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June 2009

Republicans Lie, and the Press Echoes Their Lies

Shame on ABC News and Fortune. This isn't even "opinions on shape of earth differ" journamalism. This is "the earth is f;at" journamalism.

Shame on John Boehner and Lindsey Graham.

We could have fruitful and productive normal politics right now--if we had a better class of Republicans, and a better class of journalists.

Igor Volsky:

Wonk Room » The Public Insurance Plan Is Not Responsible For High CBO Scores: Since the Congressional Budget Office (CBO) issued very preliminary cost estimates of the Health, Education, Labor and Pensions (HELP) committee’s health bill and the Senate Finance Committee’s draft legislation, Republicans and some in the media have argued that the somewhat higher-than expected price tags undermine the President’s contention that a new public heath insurance plan would lower health care spending:

Rep. John Boehner (R-OH): The Congressional Budget Office came out with a score on Senator Kennedy’s bill, just part of the score — of the — of his bill, that says that the public option would cost over $1 trillion, and would cause 23 million Americans to lose their private health care coverage, and only 16 million of which would — would be covered under the — the government plan. [CNN, 6/16/2009]

ABC News: The President’s chances for an optional health care plan that would be run by the government may be fading after a Congressional Budget Office report found a Democratic plan in the Senate would cost at least a trillion dollars over the ten years and cover just 1/3 of the uninsured. [ABC News, 6/16/2009]

Sen. Lindsey Graham (R-SC): The CBO estimates were a death blow to a government run health care plan. The finance committee has abandoned that. [This Week, 6/21/2009]

Fortune Magazine’s Nina Easton: And I think the, the big speed bump this week, of course, was that CBO, Congressional Budget Office study that said that the costs of a public plan are going to be well beyond what they expected. [MTP, 6/21/2009]

But both estimates never scored the public option. The HELP Committee’s bill omitted any language about the public plan and, according to reporting by the Health Beat’s Maggie Mahar, the CBO couldn’t “mark up the Senate Finance Committee plan because the Senate Finance Committee plan doesn’t yet exist.” “Yesterday, I spoke to Peter Orszag’s Office of Management and Budget and they confirmed that there are many blank lines in the draft CBO is looking at. What was missing included a public-sector insurance option,” Mahar wrote.

In fact, rather than add to the costs of reform, a robust public option could produce savings that could actually be scored and identified by the CBO as a money-saver. As the New York Times editorialized on Sunday, “A public plan would have lower administrative expenses than private plans, no need to generate big profits, and stronger bargaining power to obtain discounts from providers. That should enable it to charge lower premiums than many private plans.” “It would also shave hundreds of billions of dollars from the amount needed to cover the uninsured — a crucial advantage as Congress scrambles to finance the reform effort,” the NYT concluded.

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

Can the Republican Party Be Saved? emails me:

12% of the country still thinks Obama is a Muslim. 8% thinks he faked his birth certificate. The new Washpost/ABC poll says that 22% of the electorate id's itself as GOP. Thus it is a fair inference that roughly half of declared Republicans are fringe lunatics--which explains why "respectable" conservative media outlets like National Review publish the Andy McCarthys and the Victor David Hansons, and why GOP politicians like Michelle Bachman and Steve King are now "mainstream" for the GOP.

Kent Conrad and Max Baucus Have No Freedom of Action Because of Kent Conrad and Max Baucus

Matthew Yglesias watches, bemused:

Matthew Yglesias » Senators Have Agency: In today’s column, Paul Krugman lamented the circular arguments you sometimes see presented as a reason for watering-down reform:

And Senator Kent Conrad of North Dakota offers a perfectly circular argument: we can’t have the public option, because if we do, health care reform won’t get the votes of senators like him. “In a 60-vote environment,” he says (implicitly rejecting the idea, embraced by President Obama, of bypassing the filibuster if necessary), “you’ve got to attract some Republicans as well as holding virtually all the Democrats together, and that, I don’t believe, is possible with a pure public option.”

Timothy Noah had a great example of this near the end of a recent column offering a tour of health care systems around the world:

Afterward, Sen. Ken Salazar, D-Colo., who has since become interior secretary, noted that other countries saw a conflict between profits and health. How could the United States possibly persuade insurance companies to give up profits? [Author T.R.] Reid answered that Switzerland, home to many powerful insurance companies, had done it in 1994 when it adopted the Bismarck model. The insurers fought it tooth and nail, of course, but now they compete energetically to sign up people for basic care on a nonprofit basis because they constitute a customer base for supplemental insurance that they’re allowed to sell on a for-profit basis. This answer didn’t satisfy Baucus. “Perhaps you don’t know how much money [U.S. insurers] have,” he told Reid.

Which would be an amusing and apposite remark from Baucus were it not for the small part that Max Baucus is the most powerful legislative voice on health care policy in the country. It makes sense for Tim Noah or Paul Krugman or Matt Yglesias or TR Reid to ironically step outside the debate and start talking about the political obstacles to really hitting the insurance companies where it hurts. But Max Baucus chairs the Senate Finance Committee! “Political reality” is something pundits and activists need to adjust to, it’s something powerful Senators create.

Another One from Paul Krugman: (Slightly) Rising Interest Rates a Sign of Improvement

What Paul said:

What’s moving interest rates?: I’ve written recently about applying the Engel-Frankel method to making sense of interest rate movements: ask what else moves when rates move, and you get a clue to what’s driving the changes. I’ve previously argued that the behavior of commodity prices suggests that the big rise in interest rates this spring was driven by economic optimism, not fear of deficits.

Here’s another indicator: which way do rates move when we get good or bad news about the economy? If you believed that deficits were the driver, bad news about the economy should push rates up, good news push them down. After all, a weaker economy means lower revenues, a stronger economy higher revenues. But if you believe that interest rates are being driven by changing expectations about when the Fed will be able to come off the zero-rate policy, you’d expect the opposite correlation.

And there’s no question about which way things work in practice. Late last week, for example, a couple of new figures — a better-than-expected Philadelphia manufacturing survey, a decline in continued claims for unemployment insurance — made investors more optimistic about the economy; long-term rates bounced. This morning, a gloomy World Bank Report is weighing on the market; long-term rates are down.

It’s not deficits. It’s the economy, stupid.

We Really Would Be Better Off without the Washington Post (Yet Another Robert Samuelson/Climate Change Edition)

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

Remember the presumption when reading the Post: if it's true, you probably already knew it; if you didn't already know it, it probably isn't true. For example, Robert Samuelson on the costs of greening the economy.

Let's outsource it to Paul Krugman:

Climate change fantasies: A while back I wrote about anti-green economics — the insistence, by opponents of policies to reduce greenhouse gas emissions, that the economic cost of cap-and-trade would be immense and unsupportable. I cited Robert Samuelson, who ridiculed the Environmental Defense Fund for suggesting that major action on greenhouse gases would only cost a dime a day per person.

Now comes the Congressional Budget Office, which estimates the cost to households of Waxman-Markey in 2020 at $22 billion — which, given a projected population of 335 million, comes to 18 cents a day. Hah! EDH was being over-optimistic. Seriously, EDF was essentially right: the costs of cap-and-trade are very, very low.

The point is that we need to be clear about who are the realists and who are the fantasists here. The realists are actually the climate activists, who understand that if you give people in a market economy the right incentives they will make big changes in their energy use and environmental impact. The fantasists are the burn-baby-burn crowd who hate the idea of using government for good, and therefore insist that doing the right thing is economically impossible.

Hoisted from the Archives: DeLong Smackdown Watch: Henry Farrell on Brad DeLong, Friedrich Hayek, Ludwig von Mises, James Scott, High Modernism, Jane Jacobs, the Collectivization of Agriculture, Karl Polanyi, Rubber Tomatos, the Despised Medieval Jewish M

DeLong Smackdown Watch:: Henry Farrell writes about me, Friedrich Hayek, Ludwig von Mises, James Scott, High Modernism, Jane Jacobs, the collectivization of agriculture, Karl Polanyi, rubber tomatos, the despised medieval Jewish Maghribi traders, and the cheap restaurants of Florence, Italy. I am silenced: I will return to the lists to defend the rubber tomato and American Chinese food someday--but not yet.

Henry Farrell:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Why Oh Why Can't We Have a Better Press Corps? (New Republic Contributing Editors Edition)

Chris Orr of the New Republic on Charles Krauthammer. The wind-up:

It's All in How You Say It - The Plank:

"[A]fter treating this popular revolution as an inconvenience to the real business of Obama-Khamenei negotiations, the president speaks favorably of 'some initial reaction from the Supreme Leader that indicates he understands the Iranian people have deep concerns about the election.' Where to begin? 'Supreme Leader'? Note the abject solicitousness with which the American president confers this honorific on a clerical dictator."  -- Charles Krauthammer, Washington Post, June 19

"And the president has said 'I have seen in Iran's initial reaction from the supreme leader.' He is using an honorific to apply to a man whose minions out there are breaking heads, shooting demonstrators, arresting students, shutting the press down, and basically trying to suppress a popular democratic revolution." -- Charles Krauthammer, Fox News All Stars, June 16

The punch line:

"Look, these were sham elections from the beginning. In a real democracy, you can have a change of power as a result. That was not going to happen in Iran. The mullahs are in charge. Khamenei, the supreme leader, remains in charge." -- Charles Krauthammer, Fox News All Stars, June 12 [my italics]

Where to begin?

--Christopher Orr

But then comes the superpunchline, of course, which is the New Republic's own masthead:

THE NEW REPUBLIC | Masthead: Contributing Editors: Peter Beinart, David A. Bell, Paul Berman, Gregg Easterbrook, Jean Bethke Elshtain, Nathan Glazer, Anthony Grafton, David Grann, David Greenberg, Yossi Klein Halevi, Robert Kagan, Lawrence F. Kaplan, Michael Kinsley, Charles Krauthammer, Ryan Lizza, Jeremy McCarter, John McWhorter, Sherwin B. Nuland, Michael B. Oren, Steven Pinker, David Rieff, Maggie Scarf, Ronald Steel, Andrew Sullivan, Alan Taylor, E.V. Thaw, Helen Vendler, Michael Walzer, Sean Wilentz, Alan Wolfe, Robert Wright

Paul Krugman Urges Greg Mankiw to Pay More Attention to Quality Control

There are very good health economists at Harvard--Newhouse, Cutler. He doen'ty have to manufacture his opinions on health care out of faxed Republican talking points.

Paul Krugman:

Live long and prosper: Via Andrew Gelman, Greg Mankiw describes the use of international comparisons of life expectancy as part of the argument for reform as “schlocky.” Grrr. Not many serious advocates of reform use the life expectancy differences to argue that health care is clearly better in other advanced countries than it is in the United States; when it comes to care, the general assessment seems to be that it’s comparable, with no advanced country having a clear advantage. The reform argument actually goes like this:

  1. Every other advanced country has universal coverage, protecting its citizens from the financial risks of uninsurance as well as ensuring that everyone gets basic care.
  2. They do this while spending far less on health care than we do.
  3. Yet they don’t seem to do worse in overall health results.

So Greg suggests that maybe it’s all because we have an unhealthier lifestyle — what Ezra Klein calls the well-we-eat-more-cheeseburgers argument.... [W]e’re spending 6 or 7 percent of GDP more on health care than other countries — call it a trillion dollars a year — without any clear advantage. That’s not the sort of thing you wave away with a casual suggestion that maybe we have bad habits.... [Second,] people have thought about this — and tried hard to measure it... the huge McKinsey Research Institute... tried to quantify the costs of lifestyle-related issues — and found that it didn’t explain much. Third, read Atul Gawande!

Bottom line: this is the most important domestic policy issue we face. It deserves more than casual just-so stories about how the kids American health care might, despite all appearances, be alright.

To me, the thing to note about the economists--the Mankiws, the Lucases, the Beckers, the Barros, and all the rest--who have pledged allegiance to the Republican Party this year is how much they hagve stopped thinking like economists. When an economist thinks about American health care, he or she begins with what we give up and what we get: we give up $1 trillion dollars in real resources a year relative to other countries, and we get... what?... not much. But this is not how Mankiw or Becker approach it. When an economist thinks about nominal demand, he or she thinks about (a) the money stock and (b) the determinants of velocity--the incentives people have to spend their money quickly or to tend to hoard it. But that is not how Lucas or Barro think when they claim that fiscal policy cannot affect nominal demand.

