD facilities that were not vulnerable to conventional airstrikes because they were underground and deeply buried was not substantiated by available intelligence information.
  • The Intelligence Community did not confirm that Muhammad Atta met an Iraqi intelligence officer in Prague in 2001 as the Vice President repeatedly claimed.

These gross violations by Richard Cheney and George W. Bush to take care that the laws be faithfully executed are High Crimes, demanding immediate impeachment and removal from office.

The Meaning of Box 722

Rick Perlstein is a national treasure. Buy his Nixonland. Buy it now:

The Meaning of Box 722 | art of the narrative. They'd never really been examined in-depth before, but by my reckoning they were the crucial hinge that formed the ideological alignment we live in now. In 1964, Lyndon Johnson—and, apparently, liberalism—achieved such a gigantic landslide victory that it appeared to pundits the Republican Party would be forever consigned to the outer darkness if they ever entertained a Goldwater-style conservative law-and-order platform again. Two years later, most of the new liberal congressmen swept in on LBJ's coattails—the congressional class that gave us Medicare and Medicaid, the first serious environmental legislation, National Endowments for the Humanities and Arts, Head Start, the Voting Rights Act, the Department of Housing and Urban Development, the end of racist immigration quotas, Legal Aid, and more—was swept out on a tide of popular reaction. That reaction, I hope I demonstrate effectively in NIXONLAND, rested on two pillars: terror at the wave of urban rioting that began in the Watts district of Los Angeles; and terror at the prospect of the 1966 civil rights bill passing, which, by imposing an ironclad federal ban on racial discrimination in the sale and rental of housing—known as "open housing"—would be the first legislation to impact the entire nation equally, not just the South. (What that reaction most decidedly did not rest on: fear and loathing of "hippies," which were unknown, except in California, to most of the nation until 1967; or anti-war activists, which were not associated with either party, because Republicans and Democrats had about an equal number of hawks and doves in 1966.)

When I learned that the papers of Senator Paul Douglas were at the Chicago Historical Society (as it was known then; now it's cursed with the decidedly more prosaic name the Chicago History Museum), I decided to make Douglas's 1966 loss to Republican Charles Percy a key case study for my hypothesis. Douglas was a popular liberal lion first elected in 1948 and a civil rights champion, whose wife Emily Taft Douglas (a one-term congresswoman herself) had strode proudly across Edmund Pettus Bridge in 1965 arm in arm with Martin Luther King. He was also, as an economist, one of the architects of many of the New Deal ideas and programs that created the world's first mass middle class.

In the summer of 1966, as debate over open housing raged in Congress, King marched not in Alabama but in Chicago, to implore the city to enforce its own open housing ordinance, passed in 1963—which, if Chicago did, would be a first. It was the most segregated city in the north. As I put it in NIXONLAND (drawing on this classic study):

You could draw a map of the boundary within which the city's seven hundred thousand Negroes were allowed to live by marking an X wherever a white mob attacked a Negro. Move beyond it, and a family had to face down a mob of one thousand, five thousand, or even (in the Englewood riot of 1949, when the presence of blacks at a union meeting sparked a rumor the house was to be "sold to niggers") ten thousand bloody-minded whites. In the late 1940s, when the postwar housing shortage was at its peak, you could find ten black families living in a basement, sharing a single stove but not a single flush toilet, in "apartments" subdivided by cardboard. One racial bombing or arson happened every three weeks.... It neighborhoods where they were allowed to "buy" houses, they couldn't actually buy them at all: banks would not write them mortgages, so unscrupulous businessmen sold them contracts that gave them no equity or title to the property, from whcih they could be evicted the first time they were late with a payment.

And in 1966, a teenager answering a job ad walked over the border from Chicago into the all-white city of Cicero, and for that sin and no other was beaten to death. That was what Martin Luther King came to fight in Chicago.

At the Chicago History Museum, the Douglas collection covers seven hundred "linear feet".... I stumbled upon Box 722, which contained all the letters Senator Paul Douglas received about open housing and Martin Luther King's presence in Chicago....

Republican Charles Percy had gone into the race a civil rights liberal: "Chuck, do you have to talk so much about open housing?" one suburban Republican official complained to him. But by October, following Jerry Ford's talking points to the letter, he went on ABC's "Face the Nation" and said that while he still supported the "principle" of open housing, he disagreed with Senator Douglas on one thing: including "single-family dwelling" would be "an unpassable and unenforceable" attack on property rights. "Right now, we aren't ready to force people to accept those they don't want as neighbors," he said in tones of rue.

Long story short: Douglas soldiered on, imploring his constituents to remember the favors they had received from the Democratic Party—entree, for one thing, into the world's first mass middle class of factory workers. To no avail. Percy won in an upset. Pundits said it was because Percy's daughter had just been brutally murdered; it was a sympathy vote. But if people voted for Percy because he was a grieving father, the ratio of the sympathetic to the callous was suspiciously high in the Bungalow Belt neighborhoods where Martin Luther King had marched. A ward analysis demonstrated that in Chicago neighborhoods threatened by racial turnover, new Percy voters were enough to account for Douglas's 80 percent decline in the city since 1960. Pundits also pointed to people's unwillingness to vote for such an old man. But in the backlash wards younger Democrats declined almost as significantly.

No, it was voters like this, from 4315 W. Crystal:

A few years ago I had written you a letter stating how I and my family would welcome the opportunityy to vote fyou in to the highest office in the land--The Presidency. Since that time however your support of the open occupancy bill has caused me to change my support of your candidacy for senator of Illinois, and believe me sir there are many more in my category who are changing in their support of you.

Here is the fundamental tragedy of the backlash: voters like this empowered a party that decided they didn't need protection against predatory subprime mortgage fraud. Didn't need affordable, universal health insurance; made it easier for companies to rape their pensions; kept on going back to the well to destroy their social security; worked avidly to shred their union protections. Fought, in fact, every decent and wise social provision that made it possible in the first place for mere factory workers to live in glorious Chicago bungalows, or suburban homes, in the first place.

