## Technological Regress in the Thinking of William Poole

When I knew William Poole in the 1980s, it was very clear that he was not a devotee of the Treasury View--that he believed and understood that the interest elasticity of money demand was not zero, and hence that expansionary fiscal policy could spur production and employment.

Now he has forgotten what he once knew, and retreated to the position R.G. Hawtrey assumed in 1926: 82 years of progress in monetary economics thrown away:

William Poole: The self-correcting nature of markets will ultimately prevail. We should not underestimate the power of monetary policy; with the sharp increase in the nation’s money stock starting in September, monetary policy is now extraordinarily expansionary. I believe, though without great confidence, that the recession will end in the second half of this year.... [G]overnment spending can’t lead the way to sustained recovery, because its stimulating effect will be offset by anticipated higher taxes and the need to finance the deficit.

Poole is implicitly predicting a large and rapid rise in Treasury interest rates in the future as the spending from the fiscal boost package hits the economy--excuse me, Poole is implicitly predicting a large and rapid rise in Treasury interest rates in the past as markets realized that the Obama bill was going to get through congress. Yet the failure of his implicit prediction does not faze him at all.

## Stimulus Ostriches

Project Syndicate | The Stimulus Ostriches: BERKELEY - Of all the strange things that have happened this winter, perhaps the strangest has been the emergence of large-scale Republican Party opposition to the Obama administration's effort to keep American unemployment from jumping to 10% or higher. There is no doubt that had John McCain won the presidential election last November, a very similar deficit-spending stimulus package to the Obama plan - perhaps with more tax cuts and fewer spending increases would have moved through Congress with unanimous Republican support.

As N. Gregory Mankiw said of a stimulus package back in 2003, when he was President George W. Bush's chief economic advisor, this is not rocket science. Deficit spending in a recession, he said, "help[s] maintain the aggregate demand for goods and services. There is nothing novel about this. It is very conventional short-run stabilization policy: you can find it in all of the leading textbooks..."

I can understand (though I disagree with) opponents of the stimulus plan who believe that the situation is not that dire; that the government spending will be slow and wasteful (whereas properly targeted tax cuts would provide a more effective stimulus); and thus that it would have been better to defeat Obama's stimulus bill and try again in a couple of months.

I can also understand (though I disagree with) opponents who believe that the short-run stimulus effect of the plan will be small, while America's weak fiscal position implies a large long-run drag on the economy from the costs of servicing the resulting debt.

What I do not understand is opposition based on the claim that the stimulus package simply will not work: the government will spend its money, households will receive their tax rebates, and nothing will happen afterwards to boost employment and production. In fact, there is a surprisingly large current of thought that maintains that stimulus packages simply do not work, ever.

This opposition is not coming only from politicians who are calculating that opposition to whatever is proposed may yield electoral benefits; indeed, it does not even reflect any coherent right-wing or indeed left-wing political position. Root-and-branch stimulus opponents whose work has crossed my desk recently include efficient-markets fundamentalists like the University of Chicago's Eugene Fama, Marxists like CUNY's David Harvey, classical economists like Harvard's Robert Barro, gold bugs like the Council on Foreign Relation's Benn Steil, and a host of others.

I simply do not understand their arguments that government spending cannot boost the economy. As far as I can tell, they are simply burying their heads in the sand.

At the start of 1996, the US unemployment rate was 5.6%. Then America's businesses and investors discovered the Internet. Over the next four years, annual US spending on information technology equipment and software roared upward, from $281 billion to$446 billion, the US unemployment rate dropped from 5.6% to 4%, and the economy grew at a 4.3% real annual rate as the high-tech spending boom pulled extra workers out of unemployment and into jobs.

Back at the start of 2004, America's banks discovered that they could borrow money cheaply from Asia and lend it out in higher-yielding domestic mortgages while using sophisticated financial engineering to wall off and strictly control their risks - or so they thought. Over the next two years, annual US spending on residential construction roared upward, from $624 billion to$798 billion, the US unemployment rate dropped from 5.7% to 4.6%, and the economy grew at a 3.1% real annual rate.

In both of these cases, large groups of people in America decided to increase their spending. You can argue that neither group should have boosted its spending to such a degree that both were subject to "irrational exuberance" - and that someone should have taken away the punchbowl earlier. But you cannot argue that these groups did not increase their spending, and that their increased spending did not pull large numbers of Americans - roughly two million in each case - into productive and valued employment.

The government's money is as good as anybody else's. If businesses' enthusiasm for spending on high-tech gadgetry and new homeowners' enthusiasm for spending on three-bedroom houses can boost employment and production, then what argument can Harvey, Fama, Barro, Steil, and company make that government spending will not? I simply do not see it.

## Economics Graduate School in Barcelona

Hans-Joachim Voth:

Director's Blog: Financial Crisis Course: I am Joachim Voth, the director of the new M.Sc. in International Trade, Finance and Development at UPF-BGSE. This blog will keep current and prospective students updated with news and reflections. I'll also try to give people a taste of what (intellectual) life is like down here by the Med.

It looks like he is getting into the business of training monetary-financial-trade-accounting technocrats for the twenty-first century.

## Notes on Christie Romer's Friday Speech

The speech is here

Romer:

Of course, one can also debate the baseline and the question of whether creating or saving 3 to 4 million jobs will be enough to fully heal the economy. But it is important to acknowledge that creating or saving that many jobs would be a tremendous accomplishment...

I think by now it is fairly clear that a proper stimulus would aim at a peak employment boost of 5 to 8 million--for if things break our way and the recovery comes more rapidly than expected, then monetary policy can always cool things down. But if things come out worse than expected then we are in trouble, for monetary policy cannot heat things up.

Romer:

I feel quite confident that conventional multipliers are far more likely to be too small than too large. David Romer and I have argued that omitted variable bias is a rampant problem in estimating the effects of fiscal policy.... Robert... Barro has argued that a reasonable way to estimate the effects of increases in government spending is to look at the behavior of spending and output in wartime. But, consider one of his key observations – the Korean War. If he were using just this observation, Barro would basically divide the increase in output relative to normal by the increase in government purchases relative to normal during this episode. When one does this, one gets a number less than one. From this Barro would conclude that the multiplier for government spending is less than one. But other things were going on at this time that also affected output. Most importantly, taxes were raised dramatically; indeed, the Korean War was largely fought out of current revenues. The fact that output nevertheless rose substantially is in fact evidence that the effects of increases in government spending are very large.... David and I used narrative evidence to isolate tax changes uncorrelated with other factors affecting output.... [D]oing the same kind of narrative analysis for government spending would be very difficult: there are vastly more spending changes than tax changes, and the motivations for them are less easily classified. But the same issue of omitted variables is surely present.... [I]t is likely that conventional estimates of spending multipliers are also biased downward. In estimating the effects of the recovery package, Jared Bernstein and I used tax and spending multipliers from very conventional macroeconomic models.... [I]t is very hard to claim that those are excessively large. Indeed, if you want to know why I am more optimistic than some, it is probably because I believe my own research. I think that both the change in taxes and the change in spending may pack more bang than the official Administration estimates assume...

I agree that the evidence for large multipliers (on the order of 3) in Romer and Romer is striking. But I find it disturbing: I don't see why some of the channels they find are as strong as they are--the tremendously strong investment accelerator, for example. And thus I fear that their estimates too suffer from some opposite omitted variable bias that I am not smart enough to identify.

Romer:

I think it is possible that fiscal policy will have even more oomph in this situation. When households and businesses are liquidity-constrained by reduced lending, any money put in their pockets is more likely to be spent. More fundamentally... recovery in the real economy is salutary to the financial sector. When people are employed and buying things, loan defaults fall and asset prices are likely to rise. Both of these developments would surely be helpful.... This is, I believe, a key lesson of the Great Depression. In the Depression, the end of deflation, renewed optimism, and increased employment and output were as crucial to the recovery of the financial system as the more direct actions taken to stabilize banks. Thus real and financial recovery reinforced each other. So fiscal policy to raise employment may help to restart lending and in that way generate a more durable recovery...

Touche...

Romer:

I think almost everything in the bill is useful stimulus. The AMT patch, while desirable as public policy, is less important for the goal of net new job creation. It clearly prevented a large tax increase from occurring, but it is something that households had most likely been counting on in any event. For this reason, in our own estimates of the jobs effects, we gave it a relatively small multiplier. And there’s a small amount of spending after 2011. CBO estimates... 4%... won’t be spent out until 2012, which is probably fine in terms of having stimulus taper off, and another 5% in 2013 and beyond... having some tail is an inevitable consequence of devoting some of the spending to valuable long-term investment projects...

In other words: given that the headline stimulus package number was going to be fixed, it was a bad mistake to spend it on the AMT patch.

Romer:

I think there’s pretty broad agreement that we have been neglecting public investment in recent decades...additional investment is very likely to have substantial payoffs.... It is hard to think of a better time to make such investments than when resources are underutilized and borrowing costs are low. These investments will not only help mitigate the downturn in the short run and help spur recovery in the medium run, but will also make the economy more productive in the long run.

Indeed, given current Treasury borrowing costs there is a very big argument to be made for a much bigger public investment effort supported by borrowing: more government infrastructure financed by Treasury bonds right now looks to be a free lunch for the country even if not for the government--as long as we can borrow more without having Treasury interest rates go up.

