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July 2009

In Which Douglas Holtz-Eakin Suffers a Relapse...

McCain economic advisors on the desirability of a second stimulus:

Topic A -- Do We Need Another Stimulus?:

MARK ZANDI, Chief economist at Moody's

It is premature to conclude one way or another if the economy needs another dose of fiscal stimulus. The current stimulus has not had a sufficient opportunity to work, and while it has already provided some benefit to the economy -- the downturn would be even worse without it -- its benefit won't be fully felt until later this year. A reasonable judgment regarding the need for more stimulus should wait until year's end. Planning now for another round of stimulus is prudent, though, given that the economy remains in an extraordinarily severe downturn and the risks are decidedly to the downside. If additional stimulus is needed, then it probably should include more aid to hard-pressed state governments... more aid to stressed households hammered by what will be double-digit unemployment, an expansion of the housing tax credit to stem the ongoing slide in house prices, a delay in legislated increases in marginal personal tax rates in 2011, and perhaps even a payroll tax holiday...

DOUGLAS HOLTZ-EAKIN, Former director of the Congressional Budget Office; senior economic adviser to Sen. John McCain's presidential campaign:

The very call for another "stimulus" reflects a fundamental misconception that the economy can be managed -- and the unemployment rate targeted -- for political objectives. Throughout the 1960s and 1970s this was tried to no avail.... The hallmark of the current downturn has been asset market collapses.... No amount of Keynesian "stimulus" will replace roughly $12 trillion in lost wealth and lead to a sustained consumer recovery.... Begin by doing no harm -- ditch the anti-competitive Obama international tax hikes and the expensive and disruptive health-care mandates that are looming. If the politics require, that could be combined with a payroll tax holiday that frees up cash flow for investment spending, improves employment incentives and acts right away...

Listening to Holtz-Eakin, you would not know that governments have been managing their economies by pulling levers to affect aggregate demand since 1825...

Looks like the political virus he caught while working for the McCain campaign is going to be permanent...

Fasten Your Seatbelts for the Jobless Recovery...


[20090717.xls]Sheet1 Chart 1

As of this writing, it looks as though the average unemployment rate in 2009 is going to average at least 1.5 percentage points above where last December the incoming Obama administration thought that it was likely to be. Instead of the 7.8% forecast last December, year-2009 unemployment looks to average 9.3% or higher. Year-2009 real GDP also looks to be lower than the income Obama administration was forecasting last December: $11.40 rather than $11.53 trillion. The macroeconomic news has been bad. The financial crisis that gathered force from the summer of 2007 through the summer of 2008 and then exploded after the collapse of Lehman brothers did more damage to the economy than the consensus of forecasters had imagined.

Back in the 1960s one of President Johnson's economic advisers, Brookings Institution economist Arthur Okun, set out a rule of thumb other quickly named "Okun's Law": if production and incomes--GDP--rises or falls 2% because of the business cycle, the unemployment rate will fall or rise by 1% along with it: the magnitude of swings in the unemployment rate will be half or a little less than half the magnitude of swings in GDP. Why? For four reasons: (a) businesses will tend to "hoard labor" in recessions, keeping useful workers around and on the payroll even if there is temporarily nothing for them to do; (b) businesses will cut back hours when unemployment rises, and so output will fall more than proportionately because total hours worked will fall by more than total bodies employed; (c) plant and equipment will run less efficiently when hours are artificially shortened because of the recession; and (d) some workers who lose their jobs won't show up in the unemployment statistics but will instead retire or drop out of the labor force. For all four of these reasons, whatever rise in the unemployment rate we see in a recession is supposed to be a fraction of the fall we see in GDP relative to trend.

But this time we are not following this rule. This time Okun's Law is being broken. The unexpected 1.2% extra decline in real GDP in 2009 should have been accompanied by an 0.5 or 0.6 percentage-point rise in the unemployment rate, not by the 1.5 percentage point rise in the unemployment rate we are now seeing. I confess that the fact that this is happening comes as a surprise to me. But when I think back we have seen this before. In 1993--two full years after the National Bureau of Economic Research had called the end of the 1990-1991 recession--the unemployment rate was still higher and the employment-to-population ratio lower than it had been at the recession trough. And we saw the same "jobless recovery" after the recession of 2001: it took 55 months after the formal end of the recession in November 2001 before a greater share of Americans had jobs than had had them in November of 2001.

It is likely to be a recovery. The central tendency forecast right now is that real GDP contracted at a rate of 1% per year or less between the first and second quarters of 2009, and will grow between the second and third quarters at a rate of 2% per year or so. When the NBER Business Cycle Dating Committee gets around to it, it is most likely to call the end of the recession for June 2009, second most likely to call it's end in April, and a recession-end date later than June 2009 is a less likely possibility. One reason that we are likely to see a recovery starting... right now... is the stimulus package. It probably boosted the real GDP annual growth rate relative to what otherwise would have been the case by about 1.0 percentage point in the second quarter, and is going to boost the annual GDP growth by about 2.0 percentage points between now and the summer of 2010--after which its effects tail off.

But it will not feel much like a recovery. After the 1982 recession the turnaround in employment lagged the turnaround in GDP by only six months. Thereafter employment growth was very strong: in the eighteen months up until the end of 1984, growth in work hours averaged 4.8% per year. it took only 7 months after the 1982 recession trough for the employment-to-population ratio to rise above its trough level (1980: 2 months. 1975: 5 months. 1970: 18 months. 1961: 13 months. 1958: 4 months. 1954: 8 months.) By contrast, it took 29 months after the 1991 recession trough for the employment-to-population ratio to exceed its trough level, and 55 months after the 2001 recession trough for the employment-to-population ratio to do so. Productivity growth in the immediate aftermath of the end of the 1991 and 2001 recessions was surprisingly rapid: rapid enough to eat up all of real demand growth and more as businesses decided to take advantage of the economic downturn to slim down their labor forces and become more efficient.

Today--unless we get much faster real GDP growth than currently looks to be in the cards--we are headed for a jobless recovery. The answer to the economic question--was the stimulus sufficient to rapidly return the economy to something like normal unemployment?--is likely to be: "h--- no, it was much too small..."

links for 2009-07-17

Wingnuts Really Unclear on the Concept...

The Editors are on the case::

Get Yer Anuerysm On « The Poor Man Institute: Shorter Michael Scheuer:

The only thing that can keep this country safe from a spectacular attack by al-Qaeda would be a spectacular attack by al-Qaeda.

Alternative Shorter Scheuer:

We have to raze this country to save it. From being razed.

Seriously.  His argument boils down to this: if America isn’t attacked again, we as a nation will never do what it takes to keep America safe from being…attacked again. I know I’m repeating myself here, but the argument is just so magnificent in its self-refuting circularity that I can’t help but stand in awe.  Even Orwell would have left that scene on the cutting room floor, deeming it too much of a strain on the credulity of the audience.  And yet, there is Glenn “Batshit Crazy” Beck nodding along as if these were the wisest words he’d ever heard.  His retort is brilliant in its own right:

Which is why I was thinking, if I were [Osama] that is the last thing I would do right now.

So, Osama wouldn’t want to screw up his chances of setting off a WMD in America at some later date by... setting of a WMD in America now.  I... but... the point is... he would... why is there blood coming out of my nose?

An Appeal to the Good People of Arkansas: Better Representatives, Please

Was it Mark Twain who said that America had no native criminal class except for Congress?

Matthew Yglesias watches the Democratic Party's "Blue Dog" caucus in the House, led by Mike Ross (D-AR):

Matthew Yglesias » Contradictory Objections from the Blue Dogs: hey’re concerned that the bill (a) costs too much overall and (b) will increase the deficit. And their proposed solutions to this are to (a) increase the cost of the bill by neutering the public plan and (b) decrease the quantity of revenue by fiddling with the employer mandate. Under the circumstances, it’s no wonder that Ross didn’t want to go into detail with CNN about how he’d propose changing the bill...

I want to appeal to the people of Arkansas to retire Mr. Ross as soon as possible. Deficit hawks--fine. Worriers about rural regions getting their fare share--fine. Worries about government overexpansion--fine. But elect a representative who can combine these worries in a coherent and constructive way, not in a way that is criminally stupid and corrupt, please.

China's Larger Stimulus Program Appears to Be Working

Richard McGregor of the FT:

China GDP growth accelerates to 7.9%: China’s economy accelerated significantly in the second quarter, with gross domestic product expanding by 7.9 per cent, ahead of analysts’ consensus estimates. Li Xiaochao, a spokesman for the National Bureau of Statistics, said the economy “had stabilised with increasing positive changes”, as the new data were announced on Thursday. The surge in growth was driven by the government’s aggressively loose fiscal and monetary policies, introduced late last year, with most of the funding coming from record lending by state banks.

The economy grew by 6.1 per cent in the first quarter, leading many China economists to believe that the government would not be able to meet its year-long growth target of 8 per cent. But the government’s pump-priming has turned the economy around, prompting rapid revisions by many investment bank economists, and the World Bank, to upgrade China’s outlook. Mr Li said that fixed asset investment rose strongly, up 33.5 per cent in the first half of the year compared to the same period in 2008.

Inflation, the Chinese government’s biggest policy headache until the middle of last year, remained under control, with the consumer price index falling by 1.1 per cent in the first half of the year and 1.7 per cent in June alone. Many local economists believe that the central government will not begin to rein in the stimulus programme until inflation begins to pick up, or at least turns positive...

Jobless Claims: Reply Hazy, Ask Again

The Magic-8 Ball Oracle that is the jobless claims report continues to confuse me.


Jobless Claims Fall, But Auto Numbers Cloud Picture: The number of U.S. workers filing new claims for jobless benefits fell sharply last week to the lowest level since January, the government said on Thursday, but the data was distorted by an unusual pattern of automotive industry layoffs that amplified the drop. Initial claims for state unemployment insurance fell 47,000 to a lower-than-expected seasonally adjusted 522,000 in the week ended July 11, the Labor Department said. Analysts polled by Reuters had forecast claims to be unchanged at 565,000 last week.

A Labor Department official said that far fewer layoffs than anticipated based on past experience in the automotive sector and elsewhere in manufacturing accounted for both the large drop in seasonally adjusted claims last week and in the very steep decline in so-called continued claims. This was the second week in a row that seasonal factors had affected the data and the official said this would continue for one or two more weeks before this influence faded. "The big drop is not necessarily a reflection of what is going on in the economy," he said...

Economagic: Economic Chart Dispenser

Economagic: Economic Chart Dispenser

Once again, the mid-summer spike in new unemployment insurance claims is not as large as it usually is--and the BLS interprets that as a significant improvement in the labor market. It is not clear that that is wrong. It is not clear that that is right either...

New York Stein Crashed-and-Burned Watch (Financial News Edition)

Felix Salmon says that the employment of Ben Stein as a financial advice columnist is not just stupid but evil--and ugly:

Felix Salmon: Ben Stein, predatory bait-and-switch merchant: How far has Ben Stein sunk? Far enough that I feel compelled to resuscitate the Ben Stein Watch, just to share this unfunny and positively harmful TV ad.... “I went to and found out my score for free”, says Ben, while an annoying squirrel holds up a sign with the word “FREE” in some horrible brush-script font.

A few points are worth noting here. First, the score itself is not very useful to consumers. What’s useful is the report — if there’s an error on the report, then the consumer can try to rectify it. Secondly, and much more importantly, if you want a free credit report, there’s only one place to go: That’s the place where the big three credit-rating agencies will give you a genuinely free copy of your credit report once a year, as required by federal law.

You won’t be surprised to hear that is not free: in order to get any information out of them at all, you have to authorize them to charge you a $29.95 monthly fee. They even extract a dollar out of you up front, just to make sure that money is there.

Stein, here, has become a predatory bait-and-switch merchant, dangling a “free” credit report in front of people so that he can sock them with a massive monthly fee for, essentially, doing nothing at all. Naturally, the people who take him up on this offer will be those who can least afford it.