Now a black man from the city King visited in 1966 and called more hateful than Mississippi is running for president, fighting for all those things that made the midcentury American middle class the glory of world civilization, but which that middle class squandered out of the small-mindedness of backlash.

This post is for Chicago. This post is for America. This post is for our future. This post is for our history—that we may, this November, redeem it. This post is for a man who, had he walked down the wrong street in his own city 42 years ago, might well have been beaten to death.

Delong Smackdown Watch: Why Cap-and-Trade Beats a Carbon Tax

Felix Salmon writes:

Why Cap-and-Trade Beats a Carbon Tax: Brad DeLong reckons that the relative merits of carbon taxes and cap-and-trade "roughly offset each other". "To first order cap-and-trade and carbon taxes are the same," he says, but there are second- and third-order differences. Among the second-order differences are these, and you can see how he ends up with the "roughly offset" conclusion:

  • Cap-and-trade runs the risk that the cap will be set at the wrong place and so the price will go damagingly above its social optimum value.
  • Carbon taxes run the risk that the tax will be set too low and so the quantity emitted will go damagingly above its social optimum value.

These two considerations do not offset each other. The second risk is high and real; the first risk is low and politically much more unrealistic.

Given the hysteria over energy prices in general and gasoline prices in particular, it's easy to imagine how a carbon tax would be set too low. And it's true that no one really knows what the elasticities are in the energy market, which means that an aggressively-low emissions cap could indeed send prices into the stratosphere.

But, realistically, what would happen in such an event? Would Congress sit idly by as fuel-oil costs exceeded monthly mortgage payments? Would they tell their constituents that, sorry, nothing they can do about $15-a-gallon gasoline prices, we set our cap and now we have to stick with it? Of course not. They would tweak the cap-and-trade system in one of any number of ways: they might allow companies to borrow emissions credits from future years, or they might implement a "safety valve" allowing the government to auction off new emission credits at a certain price, or they might simply raise the cap. Alternatively, of course, they could take the unexpected excess revenue from the cap-and-trade auctions and start mailing large checks to everybody in the country, thereby helping to cancel out the ill effects of higher energy prices.

The one thing you can be pretty sure would not happen is that Congress would happily take the cap-and-trade windfall revenue and use it to, say, pay down the national debt. Although even that would have social value which would offset the negative social effects of higher energy prices.

But what of the scenario where emissions permits are auctioned off at a relatively low price, and then suddenly skyrocket in the secondary market, giving no windfall to the government? Well, for one thing, the value of next year's permits has just gone up, so the windfall will come. And for another thing, given that most people bought their emissions permits at a relatively low price, and that it's only the marginal permits which are expensive, the effects on actual energy prices would likely not be huge.

In other words, as I've said many times in the past, cap-and-trade is flexible. Once you've installed the mechanism, it can and will be tweaked over time. Changing tax rates, by contrast, is much harder. Which is why cap-and-trade is superior to a carbon tax.

Biomedical Literary Criticism Ask the Internet "Age of Innocence" Blogging

From Edith Wharton's 1920 The Age of Innocence:

: After a pause Madame Olenska broke out with unexpected vehemence: "I want to be free; I want to wipe out all the past."

"I understand that."

Her face warmed. "Then you'll help me?"

"First--" he hesitated--"perhaps I ought to know a little more."

She seemed surprised. "You know about my husband--my life with him?"

He made a sign of assent.

"Well--then--what more is there? In this country are such things tolerated? I'm a Protestant--our church does not forbid divorce in such cases."

"Certainly not."

They were both silent again...

My brother wonders if perhaps Edith Wharton meant us to understand that Count Olenski had tertiary syphilis a la Friedrich Neitzsche and Lord Randolph Spencer-Churchill--that he was not just your standard garden-variety European aristocrat libertine unfaithful cold penniless mentally-unbalanced domineering husband who married you for your money alone and from whom you fled back to New York--and that for Madame Ellen Olenska to return to him in Europe is to consign herself to marital rape, likely infection, and ultimate deep insanity herself.

Is this a reading that Edith Wharton intended? A part of the book that literary critics lost with the discovery of penicillin? Or is it a reading that I am tempted to impose on the book simply because I have lived in the age of AIDS?

And, in either case, does this reading deepen or trivialize the book?

Sunny Wednesday June Afternoon People in Their Forties Drinking Iced Coffee at Starbucks Midlife Crisis "Wilma!!" Blogging

Adeimantos: I don't know. Back when I was a teenager, I thought that I would grow up and that in my forties I would have a house and a family and an important job and would be--well, would be kind of like Stilgar, Lord of Sietch Tabr, in Dune...

Akhilleus: And?

Adeimantos: And that's not how it worked out! People don't look at me like they would look at Stilgar at all! They look at me as if...

Akhilleus: You were Fred Flintstone?

Adeimantos: Exactly.

Akhilleus: I'm with you. I've been there. I am totally there.

Khelona. Huh. Is that better or worse than dreaming when you were a teenager that you would grow up to marry Stilgar, and finding in your forties that your husband more closely resembles...

Glaukon: Fred Flintstone?

Khelona: Exactly...

Akhilleus: I'm going to deal with this like a man. I'm going to go buy a Kindle and a 3G iPhone.

Khelona: You're not going to have your mother commission a shield from Ogoun? You prefer an iPhone?

Adeimantos: Ogoun? Who is Ogoun?

Khelona: You know, the god of fire and metalworking...

Akhilleus: You're mixing up your pantheons again. That's Yoruba-Haitian voodoo.

Khelona: Who do I mean then?

Adeimantos: Hephaestos...

Ryan Avent on Tyler Cowen on Ryan Avent on Paul **Robert** Samuelson on Obama's Cap-and-Trade

Ryan Avent writes:

The Bellows » Am I Misleading?: [Robert Samuelson is] not saying [the Weitzman (1974) "Prices and Quantities" point] that we might accidentally set the cap too low and blow up the economy. He’s saying that consumers and producers won’t respond to price increases, that politicians will steadily and heedlessly lower the cap (or raise the tax) regardless of economic conditions, and that the real evil of the plan is that it increases the cost of dirty fuels. And there is seemingly no recognition that a carbon tax would, in fact, make energy more expensive, that it would “suppress” emissions, and so forth.