## Washington Post Crashed-and-Burned Watch: Ryan Avent on the Post's Many Defenses of George Will

Ryan Avent on the Post's "opinions on shape of earth differ" journalism:

The Bellows » “Debate”: The Post really doesn’t get it. George Will wrote a column suggesting that there was a broad scientific consensus in the 1970s regarding the threat of global cooling. This is simply not true. Moreover, this untruth is readily verifiable. And George Will attempted to sow doubts about global warming by citing a bogus analysis of research findings, from an organization that has publicly said that the analysis was bogus and that their research in fact says just the opposite of what George Will argued. And then of course there is the fact that there is a broad scientific consensus regarding the threat of global warming, supported by overwhelming evidence.

But the Post simply wishes they had asked Will for a clarification, and laments the missed opportunity to  “foster debate” between “informed viewpoints.” Another way of putting this is that the Post has no problem misleading its readers on basic questions of science, and is willing to publish — and stand behind — blatant falsehoods in order to create the desired level of ignorance.

Thoreau:

It was a pleasure to lose this bet § Unqualified Offerings: Accused enemy combatant Ali Al-Marri is being transferred to civilian custody to stand trial in a regular court of law.  A few months ago I made a bet that Obama would assert the power to detain enemy combatants without trial.  I am delighted to be proven wrong here, and I am also delighted to have sent $50 to Habitat for Humanity, as per the terms of the bet with commenter BubbaDave. ## Economics Graduate School in Barcelona Hans-Joachim Voth: Director's Blog: Financial Crisis Course: I am Joachim Voth, the director of the new M.Sc. in International Trade, Finance and Development at UPF-BGSE. This blog will keep current and prospective students updated with news and reflections. I'll also try to give people a taste of what (intellectual) life is like down here by the Med. It looks like he is getting into the business of training monetary-financial-trade-accounting technocrats for the twenty-first century. ## We Have Always Been at War with Eastasia Department: Removed Politico Story On Jindal And Katrina Story now removed from the internet at the behest of the Jindal operation... ---- Posted via web from http://braddelong.posterous.com/tpm-news-pages-talking-points at Brad DeLong's Scrapbook ## Washington Post Crashed-and-Burned Watch: The Post Needs a New Ombudsman Ah. I see that Washington Post* ombudsman Andrew Alexander has finally read http://arctic.atmos.uiuc.edu/cryosphere/global.sea.ice.area.pdf. Last week, Hilzoy wrote: Obsidian Wings: I clicked the link http://arctic.atmos.uiuc.edu/cryosphere/global.sea.ice.area.pdf Mr. Alexander provided, and read it. Did he? I don't know what would be worse: that he did, and takes it to support Will, or that he didn't take his job seriously enough to bother. The answer appears to be that he did not take his job seriously enough to bother. This means, I think, that the Washington Post needs a new ombudsman who does take his job seriously enough to bother. Immediately. Now that Andrew Alexander has read it, he writes: March 1 2009: The editors who checked the Arctic Research Climate Center Web site believe it did not, on balance, run counter to Will's assertion that global sea ice levels "now equal those of 1979." I reviewed the same Web citation http://arctic.atmos.uiuc.edu/cryosphere/global.sea.ice.area.pdf and reached a different conclusion. It said that while global sea ice areas are "near or slightly lower than those observed in late 1979," sea ice area in the Northern Hemisphere is "almost one million sq. km below" the levels of late 1979. That's roughly the size of Texas and California combined. In my mind, it should have triggered a call for clarification to the center. But according to Bill Chapman, a climate scientist with the center, there was no call from Will or Post editors... until last Tuesday -- nine days after The Post began receiving demands for a correction... But last week--before he had read it--he was singing a very different tune: Andrew Alexander, February 19 2009: Thank you for your e-mail. The Post’s ombudsman typically deals with issues involving the news pages. But I understand the point you and many e-mailers are making, and for that reason I sought clarification from the editorial page editors. Basically, I was told that the Post has a multi-layer editing process and checks facts to the fullest extent possible. In this instance, George Will’s column was checked by people he personally employs, as well as two editors at the Washington Post Writers Group, which syndicates Will; our op-ed page editor; and two copy editors. The University of Illinois center that Will cited has now said it doesn’t agree with his conclusion, but earlier this year it put out a statement http://arctic.atmos.uiuc.edu/cryosphere/global.sea.ice.area.pdf that was among several sources for this column and that notes in part that "Observed global sea ice area, defined here as a sum of N. Hemisphere and S. Hemisphere sea ice areas, is near or slightly lower than those observed in late 1979." The relevant portions from the University of Illinois Arctic Climate Research Center, January 12 2009: Almost all global climate models project a decrease in the Northern Hemisphere sea ice area over the next several decades under increasing greenhouse gas scenarios. But, the same model responses of the Southern Hemisphere sea ice are less certain. In fact, there have been some recent studies suggesting the amount of sea ice in the Southern Hemisphere may initially increase as a response to atmospheric warming through increased evaporation and subsequent snowfall onto the sea ice. (Details: http://www.sciencedaily.com/releases/2005/06/050630064726.htm) Observed global sea ice area, deﬁned here as a sum of N. Hemisphere and S. Hemisphere sea ice areas, is near or slightly lower than those observed in late 1979, as noted in the Daily Tech article. However, observed N. Hemisphere sea ice area is almost one million sq. km below values seen in late 1979 and S. Hemisphere sea ice area is about 0.5 million sq. km above that seen in late 1979, partly offsetting the N. Hemisphere reduction. Global climate model projections suggest that the most signiﬁcant response of the cryosphere to increasing atmospheric greenhouse gas concentrations will be seen in Northern Hemisphere summer sea ice extent. Recent decreases of N. Hemisphere summer sea ice extent (green line at right) are consistent with such projections. Arctic summer sea ice is only one potential indicator of climate change, however, and we urge interested parties to consider the many variables and resources available when considering observed and model-projected climate change. For example, the ice that is presently in the Arctic Ocean is younger and thinner than the ice of the 1980s and 1990s. So Arctic ice volume is now below its long-term average by an even greater amount than is ice extent or area. http://arctic.atmos.uiuc.edu/cryosphere/global.sea.ice.area.pdf ## Washington Post Crashed-and-Burned Watch: Ombudsman Andrew Alexander Parodies Himself Last week the new Washington Post ombudsman Andrew Alexander wrote what "was understandably seen as an institutional defense" of the Washington Post editors and their climate change-denialist columnist George F. Will. This week, Alexander makes a half-hearted attempt to recover his reputation. He fails. First, he misrepresents his own words. This week Alexander writes: "Although I didn't render a judgment, my response was understandably seen as an institutional defense." But if you go to what Alexander actually wrote, he did render a judgment: it was "understandably" seen as an institutional defense because it was one: Washington Post Ombudsman Andy Alexander: Thank you for your e-mail. The Post’s ombudsman typically deals with issues involving the news pages. But I understand the point you and many e-mailers are making, and for that reason I sought clarification from the editorial page editors. Basically, I was told that the Post has a multi-layer editing process and checks facts to the fullest extent possible. In this instance, George Will’s column was checked by people he personally employs, as well as two editors at the Washington Post Writers Group, which syndicates Will; our op-ed page editor; and two copy editors. The University of Illinois center that Will cited has now said it doesn’t agree with his conclusion, but earlier this year it put out a statement http://arctic.atmos.uiuc.edu/cryosphere/global.sea.ice.area.pdf that was among several sources for this column and that notes in part that "Observed global sea ice area, defined here as a sum of N. Hemisphere and S. Hemisphere sea ice areas, is near or slightly lower than those observed in late 1979." Best wishes, Andy Alexander Washington Post Ombudsman Second in the March 1 Post Alexander writes a painfully passive-voiced column about how it would have been better "if Post editors, and the new ombudsman, had more quickly addressed the claims of falsehoods" in George Will's climate change columns. But he reaches self parody: in the column he does not address, and he still has not addressed, the claims of falsehoods in George Will's climate change columns. Alexander's lead: George Will's Column on Global Warming: Opinion columnists are free to choose whatever facts bolster their arguments. But they aren't free to distort them. The question of whether that happened is at the core of an uproar over a recent George F. Will column and The Post's fact-checking process. Will's Feb. 15 column, headlined "Dark Green Doomsayers," ridiculed "eco-pessimists" and cited a string of "predicted planetary calamities" that Will said have never come to pass. A key paragraph, aimed at those who believe in man-made global warming, asserted: "According to the University of Illinois' Arctic Climate Research Center, global sea ice levels now equal those of 1979." The column triggered e-mails to The Post from hundreds of angry environmental activists and a few scientists, many asserting that the center had said exactly the opposite.... The ruckus grew when I e-mailed readers who had inquired about the editing process for Will's column. My comments accurately conveyed what I had been told by editorial page editor Fred Hiatt -- that multiple editors had checked Will's sources, including the reference to the Arctic Climate Research Center. Although I didn't render a judgment, my response was understandably seen as an institutional defense... No judgments at all. And a lot of passive verbs eliminating agency, and a lot of statements not about how things are bu thow they are seen.: "asserting that the center had said exactly the opposite," "what I had been told by... Fred Hiatt," "my response was understandably seen." Later on in the column comes the paragraph that would have been Alexander's lead--if he had even half the courage of a mouse: [Fact-checking] should have triggered a call... to the [Arctic Climate Research] Center. But... there was no call from Will or Post editors.... [N]ot until last Tuesday -- nine days after The Post began receiving demands for a correction -- that he heard from an editor... Autumn Brewington.... Readers would have been better served if Post editors, and the new ombudsman, had more quickly addressed the claims of falsehoods... But eve here, note what Alexander doesn't say. He doesn't say that the Post shouldn't have printed Will. He doesn't say that the Post should have printed Will. All he says is that readers "would have been better served if Post editors, and the new ombudsman, had more quickly addressed the claims of falsehoods..." But even now Alexander doesn't address the claims of falsehoods. Third, Alexander ends his March 1 column with the standard plague-on-both-your-houses: There is a disturbing if-you-don't-agree-with-me-you're-an-idiot tone to much of the global warming debate. Thoughtful discourse is noticeably absent in the current dispute. But that's where The Post could have helped, and can in the future. On its news pages, it can recommit to reporting on climate change that is authoritative and deep. On the editorial pages, it can present a mix of respected and informed viewpoints. And online, it can encourage dialogue that is robust, even if it becomes bellicose. Well, to encourage dialogue that is robust, let me ask Andrew Alexander to address two claims of falsehood in George Will's climate change-denial columns: (1) A 1976 article in Science reads: Science: ...ignoring anthropogenic effects... the long-term trend over the next several thousand years is toward extensive Northern Hemisphere glaciation... Should the Washington Post print George F. Will when he claims that the authors of the Science article "anticipated 'a full-blown 10,000-year ice age' involving 'extensive Northern Hemisphere glaciation'? Should the Washington Post refuse to print a subsequent correction? Should the Washington Post ombudsman continue to fail to address the claim that the Post has printed a falsehood? (2) On or about January 12, 2009, the University of Illinois Arctic Climate Research Center wrote: http://arctic.atmos.uiuc.edu/cryosphere/global.sea.ice.area.pdf: Almost all global climate models project a decrease in the Northern Hemisphere sea ice area over the next several decades under increasing greenhouse gas scenarios. But, the same model responses of the Southern Hemisphere sea ice are less certain... some recent studies suggesting the amount of sea ice in the Southern Hemisphere may initially increase as a response to atmospheric warming.... Observed global sea ice area, deﬁned here as a sum of N. Hemisphere and S. Hemisphere sea ice areas, is near or slightly lower than those observed in late 1979.... However, observed N. Hemisphere sea ice area is almost one million sq. km below