The level to which Stein has now sunk is more than enough reason — as if the case for the prosecution weren’t damning enough already — for the NYT to cancel Stein’s contract forthwith. It’s simply unconscionable for a newspaper of record to employ as its “Everybody’s Business” columnist someone who is surely making a vast amount of money by luring the unsuspecting into overpaying for a financial product they should under no circumstances buy...

The easiest way to fix this is simple: the New York Times is no longer the newspaper of record, for any purpose whatsoever. People who want entertainment should not subscribe to the New York Times but should instead watch "America's Funniest Videos." People who want news should subscribe to the Financial Times.

links for 2009-07-16

  • [I]t is but just that we should declare the prominent reasons which have induced our course. Our position is thoroughly identified with the institution of slavery - the greatest material interest of the world. Its labor supplies the product, which constitutes by far the largest and most important portions of commerce of the earth. These products are peculiar to the climate verging on the tropical regions, and by an imperious law of nature, none but the black race can bear exposure to the tropical sun. These products have become necessities of the world, and a blow at slavery is a blow at commerce and civilization. That blow has been long aimed at the institution, and was at the point of reaching its consummation. There was no choice left us but submission to the mandates of abolition, or a dissolution of the Union, whose principles had been subverted to work out our ruin. That we do not overstate the dangers to our institution, a reference to a few facts will sufficiently prove.
  • Cugel soon finds himself in Smolod, a village whose inhabitants wear magical eye cusps that transform their fetid surroundings into apparent splendor. The cusps are relics of the demon Unda-Hrada’s incursion from the subworld La-Er during the Cutz Wars of the 18th Aeon. “I dimly recall that I inhabit a sty and devour the coarsest of food,” one elder admits, “but the subjective reality is that I inhabit a glorious palace and dine on splendid viands among the princes and princesses who are my peers.” It’s a typical Vancian setup: a few bold conceptual strokes, ripe descriptions and evocative names combine to fully realize a weird place that feels real — because the meatiness of his language endows it with presence, but also because every reader lives in a place sort of like it.
  • What we’ve had is a sharp increase in the desired private surplus [of savings over investment] at any given level of GDP... higher personal saving and reduced investment.... In the 1930s... GDP basically had to shrink enough to keep the private-sector surplus equal to zero; hence the fall in GDP labeled “Great Depression”. This time around, the fall in GDP didn’t have to be as large, because falling GDP led to rising deficits, which absorbed some of the rise in the private surplus. Hence the smaller fall in GDP labeled “Great Recession.” What Hatzius is saying is that the initial shock — the surge in desired private surplus — was if anything larger this time than it was in the 1930s. This says that absent the absorbing role of budget deficits, we would have had a full Great Depression experience. What we’re actually having is awful, but not that awful — and it’s all because of the rise in [government] deficits. Deficits, in other words, saved the world.
  • Buchanan's argument.... is that Republicans need to get more explicit about the idea that, as a Latina, [Sotomayor] will make rulings that disadvantage white people... white America ough... [to] band together to stop her. This is already the subtext... but... he feels it’s not close enough to the surface.... [T]his is something conservatives... want to think about. Consider... Sessions... too racist to get confirmed as a judge, but just racist enough to win... in Alabama.... With 65 percent of its electorate white, and 29 percent of its electorate African-American.... But while McCain pulled 55 percent of the white vote nationwide he scored 88 percent of white vote in Alabama.... Consequently... Alabama, Louisiana, and Mississippi can be solid GOP territory.... It's not entirely crazy for Republicans to believe that the right way to respond to shifting... demographics is... to amp-up the level of racial anxiety in the shrinking white majority...
  • At first Karen Pancheau figured her son Tyler's nasty rash came from friction on the mats at judo class. But when the rash began dissolving layers of flesh... tests, which revealed he had HIV. Karen, too, tested positive for HIV, the virus that causes AIDS, which she'd apparently acquired from a blood transfusion in June 1982.... Yet as Tyler's HIV slowly progressed to AIDS, Karen remained healthy... on Nov. 11, 2005, the 23-year-old committed suicide. Remarkably, 27 years after receiving HIV-tainted blood, Karen Pancheau of Portland, Ore., has yet to develop AIDS. She isn't alone. Bruce Walker, who now directs the Partners AIDS Research Center at Massachusetts General Hospital and the Center for AIDS Research at Harvard University, first became aware in 1992 that some people seemed somehow protected from AIDS.... Susan Buchbinder, an epidemiologist... blood from homosexual men whose samples showed they had been infected with HIV in the late 1970s... some weren't even sick...

Hoisted from the Archives: Wars of Religion

Brad DeLong's Semi-Daily Journal: A Weblog: Wars of Religion: Faisal Jawdat directs us to Robert X. Cringely's narrative of what he saw after he finished his article for Penthouse on "How to Get a Date in Tehran":

PBS | I, Cringely . Archived Column: I eventually finished the piece and decided to go see the war since I had been in Beirut and Angola, but had never seen trench warfare, which is what I was told they had going in Iran. So I took a taxi to the front, introduced myself to the local commander, who had gone, as I recall, to Iowa State, and spent a couple days waiting for the impending human wave attack. That attack was to be conducted primarily with 11-and 12-year-old boys as troops, nearly all of them unarmed. There were several thousand kids and their job was to rise out of the trench, praising Allah, run across No Man's Land, be killed by the Iraqi machine gunners, then go directly to Paradise, do not pass GO, do not collect 200 dinars. And that's exactly what happened in a battle lasting less than 10 minutes. None of the kids fired a shot or made it all the way to the other side. And when I asked the purpose of this exercise, I was told it was to demoralize the cowardly Iraqi soldiers.

It was the most horrific event I have ever seen, and I once covered a cholera epidemic in Bangladesh that killed 40,000 people.

Waiting those two nights for the attack was surreal. Some kids acted as though nothing was wrong while others cried and puked. But when the time came to praise Allah and enter Paradise, not a single boy tried to stay behind.

Now put this in a current context. What effective limit is there to the number of Islamic kids willing to blow themselves to bits? There is no limit, which means that a Bush Doctrine can't really stand in that part of the world. But of course President Bush, who may think he pulled the switch on a couple hundred Death Row inmates in Texas, has probably never seen a combat death. He doesn't get it and he'll proudly NEVER get it.

Welcome to the New Morality.

And while we're at it, let's also quote from historian-eyewitness Jacques-Auguste de Thou's account of the September 1572 St. Bartholomew's Day massacre:

St. Bartholomew's Day Massacre: [T]he streets and ways did resound with the noise of those that flocked to the slaughter and plunder, and the complaints and doleful out-cries of dying men, and those that were nigh to danger were every where heard. The carkasses of the slain were thrown down from the windows, the Courts & chambers of houses were full of dead men, their dead bodies rolled in dirt were dragged through the streets, bloud did flow in such abundance through the chanels of the streets, that full streams of bloud did run down into the River: the number of the slain men, women, even those that were great with child, and children also, was innumerable...

And let us also add the chant of the Huguenot cavalry, from Psalm 118, as they prepared their charges during the War of the Three Henrys:

This is the day the LORD has made!
Let us rejoice and be glad!

Global Imbalances Continue...

Lex: / Lex / Finance & governance - China’s $2,000bn foreign reserves: It appears the great unwinding of global imbalances and the dollar’s ensuing demise are notions that belong up there with the tooth fairy. China added $178bn to its foreign reserves in the second quarter, taking its total booty past $2,000bn, the equivalent of twice the annual economic output of New York

Although there are no official statistics on how China has apportioned these new reserves, US data supports the thesis that China is not yet jettisoning the dollar, however antsy Beijing gets about the greenback’s global dominance. Even so, the pattern of China’s reserve accumulation is changing. While China is still buying more US debt, it is not necessarily doing so with cash recycled from American consumers. The sum of China’s trade surplus and foreign direct investment, the usual driver of reserve accumulation, was the lowest in three years. At about $60bn, it was also almost half last year’s quarterly average of $100bn, according to Royal Bank of Scotland. Rather, China’s hoarding is being driven by hot money.

After all, China, the world’s favourite green shoot, is back in bubble land; its reserve growth is just one indication of this. Estimates vary widely, but between $30bn and $70bn of speculative capital flowed into China in the second quarter. Some of that may be anticipating a possible revaluation of the renminbi. More likely are flows into real assets such as property or the stock market, where volumes are running at as much as three times last year’s levels. Hong Kong residents, having spent much of the past year grinding down their renminbi deposits, added more funds in May.

To mop up some of this liquidity, Beijing has started selling one-year sterilisation bills again (so far this year, the central bank has actually injected net cash into the system). Last year, it issued an estimated $170bn of these bills. Roaring reserves, a bubbly stock market and the tentative start of monetary tightening: all these recall the glory days of 2007-08. Still, don’t expect everything to return full cycle. Exports, for one, are weak. While that remains the case, renminbi appreciation is off the cards.

Bad News About Industrial Production. *Sigh*

From the Federal Reserve:

Industrial Production and Capacity Utilization

Industrial Production and Capacity Utilization: Industrial production decreased 0.4 percent in June after having fallen 1.2 percent in May. For the second quarter as a whole, output fell at an annual rate of 11.6 percent, a more moderate contraction than in the first quarter, when output fell 19.1 percent. Manufacturing output moved down 0.6 percent in June, with declines at both durable and nondurable goods producers. Outside of manufacturing, the output of mines fell 0.5 percent in June, and the output of utilities increased 0.8 percent. The rate of capacity utilization for total industry declined in June to 68.0 percent, a level 12.9 percentage points below its average for 1972-2008. Prior to the current recession, the low over the history of this series, which begins in 1967, was 70.9 percent in December 1982.