And if we’re willing to acknowledge that there are uncertainties about the location of the social optimum, elasticities, pace of technological development, and so on, then I think we should also be willing to acknowledge that the likelihood of a real-life political body setting a cap too low or a tax rate too high is quite low, and that furthermore, the likelihood that such an eventuality would be rapidly addressed through tax rate or cap adjustments is quite high. If we’re going to have reality, let’s have all of it.

But in Samuelson’s world, environmentalists are scheming, omnipotent economy destroyers, and cap and trade is nothing like a carbon tax. That’s just not so. In all the ways that matter to Samuelson, the two plans are identical. Neither will be particularly scrutable to voters, both offer considerable opportunities for industry giveaways, both will make energy more expensive, and both can be adjusted if we find that we’ve set a dial incorrectly.

As Mark Thoma says, it’s Samuelson who’s being misleading. Either that, or utterly confused.

It doesn't have to be either/or, Ryan. It can be both/and. Probably is.

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

Background for Berkeley Political Economy Group Major Advisory Committee and Stakeholders' Meeting

Berkeley Political Economy Group Major Advisory Committee and Stakeholders' Meeting: Background

The phrase "political economy" has at least four meanings:

  • the heir of Enlightenment moral philosophy, in the same sense that today's proper sciences are the heirs of Enlightenment natural philosophy.
  • the rubble left of the Marxist, Marxisant, and Marxizoid project of social analysis and utopian transformation after history bombed it until the rubble bounced throughout the twentieth century.
  • public choice--the largely right-wing application of the assumptions of methodological individualism and anomic psychological self-interest to the social sciences.
  • things that have too much politics to be economics, too much history to be politics, too much sociology to be history, and too much economics to be sociology.

Political economy here at Berkeley as an undergraduate major is a group of four interlinked intellectual bets:

  • that for undergraduates at least the separation a century ago of the social sciences into walled, warring camps was not a clear win.
  • that there is, nevertheless, great value in the individual social sciences' analytical modes and tools.
  • that there is even greater value in the classical social theory tradition as grappling for the first time how a modern human society--one not composed overwhelmingly of malnourished peasants living and dying early in the small villages in which they were born and one not dominated by louse-riddem thugs with spears and perfumed thugs with styluses--actually worked.
  • that the nineteenth and early twentieth-century social, political, and economic history of the North Atlantic provides an essential set of benchmarks, yardsticks, and comparisons.

To that end we make them take world history (IAS 45) and a historical context course on the development of industrial soceties (like Hist. 160), we make them take economics (Econ 1, IAS 106, IAS 107) and statistics (Stat 2), we make them take classical social theory (PEIS 100), we make them take a course at the fence line dividing political science and economics (like PS 120), we make them take a course in modern political economy (PEIS 101) two years of foreign language, and we make them take four additional related semester courses as a "concentration" to become semi-experts in some topic area.

We have problems, which I divide into three groups--problems of structure, problems of intellect, and problems of implementation:

Problems of Structure:

  • We are underfunded by California Hall because we are not a department with a conveyor belt of angry senior faculty threatening to leave for private universities unless funding is beefed up.
  • California Hall regards it as prudent to underfund us because we are a "cash cow": providing a very good education to a lot of students very cheaply, thus freeing up financial resources so California Hall can respond to the departments with conveyor belts, et cetera.
  • California Hall regards it as moral to underfund us because we have a teaching rather than a research or a mixed mission, and this is a research university with a research university's priorities.

Problems of Intellect:

  • The four intellectual bets we place are part of a vision of the world and of interdisciplinary social science largely set nearly half a century ago. Are these still the right intellectual bets to place?
  • The classical social theory tradition from Machiavelli to Durkheim comes to an end nearly a century ago. There's been a lot of water under the bridge since, and perhaps it should be extended--Keynes, Polanyi, Hayek, and who else?
  • The problem of PEIS 101. Is it a survey of today's world and live issues? Is it an extension of PEIS 100 to cover thinkers since? Is it an application of theoretical perspectives developed in PEIS 100? What should it be?
  • How valuable is the "concentration"--this minor-within-the-interdisciplinary major--and how much guidance and structure should we impose on our students as they attempt to develop concentrations?
  • Foreign languages are a good thing. But does the foreign language requirement belong in the major?
  • Can we look at ourselves in the mirror when we recall that only a tiny proportion of our majors write senior theses?

Problems of Implementation:

  • What should we call ourselves? "PEIS" is out of date, and was never that great a name to begin with...
  • Lack of senior faculty to take persistent ownership of core courses.
  • Lack of pressure from California Hall on departments to support interdisciplinary majors, specifically:
    • Credit for teaching in them.
    • Admission of our students to courses taught by departments.
  • Rapid turnover of advising staff and resultant loss of valuable local knowledge.
  • Lack of resources for senior thesis advising--and other capstone experiences.
  • Lack of courses in which students work hard on their writing.
  • Lack of well-functioning discussion sections.
  • Lack of connection to the departments that truly are the core of what we do--history, sociology, economics, and political science.

Jackie Calmes Tells Us Why HRC Was Unable to Recover from Super Tuesday...

Loading 201CClinton's Road to Second Place - WSJ.com201D

The news pages of the WSJ show why they are must reading:

Clinton's Road to Second Place - Inside the Clinton campaign and out, the finger-pointing has begun. The bottom line is this: She called the biggest plays, and she got them wrong.... [T]he second-term New York senator and former first lady was smart, substantive and tireless. The surprise was how good a campaigner she grew to be....

The mistakes boil down to mismanagement, message, mobilization failures and the marital factor.... [C]ontrol over the campaign resided with a small clique of loyalists close to Sen. Clinton but at odds with each other.... [S]he wanted Mr. Penn to serve as both chief strategist and sole pollster. Virtually no one else in the campaign did....