I still remember being convinced by Rick Ericson when I had just turned 18 that thinking like an economist required that one always pay attention to three key principles: market equilibrium, individuals responding to incentives, cost-benefit tradeoffs. And I remember him convincing me that if you kept those three principles in mind always you could do a much better job in understanding the world. I thought that Chicago-School economists believed in these principles too. But someone--was it Mark Lemley?--told me more recently that intellectual principles almost always weigh much less in the balance than political allegiances.

In My Inbox: Public Economic Argument

A corresopondent writes:

Dear Professor DeLong:

This fall I am teaching a section of the required freshman writing course at Malefactor of Great Wealth University, a course that emphasizes the analysis of argument and other related rhetorical skills, as well as instruction and practice in academic writing. All sections are organized around a single issue, and I have chosen to focus on public argument on the economy leading up to and following the events of late 2008.

I have been enjoying your blog and the fine array of links. My main question for you is this: can you recommend any good, short primers that can provide my students with enough economic literacy to be able to follow the public arguments made by, say, Alan Greenspan or Paul Krugman?

I would also be curious to know your answer to the following: What would you as an economist say to a member of the public who did not have an extensive economic education but nevertheless was trying to decide, say, what public economic policies to support? Is it a matter of picking the right experts to trust?

Thanks very much for your time and consideration!

Candidate for MA in Rhetoric and Freshman Writing Instructor
Malefactor of Great Wealth University
Sunny City, USA

My answer:


The problem is that everything I can think of takes a side (the fact that I think one side is clearly right is not of much help for your purposes)...

I can think of three things to do:

  1. Set them to read, as preliminary background, one nineteenth-century book, Walter Bagehot's Lombard Street, and one early twentieth century book, John Maynard Keynes's Tract on Monetary Reform. There is a possibility of some confusion: when people today say "Keynesian" they mean late Keynes, and the Tract is early Keynes. But if that is made clear, it should work well: those two lay out pretty much all the issues and do so in a historical context divorced from today...

  2. Set them to read, as preliminary background, the paperback macroeconomics half of Krugman and Wells's introductory economics textbook...

  3. Set them to read, as preliminary background, the macroeconomics half of Cowen and Tabarrok's forthcoming introductory economics textbook...

As to your second question, all I can say is that I am trying as hard as I can in lots of different forums, with as best as I can see no success...

Better suggestions, guys?


Brad DeLong

links for 2009-06-21

Iran at the Edge...

Juan Cole writes:

Informed Comment: Mousavi Defies Khamenei;
Police Attack Protesters at Inqilab Square;
Downtown Tehran Burning
: Mir Hosain Mousavi issued a powerful implicit denunciation of Supreme Leader Ali Khamenei on Saturday, and insisting again that the results of the presidential election be annulled in favor of wholly new elections. ABC reports:

Mr Mousavi hit back at a speech by the country's supreme leader, Ayatollah Ali Khamenei, in which the Ayatollah ruled out any election fraud. In a statement posted on his newspaper website, Mr Mousavi said his demand for the annulment of the election was an undeniable right and vowed to side with the Iranian people in defending their rights. "If this huge volume of cheating and changing the votes... which has hurt people's trust, is presented as the very evidence of the lack of cheating, then it will butcher the republican aspect of the system and the idea that Islam is incompatible with a republic will be proven," Mr Mousavi said. The strong criticism headlined "the fifth statement of Mir Hossein Mousavi to the Iranian people: don't allow lies and cheaters to steal the flag of defending the Islamic system from you" was briefly pulled from the website but later reposted.'

Some reports say that Mousavi has privately told followers that if he is arrested, they should carry out a nation-wide strike.

Mousavi has thrown down a gauntlet before the Supreme Leader and a battle has been joined. By the rules of the Khomeinist regime, only one of them can now survive. And perhaps neither will...

Two thoughts:

First, Niccolo Machiavelli:

[A]ll armed prophets have conquered, and unarmed propheets have come to grief...

Second, three people:

Alessandro Farnese, Prince of Parma: He who draws his sword against his Prince needs to throw away his scabbard...

Cersei Lannister: When you play the game of thrones, you win or you die...

Omar: You come at the king, you best not miss...

Morning Daniel Froomkin News Roundup

Hamilton Nolan:

Gawker - Washington Post Fires Token Liberal - Dan Froomkin: The Washington Post, which pays money to opinion writers such as Bill Kristol (smarmy) and Richard Cohen (smarmier), has fired blogger Dan Froomkin, one of the only WaPo opinion writers who pointed out that the Bush White House was crooked. Froomkin wrote the "White House Watch" blog and he was extremely "Liberal" because he generally pointed out the Bush administration lied all the time. (While the rest of the paper's opinion page supported the Iraq War, etc, they really do suck). Here's the paper's s----- explanation:

I think the easiest way to put it is that our editors and research teams are constantly reviewing our columns, blogs and other content to make sure we're giving readers the most value when they are on our site while balancing the need to make the most of our resources. Unfortunately, this means that sometimes features must be eliminated, and this time it was the blog that Dan Froomkin freelanced for

Translation: the Washington Post has to be even more conservative now with Obama as president or else they won't be taken "Seriously"...

John Harris of The Politico:

John Harris: This is a quick note on your recent items on Dan Froomkin's ouster from the Post.

I blundered four years ago in allowing myself to have an overwrought public disagreement with Dan over what now seems (and if I was thinking clearly at the time would have seemed then) an insanely narow [sic] issue--i.e., whether his column was appropriately labeled. I don't want any current references to that now ancient episode to obscure my actual view of Dan and his work. I think he is a distinctive and valuable voice on the presidency and on journalism. I particularly admire the entpreneurialism [sic] he has shown in his career--using the power of the Web to build a community of followers and create his own franchise. This was actually my view at the time, though it got lost in the smoke when I got indignant over a couple points that seem distant now. But my view has strengthened in the years since, with more appreciation of how the Web is changing journalism and how enterprising writers thrive in this new environment.

It's been nearly three years since I have had anything to do with decision-making at the Post, and I have no insight into what prompted he and the Post to part ways. But he had some impressive achievements there, and I hope he'll find the right home for his voice soon.


John Harris

Actually, I don't think that last is true. I think John Harris has considerable insight into what prompted the Post to fire him--how could it possibly be otherwise? I would be interested to learn what his insights are.

Glenn Greenwald:

Glenn Greenwald: [T]his Froomkin firing is so revealing.  The fact that one of the very few people to practice real adversarial journalism in the Bush era was decreed not to be a real "journalist" -- and has now been fired by the Post -- is one of the most illustrative episodes of the past several years regarding what the real function of the establishment media is.  Along those lines, Harris might want to consider also acknowledging that Froomkin was absolutely right when insisting (and Harris wrong when doubting) that Froomkin was not acting as "liberal opinionist" when criticizing Bush, but rather, was as an "accountability journalist" because he was merely pointing out facts, and would subject the actions and claims of a Democratic president to the same journalistic scrutiny.  Froomkin's tenacious criticisms of Obama leave no doubt about that... 

Jane Hamsher:

Campaign Silo » Froomkin v. Washington Post — The Battle Continues: Glenn Greenwald says most of what needs to be said about the Washington Post's firing of Dan Froomkin.  But having been involved in the early rounds of this battle and watched it ferment over the years, I thought I'd add a few notes of context. When Debbie Howell wrote that Dan Froomkin was "highly opinionated and liberal," she didn't just think that up by her little old "yippie ki yeah motherf-----" self.   It was the consensus of the newsroom, where it was believed -- correctly -- that Froomkin's writing about the war and US foreign policy were an inherent criticism of the WaPo's own coverage and editorial position.  And so they wanted to make it clear that he was Not One Of Them, nor did he rise to their high standards.   Here was Len Downie at the time:

"We want to make sure people in the [Bush] administration know that our news coverage by White House reporters is separate from what appears in Froomkin's column because it contains opinion," Downie told E&P. "And that readers of the Web site understand that, too."

And here's John Harris (now chief of Politico):

They have never complained in a formal way to me, but I have heard from Republicans in informal ways making clear they think his work is tendentious and unfair. I do not have to agree with them in every instance that it is tendentious and unfair for me to be concerned about making clear who Dan is and who he is not regarding his relationship with the newsroom.

But aside from the desire to play access footsie with the White House, Downie and Harris were bristling at Froomkin's critique of -- well, them.  While they were fawning over Bush, his war and his codpiece, Froomkin was writing about Bob Woodward's "unique relationship" with the White House.   When Froomkin was transferred into Fred Hiatt's fiefdom a couple of months ago, it didn't bode well for his consistently popular column.

There was always a sympathetic ear in the halls of the Washington Post for anyone who wanted to complain about Dan Froomkin.  The arrogant presumption that they were carrying on some sort of noble journalistic tradition that Froomkin violated is just baked into the concrete over there.  In the end, the bitter petty people who discredited the entire profession with their coverage of the war and its fallout just did not like the mirror he held up to them. 

And an organization that has long felt it could change reality simply by refusing to acknowledge its existence runs true to form once again.

Washington Post Ombudsman Andrew Alexander:

Ombudsman Blog: Post Axes Froomkin's "White House Watch": After five and a half years as a regular feature on the Web site, Dan Froomkin’s White House Watch column is being axed. Froomkin was quietly passing the word today that he was told by The Post that his contract will be terminated in early July....

"I’m terribly disappointed. I was told that it had been determined that my White House Watch blog wasn’t 'working' anymore. But from what I could tell, it was still working very well," Froomkin said. "I also thought White House Watch was a great fit with The Washington Post brand, and what its readers reasonably expect from the Post online. I think that the future success of our business depends on journalists enthusiastically pursuing accountability and calling it like they see it. That’s what I tried to do every day," he continued. "I’m not sure at this point what I’m going to do next. I may take White House Watch elsewhere, or may try something different."

Froomkin bills his often-irreverent online column as a “pugnacious daily anthology of White House-related items from news Web sites, blogs and other sources.” He does not operate as a White House reporter. Rather, he compiles material about the White House and offers his own commentary, often with a liberal bent.

That slant seemed to attract a large and loyal audience during the Bush administration, but it may have suffered when Barack Obama became president.

Editorial Page Editor Fred Hiatt, whose stable of contributors includes Froomkin, said late Thursday: "With the end of the Bush administration, interest in the blog also diminished. His political orientation was not a factor in our decision."

When it began, the column was called “White house Briefing.” But the name was changed after concerns by some at The Post newspaper that readers might believe Froomkin was a White House reporter, working alongside those offering objective news reporters.

Washington Post reporter Dana Milbank's comment on this is that it would have been much more popular with readers for the Post to have kept Froomkin and fired Alexander.

Jay Rosen:

The Washington Post, Dan Froomkin and the establishment media: Froomkin came along, in the wreckage of that, and from a position way on the wing, as a columnist for, this new entity which to the guys downtown at The Washington Post didn't even matter at first, came along and he basically picked up the signals from that event, and started to write it up, and started to bring that story, that whole narrative of the radicalism of the Bush years, into The Washington Post. And the truth is, that the Washington press corps, and the people at the White House themselves, helped to normalize Bush; they normalized a radical move. They didn't know what to do in the case of an outlier. All the things they would have had to do to respond, they failed to do. And Froomkin was reminding them of that. And that is ultimately why he was let go...

Duncan Black:

Eschaton: I think one mistake people, including me, have been making in discussing Froomkin was to assert that he's a liberal and, as Glenn Greenwald said, is almost alone in the mainstream media in criticizing Obama from the Left. This is true, in some sense, but only because our political discourse has become so weird. I mean, a decade ago, whatever I thought of conservatism, I wouldn't have considered "following the law" and "constitutional limits on executive power" and "skepticism about government secrecy" and "acknowledgment of the 4th amendment" and "accountability for government misdeeds other than blowjobs" and "lying our way into war is maybe wrong" and, perhaps, most of all, "torture is bad" to be just "liberal" positions. But since we just came off the age of Bush, where only liberals actually got upset about these things, and conservatives haven't yet (for some reason) become all that concerned that Rahm Emanuel might be bugging their phones, these are now apparently "liberal" positions. So in our discourse Froomkin became an extreme leftist, even though I don't remember him actually expressing opinions on the vast range of issues which, in non-crazy times, we associate with liberalism.