values seen in late 1979 and S. Hemisphere sea ice area is about 0.5 million sq. km above that seen in late 1979.... Global climate model projections suggest that the most signiﬁcant response of the cryosphere to increasing atmospheric greenhouse gas concentrations will be seen in Northern Hemisphere summer sea ice extent. Recent decreases of N. Hemisphere summer sea ice extent... are consistent with such projections. Arctic summer sea ice is only one potential indicator of climate change, however, and we urge interested parties to consider the many variables and resources available when considering observed and model-projected climate change. For example, the ice that is presently in the Arctic Ocean is younger and thinner than the ice of the 1980s and 1990s. So Arctic ice volume is now below its long-term average by an even greater amount than is ice extent or area... Should the Washington Post print George F. Will when he claims this means "According to the University of Illinois' Arctic Climate Research Center, global sea ice levels now equal those of 1979"? Should the Washington Post ombudsman write that "the University of Illinois center... has now said it doesn’t agree with his conclusion, but earlier this year it put out a statement http://arctic.atmos.uiuc.edu/cryosphere/global.sea.ice.area.pdf that was among several sources for this column and that notes in part that "Observed global sea ice area... is near or slightly lower than those observed in late 1979"? Should the Washington Post refuse to print a subsequent correction? Should the Washington Post ombudsman continue to fail to address the claim that the Post has printed a falsehood? ## Republicans: Much Worse than You Can Imagine (Bobby Jindal Edition) UPDATE: More from Zachary Roth: TPMMuckraker | Talking Points Memo | Jindal's Office Tries To Spin Katrina Story, Digs Itself In Deeper: You can watch the key excerpt here, but here's the transcript from Bobby Jindal's speech: During Katrina, I visited Sheriff Harry Lee, a Democrat and a good friend of mine. When I walked into his makeshift office I'd never seen him so angry. He was yelling into the phone: 'Well, I'm the Sheriff and if you don't like it you can come and arrest me!' I asked him: 'Sheriff, what's got you so mad?' He told me that he had put out a call for volunteers to come with their boats to rescue people who were trapped on their rooftops by the floodwaters. The boats were all lined up ready to go - when some bureaucrat showed up and told them they couldn't go out on the water unless they had proof of insurance and registration. I told him, 'Sheriff, that's ridiculous.' And before I knew it, he was yelling into the phone: 'Congressman Jindal is here, and he says you can come and arrest him too!' Harry just told the boaters to ignore the bureaucrats and start rescuing people. In our post, we reported -- among other red flags -- that we couldn't find any news reports that put Jindal on the ground in the affected area during the time when a boat rescue would have been needed. As we noted, we called Jindal's office twice before posting to ask them to verify the incident, but heard nothing back. This morning, Politico's Ben Smith, noting that we and others had raised questions about Jindal's story, posted a response from the governor's chief of staff, Timmy Teepell: It was in the days following the storm. Sheriff Lee was a hero who worked tirelessly to rescue those in danger, and he didn't take kindly to bureaucrats getting in his way. That didn't really seem to clear things up either way -- indeed it admitted that it wasn't "during Katrina" as Jindal had originally said. Still, the headline of Smith's post characterized the statement as "stand[ing] by" the anecdote. Team Jindal probably would have been wise to leave things there. Instead, they went back to Smith, now telling him, in Smith's words, that Jindal "didn't imply" on Tuesday that the story "took place during the heat of a fight to release rescue boats." (Take 30 seconds to read Jindal's actual words, and you'll see that's flatly untrue -- but no matter.) Rather, Jindal spokeswoman Melissa Sellers told Smith, "It was days later .. Sheriff Lee was on the phone and the governor came down to visit him. It wasn't that they were standing right down there with the boats." Smith added: She said she thought Lee, who died in 2007, "was doing an interview" about the incident with the boats when the governor described him yelling into the phone. In other words, Jindal only heard from Lee later that this had happened. He didn't actually see it happening and played no role in it himself. We posted a few hours ago, noting that Jindal's office had admitted the story was false. But then things got weirder: Jindal's people went back for yet more. Smith soon posted an update explaining that he had misunderstood Sellers earlier. According to Teepell, Smith now wrote, rescue efforts were in fact still underway when Jindal met with Lee. And Jindal overheard Lee yelling on the phone to justify a decision he had previously made, not giving an interview about the episode, as Sellers' earlier version had had it. In fact, that whole thing about Jindal overhearing Lee giving an interview? It's now gone from Smith's post (though, thanks to the dangers of syndication, it remains here) as if Jindal's office never said it. There's more. Amazingly, Sellers then argued to Smith that there is no difference between Jindal's original story as told Tuesday night, and the one her office finally settled on this afternoon. And even more amazingly, Smith added another update in which he transcribed that argument without comment, as if it were reasonable. Then the capper: With Jindal's office now satisfied with the third iteration of its story -- a version that clearly acknowledged that the first version, told Tuesday night to millions, was false -- Teepell went back to Smith with the following comment: "This is liberal blogger B.S. The story is clear." And Smith, in yet another update, published it. ## Republicans: Worse than You Can Imagine Posted via web from http://braddelong.posterous.com/tpmmuckraker-talking-points-me-2 at Brad DeLong's Scrapbook From Zachary Roth: TPMMuckraker | Talking Points Memo | Jindal Admits Katrina Story Was False: Remember that story Bobby Jindal told in his big speech Tuesday night -- about how during Katrina, he stood shoulder-to-shoulder with a local sheriff who was battling government red tape to try to rescue stranded victims? Turns out it wasn't actually, you know, true.... Jindal had described being in the office of Sheriff Harry Lee "during Katrina," and hearing him yelling into the phone at a government bureaucrat who was refusing to let him send volunteer boats out to rescue stranded storm victims, because they didn't have the necessary permits. Jindal said he told Lee, "that's ridiculous," prompting Lee to tell the bureaucrat that the rescue effort would go ahead and he or she could arrest both Lee and Jindal.... There's a larger point here, though. The central anecdote of the GOP's prime-time response to President Obama's speech, intended to illustrate the threat of excessive government regulation, turns out to have been made up. Maybe it's time to rethink the premise. Late Update: Politico's Ben Smith has updated his post.... "Bobby and I walked into harry lee's office - he's yelling on the phone about a decision he's already made," Jindal chief of staff Timmy Teepell recalled. "He's saying this is a decision I made, and if you don't like it you can come and arrest me." Teepell said the exchange took place in the week following Katrina, when Jindal visited Jefferson Parish multiple times.... The key elements of Jindal's story were that he was in Lee's office during the crisis itself, and that his support for the sheriff helped ensure the rescue went ahead. Neither of those things was true, it now seems. ## The Forest of Outstretched Arms Looking for Work Grows Thicker and Thicker... Associate Dean Ananya Roy decided a year and a half ago that Berkeley's International Studies teaching programs would deliver much more in the way of education to the undergraduates at the same cost if we spent less money hiring graduate students as instructors and more money hiring post-Ph.D.'. as lecturers. I was just looking through the lecturer applications. OMG. So many people who would be so good in the classroom, and who know so much, and would be such general assets to the Berkeley intellectual community. This has to be the worst year to apply for an academic job in America since... the Great Depression And I think we are going to be offering them half-time jobs... ## We Are Going to Need a Bigger Stimulus Fourth quarter of 2008 GDP 1.55% below the third quarter level--and an equal decline now forecast for the first quarter. Paul Krugman says: Yikes. And if the data on new unemployment claims are any indication (which they are), the economy is continuing to plunge at least as fast. As Brad DeLong says, I think we’re going to need a bigger stimulus. ## On the Economy, Obama and Company Are Now Batting 2 Out of 5... Paul Krugman is unhappy: Feelings of despair: There’s so much to like about where Obama is going — health care, transparency in government, ending the war in Iraq. And the stimulus bill is OK, though not big enough. But on the question of fixing the banks, many of us are feeling a growing sense of despair. Obama and Geithner say the right things. But Simon Johnson nails it: How long can you say, “we are being bold” when in fact you are not? Obama and Geithner say things like, If you underestimate the problem; if you do too little, too late; if you don’t move aggressively enough; if you are not open and honest in trying to assess the true cost of this; then you will face a deeper, long lasting crisis. But what they’re actually doing is underestimating the problem, doing too little too late, and not being open and honest in trying to assess the true cost. The actual plan seems to be to keep the banks semi-alive by implicitly guaranteeing their liabilities and dribbling in money as necessary, all the while proclaiming that they’re adequately capitalized — and hope that things turn up. It’s Japan all over again. And the result will probably be a deeper, long-lasting crisis. Back last November, I said that the Obama administration needed to do five things: 1. Expansionary monetary policy at an appropriate scale. 2. Expansionary fiscal policy at an appropriate scale. 3. Massive bank recapitalization--or nationalization--so that banks believe that they can be banks that start lending again rather than being zombies that think they have to hunker down and minimize risk in order to keep the next negative shock from destroying the institution. 4. Massive buy-ups of mortgages by Fannie and Freddie so that (a) mortgage deals could be reworked, and (b) the supply of risky assets on financial markets that the private sector could be reduced in consonance with the banking system's reduced risk tolerance. 5. Design the regulatory system for financial markets going forward. Bernanke has done (1). Summers and company have done (2) at perhaps half-scale--but thanks to the Republicans and Senator Nelson that was the biggest fiscal boost progrtam that could get through congress. Geithner and his skeleton staff are doing about half of (3)--or perhaps less. And I see no signs of (4) or (5). This is much, much better than the Bush administration. But it is not reassuring. We might still get out of this "OK," where "OK" means a headline unemployment rate that stays below 10%. But we might not... ## Gillian Tett Bears Bad News About CDOs The always-worth-reading Gillian Tett: Time to expose those CDOs: Just how much should a debt vehicle backed by subprime mortgage bonds be worth these days? Two years ago, most banks and insurance companies assumed the answer was close to 100 per cent of face value – or more. Since then, however, that “price” has clearly collapsed, triggering tens of billions of dollars worth of writedowns, particularly in relation to a product known as collateralised debt obligations of asset-backed securities (CDO of ABS.) But as the zeroes relating to writedowns multiply, a peculiar – and bitter – irony continues to hang over these numbers. Notwithstanding the fact that bankers used to promote CDOs as a tool to create more “complete” capital markets, very few of those instruments ever traded in a real market sense before the crisis – and fewer still have changed hands since then. Thus, the “prices falls” that have blasted such terrible holes in the balance sheets of the banks have not been based on any real market numbers, but on models extrapolated from other measures such as the ABX, an index of mortgage derivatives. What has blown up the capital markets is thus a set of theoretical swings in prices that were always pretty abstract.... But now, at long last, one shard of reality has just emerged to piece this gloom. In recent weeks, bankers at places such as JPMorgan Chase and Wachovia have been quietly sifting data trying to ascertain what has happened to those swathes of troubled CDO of ABS. The conclusions are stunning. From late 2005 to the middle of 2007, around$450bn of CDO of ABS were issued, of which about one third were created from risky mortgage-backed bonds (known as mezzanine CDO of ABS) and much of the rest from safer tranches (high grade CDO of ABS.) Out of that pile, around $305bn of the CDOs are now in a formal state of default, with the CDOs underwritten by Merrill Lynch accounting for the biggest pile of defaulted assets, followed by UBS and Citi. The real shocker, though, is what has happened after those defaults. JPMorgan estimates that$102bn of CDOs has already been liquidated. The average recovery rate for super-senior tranches of debt – or the stuff that was supposed to be so ultra safe that it always carried a triple A tag – has been 32 per cent for the high grade CDOs. With mezzanine CDO’s, though, recovery rates on those AAA assets have been a mere 5 per cent.