For campaign manager, Sen. Clinton chose the more popular Patti Solis Doyle.... [E]ven friends say she had little to prepare her to lead what would become a $200 million presidential campaign with nearly 1,000 employees.... Sen. Clinton was shaken by her third-place finish in the first contest, Iowa's Jan. 3 caucuses. Big donors demanded a management shake-up. The morning of the New Hampshire primary Jan. 8, she told Ms. Solis Doyle she wanted another manager. Other staffers protested. The senator hesitated. Her headquarters was rattled for a crucial month up to the 20-plus Super Tuesday contests in early February. When she ousted Ms. Solis Doyle in mid-February, it was done so coldly and publicly that hardened colleagues say they were stunned. Ms. Solis Doyle -- who still has a Hillary Clinton sign in the yard of her Washington home -- and Sen. Clinton haven't spoken since, an associate said....

Critics' bigger complaint was that from the campaign's start Mr. Penn had been its only pollster.... Sen. Clinton told advisers Mr. Penn is "brilliant," and multiple pollsters would slow consensus on strategy. But top aides chafed that Mr. Penn used his control of "the numbers" to win most disagreements....

The campaign's most inarguable mistake was its failure to organize voters in states with caucuses rather than primaries. That left Sen. Obama to build what proved an insurmountable lead in convention delegates.... [T]he failures started at the top with the Clintons' bias against caucuses and an ignorance of key party rules.... [I]n Iowa especially, Democratic caucuses were dominated by grass-roots activists, many of them antiwar liberals who resented Sen. Clinton's Iraq vote.... [T]he Iowa loss hardened both Clintons against caucuses. With money getting tight and polls in caucus states discouraging, Sen. Clinton scaled back spending and appearances in places such as Idaho and Nebraska, effectively forfeiting them.

Mr. Ickes, a rules expert, had long argued against the strategy. Last June at a meeting at the Penn home, Mr. Penn suggested Sen. Clinton would get all 370 state delegates when she won California's primary, attendees say. Mr. Ickes, they say, mocked him: "The vaunted chief strategist" doesn't know that party rules aren't winner-take-all? Mr. Penn calls the account "totally false."...

Finally, the campaign failed to acknowledge the "Clinton fatigue" felt by many Democrats. Mr. Clinton's controversies on the stump only fanned it.... Among the party leaders Mr. Clinton alienated over time by his angry tirades was South Carolina's Rep. Jim Clyburn, the third-ranking House leader and a civil-rights-movement veteran. Before South Carolina's primary, Mr. Clyburn admonished Sen. Clinton for suggesting President Johnson deserved more credit than Martin Luther King Jr. for civil-rights laws. On primary night, Mr. Clinton called Mr. Clyburn and they spoke for 50 minutes. "Let's just say it wasn't pleasant," Mr. Clyburn says...

Megan McArdle Moves the Ball Downfield on the Cap-and-Trade vs. Carbon-Tax Discussion

She interfaces with the knowledge base of the ancient Krell and writes:

Megan McArdle: Capped! Ryan Avent has been doing some great posting on cap and trade versus carbon taxes. With all information known, the two are theoretically identical. But in the real world they will differ; the question is how much.

One way to think about it is that we are choosing between two kinds of transparency: transparency to regulated companies, and transparency to voters. Politicians like cap and trade because the connection between the plan and higher energy prices will be less obvious to the voters. For that reason, a libertarian should generally prefer a direct tax.

On the other hand, cap and trade provides more certainty for companies, and a more direct relationship between their actions and profits. So the tax is not always a perfect slam dunk.

On balance I prefer taxes to cap and trade. However, politically, no one is going to enact a carbon tax with gasoline at $4.00 a gallon. Cap and trade is what we're going to get. In practice, that will mean that companies get subsidies to get them to go along (liberals who want cap and trade should concede on this issue to make it easier to pass), while prices rise somewhat. It's not clear to me how big a difference it will make in the long run.

I would say that to first order cap-and-trade and carbon taxes are the same, that there are five second-order differences:

  • Cap-and-trade involves less redistribution because the losses of the losers are partially offset by their initial awards of tradeable permits.
  • Cap-and-trade runs the risk that the cap will be set at the wrong place and so the price will go damagingly above its social optimum value.
  • Carbon taxes run the risk that the tax will be set too low and so the quantity emitted will go damagingly above its social optimum value.
  • Carbon taxes have the advantage that the government gets money that it can use for good--either to cut existing taxes that have large deadweight losses or to expand underfunded programs that have large social benefits.
  • Carbon taxes have the disadvantage that the government gets money that it can use for ill, and that the recipients and beneficiaries of that ill-used money will then dig in and defend their rent-seeking gains beyond death itself.

and that there are two third-order differences:

  • It's easier to get not-too-bright Republicans to vote against something that is actually in their long-run interest if you can demagogue it by calling it a tax.
  • It's easier to get not-too-bright Democrats to vote for something that actually is not in their long-run interest if you can demagogue it by claiming that it's just a restriction on the behavior of corporations and not something that directly impacts people.

I don't have a dog in this fight: I think second- and third-order pluses and minuses roughly offset each other. But the substantive case for action seems very clear--and the fact that oil has risen above $100 a barrel without killing the economy just makes it more painful to think of what a hideous waste of opportunity our failure to take Al Gore's advice back in 1993 and put on a carbon tax that IIRC was going to max out at $10/barrel...

Cap-and-Trade Once Again: The Highly-Intelligent, Thoughtful, and Honorable Tyler Cowen Misreads Robert Samuelson:

Tyler reads this from Robert Samuelson:

Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system will ultimately break down. It wouldn’t permit satisfactory economic growth. But if we’re going to try to stimulate new technologies through price, let’s do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable. If environmentalists still prefer an allowance system, let’s call it by its proper name: cap-and-tax.

And writes:

Mark Thoma gets upset at this passage, here is Ryan Avent, Brad DeLong and Matt Yglesias, all upset.  Avent was the fount of the opposition:

Yowza. As any economist worth his or her salt will tell you, a cap and trade plan with auctioned permits is essentially identical to a carbon tax. That also happens to be exactly what Barack Obama is proposing. So, another way for Samuelson to have written this column would have been to title it, “Barack Obama has a good plan to reduce carbon emissions."