James Fallows:

James Fallows: egative journalistic development of the week: the Washington Post's insane decision to fire its media-political blogger Dan Froomkin. (I know Froomkin only through his work, not personally.) We all have heard the reasons that the press is under pressure by forces not of its making. This is an example of a self-inflicted wound. Are papers like the Post under suspicion for being too insidery and old-media-y? How does it make sense get rid of an independent minded, new media, presumably not-that-expensive, non-Washington-cliquey voice on politics and the media and leave... well, the full opinion and media lineup the Post is sticking with? Some people tell me that it's a mistake to say that the Post's editorial page (and the weight of its op-ed lineup) has "become" neo-con and establishment-minded under its current editor, Fred Hiatt; the argument is that this is the Post's long tradition, which its anti-Nixon crusade concealed. I don't know. But I would have liked to have heard the argument about why Froomkin was the necessary next person to cut. More later.

A Reader of Glenn Greenwald:

From a reader, via email: As of this moment the post on the WaPo Ombudsman's blog about Froomkin has 395 comments (most in support of Froomkin). His previous post, on Howard Kurtz, has 9. The post before that has 25. The one before that 0, as in none [and the 3 posts prior to that have 3 each, and the one prior also has zero]. Genius of the WaPo to get rid of the writer who readers are most passionate about.

And Glenn comments:

Number of comments isn't a perfect barometer of interest, but when the disparities are that large, it is certainly probative. The bottom line is that I'd be willing to bet anyone that Froomkin generates more outside traffic to The Post than the overwhelming majority of Post blogs that remain.

Steve Clemons:

Dan Froomkin and White House Watch - The Washington Note: Politico's Patrick Gavin (who is editing Michael Calderone's column this week) reports and I have confirmed that Dan Froomkin's invaluable White House Watch blog has been discontinued at the Washington Post. Froomkin was the new media hybrid of Woodward and Bernstein during the George W. Bush administration and provided one of the best informed portals into America's palace politics. I want all TWN's readers to know that Froomkin was one of those who greatly furthered serious public discourse about torture, domestic spying, the Iraq War, and many other stressful and important subjects -- and his platform at the Post will be missed.

Steve Benen:

The Washington Monthly: if Froomkin is leaving the Post, it's a real loss. Froomkin has been a great writer with keen instincts, often picking up on a burgeoning story before it's gained traction elsewhere. The Politico says the move is "sure to ignite the left-wing blogosphere," but Froomkin's departure, if true, should disappoint anyone concerned with insightful political analysis. Indeed, far-right complaints notwithstanding, Froomkin has spent months scrutinizing the Obama White House, cutting the Democratic president no slack at all. Just over the past couple of days, Froomkin offered critical takes on the president's proposed regulations of the financial industry, follow-through on gay rights, and foot-dragging on Bush-era torture revelations.

Froomkin was one of the media's most important critics of the Bush White House, and conservative bashing notwithstanding, was poised to be just as valuable holding the Obama White House accountable for its decisions...

Megan McArdle:

Froomkin Fired - Megan McArdle: Dan Froomkin is out at the Post, for reasons that aren't clear to me.  Was there really room for only one liberal political blogger?

And Dan Froomkin:

Froomkin, Lord Carlile, and US Political Journalism: Mainstream-media political journalism is in danger of becoming increasingly irrelevant, but not because of the Internet, or even Comedy Central.  The threat comes from inside.  It comes from journalists being afraid to do what journalists were put on this green earth to do…

Calling bulls---, of course, used to be central to journalism as well as to comedy. And we happen to be in a period in our history in which the substance in question is running particularly deep. Calling bullshit has never been more vital to our democracy.

It also resonates with readers and viewers a lotm ore than passionless stenography I’m not sure why calling bulls--- has gone out of vogue in so many newsrooms — why, in fact, it’s so often consciously avoided. There are lots of possible reasons. There’s the increased corporate stultification of our industry, to the point where rocking the boat is seen as threatening rather than invigorating. There’s the intense pressure to maintain access fo  insider sources, even as those sources become ridiculously unrevealing and oversensitive. There’s the fear of being labeled partisan if one’s bulls----calling isn’t meted out in precisely equal increments along the political spectrum.

If mainstream-media political journalists don’t start calling bulls--- more often, then we do risk losing our primacy — if not to the comedians then to the bloggers.

I still believe that no one is fundamentally more capable of first-rate bulls----calling than a well-informed beat reporter - whatever their beat.  We just need to get the editors, or the corporate culture, or the self-censorship — or whatever it is — out of the way.

Six Reasons that the Washington Post Is Much Weaker as an Information Source Now than It Was Two Days Ago

It is--I confess--very rare that I learn anything save the multiple forms of error from Washington Post stories: what's true in them is rarely new to me, and what's new to me in them is rarely true. But here are six very good stories over the past six months that taught me things:

1) June 8, 2009:

Dan Froomkin: How Cheney Bent DOJ to His Will: Three newly-disclosed Justice Department e-mails thoroughly vindicate the most cynical suspicions about how former vice president Dick Cheney bent ostensibly independent Justice Department lawyers to his will and forced them to manufacture legal cover for his torture policies.... They reveal Cheney's extraordinary influence over then-attorney general Alberto Gonzales and key lieutenants.... Comey describes an exchange with Ted Ullyot, then Gonzales's chief of staff: "I told him that the people who were applying pressure now would not be there when the s--- hit the fan. Rather, they would simply say they had only asked for an opinion."...

The e-mails date back to DOJ's second round of finding legal rationalizations for torture. By 2005, the department had renounced the original August 1, 2002, "torture memo" from the OLC, the CIA's office of inspector general had questioned the legality and effectiveness of the techniques being used at the CIA's secret prisons, and the CIA had abandoned waterboarding -- but not many other extreme measures. Cheney's quest to restore the necessary legal cover resulted in three new memos, which were among those declassified and released in April by the Obama administration. The first memo concluded that brutal interrogation techniques including waterboarding did not individually violate the federal criminal prohibition against torture. The second memo concluded that even the combined use of those techniques didn't violate that particular statute. Those two memos were issued on May 10, 2005. The third memo, dated May 25, managed to conclude that the techniques didn't even violate the United Nations Convention Against Torture's prohibition of "cruel, inhuman or degrading treatment."

The previously undisclosed e-mails from Comey were Web-published on Saturday by the New York Times. But Scott Shane and David Johnston chose to focus on a minor point -- that Comey and other lawyers, even while expressing their grave concerns about the interrogation methods in question, had approved the first memo.... [T]he e-mails were probably leaked to the Times in a "pre-emptive strike" on an upcoming report from the DOJ's Office of Professional Responsibility. That report is said to harshly criticize former OLC lawyers John Yoo, Jay Bybee and Steven Bradbury for their role in approving torture. The message their defenders clearly wanted to send -- and which the Times conveyed -- was that even those DOJ officials who had thus far "escaped criticism because they raised questions about interrogation and the law" agreed with at least some of the rationales put forth by Yoo et. al.

But the actual e-mails, in which Comey documents his various conversations on the matter, don't really support that message. Rather, they paint a portrait of a hopeless rear-guard action by Comey and others against Cheney and his willing lackeys.... In his April 27 e-mail, Comey describes telling Gonzales directly about his "grave reservations" about the second memo. Gonzales's response? "The AG explained that he was under great pressure from the Vice President to complete both memos, and that the President had even raised it last week, apparently at the VP's request and the AG had promised they would be ready early this week."... Comey concludes: "People may think it strange to hear me say I miss John Ashcroft, but as intimidated as he could be by the WH, when it came to crunch-time, he stood up, even from an intensive care hospital bed. That backbone is gone." And by his May 31 e-mail, his wistful regrets have turned into barely contained fury...

2) June 3, 2009:

Dan Froomkin: Celebrity Journalism at the White House: What would you do if you -- and your 32 camera crews -- were granted unparalleled access to the White House for a day? And then you had two full hours of prime-time TV to fill? There are many mysteries you might try to explore. How does President Obama actually make decisions? What if anything changes his mind? What blows his cool? How does he settle disputes among his advisers? Who is the last one to whisper in his ear? How does he treat his staff? How furious is the competition for his attention? Who wins? Why is he so sure, so confident, that thinking big is the solution to every problem? How do he and his staff really feel about the mess Bush left them? How does the former constitutional law professor reconcile his devotion to civil liberties with a handful of recent decisions that have horrified civil libertarians? Does he have second thoughts?

But sadly those were not the sorts of things that seemed to interest anchor Brian Williams and the more than two dozen NBC News producers responsible for the "Inside the Obama White House" special showing last night and tonight, a show that treats Obama like a celebrity rather than a president.... [W]hat seems to fascinate Williams the most is what everyone is eating. There are, it turns out, apples and M&Ms all over the White House. In fact, the show devotes a whole montage to people pouring, throwing and consuming M&Ms. And the high point of the day, the centerpiece of the hour-long show last night, what Williams calls Obama's "brief shining moment," is a hokey, obviously staged burger run to Five Guys. The cameras literally languish over greasy paper bags full of french fries.

It's the kind of substanceless fawning that leads some to conclude that the press is soft on Obama. But this show wasn't about his politics or his policies. It was a celebration and amplification of the star power of the presidency in general, and of this president in particular. Simply showing him eating a burger they apparently consider great television. And tonight, we're promised an interview with Bo the dog...

3) May 26, 2009:

Dan Froomkin: Why “playing it safe” is killing American newspapersb: We’re all in a state of despair these days over our inability to monetize our journalism online the way we’ve been used to doing in print. A big part of the problem is that we’re doing a really poor job of connecting buyers and sellers on our newspaper Web sites.... But some of our shortcomings are purely journalistic. We... are still fundamentally failing to deliver the value of our newsroom to Internet users. Our reporters and editors are curious, passionate, and voracious discoverers and devourers of information; talented storytellers; and smart people with excellent bullshit detectors. As long as human beings are curious about each other and clamor for trusted information, there’s a place for us out there. The Internet hasn’t changed that. In fact it’s increased the market for what we’ve got: The Internet highly values people who know things, who can find things out, who can distinguish between what’s important and what’s not, who can distinguish between what’s true and what’s not, and who can communicate succinctly and effectively.

But we’re hiding much of our newsrooms’ value behind a terribly anachronistic format: voiceless, incremental news stories that neither get much traffic nor make our sites compelling destinations.... [T]he dispassionate, what-happened-yesterday, inverted-pyramid daily news story... is mostly a throwback... a relic of a daily product delivered on paper to a geographically limited community....

The Internet doesn’t work on a daily schedule. But even more importantly, it abhors the absence of voice.... If we were to start an online newspaper from scratch today, we’d recognize that toneless, small-bore news stories are not the way to build a large audience.... One option might be to imitate cable TV.... But that would come at the cost of our souls. The right way to reinvent ourselves online would be to do precisely what journalists were put on this green earth to do: Seek the truth, hold the powerful accountable, expose the B.S., explain how things really work, introduce people to each other, and tell compelling stories. And we should do all those things passionately and courageously — not hiding who we are, but rather engaging in a very public expression of our journalistic values.... We stifle some of our best stories with a wet blanket of pseudo-neutrality. We edit out tone. We banish anything smacking of activism. We don’t telegraph our own enthusiasm for what it is we’re doing. We vaguely assume the readers will understand how valuable a service we’re providing for them — but evidently, many of them don’t....

Making political decisions through triangulation – trying to stake out a safe middle ground between the two political parties — is still making a political decision. It’s just often a not very good one. Those who argue that truth-telling has become too political for us to engage in need to reexamine why they are in this business.... That seven in 10 Americans at one point believed that Saddam Hussein had a role in the 9/11 attacks is a profound indictment of our reluctance to champion the truth when it is under attack.... The high priests of the church-state separation may take offense, but the fact is that there’s long been a confusing continuum in journalism ranging from straight news to opinion. And I suspect our hairsplitting distinctions have been lost on our readers. In the Internet age, the answer is not censoring ourselves in the name of obscure in-house rules, or trying to put inscrutable labels on everything. The answer is for us to call things as we seen them, and be up front about it....

[L]et’s allow the folks on the “news” side to give members of the public the kind of analysis they’re craving. That means putting things in their proper context. It means not being afraid to explain that one position on an issue is better supported by the facts than the other, when that’s the case. It also allows for the advocating of basic human and journalistic values. I don’t think that conveying outrage over nondisclosure of public records — or children going hungry, or torture — disqualifies someone from calling themselves a news reporter...

4) April 14, 2009:

Dan Froomkin: Obama Connects Most of the Dots: ware that many Americans are wondering how all his different economic programs and policies fit together, President Obama today tried to connect the dots. He explained why he believes each of his various short-term economic initiatives is a critical element of the economic recovery, how his ambitious long-term budget proposals are essential to building an economy that won't crash like this one did, and that, although some initiatives are already producing glimmers of hope, most of the hard work still lies ahead....