I dare say this might be an extreme case. The subprime loans extended in 2006 and 2007 have suffered particularly high default rates and the CDOs that have already been liquidated are presumably the very worst of the pack. Even so, I would hazard a guess that this is easily the worst outcome for any assets that have ever carried a “triple A” stamp.... [W]ith the ABX now suggesting that triple A subprime mortgage assets are worth around 40 cents on the dollar (depending on the precise vintage), the message from that might almost be too optimistic in relation to some CDOs. So where does that leave the banks?... [T]he saga strengthens the case for financiers now biting the bullet – and conducting some open auctions of this stuff, to get a bit of market price discovery.

Hitherto, most bankers – and policy makers – have vehemently resisted that idea since they feared that public sales would produce painfully low prices.... But in a world where investors already feel utterly terrified by the inability to determine values – and the recovery rate on triple A assets has tumbled to just 5 per cent – conducting an open fire sale might now be the least bad of some terrible options. After all, if an open auction ends up pricing mortgage-linked CDOs near zero, at least the capital hit to the banks and insurance companies will be clear; and if it is higher than zero, it might even cheer investors up. Either way, until investors get some sense of what something might – or might not – be worth, it will be painfully hard to rebuild trust in capital markets and banks alike.

Those American officials who are implementing flashy new “stress tests” of banks would do well to take note.

## Why Do We Economists Today Know So Much Less than Fisher or Wicksell Knew?

Paul Krugman links to a very nice piece by Oliver Staley and Michael McKee in which he (and a lot of other people) sing the praises of James Tobin. One of the benefits of being in an intellectual community that reaches into the past is that you can pick up the thinking of smart people who are now no longer with us when the issues they focused on come to the forefront again:

This age of Tobin - Paul Krugman Blog: Very nice piece about James Tobin’s influence from Bloomberg, with quotes from a lot of people including yours truly...

Alas, it also has:

bonus fallacies from John Cochrane...

The frustrating tiung about Cochrane is that he does not try to present a model or make an argument:

Bloomberg: John Cochrane, a finance professor at the Booth School of Business at the University of Chicago, said that while Tobin made contributions to investing theory, the idea that spending can spur the economy was discredited decades ago.

“It’s not part of what anybody has taught graduate students since the 1960s,” Cochrane said. “They are fairy tales that have been proved false. It is very comforting in times of stress to go back to the fairy tales we heard as children but it doesn’t make them less false.”

To borrow money to pay for the spending, the government will issue bonds, which means investors will be buying U.S. Treasuries instead of investing in equities or products, negating the simulative effect, Cochrane said...

If you tried to turn what Cochrane says into a model or an argument, it would go something like this:

The government can try to spur the economy by spending more money, but in order to do so it needs to sell bonds. When it sells Treasury bonds it will push down their price--push up the interest rate on Treasury bonds. That will push up the interest rate on other bonds that are close substitutes for Treasury bonds. Then businesses and households that were going to borrow to fund their own spending will take a look at the higher interest rates they must pay, and they will decide not to borrow and not to spend, and so the increase in government spending will be completely offset by a fall in private spending.

But if Cochrane were to present his model and argumeent for crowding out, it would invite a very natural counter: If only!! We should be so lucky!! If the passage of the fiscal stimulus plan raised interest rates and discouraged private-sector borrowing to fund investment spending--well, then the Federal Reserve could then swing into action and lower interest rates back to where they are now, and so spur the economy. A world in which expansionary fiscal policy was ineffective because it crowded out private investment would be a world in which standard monetary policy had traction. But the problem is that right now we fear we live in a world in which standard monetary policy does not have traction.

All this is, if not in Fisher and Wicksell, at least in Tobin and Patinkin--things that Olivier Blanchard at least made me read in graduate school in 1983... or was it 1984? I think that 1984 was after the 1960s, but I could be wrong.

If Cochrane were to present his model and argument for crowding out, it would sound--to me at least--pretty silly. It would carry the implication not just that government spending can't spur the economy, but that private spending by high-tech startups in the 1990s or by homebuilding compaanies in the 2000s did not spur the economy either--that it was simply chance that high-tech investment spending boomed in the late 1990s and the unemployment rate fell at the same time and that it was simply chance that home construction spending boomed in the mid 2000s and the unemployment rate fell at the same time.

And Cochrane's position had not to my knowledge been seriously advanced--certainly Milton Friedman did not advance the view that there was always 100% crowding-out of fiscal policy--since R.G. Hawtrey and the "Treasury View" of the 1920s.

## Three-Word Slogans!

It's three-word slogan time!

Liberte, Egalite, Fraternite: Maximilien Robespierre's Revolutionary Dictatorship.

Travail, Famille, Patrie: Philippe Petain's Collaborationist WWII-Era Dictatorship.

Discipline, Efficiency, Prosperity: Peter Orszag's OMB Weblog.

## Prometheus 6 Welcomes Justice Ginsburg back to the Court

Thems that voted to confirm Justice Roberts have a lot of xplainin to do:

Prometheus 6: And welcome back, Justice Ginsburg.

Excluding domestic abusers who are convicted under generic laws ''would frustrate Congress' manifest purpose,'' Ginsburg said. The law's main sponsor, New Jersey Sen. Frank Lautenberg, said in 1996 that people who abuse their spouses and children often are not charged with felonies or are allowed to plead to lesser crimes, sometimes because relatives are unwilling to press more serious charges.

In dissent, Roberts said the federal law is ambiguous and that the case should have been resolved in Hayes' favor. ''Ten years in jail is too much to hinge on the will-o'-the-wisp of statutory meaning pursued by the majority,'' Roberts said.

I find it amusing that Chief Justice Roberts, who so easily discerns the intent of men writing over 200 years ago, cannot discern the intent of Congress in a law issued in his lifetime.