links for 2009-07-15

  • What Palin's Op-Ed Didn't Say: Derek Thompson and others have pointed out to me that the piece does not contain the words pollution, emissions, carbon, or global warming. As Derek says, this is a bit like an op-ed on health care that doesn't contain the words spending, costs, coverage, or medicine, or a high-school paper on Catcher in the Rye that doesn't contain the words, um, Catcher in the Rye. I find this absence sickening. Deciding how to deal with climate change is... uncertain and complicated... costs in the present... benefits a hundred years in the future... costs in the U.S.... benefits in... Bangladesh... concrete GDP... the world's floral and animal diversity... sacrificing... to ward off uncertain and unquantifiable... risks. This... demands reflection and humility. And then you have Sarah Palin show up, blathering about how we're "destroying America's economy" while we're "literally" sitting on mountains of oil and drill baby drill and blah blah blah. Sickening.
  • The expected economic “recovery” is not going to feel like much of one. The latest consensus forecasts for growth in the high-income countries for 2010 are well below potential. Yet this is also at a time when the admittedly uncertain estimates of “output gaps” (or excess capacity) are at extreme levels. For 2009 the OECD estimates these at 4.9 per cent of potential gross domestic product in the US, 5.4 per cent in the UK, 5.5 per cent in the eurozone and 6.1 per cent in Japan. Given the forecasts for modest growth, excess capacity will be greater at the end of 2010 than at the end of 2009. The risks to inflation – or rather risks of deflation – are self-evident. So are the chances of further jumps in unemployment. In keeping with this, the “breakeven rate” of inflation implied by inflation-indexed and conventional US treasury bonds has fallen again, to close to 1.5 per cent. June’s hysteria over rising yields on conventional bonds looks absurd.
  • OK, so the CBO score for the 3-committee House health care plan is in: $1 trillion over the next decade for 97 percent coverage of legal residents. That’s a bargain: the catastrophe of being ill without insurance, the fear of losing insurance, all ended — for much less than the Bush administration’s useless $1.35 trillion first tax cut, quickly followed by another $350 billion. And that’s just the budget cost, which the House proposes covering partly with savings elsewhere, partly with higher taxes on very high incomes. As Jon Cohn points out, the overall effect of expanded coverage will probably be lower health care costs for America as a whole. There is now absolutely no excuse for Congress to balk at doing the right thing.
  • Pyle’s nominal assignment is a tissue-thin cover; he is actually a CIA agent (although the agency is never identified as such). To stem the Communist tide threatening to inundate Southeast Asia, the agency wants to conjure up an indigenous democratic alternative to French colonialism. Pyle’s job is to devise this Third Way. As he undertakes this task, Pyle draws inspiration from a journalist named York Harding, a sort of proto–Thomas Friedman who parachutes into various trouble spots and then in best-selling books serves up glib recipes for advancing the cause of liberty. In Pyle’s estimation, the challenge he faces does not appear all that difficult. York Harding provides the answer: “you only had to find a leader and keep him safe from the old colonial powers.” “Impregnably armored by his good intentions and his ignorance,” Pyle embodies all that Fowler (and Greene) can’t stand about Americans...
  • Amazon sell some really weird stuff; for example, tins of uranium ore. No, that's not the scary bit. The scary bit is that customers who bought this item (the aforementioned uranium ore) also bought copies of Halting State and Volume Four of Knuth's The Art of Computer Programming (insofar as extracts are available for purchase). I seem to recall writing about that here. I think I'm going to go and hide under the bed now. (Yes, the bedroom is circular; not a right angle in it!)
  • The point forecasts suggest that 1.16 million of the average 2009Q1 NFP level is associated with the lower than anticipated GDP, and similarly 1.74 million of the average 2009Q2 level. Since there is estimation error involved in relating NFP to GDP, I've included the forecast plus 2 standard errors and minus 2 standard errors (which is bigger than the plus/minus 2 standard error bands often depicted in VAR analyses). The actual employment level is below that which can be explained by estimation error.
  • I use the term "Credit Insurer of Last Resort."... Floating the system with money market liquidity, which is what the Fed did, didn't solve the problem, because it wasn't getting to the capital markets. That's why we need a credit insurer of last resort, to put a floor on the value of the best collateral in the system. I say the new Bagehot Rule should be: Insure freely but at a high premium. Why a high premium? If you insure an earthquake, you are not making earthquakes more likely. The insurance contract is a purely derivative contract, it isn't influencing earthquakes. That is not true of insurance of financial risk. When AIG is selling you systemic risk insurance for 15 basis points, that price is too low. People said: "If I can get rid of the whole tail risk that cheaply, I should load up. I should take more systemic risk." So the prices were wrong. So the important thing for government intervention here is to get that price closer to a reasonable rate...
  • [T]he Post’s habit of publishing this kind of material [like Sarah Palin] is part of the reason why... I wouldn’t shed a tear if the Washington Post Company were to... shutter it’s money-losing newspaper and focus on its core competency in the field of standardized test preparation.... [W]hy does Sarah Palin have an op-ed on climate legislation...? Does she have scientific expertise? Economic expertise? Knowledge of the state of international climate negotiations? Perhaps... a reputation for an unusually solid grasp of complicated policy details? Or is the idea that she’s known for being honest? A good-faith participant in public policy debates? Well, no. And the fact of the matter is that the Palin op-ed actually fits very comfortably alongside the established norms of Charles Krauthammer, George Will, and Robert Samuelson—words on paper that are neither paid advertisements nor serious efforts to improve people’s understanding of the world.
  • I would pay good money to hear Sonia Sotomayor say, “Senator Sessions, I think it’s ironic to be facing these questions from a man whose judicial nomination was rejected by this very committee on the grounds that he’s a huge racist.” UPDATE: Seriously, though, when the Republican Senate Conference was meeting, did nobody say "if we're going to oppose the first Hispanic Supreme Court justice, maybe we shouldn't have a giant racist leading the charge?" This seems like a situation in which Mel Martinez might have been able to offer a useful perspective. Or they could have called up JC Watts out of retirement. What were they thinking?

Princeton Health Plan Beneficiary Audit

Paul Krugman is bemused:

A trivial but telling example: Example of what? Of the absurdity of the US health care system. Today’s mail brought a letter from Princeton: all faculty members must supply copies of their marriage licenses and of their 2008 tax forms if they want to have their spouses continue to receive health benefits. I don’t know exactly what that’s about — are there a significant number of my colleagues just pretending to be married? We’ve checked — we don’t know where our marriage certificate is. We’ve already sent to California for a copy — but given the state of that state, God knows when or whether it will actually be delivered. I assume the university has some good reason for doing this; but from a social point of view it’s just bizarre.

My wife Ann Marie Marciarille says:

This started about two years ago, when Ford Motor Company as part of its austerity plan did an audit of who was receiving benefits--and found that as many as 1/4 of those non-employees claimed as family members were, under the terms of the contract, not entitled to benefits: children who had aged out, ex-spouses, et cetera.

Other organizations watched. And now an audit of beneficiary status is a standard move that organization human resource departments make when demands for economy come down from on high.

This is, of course, a pointless waste of time from a social-welfare standpoint--but it does stand to save Princeton some money.

Very Bad News for America's Public Discursive Sphere...

Hilzoy writes:

Obsidian Wings: Bare-Faced Go-Away Bird: I'm taking this opportunity to retire from blogging.... The main reason I started blogging, besides the fact that I thought it would be fun, was that starting sometime in 2002, I thought that my country had gone insane. It wasn't just the insane policies, although that was part of it. It was the sheer level of invective: the way that people who held what seemed to me to be perfectly reasonable views, e.g. that invading Iraq might not be such a smart move, were routinely being described as al Qaeda sympathizers who hated America and all it stood for and wanted us all to die. I thought: we've gone mad. And I have to do something -- not because I thought that I personally could have any appreciable effect on this, but because it felt like what Katherine called an all hands on deck moment. I had heard about times like this in the past -- the McCarthy era, for instance -- though I had never expected to live through one. Nonetheless, I was. And I had to try to do something, however insignificant.... Then, in 2004, I was asked to join Obsidian Wings. It was an honor: at the time, ObWi was, for my money, the best blog that really tried to create a dialogue between liberals and conservatives. And that was what I really wanted to do: to listen to people I disagreed with, to engage with them, and to try to show that it was possible to care deeply about politics without hating your opponents. Being civil doesn't mean you're lukewarm, and being committed to your principles doesn't mean you have to be hateful. Being asked to write for the Washington Monthly was a further honor, and one that I never expected.

That said, it seems to me that the madness is over. There are lots of people I disagree with, and lots of things I really care about, and even some people who seem to me to have misplaced their sanity, but the country as a whole does not seem to me to be crazy any more.... And so it seems to me that it's time for me to turn back into a pumpkin and twelve white mice.

It has been wonderful, though.... I put something up, and suddenly all these wonderful, smart, and articulate people whom I've never met pop up and start saying interesting things about it. It's a gift for which I will always be grateful. Thanks to everyone...

Now she goes to sleep in her cave near Caermarthen, to awake and post again in Britain's hour of need when King Arthur once again grasps Excalibur and returns from the Faerie Isle of Avalon... No, wait... wrong legend...

I urge everyone to post and send me links to or simply email their appreciations of Hilzoy--and of their favorite things that she has written over the past five years.

Can't Any Republicans Play This Game?

Supreme Court confimation hearings aren't Calvinball...

Craig Crawford:

Craig Crawford's Trail Mix - Smiling GOPers Ought to be Frowning: Watching Lindsey Graham's gotcha grin as he needled Supreme Court nominee Sonia Sotomayor with disingenuous and rhetorical questions you had to wonder what was so funny. Does the Republican senator think it is amusing that he and his party's condescending tone toward the Hispanic woman was costing them ethnic votes with each passing hour of Tuesday's Judiciary Committee hearing?

It is not that the Republican inquiries were out of bounds in legal terms. A confirmation hearing like this is a political forum. Even if they vote for her, the fallout for Republicans could reach well beyond Hispanic voters. They are coming across as a bunch of snarky and bitter old white men who cannot bear the thought of their kind losing power.

The impact of this story on the political scoreboard should give Democrats much more to smile about.

I Say We Vote Jeff Sessions Off the Island!

Could we have even a slightly competent and slightly honest opposition party, please? With Senator Charles Grassley joining Jeff Sessions as head clown...

Nate Carlile:

Think Progress: Grassley Admits That ‘Empathy Standard’ He Finds ‘Troubling’ In Sotomayor Didn’t Apply To Alito: During the opening day of confirmation hearings, Judge Sonia Sotomayor came under fire from Sen. Charles Grassley (R-IA) for stating that her experiences as a Latina affects her judicial outlook. “This empathy standard is troubling to me,” Grassley said. “The Constitution requires that judges be free from personal politics … feelings and preferences.” But Grassley never objected when Judge Samuel Alito said virtually the same thing during his confirmation hearing, when Alito testified he “can’t help but think of” his immigrant family when evaluating immigration cases:

When I get a case about discrimination, I have to think about people in my own family who suffered discrimination because of their ethnic background, or because of religion or because of gender, and I do take that in to account.

Then yesterday, Grassley admitted to applying a double standard to Sotomayor during an interview with NPR’s Robert Siegel. Siegel reminded Grassley that during Alito’s confirmation hearing, the judge said his background plays a role in his judicial philosophy — and Alito still managed to secure Grassley’s support:

NPR: By your standard that would be disqualifying. He should have said instead my family, my background counts for nothing.

GRASSLEY: That’s absolutely right. […]

NPR: But you didn’t vote against Justice Alito’s confirmation.

GRASSLEY: No I didn’t.

Andrea Nill:

Think Progress: Sen. Jeff Sessions Slams Sotomayor For Not Voting Like Other Puerto Ricans: This morning, Sen. Jeff Sessions (R-AL) castigated Sotomayor for not ruling with her fellow Puerto Rican colleague, conservative Judge José A. Cabranes, when she decided to deny an en banc appeal in Ricci v. DeStefano, a process in which all judges of a court hear a case (as opposed to a three-judge panel of them). Sessions seemed to indicate that people of the same ancestry should vote the same way:

SESSIONS: You voted not to reconsider the prior case. You voted to stay with the decision of the circuit. And in fact your vote was the key vote. Had you voted with Judge Cabranes, himself of Puerto Rican ancestry, had you voted with him, you could’ve changed that case....

Sessions slammed Sotomayor as being “unsuitable for the bench” due to her past affiliation with the Puerto Rican Legal Defense and Education Fund (PRLDEF). Apparently, Sessions didn’t realize that Judge Cabranes also served on PRLDEF’s board.

Sessions, a former prosecutor and attorney general in his home state, was nominated to serve as a federal judge by President Ronald Reagan in 1986. Maybe he’s just bitter that he was denied a seat on the federal bench by the Senate Judiciary Committee in a 9-9 vote which deemed him “grossly insensitive” on racial issues. During his own hearings, Sessions admitted to “frequently joking in an off-color sort of way.” Looks like not much has changed....

UPDATE: During his questioning, Sessions said he wished Sotomayor acted more like Judge Miriam Cedarbaum, who “believes that judges must transcend their personal sympathies and prejudices.” “My friend Judge Cedarbaum is here,” Sotomayor responded, to Sessions’ apparent surprise. For her part, Cedarbaum told the WSJ, “I don’t believe for a minute that there are any differences in our approach to judging, and her personal predilections have no effect on her approach to judging.”

Matthew Yglesias:

Matthew Yglesias: Revisiting the Judges of Yore With Republican Senators: Senator Jeff Sessions (R-AL) was disparaging Sonia Sotomayor’s “wise Latina” remarks and contrasted them with the words of Judge Miriam Cedarbaum who “believes that judges must transcend their personal sympathies and prejudices.” Sessions said “So I would just say to you, I believe in Judge Cedarbaum’s formulation.” Sotomayor herself said that she agrees with Cedarbaum and that Sessions is misinterpreting her. She also brought Judge Cedarbaum to the hearing. Leading to this great item by Jess Bravin:

“I don’t believe for a minute that there are any differences in our approach to judging, and her personal predilections have no affect on her approach to judging,” she told Washington Wire. “We’d both like to see more women on the courts,” she added.