He strongly rebutted the criticism, largely from Republicans, that he shouldn't be spending so much either now or in the long term. He noted how it is economic common sense that "the last thing a government should do in the middle of a recession is to cut back on spending." And, in an analogy that resonated particularly well with an audience heavy on college students, he talked about the need to invest in the future. "Look, just as a cash-strapped family may cut back on all kinds of luxuries but will still insist on spending money to get their children through college -- will refuse to have their kids drop out of college and go to work in some fast food place, even though that might bring in some income in the short term, because they're thinking about the long term -- so we as a country have to make current choices with an eye to the future."...

But he failed to persuasively rebut the most urgent critique of his economic policies.... Obama raised it on his own, noting that some critics think he has "been too timid" about shoring up the banking system. "This is essentially the nationalization argument that some of you may have heard. And the argument says that the federal government should have already preemptively stepped in and taken over major financial institutions the way that the FDIC currently intervenes in smaller banks and that our failure -- my administration's failure -- to do so is yet another example of Washington coddling Wall Street: 'Why aren't you tougher on the banks?'"

But his answer was vague and unconvincing: "So let me be clear. The reason we have not taken this step has nothing to do with any ideological or political judgment we've made about government involvement in banks. It's certainly not because of any concern we have for the management and shareholders whose actions helped to cause this mess. Rather, it’s because we believe that preemptive government takeovers are likely to end up costing taxpayers even more in the end, and because it’s more likely to undermine than create confidence."

Obama's belief has never been in question. It's the reasoning behind that belief that we've been missing, as well as the source of his faith in the judgment of economic advisers. But he once again left us all in the dark on that count...

5) March 30, 2009:

Dan Froomkin: Bush's Torture Rationale Debunked: Abu Zubaida was the alpha and omega of the Bush administration's argument for torture. That's why Sunday's front-page Washington Post story by Peter Finn and Joby Warrick is such a blow to the last remaining torture apologists. Finn and Warrick reported that "not a single significant plot was foiled" as a result of Zubaida's brutal treatment -- and that, quite to the contrary, his false confessions "triggered a series of alerts and sent hundreds of CIA and FBI investigators scurrying in pursuit of phantoms."

Zubaida was the first detainee to be tortured at the direct instruction of the White House. Then he was President George W. Bush's Exhibit A in defense of the "enhanced interrogation" procedures that constituted torture.... But as author Ron Suskind reported almost three years ago -- and as The Post now confirms -- almost all the key assertions the Bush administration made about Zubaida were wrong. Zubaida wasn't a major al Qaeda figure. He wasn't holding back critical information. His torture didn't produce valuable intelligence -- and it certainly didn't save lives. All the calculations the Bush White House claims to have made in its decision to abandon long-held moral and legal strictures against abusive interrogation turn out to have been profoundly flawed, not just on a moral basis but on a coldly practical one as well.

Indeed, the Post article raises the even further disquieting possibility that intentional cruelty was part of the White House's motive. The most charitable interpretation at this point of the decision to torture is that it was a well-intentioned overreaction of people under enormous stress whose only interest was in protecting the people of the United States. But there's always been one big problem with that theory: While torture works on TV, knowledgeable intelligence professionals and trained interrogators know that in the real world, it's actually ineffective and even counterproductive. The only thing it's really good as it getting false confessions. So why do it? Some social psychologists (see, for instance, Kevin M. Carlsmith on have speculated that the real motivation for torture is retribution. And now someone with first-hand knowledge is suggesting that was a factor in Zubaida's case. Quoting a "former Justice Department official closely involved in the early investigation of Abu Zubaida," Finn and Warwick write that the pressure on CIA interrogators "from upper levels of the government was 'tremendous,' driven in part by the routine of daily meetings in which policymakers would press for updates.... "'They couldn't stand the idea that there wasn't anything new,' the official said. 'They'd say, "You aren't working hard enough." There was both a disbelief in what he was saying and also a desire for retribution -- a feeling that 'He's going to talk, and if he doesn't talk, we'll do whatever.'"'...

Author and investigative reporter Suskind first exposed the rampant fallacies of the administration's Zubaida narrative in his explosive June 2006 book, The One Percent Doctrine. See my June 20, 2006 column for a summary. But mainstream news organizations, unable to match Suskind's sources, largely refused to acknowledge his reporting. Indeed, in September 2006, when the White House for the first time publicly acknowledged the existence of a secret CIA detention and interrogation program, Bush had no qualms about putting Zubaida front and center. In a major speech, he proudly described how Zubaida -- "a senior terrorist leader and a trusted associate of Osama bin Laden" -- was questioned using the CIA's new "alternative set of procedures" and then "'began to provide information on key al Qaeda operatives." All lies and euphemisms. But all reported pretty much straight at the time by a mainstream media that, if it noted Suskind's reporting at all, did so as an afterthought...

6) January 12, 2009:

Dan Froomkin: Bush's Last Press Conference: Bush responded most angrily to Washington Post reporter Michael Abramowitz's observation that members of the incoming Obama administration have spoken extensively about the need to restore America's moral standing in the world. "I strongly disagree with the assessment that our moral standing has been damaged," Bush said. (Even though it has, dreadfully. See, for instance, this Pew Global Attitudes Project report.) "It may be damaged amongst some of the elite. But people still understand America stands for freedom; that America is a country that provides such great hope," Bush continued, before launching into a defensive tirade heavy on 9/11 references....

He continued to prove unable to admit any serious mistakes on his part. As before, he expressed regret for his cowboy rhetoric and said he should have pursued immigration before Social Security restructuring. But while he acknowledged disappointments, he avoided responsibility. "Abu Ghraib, obviously, was a huge disappointment, during the presidency. You know, not having weapons of mass destruction was a significant disappointment," he said. "I don't know if you want to call those mistakes or not, but they were -- things didn't go according to plan, let's put it that way.... Look, I have often said that history will look back and determine that which could have been done better or, you know, mistakes I made."...

One thing Bush hadn't shared previously was his thinking about Hurricane Katrina, which up until the financial crisis was seen as his biggest domestic failure. "I've thought long and hard about Katrina; you know, could I have done something differently," he said. Like what? "[L]ike land Air Force One either in New Orleans or Baton Rouge." But the problem with the archetypal photo of Bush peering out at the catastrophic damage from his 747 was not that he didn't land -- it was how the photo symbolized his overall lack of concern and the inadequacy of the federal response. Later in the press conference, Bush grew angry defending that federal response. "Don't tell me the federal response was slow when there was 30,000 people pulled off roofs right after the storm passed," he said. But this is not exactly a controversial conclusion. A 2006 report from House Republicans concluded that leaders from Bush on down disregarded ample warning of the threat posed by Katrina and did not execute emergency plans or share information that could have saved lives. And the White House's own report acknowledged that the response was botched because federal officials were confused, poorly prepared and communicated badly...

UP:DATE: Dan Froomkin emails:

I would like to make a minor point. Of the six Post items [in the last six months] you generously list as being valuable to you, two of them were notably not in the Post. The second one was actually spiked by my editors (and yes, you can say that if you want) so I ran it on NiemanWatchdog and Huffpo instead. The third, I admit, I never even pitched to the Post, It ran over at the Nieman Journalism Lab Web site.

It is... interesting... that the Washington Post do not want to publish this kind of report on the hall-of-mirrors that is the White House press corps:

[A]nchor Brian Williams and the more than two dozen NBC News producers responsible for the "Inside the Obama White House" special.... a show that treats Obama like a celebrity rather than a president.... [W]hat seems to fascinate Williams the most is what everyone is eating... a whole montage to people pouring, throwing and consuming M&Ms.... [T]he centerpiece of the hour-long show last night, what Williams calls Obama's "brief shining moment," is a hokey, obviously staged burger run to Five Guys. The cameras literally languish over greasy paper bags full of french fries...

If you read the Post, think hard about what the editors are spiking and not showing you. Just saying...

links for 2009-06-20

Dan Froomkin Is... Banquo's Ghost at the Banquet: Glenn Greenwald and Jay Rosen Talk About Why Fred Hiatt Had to Fire Him from the Washington Post

Glenn Greenwald and Jay Rosen:

The Washington Post, Dan Froomkin and the establishment media:

GG: I'm going to ask you in just a second a very open-ended question, which is to invite you to tell me and anyone listening what you think about the firing of Dan Froomkin...

JR: Dan prospered, for quite a while, as a columnist. But then with the firing or letting go of Jim Brady, he lost his protector, the operation began to be merged into the Post newsroom. Most people see that as a triumph of the old guard.... [Froomkin] was seen as of value because he presented a kind of opposition stance to Bush, but now that's gone because Obama, he's not going to be oppositional to... and so he's gone....

GG: [Froomkin ] was acting adversarially to the party in power, which is what a reporter is supposed to do, and that happened to be a Republican administration spouting lots of lies, and he said, if it had been a Kerry administration that won in 2004, another Democratic administration, he would be doing exactly the same thing. And John Harris, in your interview with him, said, well, I - he sort of doubted it, so I guess we can't know for sure until it happens, but he seems to have a liberal viewpoint to me. Now, as it turns out, there haven't been very many more vigorous and persistent critics of Barack Obama since the inauguration than Dan Froomkin.... So it turns out that Dan Froomkin was right, clearly, when he was saying that he would be doing the same thing if there were a Democratic or liberal administration. What does that mean in terms of how these reporters think...?

JR: [H]ere is the explanation... the entire contraption of professional, elite-level political journalism, and especially White House reporting... did not know how to cope with what happened when an outlier occupied the White House.... The [Bush] radical agenda that Colonel Lawrence Wilkerson talks about as a former aide to Colin Powell. That whole thing presented an outlier to the Washington press, and it needed, in order to respond to something that big and that dramatic of a departure from White House press relations, imaginative moves of its own.... [T]he White House press, the Washington press, and The Washington Post staff, never came up with that response. And Froomkin came along, in the wreckage of that, and from a position way on the wing, as a columnist for, this new entity which to the guys downtown at The Washington Post didn't even matter at first, came along and he basically picked up the signals from that event, and started to write it up, and started to bring that story, that whole narrative of the radicalism of the Bush years, into The Washington Post.... All the things [the press corps] would have had to do to respond [to Bush], they failed to do. And Froomkin was reminding them of that. And that is ultimately why he was let go....

GG: You alluded earlier to the fact that Froomkin became a very popular columnist in the blogosphere, a traffic generator. Some of the most recent evidence that I saw was from Mediabistro which posted the top 10 most trafficked Post columns from 2007, and Froomkin had 3 out of 10.

JR: Right.

GG: Now, the ombudsman of The Washington Post had this very substance-free piece about the Froomkin firing in which suggested that quote-unquote "traffic might have declined for Froomkin," without saying whether it actually did, and Fred Hiatt was quoted as saying quote-unquote "interest had decreased since Obama was inaugurated" - I don't know what that means. I don't believe - don't know if traffic has decreased or not in absolute terms, but I can almost guarantee based on my own knowledge of the blogosphere and how traffic is generated, that Froomkin compares very favorably to other Washington Post bloggers in terms of just pure numbers, in terms of traffic, just based on the links he gets and the people who cite him. Would it surprise you if Froomkin were still one of the most heavily trafficked of the Post bloggers, and they fired him anyway? How important is on-line traffic to what The Washington Post is attempting to accomplish?

JR: Oh, I'm sure he does quite well, still, in terms of raw traffic. But it goes way beyond that, Glenn. Froomkin was one of the first editors of He is in the 99th percentile in web literacy among mainstream professional journalists. He's an ambassador between The Washington Post, and I must say, an important part of the political blogosphere which is right in the center of Post's core readership.... [Y]ou're expelling somebody who's helping you transition to a new platform...

Asymmetric Loss Functions and Fiscal Policy Planning

Fiscal policy planning should assume a bad case scenario. So says Mark Thoma:

Romer roundtable: Assume the worst: WHEN deciding between two alternatives such as whether the government should intervene in the economy with a fiscal stimulus or not, the choice of the null and alternative hypotheses influences the type of errors we are likely to make.... Which is the bigger error, to deficit spend when it's not needed, or to fail to do so when it is? I think the bigger risk is doing nothing when it's needed...

So say we all!

Washington Post Ombudsman Andrew Alexander Really Is as Stupid as He Is Ugly...