## What to Do in Econ 202b in Q4?

Perhaps I should do this:

Hans-Joachim Voth: Syllabus: Financial Crises, Bubbles, and Crashes:

It is all stuff that first-year economics Ph.D. graduate students should see sometime. And why not now? It all certainly is timely...

## Does the Republican Party Have a Future in National Presidential Politics?

Does Republican opposition to Obama herald the continued decline of the Republican Party? Matthew Yglesias wonders if the answer is "yes":

Matthew Yglesias: Does the GOP Governors Split Foreshadow the Party’s Future?: The issues posed by the stimulus bill are only tangentially related to those of “ordinary” politics. But if this is the future, then it’s a bit hard to see it playing out well for Republicans:

For some [governors] — mostly Democrats but also a few prominent moderate Republicans — the bill represents an admittedly imperfect but desperately needed infusion of cash that will help them avert thousands of layoffs. For others — predominantly conservative Southern Republicans — the flaws partly outweigh the benefits. And for those with presidential aspirations, the strong stance in opposition to the Obama administration may be seen as a way to stand out and stake a claim to leadership.

If it’s true that the only kind of politics that will play in a GOP presidential primary is the kind of politics that plays in Louisiana, Mississippi, and South Carolina but not California or Florida (!) then it’s just hard to see how Republicans get to a majority.

## Menzie Chinn: Edward Prescott Is Meshugannah

Edward Prescott says that real economists are opposed to the fiscal stimulus package:

"I don't know why Obama said all economists agree on [the need for a stimulus bill]," Prescott said. "They don't. If you go down to the third-tier schools, yes, but they're not the people advancing the science."

Edward Prescott thinks that the current recession is due either to (a) the fact that workers have decided that they would rather work less than they wanted to two years ago, or to (b) the fact that we have forgotten some productive technologies that we knew how to use two years ago.

There is a technical term for Edward Prescott: Edward Prescott is meshugannah.

Let me turn the microphone over to Menzie Chinn:

Econbrowser: The Current Downturn: Labor-leisure tradeoff or technological regress: Some views from an economist who is not "advancing the science". Reader Joseph commenting on the stimulus bills brings my attention the Cato ad.... Ed Prescott... Nobel laureate who won for work on growth/macroeconomics, so attention must be paid! I looked a bit for his reasoning, and only found this quote from the East Valley Tribune.... So, I think it's worthwhile to infer why Prescott is against the bill. I will refer to his... "Theory ahead of business cycle measurement":

Economic theory implies that, given the nature of the shocks to technology [i.e., that we occasionally, suddenly, unpredictibly and collectively forget about technologies we knew about two years before] and people's willingness and ability to intertemporally and intratemporally substitute [i.e., that we occasionally, suddenly, unpredictibly and collectively decide that we want to spend fewer hours at work than we did two years before], the economy will display fluctuations like those the U.S. economy displays. Theory predicts fluctuations in output of 5 percent and more from trend, with most of the fluctuation accounted for by variations in employment and virtually all the rest by the stochastic technology parameter.... Theory predicts that deviations [from trend] will display high serial correlation. In other words, theory predicts what is observed.... The policy implication of this research is that costly efforts at stabilization are likely to be counterproductive. Economic fluctations are optimal responses to uncertainty in the rate of technological change ... .

The paper lays out in a fairly straightforward fashion the logic. I highly recommend reading it. However, I think it useful to lay out the logic in a simplified manner, such as I would teach it in an intro macro course. Let output be given by:

Yt= ztkt1-θntθ

Where z is a technology parameter, or "shock", k is capital, and n is labor. Households optimize intertemporally, and both demand and supply jointly determine output (in the crudest Keynesian models -- but not the neoclassical synthesis -- output is demand determined). Output then only moves in response to changes in z, k and n. k might change if the user cost of capital changes. n might change as workers decide to alter their labor-leisure tradeoff, perhaps in response to changes in the real interest rate (or perhaps, there is an exogenous change in preferences of leisure against labor). Alternatively, z has changed. Let me focus on this, since that has been a central parameter in real business cycle (RBC) models.

In this interpreation, we have since September 2008 experienced substantial technological regress. What the exact nature of this technological regress is remains open to question. One could say that the financial system is part of technology, and we've forgotten how to overcome asymmetric information problems previously handled by a banking system combined with regulation. Or perhaps the trend rate of growth in technology has changed. Remember in the original Prescott paper, in order to match the time series pattern of deviation of output from the Hodrick-Prescott filtered data, the autoregressive parameter was set to near unity; but the trend was subsumed into the HP trend.

In [Prescott's] world... government spending would of course be counterproductive, since it would waste resources... all the current and incipient rise in unemployment is an optimal response to changing relative prices and prospects for technology growth.... But it is important to understand exactly how he thinks the world works before taking his prescriptions to heart.

Back in 2000 my teacher Olivier Blanchard wrote an article: "What Do We Know About Macroeconomics that Fisher and Wicksell Did Not?" http://www.j-bradford-delong.net/articles_of_the_month/pdf/W7550.pdf. But he wrote the wrong article. The Cato Institute and the Republican Party demonstrate that we economists have forgotten--or at least can no longer reach consensus on--things that Fisher and Wicksell knew very well indeed.

## For the Employee Free Choice Act

Although its collapse has dominated recent media coverage, the financial sector is not the only segment of the U.S. economy running into serious trouble. The institutions that govern the labor market have also failed, producing the unusual and unhealthy situation in which hourly compensation for American workers has stagnated even as their productivity soared.