But Samuelson is correct here and Avent is misleading.  When there is uncertainty about the location of the social optimum, and uncertainty about elasticities, a carbon tax and cap-and-trade are by no means equivalent.  If you see very high costs from setting the binding cap too low and choking off growth -- as Samuelson mentions -- you should prefer the carbon tax.  The price of carbon is more certain and you bear less risk from uncertainty about how fast solar power and other technologies will develop.  Alternatively, you might say that risk is transformed into price risk rather than "you can't exceed this cap no matter what" risk.

Of course the postulated uncertainties are realistic in this context and you don't have to invoke uncertainty about the science of global warming. 

If there is very high environmental risk to having emissions above a certain level, and we are unsure about the relevant elasticities (again, uncertainty about the pace of technological development can drive this), that militates in favor of cap and trade.  It is then easier to ensure that emissions do not exceed a particular level.

You can see that we are comparing the "growth threshold problem" to the "environment threshold problem."  Samuelson is apparently more worried about the former than the latter.  Maybe he shouldn't be so sure he is focusing on the right problem, but on the economics he is on the mark in the criticized passage.

I think that Tyler Cowen has misread Robert Samuelson. First, let's give some more of the context:

Just Call It 'Cap-and-Tax': [C]ontrolling greenhouse gas emissions is... hard and perhaps futile.... One of the bad ways [to try to do it] is cap-and-trade.... [Cap-and-trade's] complexity... allows its environmental supporters to shape public perceptions in essentially deceptive ways.... [It's] a tax, but it's not described as a tax. It would regulate economic activity, but it's promoted as a "free market" mechanism.... [I]t would trigger a tidal wave of influence-peddling....

Cap-and-trade extends the long government tradition of proclaiming lofty goals that are impossible to achieve.... [T]he simplest way to stop [greenhouse gas] emissions is to regulate them out of existence. Naturally, that's what cap-and-trade does.... [But i]f we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions.... [In] the real world, if... the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences. Of course, they didn't forecast $135-a-barrel oil....

The idea that higher fuel prices will be offset mostly by lower consumption is, at best, optimistic.... [C]ap-and-trade would tax most Americans. As "allowances" became scarcer, their price would rise, and the extra cost would be passed along to customers.... [G]overnment would expand enormously. It could sell the allowances and spend the proceeds; or it could give them away, providing a windfall to recipients.... Call this "environmental pork."... The program's potential to confer subsidies and preferential treatment would stimulate a lobbying frenzy. Think of today's farm programs -- and multiply by 10.

Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system will ultimately break down.... [I]f we're going to try to stimulate new technologies through price, let's do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable...

Tyler Cowen reads Samuelson as making a reasoned argument based on the brilliant Martin L. Weitzman (1974), "Prices vs. Quantities", Review of Economic Studies 41:4 (Oct.), pp. 477-491. Price-based tax regulation puts no limit on how high the quantity can go if we get the price signal wrong--and is to be avoided if having the quantity go too high above the social optimum is very expensive. Quantity-based cap-and-trade regulation puts no limit on how high the price can go if ew get the quantity target wrong--and is to be avoided in having the price go too high above the social optimum is very expensive. These, however, are second-order considerations. To first-order, as Ryan Avent carefully explains, they do the same thing. It is not the case that one way is "bad" and another way "good": the pluses and minuses depend on the balance of uncertainties and the cost of errors.

But this is not Samuelson. Every paragraph Samuelson writes criticizing cap-and-trade can be easily rotated into an alternate universe in which Samuelson criticizes tax-based global warming control plans on exactly the same grounds. For example this:

[C]ontrolling greenhouse gas emissions is... hard and perhaps futile.... One of the bad ways [to try to do it] is cap-and-trade....[Cap-and-trade's] complexity... allows its environmental supporters to shape public perceptions in essentially deceptive ways.... [It's] a tax, but it's not described as a tax [but as a control]. It would regulate economic activity, but it's promoted as a "free market" mechanism.... [I]t would trigger a tidal wave of influence-peddling...

Becomes this:

[C]ontrolling greenhouse gas emissions is... hard and perhaps futile.... One of the bad ways [to try to do it] is a carbon tax....[The carbon tax's] complexity... allows its environmental supporters to shape public perceptions in essentially deceptive ways.... [It's] a control, but it's described as a control but a tax. It would regulate economic activity, but it's promoted as a "free market" mechanism.... [I]t would trigger a tidal wave of influence-peddling...

And this:

Cap-and-trade extends the long government tradition of proclaiming lofty goals that are impossible to achieve.... [T]he simplest way to stop [greenhouse gas] emissions is to regulate them out of existence. Naturally, that's what cap-and-trade does.... [But i]f we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions.... [In] the real world, if... the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences. Of course, they didn't forecast $135-a-barrel oil...

Becomes this:

The carbon tax extends the long government tradition of proclaiming lofty goals that are impossible to achieve.... [T]he carbon tax claims to be a "free market" mechanism, but its real purpose is to regulate greenhouse gas emissions out of existence. Naturally, that's what the carbon tax does.... [But i]f we suppress emissions, we also suppress today's energy sources, and because the economy needs energy, we suppress the economy. The models magically assume smooth transitions.... [In] the real world, if... the supply of electricity doesn't keep pace with demand, brownouts or blackouts will result. The models don't predict real-world consequences. Of course, they didn't forecast $135-a-barrel oil...

And this:

Unless we find cost-effective ways of reducing the role of fossil fuels, a cap-and-trade system will ultimately break down.... [I]f we're going to try to stimulate new technologies through price, let's do it honestly. A straightforward tax on carbon would favor alternative fuels and conservation just as much as cap-and-trade but without the rigid emission limits. A tax is more visible and understandable...

Becomes this:

Unless we find cost-effective ways of reducing the role of fossil fuels, a carbon tax system will ultimately break down.... [I]f we're going to try to restrict carbon emissions, let's do it honestly. A straightforward cap on carbon emissions with tradeable emissions permits would favor alternative fuels and conservation just as much as the carbon tax but without the risk that the tax gets set too high. A global cap on emissions is more visible and understandable...