Washington Post "ombudsman" Andrew Alexander this morning:

[Dan Froomkin's] slant seemed to attract a large and loyal audience during the Bush administration, but it may have suffered when Barack Obama became president...

"Seemed," "may." Shouldn't he try to find out? But that would require work for Andrew Alexander, and would require him to represent reader concerns.

Here is what Alexander has been writing about for the past two weeks:

Ombudsman Blog - Washington Post Ombudsman Andrew Alexander represents reader concerns:

Posted at 4:03 PM ET, 06/18/2009 Post Axes Froomkin's "White House Watch"... Comments (595)

Posted at 4:09 PM ET, 06/17/2009 What Howard Kurtz Didn't Disclose... Comments (12)

Posted at 4:14 PM ET, 06/16/2009 Post Plays Catch-Up on AmeriCorps Story... Comments (28)

Posted at 4:46 PM ET, 06/15/2009 Sunday's 'Set for Life' Installment: Long, and Not Local... Comments (0)

Posted at 12:34 PM ET, 06/12/2009 New Competition for The Post: Niche Players... Comments (3)

Posted at 1:04 PM ET, 06/11/2009 Closing the Gender Gap Among Post Columnists... Comments (3)

Posted at 4:49 PM ET, 06/ 9/2009 How "Swann Street" Could Have Been Handled Online... Comments (3)

Posted at 4:37 PM ET, 06/ 8/2009 One Paper Tries a Print-Only Experiment... Comments (0)

Posted at 11:28 AM ET, 06/ 5/2009 Where's the Line on Those Suggestive Ads?... Comments (4)

Posted at 2:27 PM ET, 06/ 3/2009 Newspaper 'Sleeves' Are Safe From D.C. Plastic Tax... Comments (2)

And here's an archived post from Hilzoy about why it is disgraceful that Alexander has a job:

Obsidian Wings: The Washington Post's "Multi-Layer Editing Process": February 20: I haven't written about George Will's factually challenged column from last Sunday, but I have been following the various refutations of mistakes he made. I have also been following the various requests for comment from the Washington Post, and wondering when the Post might respond. Now they have:

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 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"

Until I read this, I had been under the impression that newspapers didn't do as much fact-checking as magazines, because of deadline pressure; and I had imagined that the inaccuracies in George Will's column might result from applying standards designed for reported stories to columns. But on reading that Will's column had been subjected to a "multi-layer editing process", and that this "process" had checked the facts "to the fullest extent possible", I realized that I had been wrong. Naturally, I clicked the link 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. 

Here's how George Will cited the Arctic Climate Research Center:

"As global levels of sea ice declined last year, many experts said this was evidence of man-made global warming. Since September, however, the increase in sea ice has been the fastest change, either up or down, since 1979, when satellite record-keeping began. According to the University of Illinois' Arctic Climate Research Center, global sea ice levels now equal those of 1979."

Here's the statement Mr. Alexander cites as "one of" Will's sources, including the sentence he specifically references. It's a response to an article in the Daily Tech called "Sea Ice Ends Year at Same Level as 1979": 

"One important detail about the article in the Daily Tech is that the author is comparing the GLOBAL sea ice area from December 31, 2008 to same variable for December 31, 1979. In the context of climate change, GLOBAL sea ice area may not be the most relevant indicator. 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: ) 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." 

Where I come from, when someone writes something of the form: "P is not evidence for Q, and here's why", it is dishonest to quote that person saying P and use that quote as evidence for Q. If one of my students did this, I would grade her down considerably, and would drag her into my office for an unpleasant talk about basic scholarly standards. If she misused quotes in this way repeatedly, I might flunk her. Will does this more than once. Since it's Will's only citation of a peer-reviewed journal I recognize, I checked the quote from Science in this passage:

"Although some disputed that the "cooling trend" could result in "a return to another ice age" (the Times, Sept. 14, 1975), others anticipated "a full-blown 10,000-year ice age" involving "extensive Northern Hemisphere glaciation" (Science News, March 1, 1975, and Science magazine, Dec. 10, 1976, respectively)."

It's from this paper (pdf, subscription wall.) Here is the bit Will cited in context:

"Future climate. Having presented evidence that major changes in past climate were associated with variations in the geometry of the earth's orbit, we should be able to predict the trend of future climate. Such forecasts must be qualified in two ways. First, they apply only to the natural component of future climatic trends -- and not to such anthropogenic effects as those due to the burning of fossil fuels. Second, they describe only the long-term trends, because they are linked to orbital variations with periods of 20,000 years and longer. Climatic oscillations at higher frequencies are not predicted.  One approach to forecasting the natural long-term climate trend is to estimate the time constants of response necessary to explain the observed phase relationships between orbital variation and climatic change, and then to use those time constants in an exponential-response model. When such a model is applied to Vernekar's astronomical projections, the results indicate that the long-term trend over the next 20,000 years is toward extensive Northern Hemisphere glaciation and cooler climate." 

So that "extensive Northern Hemisphere glaciation" is (a) supposed to happen "over the next 20,000 years", not imminently, and (b), more importantly: it's a prediction that does not take into account anthropogenic changes in climate, like, um, those "due to the burning of fossil fuels". Which is to say, the kind of global warming we're now talking about.

The fact that this prediction specifically excludes anthropogenic climate change means that you cannot use it to say: those silly scientists; they used to believe that the earth was cooling, and now they think it's warming. When scientists say "if we don't take man-made changes to climate into account, the earth will get cooler over the next 20,000 years", this is completely consistent with saying: "however, when you factor in those man-made changes, the earth will get warmer", or "when you factor in those changes, we don't know", or any number of things.

If Will actually read these two articles, it's hard to see how he's not being deliberately deceptive by citing them as he did. If, as I suspect, he just got them from some set of climate change denialist talking points and didn't bother to actually check them out for himself, he's being irresponsible. All those people who supposedly fact-checked Will's article as part of the Post's "multi-layer editing process" -- "people [George Will] 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" -- should be fired, either for not doing their job or for doing it utterly incompetently. These are hard times for newspapers; I wouldn't have thought they could afford more than one layer of an editing process that produces no discernible improvement in quality.

And Andy Alexander? He should read the cites George Will gives him before he sends them out, under his own name, in support of his paper's decision to publish Will's piece, if he doesn't want to be embarrassed like this again.

More on the Romer Symposium at the Economist

I confess that I think Alan Meltzer's contribution to the Christie Romer symposium at the Economist ill-advised for two reasons. Meltzer writes:

Romer roundtable: Think, plan, and tell us the plan: CHRISTINA ROMER... like generations of policymakers before her... counsels "trust us"... [I]t was they who allowed banks to circumvent the Basel regulations, that permitted Fannie and Freddie to expand beyond any reasonable standard, that brought us too big to fail and, as John Taylor has shown, abandoned a policy that brought us almost 20 years of the Great Moderation....

[L]ike most other defenders of this inflationary, low productivity policy, Christina puts the choice as whether we act against recession now or against inflation now. That leaves out a multitude of options.... [Y]es, stimulate now to reduce unemployment, but avoid creating a big inflation in a year or two. And even announce in advance how you propose to reduce the high money growth rate and the excessive deficits. Don't just say you'll do it, think, plan, and tell us the plan.

The first reason that it is ill-advised is that Meltzer really should not be claiming that Christina Romer is one of the "they" who "allowed banks to circumvent the Basel regulations... permitted Fannie and Freddie to expand... abandoned a policy that brought us almost 20 years of the Great Moderation..." Christie has not been doing any of these things. She has been sitting in her southeast corner office on the sixth floor of Berkeley's Evans Hall lecturing about monetary policy before, during, and since the Great Depression. If Meltzer wants to blame the actions of the American conservative politicians he has consistently voted for and the officials they appointed for our current mess, fine. But to say that Christie Romer = Phil Gramm because both are "policymakers" is simply wrong.

The second reason that it is ill-advised is that Meltzer misleads when he implies that the Obama administration and the Federal Reserve have not "announce[d] in advance how [they] propose to reduce the high money growth rate and the excessive deficits..." The Obama administration wants, as OMB Director Peter Orszag explains every hour on the hour, to balance America's long-run budget by reducing the extraordinary economic inefficiency of the American health-care system via health care reform. The fact that the people staffing the executive branch are in large part those who in the Clinton administration did such great work at bringing America's public sector back toward fiscal balance in the 1990s (but whose work was then largely undone by the American conservative politicians Alan Meltzer has consistently voted for and the officials they appointed) should give observers some confidence that they will at least try to reduce excessive deficits. At the very least Alan Meltzer should not be claiming that they have not told us how they intend to do so.

The same applies to the Federal Reserve, which Meltzer implies needs to "tell us the plan." I have found the Federal Reserve extremely eager and anxious to explain how it intends to unwind the large increase in the money supply when monetary velocity starts to recover. The basic problem, I learned back in my first year of graduate school, is that the central bank's ability to soak up excess liquidity in an economy and reduce the supply of "monnaie" is limited by its balance sheet: it needs to be able to induce banks to part with their cash by offering them something else to hold, and the Fed cannot offer what it does not itself have to trade. The solution the Federal Reserve is proposing is to allow it to create additional kinds of liabilities on its balance sheet. If congress grants the Federal Reserve the power to accept not just interest-free but interest-paying reserve deposits (which it has) and the power to issue and sell its own interest-bearing bonds (which I hope it will), then the Federal Reserve will have no trouble reducing the transactions balances that make up our monetary base when it wishes to do so. Once again, we have already been told the plan--and it is unfair to claim that Bernanke and company have not told us.

links for 2009-06-19

Glenn Greenwald on the Washington Post's Firing of Dan Froomkin

The "why" is easy: he made too many people at the Post who were busy writing about how Saddam Hussein had nuclear weapons or how there is more sea ice than there was a generation ago or how "opinions on shape of earth differ" look foolish.


The Washington Post fires its best columnist. Why?: Froomkin was easily one of the most linked-to and cited Post columnists.  At a time when newspapers are relying more and more on online traffic, the Post just fired the person who, in 2007, wrote 3 out of the top 10 most-trafficked columns.  In publishing that data, Media Bistro used this headline:  "The Post's Most Popular Opinions (Read: Froomkin)."  Isn't that an odd person to choose to get rid of?....

In a post entitled "The WaPo's Best Blogger Is Fired," Andrew Sullivan writes:

A simply astounding move by the paper - getting rid of the one blogger, Dan Froomkin, who kept it real and kept it interesting. Dan's work on torture may be one reason he is now gone. The way in which the WaPo has been coopted by the neocon right, especially in its editorial pages, is getting more and more disturbing. This purge will prompt a real revolt in the blogosphere. And it should...

UPDATE III:  Here is Froomkin's statement:

I’m terribly disappointed. I was told that it had been determined that my White House Watch blog wasn’t "working" anymore. But from what I could tell, it was still working very well. I also thought White House Watch was a great fit with The Washington Post brand, and what its readers reasonably expect from the Post online. As I’ve written elsewhere, I think that the future success of our business depends on journalists enthusiastically pursuing accountability and calling it like they see it. That’s what I tried to do every day. Now I guess I'll have to try to do it someplace else.

The Post's inability to articulate a coherent, credible explanation for what it did speaks volumes.  Any media outlet is foolish if it doesn't strongly consider taking advantage of the Post's conduct by hiring Froomkin.

Washington Post Fires Dan Froomkin

Not a big surprise: by doing his job he made too many of their honchos' "opinions of shape of earth differ" journamalism look bad. But likely to be expensive for the Post. Dan has lots of page views and lots of street cred he can and will take with him...

Comment for the Economist on Christina Romer (2009), "The Lessons of 1937"

Five Lessons from 1937 and Otherwhen

J. Bradford DeLong
U.C. Berkeley and NBER

June 17, 2009

Comment on Christina Romer (2009), "The Lessons of 1937":

Let me make five points to eliminate or refute or at least to fight against or lay down a marker that there is--well, call it "confusion" about what the right state of American macroeconomy should be.

Last December’s Unemployment-Rate Forecast and Outcome to Date

Source: Romer and Bernstein (2009).

My first point is that over the past six months the economy has been a severe disappointment. Output and employment have fallen much faster than people were projecting last December. Romer and Bernstein (2009) projected at the very start of this year that unemployment in the U.S. would reach a peak of 7.9% in the summer of 2009. But unemployment now in mid-June is about 9.7%, with 10% baked in the cake and the possibility existing that it might go much higher. The signs that the cliff-dive of employment has come to an end are very few. The level of new unemployment claims is still consistent with a rapidly-collapsing labor market nationwide.