But then Jeff Bravin jumps the shark. He writes:

In 1986, Cedarbaum and Sessions were both nominated to the federal bench by President Ronald Reagan, and were members of the same orientation class for future judges. Their paths then diverged, however. Cedarbaum was confirmed, but Sessions’s nomination floundered over a controversy surrounding comments he made involving the Ku Klux Klan and the NAACP...

As Matthew Yglesias points out:

The comments [Sessions] made, to be clear, were about how the KKK, a violent white supremacist terrorist organization, was fine except for the fact that some of its members smoked pot. The NAACP, by contrast, was said to be a bad and Communistic organization...

You wouldn't know that from reading Bravin, would you? That's a losing game for Bravin: Republicans will now be slightly less pissed off at him, but the rest of us will always wonder how much we can trust him.

And Matthew sends us to Kate Klonick, who "notes the right’s strange habit of invoking Judge Richard Paez as a contrast to Sotomayor’s purported racism. It’s strange because Sessions and Richard Kyl, both of whom praised Paez to disparage Sotomayor, voted against Paez when they had the chance."


Kate Klonick - Devil’s Advocate: GOP: Let’s hold Sotomayor to the standard of a judge we voted against - True/Slant: So much for the idea that elephants never forget. Speaking to nominee Sonia Sotomayor’s “wise Latina” remarks, Sen. Jon Kyl (R-Ariz) quoted at length from another Latino justice — Judge Richard Paez of the Ninth Circuit. “‘Recognize that you might have some bias, or prejudice,’” Kyl said in quoting Paez’s oft-cited instructions to juries on how to disregard their bias. “Recognize that it exists, and determine whether you can control it so that you can judge the case fairly. Because if you cannot—if you cannot set aside those prejudices, biases and passions—then you should not sit on the case.’”

Ranking minority member Jeff Sessions (R-Ala.) also held up Paez as the epitome of judicial impartiality in an impromptu press conference during a break this morning. The use of Paez is not a new meme for Republicans, but it certainly is a very strange ideal to hold Sotomayor to — especially since both Sessions and Kyl voted against Paez’s confirmation. Perhaps more amazing, Paez was no run of the mill nomination and confirmation. His nomination famously lasted a record 1,506 days when the confirmation was repeatedly delayed by Republicans who held the majority in Congress and cited  his supposed “judicial activism.”

Something to Fear in Health Reform

Andrew Biggs: The problem is not that health spending is growing too rapidly--we want it to grow about as rapidly as it is. The problem is that the level of health spending is about twice what it should be. (I would add: and that the distribution of our health spending is all wrong as well.)

He writes:

A Dog in the Healthcare Fight: [S]pending on veterinary care... and national health expenditures (for people).... Two things are interesting here: first, the rate of growth of spending from 1984 to 2006 wasn’t all that different--and in both cases, spending grew faster than the rate of economic growth. As new technologies are developed for humans, we adopt them for Bowser and Fifi—because we can afford to and we think it’s worth it. I personally took my Alaskan Malamute to a Washington-area practice that was known as the “Mayo Clinic of veterinarians” —and I suspect this wasn’t because, like the real Mayo Clinic, it keeps costs low.

?But second, the level of spending was very, very different: we spend hundreds of times more on ourselves than on our pets. The main reason for this is obvious: we value our own lives and those of our families more than we do our pets or other animals. At the same time, however, veterinary care is one of the few areas of health where we are directly confronted with difficult decisions regarding the costs and benefits of additional treatments. As the famed RAND health experiment showed, out-of-pocket costs can significantly affect the level of health spending without changing health outcomes.

This again highlights that the real issue with healthcare may not be the rate of growth but the level of health spending--and the fact that so much of it seems to be wasteful. This distinction is important because it shapes our policy priorities. The level of spending has different causes than the rate of growth of spending, among them our healthcare system’s structural incentives to overspend. Rather than attempting merely to temper cost growth, plans that remove incentives for overspending, improve consumer choice, or pay doctors based on quality rather than quantity of service could reduce the overall level of spending.

Andrew is scared of a health reform focused on restraining the rate of growth of health spending that does so by slowing down the rate of adoption of new health techologies. The alternative--a health reform that gets us better value for our money and that leads us to spend less--gores powerful oxen because each dollar not spent will be a dollar that does not flow to the income of somebody who votes today. By constrast, the people who will die thirty years hence becaues we haven't invested in growing cloned kidneys don't know now who they are.

I am scared too.

Ezra Klein on the Latest Atrocity Committed by Fred Hiatt of the Washington Post...

Ezra Klein:

Ezra Klein - Sarah Palin: One of Us:

Many in the national media would rather focus on the personality-driven political gossip of the day than on the gravity of these challenges...

writes Sarah Palin in The Washington Post, one of the country's few nationally oriented media outlets.

So, at risk of disappointing the chattering class, let me make clear what is foremost on my mind and where my focus will be: I am deeply concerned about President Obama's cap-and-trade energy plan, and I believe it is an enormous threat to our economy...

It's probably a bit kind to say that Sarah Palin "wrote" this. There are no words in all capital letters. There are no sports metaphors. There is nothing at all like "((Gotta put First Things First))." The stylistic and grammatical tics on display in last week's speech are totally absent. Sarah Palin signed her name to this. Or at least let someone else do so.

But that's not all that's missing. The term "global warming" is absent. So is "climate change." It's a bit like an op-ed that attacks firefighters for pointing pressurized water cannon at everything but never mentions fires, or a column that condemns surgeons for sticking sharp things into people but never mentions illness.

You could no more argue with this op-ed than you could drive a car made out of candy. Though it looks like one thing, it's actually another. And that other is a declaration of political intent: Palin is going to spend the next couple of years trying to act as leader of the opposition. She'll start with what she knows: Drill, baby, drill. And she'll start where she knows. In the media.

A week ago, Eugene Robinson ended a column by saying, "Sarah Palin is by nature more of a firebrand opinion-maker than anything else. I know one when I see one. She can deny it all she wants, but really she's -- gulp -- one of us." He had no idea how right he was. That column came out on July 7. Today is July 14, and he and Sarah Palin are across from each other on the op-ed page.

How long before the Washington Post editorial page tells Ezra what they told Dan Froomkin--that they didn't hire him to do media criticism, that that is Howard Kurtz's beat?

Washington Post Crashed-and-Burned Watch

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

Jennifer Lee, Manager, Communications , Washington Post Digital, emails:

Sarah Palin writes an op-ed for Tuesday’s Washington Post and says President Obama’s cap-and-trade energy plan is an enormous threat to our economy. Palin writes that Obama’s plan will result in outsourcing our energy supply to China, Russia and Saudi Arabia. It would undermine our recovery over the short term and would inflict permanent damage, she says. To read Palin’s entire op-ed, visit:

The article is also pasted below in its entirety:

An article on energy that doesn't mention that there is such a thing as global warming, and you are proud to publish it?

And this from Sarah Palin:

Sarah Palin - A 'Cap and Tax' Road to Economic Disaster : There is no denying that as the world becomes more industrialized, we need to reform our energy policy and become less dependent on foreign energy sources. But the answer doesn't lie in making energy scarcer and more expensive!...

How do you make us less dependent on cheap foreign energy without making energy more expensive, thus inducing people to conserve and also to explore previously-unviable domestic sources?

So I called Jennifer Lee:

ME: Good morning. My name is Brad DeLong. I got your email about the cap-and-trade op-ed this morning and I was wondering if I could ask you a few question. An op-ed about cap-and-trade energy policy that doesn't evem whisper about global warming? Why is publishing this something to be proud of rather than embarrassed about?

JENNIFER LEE: I'm sorry. This the publicity office. I'm sorry. If you shoot me an email I'll be sure the editors get it. You raise good points. Thank you for reaching out...

Et cetera...

So let's try Andrew Alexander:

Dear Mr. Alexander:

Four questions about your newspaper this morning:

  1. Your publicity office sent out a blast email boasting about Sarah Palin's cap-and-trade op-ed that appeared this morning, and I could not help but be surprised. An op-ed about cap-and-trade energy policy that doesn't evem whisper about global warming: why is publishing this something to be proud of rather than embarrassed about?

  2. I would have thought that Fred Hiatt or whoever on the editorial staff would have sent back the first draft and say: "We have a duty to our readers to maintain quality. You can't write about energy policy without addressing global warming, somehow. We can't publish this unless you do..." Yet nobody did that. Can you explain why?

  3. There is this passage in the op-ed: "There is no denying that as the world becomes more industrialized, we need to reform our energy policy and become less dependent on foreign energy sources. But the answer doesn't lie in making energy scarcer and more expensive!..." How do you make us less dependent on cheap foreign energy without making energy more expensive, thus inducing people to conserve and also to explore previously-unviable domestic sources?

  4. Do you think that a Washington Post that follows this strategy of choosing and editing articles will still be here in four years?

Sincerely yours,

Brad DeLong

links for 2009-07-14

  • A potentially key witness, Sen. Tom Coburn... said last week he would "never" testify before the committee or in court. He noted that he counseled Ensign "as a physician" -- Coburn is an obstetrician and gynecologist... and therefore could not be compelled to testify because of doctor-patient privilege.... That seems pretty conclusive to us -- after all, if a guy can't trust his OB-GYN, who can he trust? But some lawyers think neither assertion, though quite creative, would stand up.... Even so, Coburn's got other options, perhaps better ones.... To be absolutely bulletproof, however, he may want to marry Ensign -- they'd have to travel to Iowa...
  • If you take a picture of the moon and claim that the resulting photograph is proof that the moon’s a stationary object and then someone shows you a video of it moving across the night sky, you cannot claim that your interpretation of the event depicted in the photograph is still valid. What you are effectively claiming is that the photograph is a photograph, i.e. that it is a still image captured from a moving tableau. This is not a matter of interpretation, but a description of the medium; to claim otherwise is to deny the very reality to which the photograph pertains, which is precisely what Althouse is doing. Her analysis of a manipulated photograph trumps reality, and she can’t be bothered to articulate why exactly that is. But that won’t stop her (or the hoard of equally incompetent illiterates who base their opinion on her photographic “expertise”) from claiming that her “interpretation” is still valid. They’ll be doing that until the moon stops dead in the sky and fal
  • Not only does the cost of putting a payload into orbit increase with the cube of the payload weight — this rule holds true in the opposite direction, too. Stick a LEM on the moon and bring the contents back? Easy. Increase the mass that the LEM brings back? Very expensive — the price goes up as the sixth power of the weight you're returning from the lunar surface (because you have to loft the heavier LEM into Earth orbit to begin with). Think about it. The real mission wasn't to go to the moon; it was to bring two astronauts and 100Kg of moon rocks back from the lunar surface and into lunar orbit (to rendezvous with the CSM stack for the journey home) — and it took a 3000 ton behemoth to accomplish this. Launching a bigger, more useful LEM (one that could carry 3 or 4 astronauts to the lunar surface, along with a decent-sized rover and supplies for a couple of weeks) would have added tonnes to the LEM payload ... and hundreds, if not thousands of tons to the launch stack. With cost sc
  • Mike Rorty follows up today in The Atlantic's business blog with an interview with Perry Mehrling on shadow banking and its role in the crisis. Mehrling's bottom line for regulators is a "new Bagehot Rule" for modern markets: Insure freely but at a high premium.
  • Also interesting to note that both Sessions and Kyl have essentially accused Sotomayor of being prejudiced against whites -- sort of the kinder, gentler version of Newt's 'racist' charge.
  • Brad DeLong observes that Obama administration officials being put out there to deny that no further fiscal stimulus is necessary aren’t making a great deal of sense. And of course they’re not making sense because they’re in a political predicament. But I think they’d do better to just admit that: "Congress gave us less stimulus than we asked for last time around so we don’t see any point in making a futile effort to go back to the well; if it looks like Congress is prepared to act then we can start talking about what appropriate action would look like. Until then we’re working with the tools that we have, tools that we think are making the situation much better than it otherwise would be, but recovery will take time." Trying to demand additional stimulus when the votes aren’t there in congress could do more harm than good. But pretending to believe that what’s been done is adequate is a fool’s game and just invites the criticism that the stimulus hasn’t “worked.”
  • When the zero bound on nominal interest rates is binding. (And when price flexibility is substantial.)
  • The Great Depression was marked by protectionist trade policies and the breakdown of the multilateral trading system. But contrary to the presumption that all countries scrambled to raise trade barriers, there was substantial cross-country variation in the movement to protectionism. Specifically, countries that remained on the gold standard resorted to tariffs, import quotas, and exchange controls to a greater extent than countries that went off gold. Just as the gold standard constraint on monetary policy is critical to understanding macroeconomic developments in this period, national policies toward the exchange rate help explain changes in trade policy. This suggests that trade protection in the 1930s was less an instance of special interest politics run amok than second-best macroeconomic policy management when monetary and fiscal policies were constrained.
  • "To the poor the state is both an enemy and a friend. It tantalizes them with a ladder that promises to lift them out of poverty but it habitually kicks them in the teeth when they turn to it for help. It inspires both fear and promise. To India's poor the state is like an abusive father whom you can never abandon. It is through you that his sins are likely to live on."
  • Morgan Stanley’s European media analysts asked Matthew Robson, one of the bank’s interns from a London school, to describe his friends’ media habits. His report proved to be “one of the clearest and most thought-provoking insights we have seen. So we published it.”... “Teenagers do not use Twitter,” he pronounced. Updating the micro-blogging service from mobile phones costs valuable credit.... His peers find it hard to make time for regular television, and would rather listen to advert-free music on websites such as than tune into traditional radio. Even online, teens find advertising “extremely annoying and pointless”. Their time and money is spent instead on cinema, concerts and video game consoles which, he said, now double as a more attractive vehicle for chatting.... [N]o teenager he knew regularly reads a newspaper since most “cannot be bothered to read pages and pages of text” rather than see summaries online or on television...