Indeed, from 2000 to 2007, the income of the median working-age household fell by 2,000- an unprecedented decline. In that time, virtually all of the nation’s economic growth went to a small number of wealthy Americans. An important reason for the shift from broadly-shared prosperity to growing inequality is the erosion of workers’ ability to form unions and bargain collectively. A natural response of workers unable to improve their economic situation is to form unions to negotiate a fair share of the economy, and that desire is borne out by recent surveys. Millions of American workers – more than half of non-managers – have said they want a union at their work place. Yet only 7.5% of private sector workers are now represented by a union. And in all of 2007, fewer than 60,000 workers won union status through government-sanctioned elections. What explains this disconnect? The problem is that the election process overseen by the National Labor Relations Board has become drawn out and acrimonious, with management campaigning fiercely to deter unionization, sometimes to the extent of violating the labor law. Union sympathizers are routinely threatened or even fired, and they have little effective recourse under the law. Even when workers overcome this pressure and vote for a union, they are unable to obtain contracts one-third of the time due to management resistance. To remedy this situation, the Congress is considering the Employee Free Choice Act. This act would accomplish three things: It would give workers the choice of using majority sign-up-- a simple, established procedure in which workers sign cards to indicate their support for a union – or staging an NLRB election; it triples damages for employers who fire union supporters or break other labor laws; and it creates a process to ensure that newly unionized employees have a fair shot at obtaining a first contract by calling for arbitration after 120 days of unsuccessful bargaining. The Employee Free Choice Act will better reflect worker desires than the current “war over representation.” The Act will also lower the level of acrimony and distrust that often accompanies union elections in our current system. A rising tide lifts all boats only when labor and management bargain on relatively equal terms. In recent decades, most bargaining power has resided with management. The current recession will further weaken the ability of workers to bargain individually. More than ever, workers will need to act together. The Employee Free Choice Act is not a panacea, but it would restore some balance to our labor markets. As economists, we believe this is a critically important step in rebuilding our economy and strengthening our democracy by enhancing the voice of working people in the workplace. Statement Endorsers Henry J. Aaron, Brookings Institution Katharine Abraham, University of Maryland Philippe Aghion, Massachusetts Institute of Technology Eileen Appelbaum, Rutgers University Kenneth Arrow, Stanford University Dean Baker, Center for Economic Policy and Research Jagdish Bhagwati, Columbia University Rebecca Blank, Brookings Institution Joseph Blasi, Rutgers University Alan S. Blinder, Princeton University William A. Darity, Duke University Brad DeLong, University of California/Berkeley John DiNardo, University of Michigan Henry Farber, Princeton University Robert H. Frank, Cornell University Richard Freeman, Harvard University James K. Galbraith, University of Texas Robert J. Gordon, Northwestern University Heidi Hartmann, Institute for Women’s Policy Research Lawrence Katz, Harvard University Robert Lawrence, Harvard University David Lee, Princeton University Frank Levy, Massachusetts Institute of Technology Lisa Lynch, Brandeis University Ray Marshall, University of Texas Lawrence Mishel, Economic Policy Institute Robert Pollin, University of Massachusetts William Rodgers, Rutgers University Dani Rodrik, Harvard University Jeffrey D. Sachs, Columbia University Robert M. Solow, Massachusetts Institute of Technology William Spriggs, Howard University Peter Temin, Massachusetts Institute of Technology Mark Thoma, University of Oregon Lester C. Thurow, Massachusetts Institute of Technology Laura Tyson, University of California/Berkeley Paula B. Voos, Rutgers University David Weil, Boston University Edward Wolff, New York University ## Adam Posen Says That Our Banking Policy Is Heading for Big Trouble... Adam via Paul Krugman: Turning Japanese - Paul Krugman Blog - NYTimes.com: The guarantees that the US government has already extended to the banks in the last year, and the insufficient (though large) capital injections without government control or adequate conditionality also already given under TARP, closely mimic those given by the Japanese government in the mid-1990s to keep their major banks open without having to recognize specific failures and losses. The result then, and the emerging result now, is that the banks’ top management simply burns through that cash, socializing the losses for the taxpayer, grabbing any rare gains for management payouts or shareholder dividends, and ending up still undercapitalized. Pretending that distressed assets are worth more than they actually are today for regulatory purposes persuades no one besides the regulators, and just gives the banks more taxpayer money to spend down, and more time to impose a credit crunch. These kind of half-measures to keep banks open rather than disciplined are precisely what the Japanese Ministry of Finance engaged in from their bubble’s burst in 1992 through to 1998 … ## The "Pro-Life" Movement: Children of Sluts Must Die!! Colorado State Senator David Schultheis (Republican, Colorado Springs) favors mother-child HIV transmission: Rocky Mountain News: This stems from sexual promiscuity for the most part and I just can't go there. We do things continually to remove the consequences of poor behavior, unacceptable behavior, quite frankly. I'm not convinced that part of the role of government should be to protect individuals from the negative consequences of their actions.... What I'm hoping is that yes, that [child] may have AIDS, have it seriously as a baby and when they grow up, [and] the mother will begin to feel guilt as a result of that. The family will see the negative consequences of that promiscuity and it may make a number of people over the coming years.. begin to realize that there are negative consequences and maybe they should adjust their behavior. We can't keep people from being raped. We can't keep people from shooting each other. We can't keep people from jumping off bridges. People drink and drive, and they crash and kill people. Poor behavior has its consequences... Duncan Black observes: Eschaton: The [William] Saletans of the world think we [pro-choice people] are crazy when we try to explain to them that the pro-life movement (not [grassroots] pro-lifers, but the movement) is all about punishing women who have sex they disapprove of. [It's] not much about life when you're bestowing a death sentence. ## Patrick Ruffini Hates Joe the Plumber, Adam Smith Lapel Pins, Exaggerated Worship of Generation-Ago Presidents, Hollywood, Plungers, and Tax Cuts for the Rich You will all remember that when Politico boss John Harris wanted to oust Dan Froomkin from the Washington Post website he did so by saying that grassroots readers like Patrick Ruffini thought that Froomkin was liberal and biased--without ever telling anybody that Patrick Ruffini had been internet director for Bush-Cheney 2004. Now Patrick Ruffini sounds... shrill: The Joe-the-Plumberization of the GOP | The Next Right: If you want to get a sense of how unserious and ungrounded most Americans think the Republican Party is, look no further than how conservatives elevate Joe the Plumber as a spokesman. The movement has become so gimmick-driven that Wurzelbacher will be a conservative hero long after people have forgotten what his legitimate policy beef with Obama was. A movement self-confident in its place in American society would not have made Joe the Plumber a bigger story than he actually was.... [Conservatives] have paeans to Reagan (as if we needed to be reminded again of just how much things suck in comparison today), memorabilia honoring 18th century philosophers that we wouldn't actually wear in the outside world, and code-word laden speeches that focus on a few hot button issues that leave us ill-equipped to actually govern conservatively on 80% of issues when we actually do get elected.... [Conservatives] think of [their] position as inherently fragile. The one that spawned the Cult of Joe the Plumber was the meme that Republicans want tax cuts only for the rich and that we don't stand for working Americans. When find a highly visible figure who contradicts this notion, we swing into action. And we go on to press the argument to the point to absurdity, replete with plungers and custom "Joe" yard signs to prove our working class chops.... The left assumes that it is culturally superior and the natural party of government and fights aggressively to frame any conservative incursion on that turf as somehow alien and unnatural. (The "Oh God..." whisper being the perfect illustration.) They dominate Hollywood... by cooly associating liberal policy ideas with sentiments everyone feels, like love (gay marriage) or fairness (the little guy vs. some evil corporate stiff).... [C]onservatives need to get serious and ditch the gimmicks and the self-referential credentializing and talk to the entire country. If the average apolitical American walked into CPAC or any movement conservative gathering would they feel like they learned something new or that we presented a vision compelling to them in their daily lives? Or would it all be talk of a President from 25 years ago and Adam Smith lapel pins?... Nothing there any reality-based liberal could disageree with, right? But Ruffini is a conservative. So let's see what he recommends: We need to advance our ideas without ever once saying the word "conservative" or "Republican" in a speech. We need to define these ideas not as conservative, but as American. We need to be confident... that... our ideas are in alignment with basic American principles, and quit treating middle class, working class, or rural Americans like an interest group to be mollified by symbolic, substance-free BS. But, Patrick, your ideas are not in alignment with basic American principles. Americans are for, not against, monitoring volcanoes. Americans are for, not against, human-animal chimeras to make insulin. Americans are for, not against, stem cell research. Americans are for, not against, love and fairness. Americans are against, not for, tax cuts for the rich. Americans are against, not for, Great Depressions. ## It's Not as Bad as It Looks--Yet ##### Via Calculated Risk. From the Department of Labor: In the week ending Feb. 21, the advance figure for seasonally adjusted initial claims was 667,000, an increase of 36,000 from the previous week's revised figure of 631,000. The 4-week moving average was 639,000, an increase of 19,000 from the previous week's revised average of 620,000.... The advance number for seasonally adjusted insured unemployment during the week ending Feb. 14 was 5,112,000, an increase of 114,000 from the preceding week's revised level of 4,998,000. The labor force has grown by roughly half over the span of the graph. So it is not as bad as it looks. Yet. Posted via web from http://braddelong.posterous.com/its-not-as-bad-as-it-looks-yet at Brad DeLong's Scrapbook ## Trying to Reduce the Power of K Street Sam Stein of The Huffington Post: 'Accountability Now': Bloggers And Progressive Groups Plan To Challenge Elected Dems: Some of the most prominent names in progressive politics launched a major new organization on Thursday dedicated to pinpointing and aiding primary challenges against incumbent Democrats who are viewed as acting against their constituents' interests... it will actively target, raise funds, poll and campaign for primary challengers to members who are either ethically or politically out-of-touch with their voters.... "Most of the time, regardless of your record in Washington, an incumbent does not have to worry about being challenged in a primary," explained Jeff Hauser, an online Democratic operative who will serve as the group's executive director. "This only increases the power of the Washington echo chamber and the influence of lobbyists. We are trying to change that... We think there are potentially talented challengers out there who think the process of mounting a primary challenge is simply too daunting. When you bring to bear the resources of national organizations and the influence of the netroots, you can help these potential candidates." It is a concept bound -- indeed, designed -- to ruffle the feathers of powerful figures in Washington.... Hauser, Hamsher and Greenwald said that the process by which targeted incumbents were chosen would not constitute an ideological litmus test. The goal, they noted, was simply to follow the numbers: figure out which Members were casting votes that were out of tune, philosophically speaking, with their constituent's public opinion readings.... [N]ot everyone is bound to be on board, least of all official Washington. Protecting incumbency is, as Accountability Now's founders are acutely aware, one of D.C.'s foremost operating principles.... [S]ome Democrats expressed worry about pushing for progressive change from the outside rather than from within. Would running an election opponent be the best measure of political persuasion? What if, hypothetically, a primary challenger won the nomination only to lose in the general? These are concerns that Accountability Now does not take lightly. They insist that they will "take district realities into account," which means that Democrats who represent moderate districts will be forgiven for their moderate votes.... "No incumbent worth their salt should lose in a primary -- their advantages are considerable, and so to be vulnerable indicates a considerable focus on K Street, not Main Street," said Hauser. "A primary is the height of democracy, a two-year job performance review -- what is wrong with having to listen to constituents as well as D.C. lobbyists and groupthink"... Jim Rutenberg of the New York Times: Bloggers and Unions Join Forces to Push Democrats: A group of liberal bloggers said it is teaming up with organized labor and MoveOn to form a political action committee that will seek to push the Democratic Party farther to the left. Soliciting donations from their readers, the bloggers said they are planning to recruit liberal candidates for challenges against more centrist Democrats currently in Congress. The formation of the group marks another step in the evolution of the blogosphere, which has proven effective at motivating party activists to give money and time to political campaigns, especially in local races. But it also illuminates a deepening wrinkle for President Obama, whose attempt to build a broad governing coalition — often by tempering some of his more liberal previous positions — has already angered some of his supporters on the left. The new organization is in many ways the liberal equivalent of the Club for Growth, a conservative group that has financed primary challenges against Republicans it deems insufficiently dedicated to tax cuts and small government... There seem to be two big things wrong with Rutenberg's piece. The first is that the Club for Growth is not in favor of tax cuts and small government. The Club for Growth is in favor of tax cuts for the rich and large deficits. There's a big difference. The second is that the Club for Growth's purpose is to push moderate Republicans in swing states and swing districts to the right--to use its money try to make sure that they don't represent their constituents' views and interests. Accountability Now--Hauser, Hamsher, and Greenwald say--has a different purchase: to push moderate Democrats in liberal states and safe districts to the left to try to make sure that they do represent their constituents' views and interests. Rutenberg does not see any difference between trying to push members votes away from and trying to push members toward positions that represent their constituents' views and interests. I think this is because Rutenberg likes incumbents because he has lunch with them. I do see an important difference. Yet another reason to read The Huffington Post rather than the New York Times to learn what is going on... Why oh why can't we have a better press corps? ## Menzie Chinn on House Prices ##### Via econbrowser.com The future data points are not market forecasts, exactly--they are supply-demand equilibrium trading prices for those agents who are in the CS 10 futures market who are almost surely not risk-neutral rational forecasters. And there are all the old worries about the role played by foreclosure prices in the CS indexes. But it remains a very nice graph. Posted via web from http://braddelong.posterous.com/menzie-chinn-on-house-prices at Brad DeLong's Scrapbook. ## Notes After Econ 210a: February 25, 2009: The Economics of Thugs with Spears Who Take Your Stuff Domar: In order to have a rich upper class of warriors/administrators/bureaucrats, you need to have: • sufficient productivity to support an upper class... • sufficient differential in military effectiveness to make becoming a lord or an unproductive specialist in coercive violence worth the risk... • scarce land, or an effective "recapture technology" (Cossacks, language competence, black skin as a marker, etc.) to keep your slaves/serfs/debt peons from successfully running away... Austen and Smith: Colonial-era Caribbean slavery requires: • guns that European merchants can sell to African kings on the coast... • prior slave-raiding that can be made more effective and larger scale by guns... • caravels and equivalent to carry slaves to the Caribbean reliably... • Europe rich enough to pay for sugar... • Europe with a taste for sugar... • Legal systems that will support colonial slavery... Marx and Engels: Things are not that different: • formal judicial equality is not substantive equality... • over time, variance means that some of the rich get richer and others lose their wealth and fall into the proletariat--hence income gets more concentrated... • Marx believes working-class wages are doomed to remain at "subsistence." It is not clear why. His arguments for rising inequality are, I think, coherent. His arguments for the absolute immiserization of the working class are, I think, not coherent at all... Didn't get to Engerman and Sokoloff... ## Republicans: Worse than You Can Imagine (Bobby Jindal Edition) Matthew Yglesias asks the natural question: Matthew Yglesias: Jindal Speech: What’s with the attack on “something called ‘volcano monitoring’”? Volcano monitoring is where they monitor volcanos. So as to better understand, better predict, and better prepare for natural disasters. Is that so complicated? Are only hurricanes worth responding to?... And a commenter writes: Jindal didn't used to talk like this. Check what he was saying two years ago http://blogs.abcnews.com/politicalradar/2008/06/mccain-and-jind.html and >http://thinkprogress.org/2009/02/24/jindal-unemployment-insurance-katrina/>--Jindal was all in favor of federal funding for the state, unemployment benefits, government reform, merging departments, etc, not just spending austerity and opposed to volcano-monitoring. John Huntsman and Charlie Crist have been playing this much smarter than Jindal. I feel like the guy's getting bad advice about what he, this non-white guy who'll be 41 in 2012, needs to do to win over the base. ## Washington Post Crashed-and-Burned Watch Shouldn't a columnist for the Washington Post know what the Center for Medicare and Medicaid Services is? Michael Gerson - The Jindal Phenomenon: At a recent meeting of conservative activists, Jindal had little to say about his traditional social views or compelling personal story. Instead, he uncorked a fluent, substantive rush of policy proposals and achievements, covering workforce development, biodiesel refineries, quality assurance centers, digital media, Medicare parts C and D, and state waivers to the CMS (whatever that is). Some have compared Jindal to Obama, but the new president has always been more attracted to platitudes than to policy. Rush Limbaugh has anointed Jindal "the next Ronald Reagan." But Reagan enjoyed painting on a large ideological canvas. In person, Jindal's manner more closely resembles another recent president: Bill Clinton. Like Clinton (a fellow Rhodes scholar), Jindal has the ability to overwhelm any topic with facts and thoughtful arguments -- displaying a mastery of detail that encourages confidence. Both speak of complex policy issues with the world-changing intensity of a late-night dorm room discussion. In recent days, Jindal has displayed another leadership quality: ideological balance. He is highly critical of the economic theory of the stimulus package and turned down98 million in temporary unemployment assistance to his state -- benefits that would have mandated increased business taxes in Louisiana. But unlike some Republican governors who engaged in broad anti-government grandstanding, Jindal accepted transportation funding and other resources from the stimulus -- displaying a program-by-program discrimination that will serve him well in public office. Jindal manages to hold to principle while seeing the angles...