The Weitzman (1974)-based discussion is worth having, and is important. But that's not what Samuelson is doing, is it? I don't see a single word of argument in there about how the risk that the price will go too high is more worth guarding against than the risk that the quantity of emissions will go too high. Do you? All I see are rants about how environmental controls are big government and big government is bad and we never should have passed the Clean Air Act or established the EPA in the first place.

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

Paul Krugman Pulls Me Back in...

Each time I think of climbing out of the swamp of shrillness and putting the Economist back on my must-read list, Paul Krugman pulls me back in:

How will the campaign be covered?: The Democratic nomination fight has been hog heaven for the celebrity-journalism style of campaign reporting: with two candidates not too different on the issues (despite the health care divide), plus a special dispensation (under the Clinton rules) to invent scandals when needed, it was all personalities — make that all personas, because the way politicians are portrayed generally has little or nothing to do with what they’re really like.... But now the general election begins, and there are stark differences.... I’m not optimistic. After all, 8 years ago the press managed to portray an election in which there were large policy differences as one in which nothing much was at stake. Here’s a sample from the time, [Susan Page of USA Today]:

George W. Bush and Al Gore have been campaigning for months, spotlighting the differences they offer voters. But when it comes to the policies they believe will keep Americans employed and the nation prosperous, they could just as well be running on the same ticket.... "This election reminds me of the elections in the late 19th century when nobody remembers who those candidates were and who those presidents were, when the parties looked more alike than they were different," says presidential historian Robert Dallek, author of Hail to the Chief: The Making and Unmaking of American Presidents. "Of course, it’s vastly different given the kind of global involvements the United States has and the enormous power of this country. But for all that, there are echoes of that time."

Part of this came from a remarkable willingness of pundits to dismiss the obviously irresponsible parts of Bush’s plan as stuff that he wouldn’t really do. Thus the Economist, in endorsing Bush , said this:

Mr Bush’s proposal of a huge tax cut might look reckless (which it is), but either voters are happy with recklessness that gives them their money back, or they don’t take seriously a plan that could be changed as quickly as the White House curtains.

Heh-heh: never mind those crazy policy proposals, he doesn’t really mean it.

So what will be the playbook this year? Will we really have a discussion of health care, the budget, and other substantive stuff?

I have to use all my willpower to keep myself from publicly calling for the immediate transfer of Robert Dallek, Susan Page, and the entire staff of the Economist to new jobs in cosmetics research, replacing animal subjects in testing labs...

New York Times Death Spiral Watch: David Brooks Edition

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

John Amato writes:

Crooks and Liars » Memo to David Brooks: Applebee’s doesn’t have a salad bar: In an earlier post, C&L and many other sites caught David Brooks say this:

DAVID BROOKS, NEW YORK TIMES: Obama‘s problem is he doesn‘t seem like a guy who can go into an Applebee‘s salad bar and people think he fits in naturally there. He has to change to be more like that Applebee‘s guy and as he‘s done that he‘s become much more transactional. Much more, I‘m going to deliver this and this and this to you on policy.

C&Ler Mitzi left this in the comment section:

I called my Applebee’s today to make sure I was correct and they do not have a salad bar. Just goes to show how much these people who make these comments have no idea how “regular people” live their lives.

I called an Applebee’s also and they told me that none of their restaurants have a salad bar. David, sometimes the jokes write themselves. What an idiot.

Hitting DeLong Where He Lives

Bruce Horovitz of USA Today:

Starbucks offers new flavor: Free Wi-Fi: Thirsty for more business during the worst slump in its history, Starbucks will try to lure more customers by offering two hours of free AT&T Wi-Fi a day. The Wi-Fi freebie will be available starting Tuesday to customers who purchase a minimum $5 reloadable Starbucks Card, register online for the Starbucks Rewards Card program, and use the card at least once a month. The two hours must be consecutive. New members also receive a voucher for a free drink....

For the coffee chain, the move is an attempt to entice its shrinking customer base — cutting back on pricey treats during the economic downturn — to return.... While the Starbucks Card is 6 years old, the rewards program attached to it was rolled out in April. Rewards program members who register online already receive free syrup and milk options with drinks as well as free refills of hot and iced brewed coffees and a free drink when they buy a pound of coffee beans.... Stevens says that free Internet will become a "core benefit" of the rewards program.

The Starbucks Card has become a behemoth — with more than $1 billion loaded onto cards last year. Nearly 14% of all U.S. transactions at Starbucks are paid for using the Starbucks Card, says Stevens. The card's new rewards program gives Starbucks an opportunity to gather personal information on its best customers (if they opt in), including details on what they like to eat and drink, and even when. Starbucks is trying to figure out ways to market individually to consumers based on those preferences. "The Holy Grail is to reward customers with exactly what they want," says Stevens...

Barack Obama

Remarks of Senator Barack Obama: Final Primary Night: Tuesday, June 3rd, 2008: St. Paul, Minnesota: As Prepared for Delivery

Tonight, after fifty-four hard-fought contests, our primary season has finally come to an end.

Sixteen months have passed since we first stood together on the steps of the Old State Capitol in Springfield, Illinois. Thousands of miles have been traveled. Millions of voices have been heard. And because of what you said – because you decided that change must come to Washington; because you believed that this year must be different than all the rest; because you chose to listen not to your doubts or your fears but to your greatest hopes and highest aspirations, tonight we mark the end of one historic journey with the beginning of another – a journey that will bring a new and better day to America. Tonight, I can stand before you and say that I will be the Democratic nominee for President of the United States.

I want to thank every American who stood with us over the course of this campaign – through the good days and the bad; from the snows of Cedar Rapids to the sunshine of Sioux Falls. And tonight I also want to thank the men and woman who took this journey with me as fellow candidates for President.

At this defining moment for our nation, we should be proud that our party put forth one of the most talented, qualified field of individuals ever to run for this office. I have not just competed with them as rivals, I have learned from them as friends, as public servants, and as patriots who love America and are willing to work tirelessly to make this country better. They are leaders of this party, and leaders that America will turn to for years to come.