State Fiscal Meltdown Musical Comedy Blogging...

Presenting the CAIOU--the California I O U--Sacramento budget process song:

Daylight come and we want to go home!
CAI we say CAI we say CAI
We say CAI, we say CAI-AI-AI-OU!
Daylight come and we want to go home!

Caucus all night on a drink of rum!
Daylight come and we want to go home!
Cut the schools till the morning come!
Daylight come and we want to go home!

Come Mr. Schwarzenegger don't cut our schools.
Daylight come and we want to go home.
Come Mr. Schwarzenegger don't cut roads and bridges.
Daylight come and we want to go home.

It's 8 billion, 16 billion, 24 billion hole!
Daylight come and we want to go home.
8 billion, 16 billion, 24 billion hole!
Daylight come and we want to go home.

CAI we say CAI-AI-AI-OU!
Daylight come and we want to go home.
CAI, we say CAI, we say CAI, we say CAI...
Daylight come and we want to go home.

A beautiful state with well-run programs.
Daylight come and we want to go home.
Hides the deadly initiative process.
Daylight come and we want to go home.

It's 8 billion, 16 billion, 24 billion hole!
Daylight come and we want to go home.
8 billion, 16 billion, 24 billion hole!
Daylight come and we want to go home.

CAI, we say CAI-AI-AI-OU!
Daylight come and we want to go home.
CAI, we say CAI, we say CAI, we say CAI...
Daylight come and we want to go home.

Come Mr. Schwarzenegger don't veto our budget.
Daylight come and we want to go home.
Come Mr. Schwarzenegger don't sell off our parks.
Daylight come and we want to go home.

Daylight come and we want to go home.
CAI, we say CAI, we say CAI, we say CAI,
We say CAI, we say CAI-AI-AI-OU!
Daylight come and me wan' go home.

Cracking Christiano, Eichenbaum, and Rebelo's Big Multipliers without Coffee...

Greg Mankiw asks a question:

Greg Mankiw's Blog: Modern macro even Paul Krugman will love: Lately, Paul Krugman has been dissing modern macroeconomics, mainly because many macroeconomists do not agree with his conclusions about fiscal policy. This new paper by Marty Eichenbaum, Larry Christiano, and Sergio Rebelo should, however, make Paul happy. They report large fiscal policy multipliers in a new Keynesian DSGE model when the economy is at the zero interest lower bound.

An open question: How can the results in this paper be reconciled with results by John Cogan, Tobias Cwik, John Taylor, and Volker Wieland, who seem to perform a similar policy simulation in a similar model but reach a very different conclusion? Are there subtle differences in the models? Or subtle differences in the policy experiments? Or did one team simply make a mistake of some sort?

Figuring out why these two prominent teams of researchers come to opposite conclusions about fiscal policy multipliers, and which conclusion is more applicable to actual policy, would be a good paper topic for an ambitious grad student.

As I understand it, the big problem with Cogan, Cwik, Taylor, and Wieland is that there is nothing special going on at the zero nominal interest rate bound. In their model, a fiscal expansion (a) raises expected future inflation, which (b) creates expectations of future interest rate rises by the Federal Reserve to cool off that inflation, which (c) damps present spending, and so (d) shrinks the multiplier. Their model is a model of a small multiplier in an economy away from the zero nominal interest rate bound when central banks are targeting inflation.

Christiano, Eichenbaum, and Rebelo, by contrast, have a model in which:

a shock increases desired savings.... When the shock is small enough, the real interest rate falls and there is a modest decline in output. However, when the shock is large enough, the zero bound becomes binding.... The only force that can induce the fall in saving required to re-establish equilibrium is a large transitory fall in output. The fall in output must be very large because hitting the zero bound creates an economic meltdown. A fall in output lowers marginal cost and generates expected deflation which leads to a rise in the real interest rate. This increase in the real interest rate leads to a rise in desired savings which partially undoes the effect of the fall in output. As a consequence, the total fall in output required to reduce savings to zero is very large. This scenario captures the paradox of thrift originally emphasized by Keynes (1936).... The government spending multiplier is large when the zero bound is binding because an increase in government spending lowers desired national savings and shortcuts the meltdown created by the paradox of thrift...

That said, I think that the CER multipliers are much too large to be applicable to our world today. If I understand CER completely (which I may not: the coffee has not yet hit the brain this morning), their Calvo pricing assumption creates a direct link between output Y and inflation π. Recall the flow -of-funds balance equation:

S(Y, 0-π) = D + I(0-π)

Savings S as an increasing function of income Y and of the real interest rate, which is the nominal interest rate 0 (we are at the lower bound) minus the inflation rate π, is equal to the government deficit D plus investment I which is a decreasing function of the real interest rate, which is the nominal interest rate 0 minus the inflation rate π.

An increase in the deficit thus (a) directly increases saving S necessary to finance the deficit which requires a direct increase in Y. But this direct increase in Y then increases inflation π--there is less deflation. And less deflation means both less savings and more investment. So the direct effect increase in Y does not generate enough savings to close the gap in the flow-of-funds market: savings must increase by more--which requires that Y increase by even more. The government deficit thus genuinely "primes the pump" and the multiplier is very large.

This channel is, I think, the channel pointed to by those who think that the New Deal had an enormous impact, as Roosevelt's deficits in combination with the increase in price rigidity produced by the NIRA and the breaking of deflationary expectations created by the abandonment of the gold standard diminished desired S.

But I don't think we have big expectations of deflation right now. And I don't think fiscal policy moves right now are having a great deal of effect in reducing expected deflation. So I don't think the interaction of output gaps and deflation is playing a big role in boosting the multiplier right now...

I may well, however, assign CER next March when I hit the Great Depression week in Econ 210a as an argument for why Cary Brown's estimates of the fiscal policy effect of the New Deal are too low...

And it is nice to see a model in which J. Bradford DeLong and Lawrence H. Summers (1986), "In Increased Price Flexibility Destabilizing?" American Economic Review makes a reappearence...