New Weekly Unemployment Claims (Red, Right Scale, Four-Week Average) and Monthly Fall in Payroll Employment (Blue, Left Scale, Thousands)

Unemployment claims and employment change - Paul Krugman Blog -

Source: Paul Krugman.

Six months ago a net federal fiscal stimulus of about $1 trillion--$400 billion each year for about 2.5 years--seemed appropriate: that seemed to balance the benefits of filling-in the hole in aggregate demand without running too great a risk of triggering worrisome inflationary fever further down the road. Now the hole in aggregate demand is greater than was thought likely last December--about twice as great--and the likelihood of heightened future inflation is less. Thus if it was appropriate to set a $1 trillion federal fiscal stimulus in motion last December given what we knew then, if we had known then what we know now it would have been appropriate to set a roughly $2.4 trillion fiscal stimulus--$800 billion for 3 years--in motion back then.

My first point is thus that the Obama administration's federal fiscal stimulus programs are on the low side of what is appropriate by a substantial margin: this is the largest economic downturn since the Great Depression and the standard tools of expansionary monetary policy are tapped out and broken right now.

My second--related--point is that the need for federal-level fiscal expansion is reinforced by what state governments are doing right now. The federal government's discretionary actions are expanding aggregate demand by about $400 billion over fiscal year 2010, but state governments are right now cutting their spending and raising their taxes in order to offset this federal fiscal expansion more or less completely. On net, the government sector will be on autopilot as far as discretionary policy moves to stimulate the economy are concerned: federal-level expansion is offset and neutralized by state-level fiscal contraction. This is not an appropriate macroeconomic policy stance: this is the largest economic downturn since the Great Depression.

My third--unrelated--point is that the policy innovations of the past year have created a potentially dangerous weakness in the Federal Reserve system. The Federal Reserve's balance sheet has more than doubled over the past year, as it has acquired an enormous and bizarre menagerie of assets. On the liability side, it has funded this acquisition by expanding the monetary base, and has increased private-sector willingness to hold this monetary base by paying interest on reserves. This has added a fourth motive--profit--to the three traditional motives for holding reserve deposits at the Fed: the transactions demand, the emergency liquidity demand, and the speculative demand.

As long as the dollar remains the safest currency in the world, as long as the dollar remains the linchpin of the global financial system, there is no problem in the Federal Reserve's funding by what is essentially overnight borrowing the expansion of its balance sheet and the purchase of private securities that will vary up or down in market price with an eye toward holding them to maturity.

However, at some future time the dollar will cease to be the linchpin of the world financial system, in which case the Federal Reserve's financing its balance sheet via overnight borrowing will leave it vulnerable to the mother of all bank runs. It would be very good to fix this now: to give the Federal Reserve now the option to borrow not in what are essentially demand but rather in time deposits--to grant the Federal Reserve the power to issue its own bonds. This diminishes the chance of a great financial crisis in 2050 or so, with no downside that I can see.

My fourth point is the obvious one that health care is the only thing tht matters for the long run budget. The other points that the Hon. Dr Christina Romer raises, are--as is almost always the case--accurate and important. America's long-run fiscal problems are caused by health care, and will not be appreciably made worse by this half-decade's federal fiscal stimulus. If restructuring the health care system can bend the curve on the rise in overall (and hence public as well as private) health care costs, then America has ample debt capacity to borrow whatever we wish in this crisis--and to borrow it at extraordinarily favorable rates as well. If the curve of rising health-care costs is not bent, then the government's long-term finances are in trouble and so is the growth of private-sector non-health living standards: health care costs that rise as fast as CBO is projecting in the baseline cause lots of long-run economic problems, of which government fiscal bankruptcy is not the worst. Health care reform to bend the long-run curve of costs is now just what it was back in 1993: the most important issue for the American political system to deal with.

Fifth, I have the sense that the Obama administration's economic policymakers have forgotten one of the most basic lessons taught by Robert Rubin during his stewardship of economic policy during the 1990s. The lesson is to think probabilistically: to project yourself forward into the possible futures, to ask in each one what would be the actions that you would then wish you hd undertaken today, and then to actually take the appropriate action today. Looking forward into the future, (a) I see a 10% chance that something happens to create renewed cliff diving--a recession that bottoms out not with an unemployment rate in the 10-12% range that we currently anticipate but an unemployment rate that blows through 12% and keeps on rising. (b) I see a 30% chance of a rapid recovery as confidence and asset prices recover, and firms take advantage of high unemployment to hire new workers in droves at wage levels that make increasing production very profitable. But (c) I see a 60% chance of the end of the current cliff-dive in employment being followed by what happened in Japan in the 1990s, in the U.S. after 1991, in the U.S. after 2001, and to some extent in the U.S. after 1933--a recovery that does not see the market exert sufficient upward pressure on employment to return the unemployment rate to normal levels in two or three years, but that instead sees a jobless or low-job recovery during which the unemployment rate continues to drift upward for years, or falls only then to rise again.

The Obama administration's policies appear to me to be the ones that would be adopted if we believed that there was a 75% chance of scenario (b) and a 25% chance of scenario (a). But I don't think those are the probabilities. And I wonder what the Hon. Dr. Christina Romer thinks the probabilities are. For she is the one who warns of how:

[t]he 1937 episode provides a cautionary tale. The urge to declare victory and get back to normal policy following an economic crisis is strong. That urge needs to be resisted until the economy is again approaching full employment. Financial crises, in particular, tend to leave scars that make financial institutions, households and firms behave differently [than in normal times]. If the government withdraws support too early, a return to economic decline or even panic could follow...

The blunt fact is that the economic recoveries that have been rapid and seen fast growth in employment are those that ended when a Federal Reserve following strongly restrictionary policies to fight inflation eased off and significantly lowered interest rates. No such lowering of interest rates is possible this time--interest rates are already as low as they can possibly go at the short end. So I can see no reason to anticipate a rapid recovery and employment when the cliff-diving stops. And I do not understand why the Obama administration is following policies that presume such a rapid recovery--a V rather than an L for the shape of the recession--is not just possible but probable.

1429 words

Preview on posterous

Posted via email from at Brad DeLong's Scrapbook

Just Arrived in the Mail Blogging...

Just Arrived in the Mail Blogging

The Root Desk--the desk bought by my great-grandmother around World War I from the Root family. There is a tradition that this is the desk at which George F. Root wrote "Jesus Loves the Little Children" and "The Battle Cry of Freedom" (but when "there is a tradition" that X, that of course means that X is not true but it is nice to think that it is).

This is worth mentioning because I have been peeking over the intelligent and thoughtful Ta-Nehisi Coates's shoulder as he reads James McPherson's Civil War history The Battle Cry of Freedom, reflects on it, and blogs about it. It's all very very good. For example:

Nathan Bedford Forrest Has Beautiful Eyes - Ta-Nehisi Coates: Of the many reckonings that black people of honest political consciousness must endure, the appointment with black slavery is the most agonizing. I don't mean the appointment with the notion of white people as the enslavers of our ancestors, but the appointment with our African ancestors as brokers. I think, when you're in your intellectual infancy, myth keeps your sane. When I was young I believed, like a lot of us at that time, that my people had been kidnapped out of Africa by malicious racist whites. Said whites then turned and subjugated and colonized the cradle of all men. It was a comforting thought which placed me and mine at the center of a grand heroic odyssey. We were deposed kings and queens robbed of our rightful throne by acquisitive merchants of human flesh. By that measures we were not victims, but deposed nobles--in fact and in spirit.

I don't propose that blacks are alone in our myth-making, or in our desire to ennoble ourselves. But given the power dynamics of this society, we're the ones who can afford the comforts of myth the least. This is doubly true for those of us who are curious about the broader world. By the time I came to Howard University, I was beginning the painful process of breaking away from the "oppression as nobility" formula. But the clincher was sitting in my Black Diaspora I class and learning that the theory of white kidnappers was not merely myth--but, on the whole, impossible because disease (Tse-Tse fly maybe?) kept most whites  from penetrating beyond the coasts until the 19th century.

A few years later I read (like many of you, no doubt) Guns, Germs and Steel and was, again, heartbroken. Here was a book with no use for nobility, but concerned with two categories--winners and losers. And I was the progeny of the losing team. I was not cheated of anything. I had simply lost. This was heart-breaking, in the existential sense. What was I, if not noble? What was the cosmic justice at work that put me here, that made me second? Slowly, by that line of questioning, I came to understand that there really was no cosmic justice, that I should just be happy to be alive. Moreover the truth--Harriet Tubman and Ida Wells--was sustenance enough. Finally I learned to actually like that old pain, that feeling of something inside me, deeply-held, falling away. It was not the end of me, just the burn of good, refining, moral and intellectual, work-out.

As I've said, I finished McPherson's Battle Cry Of Freedom today. It deserves its own post, but I want to focus on one aspect the book handles particularly well--the South's psychological need to turn defeat into nobility. I don't mean defeat in the war, so much as I meanlagging behind the North, economically, and due to slavery, lagging behind virtually the entire world, morally. I've actually long overlooked that last point by noting to myself that virtually all societies practiced slavery. But in the 1850s, the South was only bested in the scale of its slavery, by Russian serfdom. Thus this country was not merely a moral offender among many, but a moral offender on a grand scale, plying its trade at a point when much of the rest of the world had moved forward.

It is one thing to be judged immoral. But to be judged immoral and backward, at the same time, to be both debauched, and yet in your debauchery, still be a loser, is deeply painful. It was not bad enought that my people had been enslaved, but the fact that we were first enslaved by people who looked like me robbed us of any moral high ground. The South long evaded that painful reality, and when confronted with it, simply lied. Thus pre-War Jefferson Davis is arguing that the fight is over slavery and white Supremacy. Post-war he's claiming it was about the sovereignty of states. To this day, 150 years later, you find people parroting this lie.

Nathan Bedford Forrest (pictured above) is beautiful. Again, dig those steely eyes, that dead serious countenance, the warrior's beard. His story is American--the dirt poor son of a blacksmith who becomes a millionaire. But he's noble too, and volunteers to fight for his home state of glorious Tennessee. With no military training, he rises to the rank of Lieutenant General, giving the Union hell the whole time. Forrest is the model of Southern chivalry--too much so. He made his money buying and selling people like me, and when the war started he dutifully enforced the Confederate policy of giving no quarter to black soldiers. At Fort Pillow he massacred black soldiers trying to surrender, and afterward went on to found the Ku Klux Klan. Tennessee is dotted with monuments, not simply to the generals of the Confederacy, but to the first Grand Wizard of the KKK (Forrest).  To this day, you can find people who deny his role in Fort Pillow and in the KKK.

At the end of his book, McPherson has a section where the Confederacy, now desperate, considers raising regiments of black slaves to fight for them. For years, now, they've seen black soldiers--many of them their own ex-slaves--actively contributing to the South's demise. But faced with the prospect of doing the same, Lee and Davis are ensnared by the very lies that they've, until now, heartily embraced. Conceding that blacks could be soldiers, would be a tacit admission of their equality. As Southerner Howell Cobb puts it, "If slaves will make good soldiers, our whole theory of slavery is wrong." The South eventually raises two black regiments, but the Confederacy is defeated before any of them see action. And yet, in this section, you can see them trying to square the circle, trying to find another lie that will allow the lie of white supremacy to stand.

I imagine for a kid coming up in these times, in certain sectors of the South, it's painful to face up to Nathan Forrest, to the notion that the pomp and glamour, all the talk of honor and independence was, at the end of the day, dependent on slavery. The Lost Cause isn't just "lost," it's barely a cause. The temptation to continue to lie, to see yourself as the victim in a grand play is formidable--consider Lindsay Graham chafing at the constraints of whiteness, while Sonia Sotamayor evidently swims in a free world of color. But I suspect that some manner of change is coming, that we are reaching point when witlessly honoring the founder of the greatest perpetrator of domestic terrorism in American history, when flying that sorry order's battle flag, becomes embarrassing. Sooner or later, I think the South will understand that the ideology of "noble victimhood" is a luxury it too can ill-afford. Some will hold out, I am sure. But sooner or later, I think most of the South will be black like me.

And "One Last Thought on [Nathan Bedford] Forrest".

links for 2009-06-18

We Are Live at The Week with: A Wall Street Fairy Tale

A Wall Street Fairy Tale - THE WEEK: The story we tell ourselves about what happened to the financial markets last fall is vitally important. It will determine what form financial market regulation takes in the next few decades, and how vulnerable we will be to the next disruption. At this moment, a relatively calm one, a fictional version of last fall's events is gaining traction. So let's review a few foundational facts.