At the very least, a columnist for the Post should hide his ignorance rather than be proud of it.

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

## George Will Seems to Have Some Issues...

From Media Matters:

Media Matters: Will's "final thought" on Obama speech: "I don't know when men started to hug each other, but hug they do, and look at that..."

I think it is safe to say that George F. Will has never played a sport, or watched a sport in a bar, or spent any time on a trading floor...

## Econ 210a Memo Question for March 4

What are the most striking similarities between the pre-1914 life-insurance-mortgage-company connection described by Kenneth Snowden and the current subprime crisis?

## In Which Clive Crook Succumbs to the High Broderism, I Think

UPDATED:

Paul Krugman makes an intellectually honest argument against the buy-America provisions that almost made it into the Obama fiscal boost program:

Protectionism and stimulus (wonkish) - Paul Krugman Blog: Should we be upset about the buy-American provisions in the stimulus bill? Is there an economic case for such provisions? The answer is yes and yes. And I do think it’s important to be honest about the second yes....

[Under p]rotectionism... each country produces goods in which it has a comparative disadvantage, and consumes too little of imported goods... under normal conditions that’s the end of the story. But these are not normal conditions. We’re in the midst of a global slump.... [T]here are major policy externalities. My fiscal stimulus helps your economy, by increasing your exports — but you don’t share in my addition to government debt... this means that the bang per buck on stimulus for any one country is less than it is for the world as a whole.... [I]f each country adopted protectionist measures that “contained” the effects of fiscal expansion within its domestic economy? Then everyone would adopt a more expansionary policy — and the world would get closer to full employment.... Yes, trade would be more distorted, which is a cost; but the distortion caused by a severely underemployed world economy would be reduced....

What’s the counter-argument? Don’t say that any theory which has good things to say about protectionism must be wrong: that’s theology, not economics. The right argument, I think, is... [e]verything I’ve just said applies only when the world is stuck in a liquidity trap... [not] the normal situation. And if we go all protectionist, that will shatter the hard-won achievements of 70 years of trade negotiations — and it might take decades to put Humpty-Dumpty back together again.

And Clive Crook attacks Paul for being... intellectually dishonest. Clive Crook on Paul Krugman:

Politics is damaging the credibility of economics: Economists are failing to express anything resembling consensus on the most basic questions of economic policy.... I had thought they would at least agree that raising trade barriers at a time like this must be a bad idea. Then I read Paul Krugman, Nobel laureate, Princeton professor, and New York Times columnist...

But the column Crook cites--the one above--does say that raising trade barriers at a time like this is a bad idea.

Crook goes on:

[Krugman] explain[s] that raising tariffs – though perhaps unwise for other reasons – “can make the world better off”. “There is a short-run case for protectionism,” he went on, “and that case will increase in force if we don’t have an effective economic recovery programme.” What are his readers to make of this?

Well, they are supposed to read Paul Krugman. Theen they would understand that on those exceptional cases when the world is in a liquidity trap it faces a fiscal policy coordination problem. Trade barriers, Krugman says, lessen that problem--but their (momentary, transitory) advantages do not offset their (persistent, permanent) drawbacks.

Crook, however, goes on:

This impression of disarray... is not the fault of economics.... It is a mostly false impression created by some of its leading public intellectuals, Mr Krugman among them.... If you wish to know what Mr Krugman thinks on any policy question, do not read his scholarly writings; see which policies are advocated by the progressive wing of the Democratic party. Mr Krugman agrees with liberal Democrats about most things, and for the rest gives as much cover as the discipline of economics can provide – which, given its scientific limitations, is plenty. He does this even on matters where, if his scholarly work is any guide, the economics is firmly against his allies. Liberal Democrats are protectionists. Mr Krugman is not, but politics comes first...

Once again, more slowly now: Krugman's column asks the question: "Should we be upset about the buy-America provisions in the stimulus?" And Krugman's answer is: "Yes, we should be upset."

Now just what in the Eternal and Holy Name of The One Who Is is going on here?

In the second half of the column things become less muddy. Crook's first targets in the column are elsewhere. But Crook has succumbed to the High Broderism--he cannot be "unbalanced," he cannot attack a right-winger like Robert Barro for what Barro does say without also attacking a left-winger like Paul Krugman--albeit for what Paul Krugman does not say.

Let's roll the videotape for the second half of Crook's column. Remember: Crook misleads when he says that Krugman supports trade barriers. But Barro surely does oppose the stimulus package:

Clive Crook - Politics is damaging the credibility of economics: [M]ost economists believe that a powerful fiscal stimulus is both possible and desirable in present circumstances, and that the best stimulus would include big increases in public spending. Yet recently, Robert Barro, a scholar with conservative sympathies, wrote in the Wall Street Journal that this view was an appeal to “magic”. The problem is... that... both [Krugman and Barro] set the consensus [of the economics profession] aside so carelessly.... [They] destroy the credibility of their own discipline.... They narrow or deny the common ground. Why does this matter? Because the views of readers inclined to one side or the other are further polarised; and in the middle, those of no decided allegiance conclude that economics is bunk...

And then Crook shifts to his second target: the internet:

The web, for all its blessings, is an aggravating factor. Many of the most successful economics blogs promote communication within political groupings, not across them. On the web you best build an audience by organising a claque and stroking its prejudices. Extend elaborate courtesy to people you agree with and boorish contempt to those who do not get it. Celebrate exasperation and incivility as marks of intellectual authenticity – an attitude easier to tolerate in teenagers under hormonal stress than in professors at world-class universities. Consensus economics does exist. The Obama administration and the Federal Reserve are trying to apply it. The economics professoriate has an obligation to criticise and improve those policies. But if politics is allowed to split the discipline, and communication across that divide continues to break down, the science of economics will forfeit what little respect it still commands.

And here we have to say: "Huh?"

Robert Barro's article is not in a web publication: it is in newsprint on the op-ed page of the Wall Street Journal, which was a den of right-wing wingnuttery for decades before the world wide web was even a gleam in Tim Berners Lee's eye. That Robert Bartley and Paul Gigot have always regarded their editorial task as to degrade the stream of discourse about economic policy is a shame. But it is not the internet's fault.