links for 2009-07-13

  • In 1961, Nicholas Kaldor used his list of six "stylized" facts both to summarize the patterns that economists had discovered in national income accounts and to shape the growth models that they were developing to explain them. Redoing this exercise today, nearly fifty years later, shows how much progress we have made. In contrast to Kaldor's facts, which revolved around a single state variable, physical capital, our six updated facts force consideration of four far more interesting variables: ideas, institutions, population, and human capital. Dynamic models have uncovered subtle interactions between these variables and generated important insights about such big questions as: Why has growth accelerated? Why are there gains from trade?
  • American households have received a triple dose of bad news since the beginning of the current recession: The greatest collapse in asset values since the Great Depression, a sharp tightening in credit availability, and a large increase in unemployment risk. We present measures of the size of these shocks and discuss what a benchmark theory says about their immediate and ultimate consequences. We then provide a forecast based on a simple empirical model that captures the effects of wealth shocks and unemployment fears. Our short-term forecast calls for somewhat weaker spending, and somewhat higher saving rates, than the Consensus survey of macroeconomic forecasters. Over the longer term, our best guess is that the personal saving rate will eventually approach the levels that preceded period of financial liberalization that began in the late 1970s.
  • To date, the Massachusetts reform has had positive impacts on insurance coverage and access to medical care.... While the program has seen rapid enrollment, it has also seen higher than anticipated costs. Some of the cost problems are short term and should not be surprising for a major new initiative. But Massachusetts also faces a long-term cost problem. Massachusetts’ overall health care spending is higher than the national average and has grown more rapidly. We believe much of Massachusetts’ high spending growth is due to problems in the hospital/physician market. The market is highly concentrated with several academic medical centers, most notably the Partners’ Health System, being the dominant providers in local markets. While these academic medical centers typically have excellent reputations, they are also high-cost. Efforts by insurers to negotiate with the leading academic centers have proven difficult, if not impossible...
  • If you take a picture of the moon and claim that the resulting photograph is proof that the moon’s a stationary object and then someone shows you a video of it moving across the night sky, you cannot claim that your interpretation of the event depicted in the photograph is still valid. What you are effectively claiming is that the photograph is a photograph, i.e. that it is a still image captured from a moving tableau. This is not a matter of interpretation, but a description of the medium; to claim otherwise is to deny the very reality to which the photograph pertains . . .
  • Brad DeLong points out that everything Peggy Noonan says about Sarah Palin could also have been said about Ronald Reagan. But he’s going too far back. Ms. Noonan praised George W. Bush for exactly the qualities she disses in S
  • News flash: This has been happening to people forever, at least if you count women as people. Back when George Washington was writing out his "Rules of Civility and Decent Behavior in Company and Conversation", which Brooks cites as an example of the Dignity Code, Thomas Jefferson was hitting on Sally Hemings. A professor whose class I was enrolled in once grabbed my breasts at a party. Every woman I know has stories like this. Maybe being groped in a public setting is a novel experience for straight guys; not being a straight guy, I wouldn't know. But if it is, that isn't because no one ever groped anyone in a public setting before.... [W]hy did David Brooks write this column? Is it (a) because none of his female friends and relations ever told him about the existence of sexual harassment? Or (b) because he doesn't think that public groping violates the Dignity Code when you do it to women, because for some reason women just don't count?
  • Consider mortgages, the source of so many problems in the financial crisis. Once upon a time, choosing a mortgage was easy. Nearly all mortgages were of the 30-year, fixed-rate variety, required a 20-percent down payment and were devoid of tricky features like balloon payments, teaser rates and prepayment penalties. Sensible regulation was easy in this environment. Congress passed what’s known as the Truth in Lending Act, which required lenders to report interest rates in a uniform way, using the now-ubiquitous annual percentage rate. Picking the best mortgage was no more complicated that finding the lowest A.P.R. Fast forward to 2008, and the world of mortgage shopping had become a much more complicated place. Borrowers were quoted low initial “teaser” rates that would jump later to some higher level, depending on market interest rates at the time, and there were prepayment penalties for paying off the loans early. For such mortgages, an A.P.R. was no longer an adequate measure...
  • The most likely scenario is that California’s feuding politicians eventually reach a deal to close the $26bn budget gap. But even then there would be ramifications. The state’s economy is already weak; unemployment is 11.5 per cent and the multiplier effects of $26bn in geographically concentrated spending cuts and tax increases could be high. Moreover, as KBW highlights in a research note, cutbacks at the state level will put additional pressure on highly stretched counties and municipalities. Like the state, these entities have little latitude to raise revenues. State-level fiscal consolidation could easily lead to a rash of defaults at the local level, which could roil the market for municipal debt nationally. If this happened, the federal government might have to support the municipal bond market, possibly through a guarantee scheme with risk-based pricing. Alternatively, it could decide the best antidote to state fiscal contraction is further federal stimulus...
  • So what needs to happen if Indians are to enjoy an affluent lifestyle? The answer, suggests the report, is that India must sustain growth at close to 10 per cent a year over a generation. This is not inconceivable: China has managed that, from a lower base, over three decades. But it is a massive task, particularly for so huge, diverse and complex a country. Extraordinary change would have to occur, inside India and in India’s relationships with the world. For this to be conceivable, at least four things would have to happen: the world must remain peaceful; the world economy must remain open; India must avoid the stagnation into which many middle-income countries have fallen; and, finally, the resource and environmental implications of its rise to affluence must be managed. Moreover, India itself must overcome three big challenges: maintaining... social cohesion; creating a competitive and innovative economy; and playing a role... commensurate with the country's size...
  • These and a number of other criticisms are off base. The law – officially the American Recovery and Reinvestment Act – is working as intended and, without it, the economy and the job prospects for many Americans would be worse. The $787 billion in new spending and tax cuts was supposed to slow the economy’s downward spiral and then help it recover over time from what will be the nation’s deepest recession in decades, if not since the Great Depression of the 1930s. The law was designed to save and create more than 3.5 million jobs over the next two years, according to the Obama Administration, and to help states close their budget shortfalls so they could avoid even greater spending cuts and larger tax increases than they are already enacting to meet their balanced budget requirements.
  • Last week the budget office scored the full proposed legislation from the Senate committee on Health, Education, Labor and Pensions (HELP). And the news — which got far less play in the media than the downbeat earlier analysis — was very, very good. Yes, we can reform health care. Let me start by pointing out something serious health economists have known all along: on general principles, universal health insurance should be eminently affordable. After all, every other advanced country offers universal coverage, while spending much less on health care than we do. For example, the French health care system covers everyone, offers excellent care and costs barely more than half as much per person as our system.
  • In the course of a few dozen lengthy interviews, not once did I encounter an interview subject who wanted to trade places with an American. And it was easy enough to see why. People in these countries were getting precisely what most Americans say they want: Timely, quality care. Physicians felt free to practice medicine the way they wanted; companies got to concentrate on their lines of business, rather than develop expertise in managing health benefits. But, in contrast with the US, everybody had insurance. The papers weren’t filled with stories of people going bankrupt or skipping medical care because they couldn’t afford to pay their bills. And they did all this while paying substantially less, overall, than we do...
  • Look, comparing your domestic political rivals to Nazis is a time-honored tradition. But confusing the Nazis and Germany’s Social Democrats is a scandal. The Social Democrats were the main source of opposition to Hitler at a time when the Communists were bizarrely maintaining that there was no difference between the two and the mainstream parties of the center-right decided that it made sense to form a tactical alliance with Hitler. Social Democrats stand for a generous welfare state and active labor market policies. Nazis try to conquer the world and send people to the gas chamber. Jonah Goldberg aside, this is not a subtle distinction.
  • Now that Sen. Coburn (R-OK) has said he will not answer any questions about his conversations with Sen. Ensign (R-NV) because he was acting as his physician (and spiritual counselor), TPM Reader DE reminds us that Dr. Coburn is an OB/Gyn. A deeper scandal than we'd ever imagined
  • We've known for a while that Sen. Ensign (R-NV) gave a 'severance' payment of at least $25,000 to his ex-mistress and her husband. Now it turns out it was $96,000. But it gets better. Ensign's lawyer is pointing out that he didn't pay any money -- his parents paid them off.
  • Yes, I know that's pretty bold billing.... In one of the more surreal episodes in this whole drama, while folks from 'The Family', including Sen. Coburn (R-OK), were trying to get Ensign to end his relationship with the girlfriend and write her and her husband a big check. So Ensign agrees to do this. But the members of his fellowship had so little trust he could follow through that they had him write out a letter to the mistress that he was ending the relationship and then drove him to the local Fedex office to make sure he actually dropped the letter in the box. So he does that. But then after he shakes them loos he calls the mistress to tell her his friends made him write the letter and to ignore it. It makes having his parents pay the couple off sound far less out of character...
  • The governor's claim that his in-home supportive services (IHSS) "reform" to combat fraud will reap 25% in program savings is inconsistent with the findings of a statewide audit released by his own administration in 2008 according to Assemblymember Noreen Evans (D-Santa Rosa), Chair of the Assembly Budget Committee. "It's disappointing to see the governor making up 'facts' to suit his agenda," said Evans.  "According to his own administration, just 1% of IHSS cases involve fraud.  The governor should not try to criminalize seniors and the disabled in order to close our budget gap."
  • One issue with a lot of health care commentary (Michael Kinsley’s correctly maligned column for example) is that the concept of “cost” is somewhat ambiguous.... [A]n initiative that raises $90 billion in tax revenue, reduces private health expenditures by $100 billion, and then provides equivalent services for $90 billion... costs ninety billion dollars... [or] saves $10 billion.... If we cut $1 billion worth of regular pediatric care for poor children, that will “save money.” But that’s not the same as cutting $1 billion worth of unnecessary treatments for senior citizens.... The latter would be a genuine saving; the former would just be denying useful services to people.... If you have a system that has a high fiscal cost because it’s providing a lot of genuinely valuable services to people then the thing to do is to pony up the necessary tax revenue...
  • Palin won’t go gently into the good night.... She is not just the party’s biggest star and most charismatic television performer; she is its only star.... [S]he stands for a genuine movement: a dwindling white nonurban America that is aflame with grievances and awash in self-pity.... Palin gives this movement a major party brand and political plausibility that its open-throated media auxiliary, exemplified by Glenn Beck, cannot. She loves the spotlight, can raise millions of dollars and has no discernible reason to go fishing now except for self-promotional photo ops. The essence of Palinism is emotional, not ideological.... That resentment is in part about race.... Her convention speech’s signature line was a deftly coded putdown of her presumably shiftless big-city opponent: “I guess a small-town mayor is sort of like a community organizer, except that you have actual responsibilities.” (Funny how this... has been forgotten... now that she has abandoned her... responsibilities...)
  • (Attention conservation notice: 1,200 words on a great introduction to the last 75 years of economics. As I mention below, I expected that this would be Yet Another Behavioral-Econ Summary, or yet another round of head-shaking I-told-you-sos about the economic collaprse of 2008. Thankfully, it is neither. It is just a great read.)
  • uestion: who said this in 1990? “For about 15 years, the United States runs current account deficits, so that more than 6 percent of U.S. assets are owned by foreigners in 2010. High saving for the subsequent 15 years results incurrent account surpluses and reduces foreign capital ownership to 3.5 percent. Past 2020, however, with the rapid increase in the number of elderly, the United States again runs current account deficits, so that in the steady state almost 9 percent of U.S. assets are owned by foreigners.” Answer, among others the current director of the US president’s National Economic Council, Larry Summers...
  • Thus, Professor Lazear must believe the recession will be over soon, and -- more importantly -- that we will revert to potential GDP in short order. He's certainly free make that prediction. But when considering his record on predictions...

Effects of the Stimulus Package: in Which the Usually Sharp-Eyed Felix Salmon Is Wrong!

Felix Salmon:

Why I’m unconvinced by calls for a second stimulus package: Let me try to hazard an answer to that. Start with the guiding assumption, as stated by Larry Summers when the stimulus bill was going through Congress, that the risks of spending too much paled in comparison with the risks of spending too little. And because the effects of government spending on GDP and unemployment are hard to predict with any accuracy, there was a strong case that a monster $800 billion stimulus bill was in many ways the prudent course of action.

Since then, however, the economy has done much worse than anybody thought it would. Which is one way of saying that the stimulus has not done as well as people thought it would. This is a useful datapoint — and one way of looking at it is to conclude that the stimulus was so big that the last few hundred billion dollars have had virtually no positive effect at all. And that any extra stimulus would similarly achieve very little...

Ummmm.... No.

Jared Bernstein and Christy Romer constructed extremely crude estimates of the delta-effect of the stimulus package on the economy by taking when they thought the different components of the $787 billion would be spent and how long it would then take for the government spending to have an impact on the economy. Their estimate is that we saw the effect of $0 (zero) (none) (nada) dollars of the stimulus package on the economy in the first quarter, that we saw the effects of only $14.5 billion in the second quarter, and that we are about to see the effects of $38.6 billion now in the third quarter as the effects of the ackage ramp up to their peak in the fall of 2010, when we will see $82.1 billion of stimulus spending hit the economy.

To say that what happened in the second quarter means that "the last few hundred billion dollars have had virtually no effect" is like sticking your toe into the ocean and pointing out that your hair is still dry...

Atlantic Monthly Crashed-and-Burned Watch (Clive Crook "Sarah Palin Must Be Respected!" Department)

Republican Charles Krauthammer on Sarah Palin:

Krauthammer: Krauthammer: Now, as to Palin, I agree entirely with what Mara [Liasson] said -- she is, she has star power without any doubt, she has an extremely devoted following, but she is not a serious candidate for the presidency. She had to go home and study and spend a lot of the time on issues with which she was not adept last year. And she hasn't. She has to stop speaking in cliches and platitudes. It won't work. It could work for eight weeks if you're the No. 2 candidate, as she was last year. But even so, she got singed a lot in that campaign. You cannot sustain a campaign of platitudes and clichés over a year and a half if you’re running for the presidency...

Republican Peggy Noonan on Sarah Palin:

A Farewell to Harms - [Palin] demonstrated... that she was not ready to go national and in fact never would be. She was hungry, loved politics, had charm and energy, loved walking onto the stage, waving and doing the stump speech. All good. But she was not thoughtful. She was a gifted retail politician who displayed the disadvantages of being born into a point of view (in her case a form of conservatism; elsewhere and in other circumstances, it could have been a form of liberalism) and swallowing it whole: She never learned how the other sides think, or why. In television interviews she was out of her depth in a shallow pool. She was limited in her ability to explain and defend her positions, and sometimes in knowing them. She couldn't say what she read because she didn't read anything. She was utterly unconcerned by all this and seemed in fact rather proud of it: It was evidence of her authenticity. She experienced criticism as both partisan and cruel because she could see no truth in any of it. She wasn't thoughtful enough to know she wasn't thoughtful enough. Her presentation up to the end has been scattered, illogical, manipulative and self-referential to the point of self-reverence. "I'm not wired that way," "I'm not a quitter," "I'm standing up for our values." I'm, I'm, I'm. In another age it might not have been terrible, but here and now it was actually rather horrifying...