September, 2008 was a busy month. On Sunday, the 7th, the U.S. government nationalized the two large government-sponsored mortgage enterprises, Fannie Mae and Freddie Mac, which had been privatized in 1968. The following Sunday, the investment-banking house of Merrill Lynch was forcibly merged into Bank of America. The next day, Lehman Brothers simply did not open. The old-line investment bank went into an uncontrolled and unsupervised bankruptcy, and all financial-market expectations that the Federal Reserve and the Treasury would guarantee the unsecured debt of every substantial investment bank in America, as they had for Bear Stearns, went out the window. Wednesday, September 17, saw the nationalization of the American International Group, which, unlike Lehman, was deemed too big to fail. Government-injected cash went straight through AIG and out the other end—like grain through a goose. The forced feeding may total $300 billion before we are through.

The bankruptcies of Fannie, Freddie, Lehman, and AIG; the fall in the prices of risky assets worldwide; the shutdown of the flow of funds through financial markets as trust evaporated and everyone presumed that whoever they entrusted their money to might go bankrupt—this was September's harvest. Risk tolerance collapsed. People became much less willing to hold risky assets at any price. The interest rate on 30-year Treasury bonds fell to less than 3 percent. And it was presumed that every large bank in America would be bankrupt if they were forced to mark to market.

The banks' survival depended on their (a) not having to sell assets until asset prices rebounded, and (b) the availability of enough government money, at cheap enough prices, to enable them to avoid selling any assets at fire-sale prices.

This troubling tale led to the largest recession in post-war history. Yet if you go to the big banks of Wall Street right now, most of them will say: "What is the problem?" They will deny that any changes in the way they run their businesses are called for. "Sure there were a few scary moments," they say, "but big shocks cause scary moments. And our fundamental business model is sound."

Indeed, as Paul Kedrosky points out, if you look at the stock prices of Goldman, JPMorgan Chase, Barclays, and Morgan Stanley, they are back where they were in late August, 2008 before the worst unpleasantness began. (Citi, however, is still down 75 percent and Bank of America is off 67 percent.) So, they say, there is no need for government investments in, or control over, their businesses; no need for restrictions on how much they can pay whom or for what; no need to restrict how much leverage they assume or what they invest in or how much capital they must hold. The smart banks, they say, figured out that the mortgage market was headed for a crash and managed to profit from the boom without being destroyed by the bust. It was only the dumb banks, they say—Bear-Stearns, Lehman, AIG, Fannie, Freddie, and to a lesser degree, Citi and Bank of America—that suffered severely. That's how the market works.

This is a fairy tale.

Suppose for a moment, that things had been handled differently last September. Suppose that the Federal Reserve had announced not that it was buying up the stock of AIG and that it would make sure that all of AIG's debts were paid, but rather that AIG was bankrupt. Suppose the Federal Reserve said it would rescue AIG's bank clients by paying out cash at par for contracts with AIG-provided that it also got (a) upside warrants in the bank and (b) an illiquid, long-dated note, the value of which would be determined by formula after the crisis passed.

In that case, Goldman, JPMorgan, Barclays, Morgan Stanley, Citi, and Bank of America would still have been able to function—they would have had enough cash to pay their bills and enough assets to match their liabilities—but they would now be owned by the federal government. Because all the money passed through AIG to the banks would not be a loss for the government but would rather have been in the form of government investments in still-solvent banks. The resulting expansion of the banks' share issue would have left their stock prices today a shadow of their values last August.

When American high finance hedged its mortgage risk by buying derivatives from AIG, it did not perform due diligence to figure out if AIG could in fact meet its obligations. This failure cost American high finance an amount that may ultimately reach $300 billion. And it would have been fatal had the government not come to their rescue.

Had the government stepped in by discounting AIG paper in return for warrants and notes at fair market values, the banks' life support apparatus would have been obvious. It is only because the government stepped in by nationalizing AIG and guaranteeing its debts that American high finance now has healthy stock prices, and that the senior executives of the big banks—except Citi, Bank of America, Lehman, and Bear-Stearns—are congratulating themselves for their skillful navigation through the crisis.

The fact that the rescue of the banking system took the form of nationalization of AIG, and the honoring of its paper, rather than equity investments by the government in the banks, and the discounting of AIG paper, has encouraged a bout of revisionism in which most of Wall Street and at least a third of Congress now embrace a fairy tale. They tell themselves—and us—a story of a banking system that was fundamentally sound, that merely needed a little temporary liquidity to tide itself over a panic. But the true story is one of an overleveraged banking system that was insolvent save for a $300 billion gift from American taxpayers.

In September, Wall Street was overrun with bears. Now it seems Goldilocks has taken up residence there, too.

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Posted via email from at Brad DeLong's Scrapbook

links for 2009-06-17

The Future Is Here, It Is Just Not Easily Distributed (Iran Edition)

Author Walter Jon Williams says that he has an unimportant problem toay:

Angel Station: Watching My Uncompleted Novel Go Down in Flames: There is a scene just like this in the novel I'm working on. My whole novel is playing itself out before my very eyes. All its specialness and wonderfulness, coolness and invention is curling up and dying in fire, as if one of the incendiaries from Fahrenheit 451 found it before I could even finish it. The Twitter Revolution in Moldova was bad enough, but at least it didn't get a lot of coverage over here, and most Americans never heard of Moldova. Iran is different. I feel like all those guys who were working on Cold War novels when the Wall fell.

The parade of demonstrators in Tehran today was nine kilometers long. It's a People Power revolution fired up by social media--- you don't get a crowd that big by sticking up posters on lamp posts. (Does the use of Twitter in Iran somehow absolve it of totally sucking?) Hackers are also proving useful, by attacking Iranian government web sites. (But be careful, script kiddies of the world--- you don't want to bring the whole system down.)

And he has a recommendation for what you can do to help the people with serious problems:

If you want to turn your computer into a proxy server to help Iranians avoid government roadblocks, "Austin Heap" provides instructions here. Be sure to read the disclaimers. I'd do this myself, but I have to admit that it's all beyond my competence.

And he notes that the usual suspects are still acting badly, as usual:

As a final note, I'm startled by the wave of support for Ahmedinejad by American neocons like Marty Peretz ("Maybe the regime fiddled around a bit with the numbers at the polls and after the polling. Still, the outcome had a sense of authenticity.") and Martin Rubin. Maybe if there's regime change, and the Iranians liberate themselves, then the neocons won't get their holy war with Iran, and we won't get to liberate the Iranians by killing zillions of them. A great disappointment, to be sure.

UPDATE: The neocons aren't all speaking with one voice, it seems. Bill Kristol now demands that Obama immediately issue a statement of support to the protestors. Why? Because Hitler invaded Poland in 1939! (No, really! Read it yourself!) Ahmadinejad is Hitler! Obama is Chamberlain! So I guess Kristol's idea is for Obama to support the protestors, Ahmadinejad to denounce them as American puppets and kill them, and then we still get to invade Iran! Yay!

The Return of "Liquidationism"

Paul Krugman sends us to Ezra Klein. Ezra won't, but I will, say that John Tamny and Forbes have now written the worst thing I have yet seen on the recession.

Ezra Klein:

Ezra Klein: A Prescription for a Crippling Recession: I'm not quite prepared to say that John Tamny's column on "the Flip Side of Failure" is the worst piece I've read since the onset of the recession, but it's arguably the most overblown.

Tamny's thesis is pretty simple. Another way of looking at a devastating recession is that it represents "assets falling into the hands of those who can either afford them, or who possess a stated objective to use them more wisely. In short, the flipside of failure is opportunity." And Tamny, to his credit, gives examples. Buffalo Wild Wings, for instance, which has taken over eight restaurants formerly owned by the Don Pablo's chain. And Panera Bread Co., which is moving into some of the buildings previously inhabited by the now-shuttered Bennigan's. This seems, to me, like a fundamentally sad macroeconomic story: A lot of jobs were lost and a couple of jobs were gained. This is like taking consolation because you won $50 at slots even as you lost several thousand in Vegas. But Tamny is more enthused. "The failure of certain chains and restaurants has created opportunities for other eating establishments to expand," he writes.

He also quotes a Los Angeles Times article tracking a couple of different experiences in the housing market. In one, an older man lost his job due to a heart problem, and that, plus legal costs incurred by a wayward son, led him to lose his house. But wait! On the flip side of that guy's heart-trouble-related "failure" are Hilary and Mark, newlyweds who never thought they'd be able to afford a house in Los Angeles. Squeal!

Elsewhere, a Chinese company purchased the Hummer brand. "It would be impossible to calculate," writes Tamny, "but it's likely that the creation of the Hummer brand (and the factories necessary to build it) from scratch would have cost many multiples of the $500 million that Sichuan paid GM for Hummer."

For all that, the article would be an innocuous enough tour through the recession's thin silver lining if not for its conclusion:

[T]hese stories do remind us that just as the human body frequently heals itself during times of illness, the economy is ultimately comprised of self-interested individuals who, if left alone, will work in order to improve their individual financial situations.

In that sense, the answer to our sagging economy today is not more government intervention, but instead a humble federal government that will sit back and let the economy heal itself. The flipside of economic failure is economic opportunity, and it's time for Washington to get out of the way so that individuals can turn misfortune into opportunity.

That's quite a conclusion based off five anecdotal examples. Indeed, as a macroeconomic prediction, it's not even clear what it means. What would a "humble federal government" do, exactly? Shut down the stimulus projects so a couple million more people end up unemployed and a couple million other people can buy their possessions at fire sale prices? Shut down the system of financial supports which are currently sustaining a weakened lending market? Should they have held back from Detroit's collapse so that the assets of the various companies were simply liquidated, along with what was left of the Rust Belt's economy? Should they cut off economic aid to the states so infrastructure literally crumbles? I want specifics!

The idea that government should get out of the way because Panera has taken over eight of Bennigan's former locations beggars belief. At the end of the day, it will be a resuscitation of household spending and business expansion that restarts our economic growth. But for now, both have fallen through the floor, with terrible consequences for both individuals and businesses. What little demand exists is being substantially kept afloat by the massive intervention of the federal government. At this moment, federal spending does not exist in competition with household spending. It's one of the last forces sustaining it. Indeed, the idea that the economy will heal itself if the government only steps out of the way is exactly the thinking that led to the deep recession of 1937. What a pity those lessons haven't been better learned.

I See No Green Shoots Here...

Macroeconomic Advisers estimates that GDP in the second quarter fell at a 1.3% annual rate:

cqgdp-Q2-2009 (06-16a).pdf (page 1 of 1)

Now we will get to see whether fiscal contraction by the states will set off another round of cliff-diving in the third quarter...

Had I known last November what I know now, I would then have been pushing federal fiscal stimulus at $800 billion rather than $400 billion per year.

And We Are Not Yet at the Bottom...

Rex Nutting:

Industrial production slumps 1.1% in May: The nation's industrial output tumbled 1.1% in May, led by big drops in motor vehicles, mining and high-technology products, the Federal Reserve reported Tuesday. The decrease was a bit worse than forecasts of a 1% drop. April's output was revised lower, to a decrease of 0.7% from 0.5% reported earlier. See Economic Calendar.

Output fell to the lowest level in 11 years in May, and is down 13.4% in the past year, the largest year-over-year decline since 1946. Output has fallen in 16 of the past 17 months since the recession began in December 2007. Since that month, industrial output is down 14.8%. Read the full report.

Capacity utilization in industry fell to a record-low 68.3% last month, down from 69%. Capacity utilization -- a key measurement of slack in the economy -- stands 12.6 percentage points below its long-term average. In manufacturing alone, capacity utilization fell to a record-low 65%. The government has tracked capacity data since 1948...

The Washington Post Might Be Turning into... Half a Newspaper

Jon Cohen and Jennifer Agiesta of the Washington Post news staff hoist the jolly roger and fire back at the mendacious and incompetent Washington Post editorial page:

About Those Iran Polls - Behind the Numbers: Public opinion surveys are central to the Iranian opposition's argument that the elections there were rigged for incumbent President Mahmoud Ahmadinejad.... Now a competing poll conducted by two American groups is being used as part of the pushback. In an op-ed in today's Washington Post, Ken Ballen and Patrick Doherty write up the results of their telephone poll carried out in mid-May, showing Ahmadinejad ahead "by a more than 2 to 1 margin - greater than his actual apparent margin of victory in Friday's election."...