UPDATE: Clive Crook responds:

Dismal science, revisited - Clive Crook: I think Paul is disingenuous (there I go again, more hysterics) when he says that the blog-post in question makes it clear he is not in favour of acting on the short-run argument for protection. You be the judge. In my view, he says it is all very complicated. He kind of supports free trade in an ideal world--that would be an Econ 101 world--but there are circumstances, which happen to be very like today's circumstances, in which protection could make sense. This "needs to be taken seriously", and the case gets stronger if optimal macro co-ordination is not forthcoming (which it won't be). Ask any Democratic congressman what Paul's advice on "Buy American" is. The answer will not be, "Don't do it." It will be, "The most brilliant economist I know of thinks there's a case"...

To which one must observe how Krugman starts:

Protectionism and stimulus (wonkish): Should we be upset about the buy-American provisions in the stimulus bill? Is there an economic case for such provisions? The answer is yes and yes...

And how Krugman ends:

Don’t say that any theory which has good things to say about protectionism must be wrong: that’s theology, not economics. The right argument, I think, is in terms of political economy. Everything I’ve just said applies only when the world is stuck in a liquidity trap; that’s where we are now, but it won’t be the normal situation. And if we go all protectionist, that will shatter the hard-won achievements of 70 years of trade negotiations — and it might take decades to put Humpty-Dumpty back together again. But there is a short-run case for protectionism — and that case will increase in force if we don’t have an effective economic recovery program.

I think Henry Farrell gets it right:

Are blogs ruining economic debate?: I suspect that Crook’s main beef with Krugman isn’t with polarization, but with the particulars of Krugman’s suggestion that the case for free trade is a qualified rather than an absolute one. Crook more or less accuses Krugman of being a dishonest partisan hack for saying this. However, from my limited understanding, Krugman is making claims that are reasonable ones within the internal debate among economists. Certainly, Crook doesn’t provide any contrary evidence. Thus, I suspect that Krugman’s perceived crime was to express these qualifications in the agora rather than in closed session. Which is to say that the ‘consensus’ that Krugman is setting aside so ‘carelessly’ is a political one – the shibboleth that free trade is an Unqualified Good Thing – rather than a seamless consensus that emerges from the underlying academic debates...

## Washington Post Crashed-and-Burned Watch

Some people are criticizing stories like this morning's page 1:

Market for Romance Goes From Bullish to Sheepish: Market for Romance Goes From Bullish to Sheepish Are Guys With Less to Spend Less of a Catch? By Tara Bahrampour Washington Post Staff Writer Wednesday, February 25, 2009; A01

I, however, am tired of people who complain about articles like this. In an age in which newsrooms have fewer and fewer reporters, and so are becoming pickier and pickier about what they're covering, it is nice to know that the plight of the single and moneyed is still one of the most important things for the Washington Post to cover.

## How Spending Stimulates

We are live at THE WEEK...

How spending stimulates - THE WEEK: Will the Obama deficit-spending plan work? Will throwing $800 billion—$500 billion in extra government spending, and \$300 billion in tax cuts—at the economy produce a world in which production and employment are higher and unemployment lower than would otherwise have been the case?

The short answer is yes. The short reason is that spending works—eras in which some group or other gets excited about future prospects and starts madly spending money are eras in which production and employment are high and unemployment is low. And the government, in this respect, is just like any other group of starry-eyed optimists whose eagerness to spend pulls the economy into a high-employment, high-pressure boom.

Consider the engines of previous boosts to production and employment. Between 2003 and 2005 the assembled investors of the world discovered the American housing market. Low interest rates produced by the Federal Reserve allowed them to borrow and leverage up cheaply—and the promise of financial engineering that would greatly help them diversify risk made them think investing in new construction and new homeowners’ moves into new construction was a profit opportunity. Spending on home construction rose. And the adult civilian employment to population ratio rose from 62 percent to 63.5 percent while the unemployment rate fell from 6.0 percent to 4.8 percent.

Between 1996 and 1998 the assembled investors of America discovered the Internet and spent enormous sums to exploit and expand it. And the adult civilian employment to population ratio rose from 63 percent to nearly 65 percent as the unemployment rate fell 5.6 percent to 4.3 percent. In August, 1982, Paul Volcker’s Federal Reserve released the interest-rate chokehold it had been using to strangle the economy. Lower interest rates induced homebuilders to spend massively, since for the first time in nearly half a decade they could obtain financing for construction. At the same time, the Reagan administration ramped up defense spending for the second cold war, and luxury spending rose as the Reagan tax cuts gave money back to America’s rich. The adult employment-to-population ratio rocketed up from 57.2 percent to 59.9 percent in the short order of two years while the unemployment rate fell from 10.8 percent to 7.3 percent.

These are just three examples of a general principle: each major business-cycle expansion we have seen has been driven by a leading wave of spending—by some group that became enthusiastic about their prospects and decided to greatly increase its spending. And that pulled employment and production up.

Now we are attempting to do the same thing once again—but this time with the government as the leading spender. Obama’s stimulus spending increases are bigger, as a share of the economy, than Reagan’s defense increases were, while Obama’s tax cuts are smaller. Unlike 1983, when the Fed cut interest rates to help Reagan’s economic recovery, it cannot do so to help Obama. The Fed has done all the cutting it can.

Still, a boost to spending by the government should have the same effects as boosts to spending by luxury consumers and the defense department and homebuilders in the early 1980s, by the high-tech sector in the late 1990s, and by homebuilders in the mid-2000s. The government’s money, after all, is as good as anybody else’s.

So there is little question about the likely impact of the Obama deficit-spending program: production and employment are going to be higher than they would have been otherwise. As Greg Mankiw, the former chief economic adviser to George W. Bush, said back in 1983: “There is nothing novel about this. It is very conventional short-run stabilization policy: You can find it in all of the leading textbooks.”

But there is a relevant question outstanding: Will there be some sort of a hangover after this Obama spending binge—some debt-induced, groggy morning after? And if there is a hangover how bad will it be? For the answer to that, we will have to wait and see.

First Draft:

Why the Obama Deficit-Spending Plan Will (Probably) Work

## Econ 210a: February 25, 2009: The Economics of Thugs with Spears Who Take Your Stuff

Memo Question:

What relevance and use does a work like Karl Marx and Friedrich Engels (1848), "Manifesto of the Communist Party" have to twenty-first century economists today?

Evsey Domar (1970), "The Causes of Slavery or Serfdom: A Hypothesis," Journal of Economic History, pp. 18-32

Karl Marx and Friedrich Engels (1848), "Manifesto of the Communist Party" http://www.marxists.org/archive/marx/works/1848/communist-manifesto/

Ralph Austen and Woodruf D. Smith (1992), "Private Tooth Decay as Public Economic Virtue: The Slave-Sugar Triangle, Consumerism, and European Industrialization," in Joseph E. Inikori and Stanley L. Engerman, eds., The Atlantic Slave Trade (Durham, Duke Univ. Press, 1992), pp. 183-203 http://books.google.com/books?id=Aa78ghyF2fIC&client=safari.

Stanley Engerman and Kenneth Sokoloff (1994), "Factor Endowments, Institutions and Differential Paths of Development Among New World Economies: A View from Economic Historians of the United States" NBER Working Paper no. 10066 http://papers.nber.org/papers/h0066.pdf

General Notes:

The standard mode of discourse in economics is positive-sum win-win Pareto-optimality. You provide people with the right incentives through property rights to invest and accumulate and they do so—and the benefits of their investment and accumulation spill over and produce higher incomes for everybody else as well. You provide people with secure contract rights and they trade what they personally value less for what they personally value more—redistributing the goods of society across individuals until the Pareto frontier is reached. You incentivize people through property rights to be good stewards of natural resources, and they are.

But a look back at human history suggests that this focus is perhaps misplaced. Much of human economic and political history looks as though it is made up of thugs with spears (or kalishnikovs) taking stuff; or those who can for some reason command the services of thugs with spears taking stuff; or those who can for some reason command the services of thugs with spears threatening others so inducing them to enter into contracts on unfavorable terms. Slavery. Serfdom. Debt peonage. Latifundia. Land barons. Cattle barons. Capital barons. Perhaps economics should focus not on Pareto-optimal exchange equilibria and economic growth but instead on distribution: perhaps economics should be not a hymn to the win-win bounties of the division of labor but instead a discourse on the origins (and maintenance) of inequality.

That is what this week is: Evsey Domar with an abstract paper on slavery, serfdom, and land barons; Austen and Smith on commercial consumer capitalism as the driving energy of the genocide that was the North Atlantic slave trade; Marx and Engels saying that the market economy of Pareto-improving exchange of which economists sing is, really, nothing new; and Engerman and Sokoloff on the long-run consequences of redistributive-based rather than gains from trade-based political economy.

This is inequality week.

## Ricardo Caballero, Emmanuel Farhi, and Pierre-Olivier Gourinchas, "Financial Crash, Commodity Prices, and Global Imbalances"

Oversubscribed at the seminar--so I gave up my front-row seat (I have seen the paper before, albeit in a significantly different form).

Ricardo Caballero, Emmanuel Farhi, and Pierre-Olivier Gourinchas, "Financial Crash, Commodity Prices, and Global Imbalances":

Financial Crash, Commodity Prices and Global Imbalances: In this paper we argue that the persistent global imbalances, the subprime crisis, and the volatile oil and asset prices that followed it, are tightly interconnected. They all stem from a global environment where sound and liquid financial assets are in scarce supply.