That is particularly true for the candidate who has traveled further on this journey than anyone else. Senator Hillary Clinton has made history in this campaign not just because she's a woman who has done what no woman has done before, but because she's a leader who inspires millions of Americans with her strength, her courage, and her commitment to the causes that brought us here tonight.

We've certainly had our differences over the last sixteen months. But as someone who's shared a stage with her many times, I can tell you that what gets Hillary Clinton up in the morning – even in the face of tough odds – is exactly what sent her and Bill Clinton to sign up for their first campaign in Texas all those years ago; what sent her to work at the Children's Defense Fund and made her fight for health care as First Lady; what led her to the United States Senate and fueled her barrier-breaking campaign for the presidency – an unyielding desire to improve the lives of ordinary Americans, no matter how difficult the fight may be. And you can rest assured that when we finally win the battle for universal health care in this country, she will be central to that victory. When we transform our energy policy and lift our children out of poverty, it will be because she worked to help make it happen. Our party and our country are better off because of her, and I am a better candidate for having had the honor to compete with Hillary Rodham Clinton.

There are those who say that this primary has somehow left us weaker and more divided. Well I say that because of this primary, there are millions of Americans who have cast their ballot for the very first time. There are Independents and Republicans who understand that this election isn't just about the party in charge of Washington, it's about the need to change Washington. There are young people, and African-Americans, and Latinos, and women of all ages who have voted in numbers that have broken records and inspired a nation.

All of you chose to support a candidate you believe in deeply. But at the end of the day, we aren't the reason you came out and waited in lines that stretched block after block to make your voice heard. You didn't do that because of me or Senator Clinton or anyone else. You did it because you know in your hearts that at this moment – a moment that will define a generation – we cannot afford to keep doing what we've been doing. We owe our children a better future. We owe our country a better future. And for all those who dream of that future tonight, I say – let us begin the work together. Let us unite in common effort to chart a new course for America.

In just a few short months, the Republican Party will arrive in St. Paul with a very different agenda. They will come here to nominate John McCain, a man who has served this country heroically. I honor that service, and I respect his many accomplishments, even if he chooses to deny mine. My differences with him are not personal; they are with the policies he has proposed in this campaign.

Because while John McCain can legitimately tout moments of independence from his party in the past, such independence has not been the hallmark of his presidential campaign.

It's not change when John McCain decided to stand with George Bush ninety-five percent of the time, as he did in the Senate last year.

It's not change when he offers four more years of Bush economic policies that have failed to create well-paying jobs, or insure our workers, or help Americans afford the skyrocketing cost of college – policies that have lowered the real incomes of the average American family, widened the gap between Wall Street and Main Street, and left our children with a mountain of debt.

And it's not change when he promises to continue a policy in Iraq that asks everything of our brave men and women in uniform and nothing of Iraqi politicians – a policy where all we look for are reasons to stay in Iraq, while we spend billions of dollars a month on a war that isn't making the American people any safer.

So I'll say this – there are many words to describe John McCain's attempt to pass off his embrace of George Bush's policies as bipartisan and new. But change is not one of them.

Change is a foreign policy that doesn't begin and end with a war that should've never been authorized and never been waged. I won't stand here and pretend that there are many good options left in Iraq, but what's not an option is leaving our troops in that country for the next hundred years – especially at a time when our military is overstretched, our nation is isolated, and nearly every other threat to America is being ignored.

We must be as careful getting out of Iraq as we were careless getting in - but start leaving we must. It's time for Iraqis to take responsibility for their future. It's time to rebuild our military and give our veterans the care they need and the benefits they deserve when they come home. It's time to refocus our efforts on al Qaeda's leadership and Afghanistan, and rally the world against the common threats of the 21st century – terrorism and nuclear weapons; climate change and poverty; genocide and disease. That's what change is.

Change is realizing that meeting today's threats requires not just our firepower, but the power of our diplomacy – tough, direct diplomacy where the President of the United States isn't afraid to let any petty dictator know where America stands and what we stand for. We must once again have the courage and conviction to lead the free world. That is the legacy of Roosevelt, and Truman, and Kennedy. That's what the American people want. That's what change is.

Change is building an economy that rewards not just wealth, but the work and workers who created it. It's understanding that the struggles facing working families can't be solved by spending billions of dollars on more tax breaks for big corporations and wealthy CEOs, but by giving a the middle-class a tax break, and investing in our crumbling infrastructure, and transforming how we use energy, and improving our schools, and renewing our commitment to science and innovation. It's understanding that fiscal responsibility and shared prosperity can go hand-in-hand, as they did when Bill Clinton was President.

John McCain has spent a lot of time talking about trips to Iraq in the last few weeks, but maybe if he spent some time taking trips to the cities and towns that have been hardest hit by this economy – cities in Michigan, and Ohio, and right here in Minnesota – he'd understand the kind of change that people are looking for.

Maybe if he went to Iowa and met the student who works the night shift after a full day of class and still can't pay the medical bills for a sister who's ill, he'd understand that she can't afford four more years of a health care plan that only takes care of the healthy and wealthy. She needs us to pass health care plan that guarantees insurance to every American who wants it and brings down premiums for every family who needs it. That's the change we need.

Maybe if he went to Pennsylvania and met the man who lost his job but can't even afford the gas to drive around and look for a new one, he'd understand that we can't afford four more years of our addiction to oil from dictators. That man needs us to pass an energy policy that works with automakers to raise fuel standards, and makes corporations pay for their pollution, and oil companies invest their record profits in a clean energy future – an energy policy that will create millions of new jobs that pay well and can't be outsourced. That's the change we need.

And maybe if he spent some time in the schools of South Carolina or St. Paul or where he spoke tonight in New Orleans, he'd understand that we can't afford to leave the money behind for No Child Left Behind; that we owe it to our children to invest in early childhood education; to recruit an army of new teachers and give them better pay and more support; to finally decide that in this global economy, the chance to get a college education should not be a privilege for the wealthy few, but the birthright of every American. That's the change we need in America. That's why I'm running for President.