[T]he poll was conducted from May 11 to 20, well before the spike in support for Mousavi his supporters claim.... More to the point, however, the poll that appears in today's op-ed shows a 2 to 1 lead in the thinnest sense: 34 percent of those polled said they'd vote for Ahmadinejad, 14 percent for Mousavi. That leaves 52 percent unaccounted for. In all, 27 percent expressed no opinion in the election, and another 15 percent refused to answer the question at all. Six Eight percent said they'd vote for none of the listed candidates; the rest for minor candidates.

One should be enormously wary of the current value of a poll taken so far before such a heated contest, particularly one where more than half of voters did not express an opinion.

Shame on Ken Ballen and Patrik Doherty for suppressing their actual results--for not writing "34-14, with 42 percent not answering the question or no opinion" and instead writing "Ahmednijad leading by a more than 2 to 1 margin..." Shame on Fred Hiatt for printing it. Shame on Lally Weymouth and Donald Graham for continuing to employ Fred Hiatt. Two and a half years ago I got an email from Ruth Marcus of the Washington Post editorial staff, asking me why I no longer presume that Post reporters are "trying, hard, to do their job..." This sorry episode answers her once again.

Congratulations to Jon Cohen and Jennifer Agiesta.

Today's "Green Shoots? What Green Shoots?" Lesson...

David Sipress : 201CWasn2019t that Paul Krugman?201D -

Cartoon drawn by David Sipress

Paul Krugman is... Jeremiah!:

Unemployment claims and employment change - Paul Krugman Blog - New claims for unemployment insurance are one of the highest-frequency economic indicators we have — that is, the data come in early and often, giving a quicker read than things like employment numbers and unemployment rates. And there’s been some celebrating over the fact that new claims seem to have peaked.

But the level of new claims is basically an indicator of the rate of change of employment. And we are nowhere near the point at which employment looks ready to expand, or for that matter to stop falling at a terrifying rate.

Here’s a plot of new claims (4-week average) (red, right scale) versus the monthly decline in payroll employment (blue, left scale). What the figure suggests is that to stabilize employment, we’d have to see new claims drop below 400,000 or so. We’re nowhere near that point. In fact, a read of the data remains very, very grim.

Unemployment claims and employment change - Paul Krugman Blog -

The cantor will now lead the congregation in that old standby: "Woe is upon us! For He is trampling the unrighteous with hooves of red-hot iron!"

The Atlantic Monthly Crashes and Burns...

More lack of quality control at the Atlantic Monthly. Not as bad as highlighting Gregg Easterbrook's bizarre claim that the chances of a catastrophic mammoth meteor impact over the next five and a half centuries "could be" 50%, but still...


Dr. Manhattan: Sentences That Don't Compute - The Atlantic Business Channel: Today's entry comes from Mark Thoma, who writes in a guest-blog at the Washington Post:

The development of the shadow banking system is important because the troubles we are seeing today are not the result of problems in the traditional, regulated sector of the financial industry. The problems began in the unregulated shadow banking system.

Which entities' failures and near-failures required TARP and other system-saving emergency programs again? 

I don't want to be too hard on Prof. Thoma: his second sentence is correct, assuming the definition of "shadow banking system" encompasses Subprime Mortgage-To-Go (which offers drive-thru!).  But unlike Long-Term Capital Management's meltdown in 1998, the systemic breakdowns we have been experiencing over the past 18 months have been caused by problems at the major banks (even the former investment-only banks which weren't regulated by the Fed or FDIC cannot be called part of the "shadow banking system"), AIG (regulated by the state insurance commissioners, even if they'd rather you didn't remember) and let's not forget Fannie and Freddie, which had their own regulator. (And the most acute phase of the crisis was touched off by the Reserve Primary Fund's "breaking the buck," even though money market funds are among the most stringently regulated entities on earth.) Only when the products of Subprime Mortgage-To-Go were thoroughly integrated into the activities of these heavily regulated institutions (and sometimes even acquired in full by them; just ask Wachovia and Merrill) was the stage set for the financial crisis.  By contrast, though numerous hedge funds have failed, some people are beginning to look longingly at the sector as one in which even major players can fail without touching off a systemic meltdown. This isn't necessarily an argument against extending regulation to the "shadow banking sector," but we should be on guard against any tendency to assume that the job has been done when a previously unregulated activity now has a regulation applied to it.  In reality, that is when the work begins.

It is hard to know whether being kept in ignorance of the world for decades as part of a secret government program has deprived Dr. Manhattan of his ability to understand the world in which we live, or whether the eldritch nuclear mishap that gave him his eight-foot stature, total lack of body hair, and blue skin tone also scrambled his brain. But i would advise all readers--and editors of the Atlantic Monthly as well--to take care: only one of the two pictured below is an economist worth listening to on the financial crisis:

Google Image Result for 200ճ06 pixels

Yes, it is the one on the right. Listen to University of Oregon Professor of Economics Mark Thoma. Do not listen to the weirdo on the left with his cheap imitation copy of the Fortress of Solitude on Mars, his irregular private life, and his propensity to murder long-time acquaintances and comrades to help billionaires cover up genocidal crimes.

Let's go through it slowly. The commercial banks were regulated. The government guaranteed their deposits. Savers who wanted to not have to worry about making sure that their money wasn't going to vanish and who were inertial in their behavior put their money into commercial banks. Regulators watched the leverage of commercial banks. And commercial banks--with their massive retail savings deposits--have for the most part come through this all right. In fact, the possession of lots of inertial commercial savings and checking deposits that they did not have to worry might flee provided JPMorgan (with the retail banking assets of Chase) and the bank formerly known as NationsBank (with the retail banking assets of Bank of America) with competitive advantages that allowed them to pick up the assets of Bear Stearns and Merrill Lynch at what they thought were bargain prices.

The non-commercial banks--those that did not have large retail banking deposits, did not have government guarantees, and were left less tightly regulated--have, by contrast, flamed out almost to an entity newly reincorporated as a bank holding company. Countrywide. Bear Stearns. Other hot money-financed mortgage lenders too numerous to name. Fannie Mae. Freddie Mac. Lehman. Merrill Lynch. AIG. All are now gone. Only Goldman Sachs and Morgan Stanley remain--and directors of both tell me that they really wish that they had some large retail banking businesses in their portfolio so that the entire liability side of their balance sheet was not hot money.

I think that Dr. Manhattan is just too ignorant of the world outside Area 51 to understand the point Mark Thoma was making--which is, after all, a commonplace. I hope it isn't that the high energy neutrons have permanently scrambled his brain. But given his irrational actions in the Veidt affair, you have to wonder.

UPDATE: Mark Thoma defends himself:

Sentences That Don't Compute - The Atlantic Business Channel: Nice try, but the problems did begin just where I said they did, in the shadow banking sector:

Geithner: The shadow banking system has been implicated as significantly contributing to the financial crisis of 2007–2009. In a June 2008 speech, U.S. Treasury Secretary Timothy Geithner, then President and CEO of the NY Federal Reserve Bank, placed significant blame for the freezing of credit markets on a "run" on the entities in the shadow banking system by their couterparties...

Nouriel Roubini: Because of a greater regulation of banks, most financial intermediation in the past two decades has grown within this shadow system whose members are broker-dealers, hedge funds, private equity groups, structured investment vehicles and conduits, money market funds and non-bank mortgage lenders.... A generalised run on these shadow banks started when the deleveraging after the asset bubble bust led to uncertainty about which institutions were solvent. The first stage was the collapse of the entire SIVs/conduits system once investors realised the toxicity of its investments and its very short-term funding seized up. The next step was the run on the big US broker-dealers: first Bear Stearns lost its liquidity in days. "... [these are his five steps top the crisis - step one is, drum roll please, problems in the shadow banking system]...

Bill Gross: What we are witnessing is essentially the breakdown of our modern-day banking system... My Pimco colleague Paul McCulley has labeled it the "shadow banking system" because it has lain hidden for years, untouched by regulation, yet free to magically and mystically create and then package subprime loans into a host of three-letter conduits that only Wall Street wizards could explain.

Krugman: As the shadow banking system expanded to rival or even surpass conventional banking in importance, politicians and government officials should have realized that they were re-creating the kind of financial vulnerability that made the Great Depression possible--and they should have responded by extending regulations and the financial safety net to cover these new institutions. Influential figures should have proclaimed a simple rule: anything that does what a bank does, anything that has to be rescued in crises the way banks are, should be regulated like a bank.

It goes on and on - I'm comfortable with the assertion - most analyses say the same thing, it was the shadow banking system (with only a few exceptions). So it's the title of the post and your argument that doesn't compute.

On the one hand, strange blue guy who insists that "Fannie, Freddie, Lehman, AIG" are part of the "traditional, regulated [financial] sector." On the other side, Thoma, Geithner, Roubini, Gross, Krugman, and many others. Something is very wrong here.

You can do better guys. A lot better.

Department of "Huh?" (Eric Zitzewitz Department)

Justin Wolfers gives the keys to the freakonomicsmobile to Eric Zitzewitz:

Krugman vs. Ferguson: Letting the Data Speak: Why Have Long-Term Interest Rates Risen? There’s no debating that long-term interest rates on government debt have risen. But there’s a pretty fierce debate about what it means. Harvard historian Niall Ferguson interprets this as indicating that the bond market is worried about the U.S. deficit and the prospect of inflation. Princeton economist Paul Krugman thinks it indicates that worries about deflation have eased. It’s a high-stakes debate: Professor Ferguson is arguing that the stimulus package has counterproductively stimulated inflation fears, while Professor Krugman thinks the stimulus has worked as intended by reducing the likelihood of deflation. In fact, Krugman has argued for another dose of fiscal stimulus.

So who is right?... Resolving their debate requires measuring the likelihood of different inflation scenarios. Let’s do it. The graph below plots the probability of different outcomes for the yield on 25-year Treasuries on two different dates — late February and the end of last week.... The blue line shows that there was a lot of uncertainty about future Treasury yields in February, including a very large chance of very low interest rates, as in Krugman’s deflation scenario. But the green line shows that this deflation risk appears to have receded. In fact, the recent increase in Treasury yields is almost entirely due to a reduction in the probability of the deflationary (low nominal interest rates) scenario. Score this round for Krugman...

Krugman vs. Ferguson: Letting the Data Speak - Freakonomics Blog -

OK. Zitzewitz is out of the driveway and the car is still running. He has, how ever, run over the mailbox and crushed it into smithereens. The graph should, I think, say not "Option-Implied Probability Distribution" but instead "Risk-Neutral Option Pricing-Implied Probability Distribution." But the car is still rolling down the street because Zitzewitz does say--correctly--that Krugman is right and Ferguson is wrong: rates have risen because the fear of deflation has ebbed and not because the fear of inflation has grown (in fact, he claims the fear of inflation is less than it was in February).

But then Zitzewitz wraps the freakanomicsmobile around a tree:

While Ferguson wrongly diagnosed the cause of the rise in interest rates, he is right that the markets are spooked about the risk of an inflationary breakout. There’s about a 7 percent chance that 25-year interest rates will exceed 10 percent.... This is a fairly extreme scenario: long-term interest rates have not been above 10 percent since inflation was tamed in the mid-1980’s. So there’s a chance that Professor Ferguson may be right about the broader issue: now that deflationary worries seem to have eased, it might be time to start turning the fiscal policy battleship around...

No, no, and no. It is not that the market thinks that there is a 7% chance that the 25-year Treasury nominal rate will exceed 10% in January 2011. Rather, the probability that the 25-year Treasury will exceed 10% in Jaunary 2011 times the scaled marginal utility factor for how much you fear Treasury rates above 10% together equal .07 when you normalize values so that the sum over the entire probability distribution of the scaled marginal utility factors is equal to one. (I know that that is totally incomprehensible, but that does make sense.)

The chance that 25-year Treasury rates will be above 10% in January 2011 is more like 1% or maybe 2%: it is not 7%.

To say that there is a 7% chance that the 25-year Treasury rate will be above 10% in only 19 months is to say something bizarrely misleading.

Someone please call AAA...

More Nature Liveblogging: A World Full of Turkeys

Three adult turkeys and twenty-one poults make their way up the hillside at dawn...


I am told that the California wild turkey was hunted to extinction in the 1920s--"Ma! Get a net!" These are Texas wild turkeys, and are animals that are neither "native" nor "non-native" but rather "near native."

I think that their edge over other ground-birds in American suburbia is that they do not fear cats much...