Republican--well, conservative--Mr. McMegan-to-be on Sarah Palin:

Hit & Run > Sarah Palin: Ambition, Incoherence, and Paranoia: It's been more than a week since Sarah Palin announced that she was resigning from the governorship of Alaska, and we still don't really know why.... [W]e have to accept the possibility that Palin's decision to resign will remain somewhat inscrutable. That said, I think her brief history on the national stage has given us a handful of useful clues.... Incoherence: As Slate's Dahlia Lithwick points out, Palin has never been coherent except when scripted or interpreted by someone else.... Ambition: Palin seems to have a genuine connection with the weird, frontier-like culture of Alaska, but she's also renowned for her ambition, and governing the state has limited her opportunities to both to live in the public eye and to make money off of doing so.... Paranoia: Perhaps there isn't actually a serious scandal brewing, but instead, Palin quit out of an undue, hypersensitive fear of negative coverage combined with an extreme victim mentality. She's exhibited such paranoia before: A few weeks ago, CBS News published emails from the campaign trail depicting a fight between Palin and the McCain's chief strategist, Steve Schmidt.... In other words, there isn't a firm "answer" perfectly explaining why she decided to step down. But there are some telling behavioral patterns, all of which seem to have been at play in her decision to resign.  Palin's time on the national stage has been short, but a few common threads have emerged: paranoia, poor reasoning, and an outsize sense of self-importance. I can't help but think that those are the same factors that drove her to quit...

Clive Crook on the Democrats on Sarah Palin:

Democrats must learn some respect: Ms Palin is a small-town American. It is said that she has only recently acquired a passport. Her husband is a fisherman and production worker. She represents a great slice of the country that the Democrats say they care about - yet her selection induced an apoplectic fit. For days, the derision poured down from Democratic party talking heads and much of the media too. The idea that "this woman" might be vice-president or even president was literally incomprehensible.... Voters in small towns and suburbs, forever mocked and condescended to by metropolitan liberals, are attuned to this disdain. Every four years, many take their revenge.... The problem in my view is less Mr Obama and more the attitudes of the claque of official and unofficial supporters that surrounds him.... If only the Democrats could contain their sense of entitlement to govern in a rational world... they might gain the unshakeable grip on power they feel they deserve.... But the fathomless cultural complacency of the metropolitan liberal rules this out...

Krauthammer and Noonan were last week. Crook was last September.

I would say I eagerly look forward to Clive Crook's column about how "Republicans must learn some respect" for small-town politicians married to fishermen who won't read their briefing books and memorize their talking points. I could point out that what Krauthammer and Noonan are saying now in public is exactly what they--and the other Republicans--were saying then in private (except for when Noonan got caught on an open microphone). I could point out that Crook knew that the opinions of Palin for which he was lambasting Democrats last fall were also the opinions of Republicans--but somehow Crook did not think it fit to say so. And I could point out that Crook knew last fall that the opinions of Palin for which he was lambasting Democrats last fall were accurate judgments--but that somehow Crook did not think it frt to say so.

But I will save my breath, and not say any of these things. I will, however, say that the extent to which our elite media say one thing in private and something very different in public is plain damned annoying.

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


Freddie of the League of Ordinary Gentlemen asks a question:

The TAS Advice Column: [A] link from one particular blogger has eluded me--Matt Yglesias. Yglesias is my favorite blogger, and his blog is the first one I ever read. Now, I’ve tried posting obvious Yglesias bait, and linking to his pieces myself, and even been linked to defending him from the attacks of a blogger who he has linked to. (Got that?) No dice. So what, pray tell, is a young blogger to do?...

It's simple: you mount your destrier, take up your lance, and ride to the offices of Center for American Progress. There you tap on his shield with your lance--the butt end for a link a plaisance, the sharp end for a link a outrance.

I recommend a plaisance...

Fiscal Policy: The Obama Administration Is Not Making Much Sense These Days

Tim Geithner is not making sense:

Geithner: Too soon to decide on more stimulus | Reuters: U.S. Treasury Secretary Timothy Geithner said it was too soon to decide whether the U.S. economy would need the help of a second round of government stimulus to recover from recession. "I don't think that's a judgment we need to make now, can't really make it now prudently, responsibly," Geithner said in a taped interview with CNN that will air on Sunday. According to a transcript provided by CNN, Geithner said the "biggest thrust" of the $787 billion package of spending and tax cuts signed into law earlier this year would take effect in the second half of the year...

Let's review the bidding:

Last December the Obama administration to be decided on a fiscal stimulus package which they believed would have minor effects on the economy in the first two quarters of 2009 and major effects--would push unemployment down below what it would other wise have been by more than half a percentage point--starting in the third quarter of 2009. They believed that the economy was not that weak, and that with the fiscal stimulus package taking effect unemployment would be peaking now at a rate of 7.9%.

Instead, unemployment is now probably in the 9.5-9.7% range--and without the stimulus package it would right now have turned out to be above 10%:

The financial crisis of last fall hit the economy's levels of production, spending, and employment much harder than people thought at the time. If we had known then what we know now, it would have been prudent then to propose twice as large a fiscal stimulus program as the Obama administration in fact did propose.

If Tim Geithner is not making much sense, neither is Barack Obama. Keith Hennessy directs us to quotes:

Dan Balz: The Take: Obama Stands to Be Judged on Economic Recovery: Obama, in Moscow yesterday, tried to modulate the impact of the vice president's words that the administration had somehow miscalculated. "No, no, no, no, no," he told NBC's Chuck Todd. "Rather than say 'misread,' we had incomplete information." To ABC's Jake Tapper, he said, "There's nothing that we would have done differently"...

And in Dan Balz's judgment:

Scrambling for a macroeconomic message: It seems hard to square an assessment that the administration underestimated the severity of the recession and the assertion that the White House wouldn’t have done anything differently had it known how bad things really were...

All in all, it looks like the unemployment rate in 2009 is going to average 1.2 percentage points above where the administration last December thought we would be. First quarter real GDP was $11.36 trillion year-2000 dollars--and second-quarter real GDP will be the same. Thus year-2009 real GDP is going to be close to $11.40 trillion--1.2% lower than the administration forecast that real GDP in the four quarters of 2009 would average $11.53 trillion.

It is interesting and important to note that the excess unemployment now forecast over 2009 relative to last December's forecast is of the same magnitude--1.2%--as the deficiency in real GDP. In earlier decades this would not have been the case. In earlier decades the economy was ruled by Okun's Law, and the rule-of-thumb was that the excess unemployment was 2/5 of the magnitude of the deficiency in production, not equal (see "labor hoarding by firms in American recessions, end of"). In earlier decades a 1.2 percentage point rise in unemployment would have meant a $420 billion shortfall in year-2009 nominal GDP, not a $170 billion shortfall.

If I were running the government, I would be trying to make up that GDP shortfall right now: I would be rushing a clean $170 billion--$500 per citizen--aid-to-states-that-maintain-effort package through the congress this week. It would seem the right and the obvious thing to do.

links for 2009-07-12

Ronald Reagan and Sarah Palin: Wall Street Journal Crashed-and-Burned-and-Smoking Watch (Yes, Yet Another Peggy Noonan Edition)

A little scene-setting first:

Ronald Reagan's Personal Private Diary[1]: Thur Feb 17 1983:

Jeanne Kirkpatrick reported on her trip to Central America. A grim story. Our Ambas. Hinton under the direction of the same kind of St. Dept. bureaucrats who made Castro possible are screwing up the situation in El Salvador. I'm now really mad. Bill C. is bringing George S. up to date and then I'm determined heads will roll, beginning with Ambas. Hinton...

Ronald Reagan's Personal Private Diary: Thu Jun 9 1983:

Ambas. Hinton just relieved as Ambas. to El Salvador, stopped by. He's a good man and did a fine job under extremely difficult circumstances. I hope he can convince some of our left leaning Congressmen how wrong they are...

As Margaret Thatcher said of Reagan back in 1988: "Poor dear, there's nothing between his ears..." When you fire someone for "screwing up the situation..." you should not four months later talk about how he did "a fine job under extremely difficult circumstances..."

Peggy Noonan, recall, is one of Reagan's biggest boosters--a person who claims to believe that Ronnie Was the Greatest President Evar!

OK, now let's roll the videotape. Peggy Noonan in the Wall Street Journal yesterday on why the Republican Party cannot afford to let itself be led by Sarah Palin:

A Farewell to Harms: Here's why all this matters. The world is a dangerous place. It has never been more so, or more complicated, more straining of the reasoning powers of those with actual genius and true judgment. This is a time for conservative leaders who know how to think.... [W]e may face in the next 10 years: a profound and prolonged American crash... deep social unrest; one or more American cities getting hit with weapons of mass destruction from an unknown source... actual secessionist movements [in America].... The era we face, that is soon upon us, will require a great deal from our leaders. They had better be sturdy. They will have to be gifted. There will be many who cannot, and should not, make the cut. Now is the time to look for those who can. And so the Republican Party should get serious, as serious as the age, because that is what a grown-up, responsible party--a party that deserves to lead--would do. It's not a time to be frivolous, or to feel the temptation of resentment, or the temptation of thinking next year will be more or less like last year, and the assumptions of our childhoods will more or less reign in our future. It won't be that way. We are going to need the best.

This is, of course, exactly the argument that the 1970s Republican establishment was making against the insurgents behind their figurehead Ronald Reagan in the late 1970s.[2] Yet is there any consciousness in Peggy Noonan's mind of this thirty-year parallel? Any glimmer of insight or self-recognition of her younger self in the bright young Republican things backing Palin? No. Stupidest human alive.

Which leads me to another issue: Ronald Reagan's and Sarah Palin's substantive command of issues once they get beyond their talking points strike me as very similar--they are both rapidly out of their depth. But there are differences:

  1. Ronald Reagan had memorized a lot more of his lines--knew a lot more talking points--than Palin did.
  2. Ronald Reagan had Hollywood professionals screening his media access.
  3. Ronald Reagan was a 6'1" 190-pound 69 year-old male actor who was playing the character of an establishment president--an authority figure.
  4. Sarah Palin is a 5'4" 130-poound 44 year-old female who looks to be the kind of just-normal-folks character often played by actors like Jimmy Stewart--a moviegoers-should-identify-with-me figure.

If Peggy Noonan would write a column about how much of her different reaction to Reagan and Palin is due to each of these four factors, that would be worth reading.

[1] Douglas Brinkley, ed. (2007), The Reagan Diaries (New York: Harper Collins: 9780060876005)

[2] Take a look at Noonan's critique of Palin. It's pretty much the 1980s Democratic critique of Reagan--true now, and true then:

She was a gifted retail politician who displayed the disadvantages of being born into a point of view... and swallowing it whole: She never learned how the other sides think, or why. In television interviews she was out of her depth in a shallow pool. She was limited in her ability to explain and defend her positions, and sometimes in knowing them.... She is not working class, never was.... What she is, is a seemingly very nice middle-class girl with ambition, appetite and no sense of personal limits.... America doesn't need Sarah Palin to prove it was, and is, a nation of unprecedented fluidity. Her rise and seeming fall do nothing to prove or refute this.... The elites made her. It was the elites of the party... that picked her and pushed her.... She makes the party look stupid, a party of the easily manipulated.... [S]he is a ponder-free zone. She can memorize the names of the presidents of Pakistan, but she is not going to be able to know how to think about Pakistan. Why do her supporters not see this? Maybe they think "not thoughtful" is a working-class trope!...

links for 2009-07-11

The Changing Nature of the American Business Cycle

Macroeconomic Advisers writes:

Please find "Q2-2009... GDP Tracking 0.2 percent", which has been updated. Exports were stronger than expected, and imports were much weaker than expected, suggesting a large upward revision to our estimate of second quarter net exports. Therefore, we raised our tracking estimate of [the annual] GDP growth [rate] in the second quarter by 1.8 percentage points to +0.2% [growth in GDP per year].

With labor input falling at a rate of 6% per year in the second quarter, that suggests a productivity growth rate in the economy as a whole of some 6.2%--which is really weird. It used to be the case that businesses hoarded labor in recessions because they did not want their skilled workers to wander off and to have to train new ones....