The other side will come here in September and offer a very different set of policies and positions, and that is a debate I look forward to. It is a debate the American people deserve. But what you don't deserve is another election that's governed by fear, and innuendo, and division. What you won't hear from this campaign or this party is the kind of politics that uses religion as a wedge, and patriotism as a bludgeon – that sees our opponents not as competitors to challenge, but enemies to demonize. Because we may call ourselves Democrats and Republicans, but we are Americans first. We are always Americans first.

Despite what the good Senator from Arizona said tonight, I have seen people of differing views and opinions find common cause many times during my two decades in public life, and I have brought many together myself. I've walked arm-in-arm with community leaders on the South Side of Chicago and watched tensions fade as black, white, and Latino fought together for good jobs and good schools. I've sat across the table from law enforcement and civil rights advocates to reform a criminal justice system that sent thirteen innocent people to death row. And I've worked with friends in the other party to provide more children with health insurance and more working families with a tax break; to curb the spread of nuclear weapons and ensure that the American people know where their tax dollars are being spent; and to reduce the influence of lobbyists who have all too often set the agenda in Washington.

In our country, I have found that this cooperation happens not because we agree on everything, but because behind all the labels and false divisions and categories that define us; beyond all the petty bickering and point-scoring in Washington, Americans are a decent, generous, compassionate people, united by common challenges and common hopes. And every so often, there are moments which call on that fundamental goodness to make this country great again.

So it was for that band of patriots who declared in a Philadelphia hall the formation of a more perfect union; and for all those who gave on the fields of Gettysburg and Antietam their last full measure of devotion to save that same union.

So it was for the Greatest Generation that conquered fear itself, and liberated a continent from tyranny, and made this country home to untold opportunity and prosperity.

So it was for the workers who stood out on the picket lines; the women who shattered glass ceilings; the children who braved a Selma bridge for freedom's cause.

So it has been for every generation that faced down the greatest challenges and the most improbable odds to leave their children a world that's better, and kinder, and more just.

And so it must be for us.

America, this is our moment. This is our time. Our time to turn the page on the policies of the past. Our time to bring new energy and new ideas to the challenges we face. Our time to offer a new direction for the country we love.

The journey will be difficult. The road will be long. I face this challenge with profound humility, and knowledge of my own limitations. But I also face it with limitless faith in the capacity of the American people. Because if we are willing to work for it, and fight for it, and believe in it, then I am absolutely certain that generations from now, we will be able to look back and tell our children that this was the moment when we began to provide care for the sick and good jobs to the jobless; this was the moment when the rise of the oceans began to slow and our planet began to heal; this was the moment when we ended a war and secured our nation and restored our image as the last, best hope on Earth. This was the moment – this was the time – when we came together to remake this great nation so that it may always reflect our very best selves, and our highest ideals. Thank you, God Bless you, and may God Bless the United States of America.

Menzie Chinn Has Important Footnotes in Dynamic Scoring

From the past. Menzie reads the Bush administration's own documents:

Econbrowser: Important Footnotes in Dynamic Scoring: The press account surrounding the Mid Session Review... noted the preferred estimate of GNP response to the President's tax proposals: real GNP might be 0.7 percent higher than steady state baseline. The Treasury's Office of Tax Analysis has just released the underlying analysis.... The 0.7 percent deviation from baseline cited in the 2007 MSR is in the top right hand corner element, under "Financed by Decreasing Future Government Spending" (recent history has not been too supportive of this possibility, though). This estimate is for the case where capital gains and dividend tax rates are reduced, reduce top 4 ordinary rates, and make permanent 2001 and 2003 tax reductions.... Of course, the astute reader will note that if taxes are raised in the future to finance the tax cut, then GNP will eventually be 0.9 percent lower than steady state baseline...

Washington Post Death Spiral Watch (Richard Cohen Edition)

Outsourced to Marbury:

marbury: poor dickie: Washington Post columnist Richard Cohen tells us he's sick of people telling him how lucky he's been to have covered this race. He says he has come to loathe it. His final paragraph sums up:

Yes, voter participation is way up and in the end, the Democrats will choose a woman or an African American and, to invoke that tiresome phrase, history will be made. But this messy nominating process has eroded the standing of both candidates. It has highlighted the reality that racism still runs deep and that misogyny, although more imagined than real, is not yet a wholly spent force. This is an ugly porridge that has been placed before us, turned rancid since the cold, pristine days of Iowa only five months ago. We were, with apologies to Bob Dylan, so much younger then.

Bob might accept the apology, but what a sorry excuse for a column. Cohen is really saying that he hates the fact that racism and sexism are still serious problems in America. Perhaps up until this year he'd managed to avoid such unpleasantness by staying home and mingling with nice people at civilized Georgetown dinner parties. Good for him. But to protest that by exposing these issues to the light the campaign has done the country - or at least him - a disservice, is absurd. I suppose we might have avoided all that messiness if the key contenders in the contest had been white males. The implication of Cohen's column is that he would have preferred it that way.

Political Science

Matthew Yglesias (June 03, 2008) - The Math (Politics)

Matthew Yglesias writes:

The Math: hart borrowed from David Park relates the share of the vote going to Democrats to the share of House seats controlled by Democrats. You can see that starting in 1994 we entered an era when Democrats have consistently underperformed their vote share. If the current Democratic majority can stay in place past the 2010 census, one assumes that will change. Still, it should always be remembered -- but especially in these days of heady optimism -- that the structure of American political institutions provides a substantial bias in favor of conservatism and makes it difficult for small progressive majorities to accomplish very much.

Perhaps the most interesting thing about the graph is this: there is exactly one election since 1930 in which more Americans voted for the Republicans than for the Democrats. Only in 1994 did Republicans win the two-party vote share. Yet the House has been Republican-majority in 8 of 31 post-WWII congresses.

Two things seem to be going on in the relationship between the two lines. First, there is a magnification effect--a 1% swing in the vote share leads to a greater than 1% swing in the number of seats. Second, more often than not there appears to be a Republican bias: a 50-50 vote share House would, in almost every year, be a Republican-majority House.