Now it is really beginning to look as though businesses take recessions as opportunities to greatly slim down their workforces without making the workers they retain too angry and depressed. We saw this in 2002-2003. We saw it before in 1992-1993. The fact that productivity is no longer strongly procyclical countercyclical in recessions is good news in the long run--it means that our average long-run rate of productivity growth is higher than we used to think. But it also means that there is more headroom for expansionary policy, and more need.

Thus statements like this one from the very sharp Allan Sinai:

Phil Izzo reports:: "The mother of all jobless recoveries is coming down the pike," said Allen Sinai of Decision Economics. But he doesn't favor more stimulus now, saying "lags in monetary and fiscal policy actions" should be allowed to "work through the system..."

make me pound my head against the wall. If as the policies we have now in train to support the economy work their way through the system we find that we still have "the mother of all jobless recoveries," then we should be acting now to provide additional government support. A jobless recovery is not a good thing. And we should avoid it if we can figure out how in time.

Paul Krugman on the Stimulus Trap

What Paul Krugman wrote:

Paul Krugman: The Stimulus Trap: As soon as the Obama administration-in-waiting announced its stimulus plan — this was before Inauguration Day — some of us worried that the plan would prove inadequate. And we also worried that it might be hard, as a political matter, to come back for another round. Unfortunately, those worries have proved justified.... There’s now a real risk that President Obama will find himself caught in a political-economic trap....

[H]ow [should] concerned citizens... be reacting to the disappointing economic news. Should we be patient and give the Obama plan time to work? Should we call for bigger, bolder actions? Or should we declare the plan a failure?...

When there’s an ordinary, garden-variety recession, the job of fighting that recession is assigned to the Federal Reserve. The Fed responds by cutting interest rates in an incremental fashion [to raise asset prices]. Reducing rates a bit at a time, it keeps cutting until the economy turns around. At times it pauses to assess the effects of its work [on asset prices and thus on private spending by businesses making investments in plant and equipment and on households that feel richer are willing to spend more]; if the economy is still weak, the cutting resumes.

During the last recession, the Fed repeatedly cut rates as the slump deepened — 11 times over the course of 2001. Then, amid early signs of recovery, it paused.... When it became clear that the economy still wasn’t growing fast enough to create jobs, more rate cuts followed. Normally, then, we expect policy makers to respond to bad job numbers with a combination of patience and resolve.... And that’s what the Obama administration should be doing right now with its fiscal stimulus. (It’s important to remember that the stimulus was necessary because the Fed, having cut rates all the way to zero, has run out of ammunition to fight this slump.) That is, policy makers should stay calm in the face of disappointing early results, recognizing that the plan will take time to deliver its full benefit. But they should also be prepared to add to the stimulus now that it’s clear that the first round wasn’t big enough.

Unfortunately, the politics of fiscal policy are very different from the politics of monetary policy. For the past 30 years, we’ve been told that government spending is bad, and conservative opposition to fiscal stimulus (which might make people think better of government) has been bitter and unrelenting even in the face of the worst slump since the Great Depression. Predictably, then, Republicans — and some Democrats — have treated any bad news as evidence of failure, rather than as a reason to make the policy stronger. Hence the danger that the Obama administration will find itself caught in a political-economic trap, in which the very weakness of the economy undermines the administration’s ability to respond effectively....

It’s perfectly O.K. for the administration to defend what it’s done so far.... It’s also reasonable for administration economists to call for patience, and point out, correctly, that the stimulus was never expected to have its full impact this summer, or even this year. But... [i]t was disturbing when President Obama walked back Mr. Biden’s admission that the administration “misread” the economy, declaring that “there’s nothing we would have done differently.” There was a whiff of the Bush infallibility complex in that remark... that’s an attitude neither Mr. Obama nor the country can afford.

What Mr. Obama needs to do is level with the American people. He needs to admit that he may not have done enough on the first try... and that some course adjustments — including, quite possibly, another round of stimulus — may be necessary...

Fiscal Policy and the Possibility of a Jobless Recovery

Greg Ip writes:

AFTER ebbing steadily since the start of the year America’s monthly job losses figure abruptly jumped from 322,000 in May to 467,000 in June, deflating talk of an imminent exit from recession. Hand-wringing in Washington quickly followed. On July 5th the vice-president, Joe Biden, admitted that the White House had “misread how bad the economy was”. In January it had predicted that unemployment would peak at 9% without a fiscal stimulus and 8% with one.... At one level, the hand-wringing is overdone....

The odds are that the economy will begin to grow again in the current quarter for two reasons: the dramatic inventory liquidation, which led manufacturers to slash output and payrolls starting in late 2008, seems to be ending; and the impact of the fiscal stimulus is growing. Other countries, who bore much of the brunt of the inventory liquidation because they provide such a large share of what Americans consume, are already benefiting. Global manufacturing expanded in June for the first time since May 2008....

But... [a] self-sustaining recovery needs more than just replenishing inventory and government stimulus; it requires a virtuous circle of increasing consumer spending and incomes, and there is still no evidence of that.... Jan Hatzius of Goldman Sachs predicts wages will actually start falling next year. If later this year the recovery still looks likely to remain feeble as the maximum impact of the stimulus is felt, pressure for more stimulus will grow....

Mr Obama himself has proposed a budget-balancing rule that he would have to break to inject more stimulus—a formality, perhaps, but one that would further erode his fiscal credibility given the gargantuan deficits his policies will produce even beyond 2010. “We could afford to borrow a bit more over the next year if we had a plausible plan to get the deficit under control thereafter,” says Len Burman of the Urban Institute, a think-tank. “But nobody has articulated such a plan.”

Think: jobless recovery. Now that we have the May trade figures, the modal forecast is (i) an economy that was flat in the second quarter relative to the first quarter, (ii) an economy that starts to grow relatively slowly in the third quarter, and (iii) an unemployment rate that keeps rising for another one and a half to two years--like it did in 1992 and 2002--as the old-fashioned business-cycle productivity-employment pattern is broken once again. Bob Hall's NBER committee is likely to proclaim that recovery began sometime in the second quarter, but it won't feel like a recovery to workers (as opposed to asset owners) for quite some time to come.

links for 2009-07-10

"The Short and Simple Annals of the Poor..."

Thomas Gray, 1750:

Elegy Written in a Country Church-Yard":
Oft did the harvest to their sickle yield,
Their furrow oft the stubborn glebe has broke;
How jocund did they drive their team afield!
How bow'd the woods beneath their sturdy stroke!

Let not Ambition mock their useful toil,
Their homely joys, and destiny obscure;
Nor Grandeur hear with a disdainful smile
The short and simple annals of the Poor...

The first four or so times I read:

Robert C. Allen: The year 1762 witnessed two momentous changes in cropping [in Spelsbury in Oxfordshire]. First, turnip cultivation was shifted from the sainfoin [grass] enclosure to the open fields themselves.... Secondly, clover was introduced...

the word "momentous" did not strike me as at all out of place or inappropriate or funny...

Should I be alarmed? Or distressed? Or just accept that the particular road I have walked has made me a somewhat strange person?

File:Stoke Poges Church.JPG - Wikipedia, the free encyclopedia

St. Giles Church, Stoke Poges, Buckinghamshire, next door (well, only by California standards: an hour ro so by the M40 via Oxford and High Wycomb) to Spelsbury.
(Site of Gray's "Elegy," and also IIRC of the game of Centrifugal Bumble-Puppy in Brave New World, of scenes in the fims Bridget Jones's Diary and Goldfinger, and something to do with Bertie Wooster...)

A Good Seasonally-Adjusted New Unemployment Claims Number | Reuters

But how good exactly? Reuters:

Jobless claims drop steeply, skewed by autos | Reuters: WASHINGTON (Reuters) - The number of U.S. workers filing new claims for jobless benefits fell sharply last week but the data was distorted by an unusual pattern of layoffs in the automotive industry, which amplified the decline. The Labor Department said on Thursday that initial claims for state unemployment insurance fell 52,000, the largest drop since December, to a much lower-than-expected seasonally adjusted 565,000 in the week ended July 4, from 617,000 the prior week. It was the lowest reading since January. Analysts polled by Reuters had forecast claims to drop to 605,000 from a previously reported 614,000. However, in a sign of ongoing employment weakness, so-called continued claims of people still on jobless aid after an initial week of benefits rose by 159,000 to a record 6.883 million in the week ending June 27, the latest for which data is available.

A Labor Department official said that there had been far fewer automotive and other manufacturing layoffs last week than anticipated on the basis of past experience of claims over July, when many plants are commonly idled. The "seasonal factors" the department uses to adjust the data to provide a better sense of the underlying trend had expected a large increase in claims in the latest week. Actual claims in fact rose by a much smaller amount, which when seasonally adjusted, generated a large fall. A number of states said that auto sector layoffs apparently had already happened, reflecting closures in the battered U.S. automotive industry, while other states said they did not get the layoffs they had anticipated. "I would expect the underlying trend (in claims) is probably diminishing but it's hard to tell from this number how much is noise," said Keith Hembre, chief economist at First American Funds in Minneapolis.

The 4-week moving average for new claims declined by 10,000 to 606,000, the lowest reading since February. This measure is closely watched because it irons out weekly volatility, and it has now declined in four out of the last five weeks.

Looking at graphs like this:

Economagic: Economic Chart Dispenser

reminds me of how very much in the high-frequency data we typically examine rests on the seasonal adjustment process--and how important it is to get that seasonal adjustment right. Of course, to the extent that the true seasonal adjustment factors are not absolutely invariant to the phase of the business cycle it very quickly becomes impossible to estimate them accurately.

What the standard seasonal adjustment factors for initial unemployment claims tell us is: "don't worry if new claims spike in January or July. But does that mean we should be greatly encouraged if they don't spike in January or July? In January 2008, July 2008, and January 2009 the seasonally-adjusted claims number improved because unadjusted claims did not spike enough. But anyone who took those declines as evidence of an improving economy--well, I have a bridge they might be interested in purchasing...

The Pivot of Global History: The Handoff from the First to the Second Industrial Revolution

Bob Allen of Oxford writes the smartest thing I have read in at least a year. The conclusion of Robert Allen (2009), The British Industrial Revolution in Global Perspective (Cambridge: Cambridge University Press: 9780521687850), p. 272 ff.:

I have argued that the famous inventions of the British Industrial Revolution were responses to Britain's unique economic environment and would not have been developed anywhere else.... Buy why did those inventions matter?.... Weren't there alternative paths to the twentieth century? These questions are closely related to another... asked by Mokyr: why didn't the Industrial Revolution peter out after 1815?... [O]ne-shot rise[s] in productivity [before] did not translate into sustained economic growth. The nineteenth century was different--the First Industrial Revolution turned into Modern Economic Growth. Why? Mokyr's answer... that scientific knowledge increased enough to allow continuous invention [is incomplete]....

Britain's pre-1815 inventions were particularly transformative.... Cotton was the wonder industry.... [T]he great achievement of the British Industrial Revolution was... the creation of the first large engineering industry that could mass-produce productivity-raising machinery. Machinery production was the basis of three developments that were the immeiate explanations of the continuation of economic growth until the First World War... (1) the general mechanization of industry; (2) the railroad; and (3) steam-powered iron ships. The first raised productivity... the second and third created the global economy and the international division of labor... (O'Rourke and Williamson, 1999). Steam... accounted for close to half of the growth in labor productivity in Britain in the second half of the nineteenth century (Crafts 2004). The nineteenth-century engineering industry was a spin-off from the coal industry. All three of the developments... depended on two things: the steam engine and cheap iron....

Cotton played a supporting role in the growth of the engineering industry.... The first is that it grew to immense size.... Mechanization in other activities did not have the same potential... global industry with.. price-responsive demand... cotton... sustained the engineering industry by providing it with a large and growing market for equipment....

There was a great paradox... the macro-inventions of the eighteenth century... increased the demand for capital and energy relative to labour. Since capital and energy were relatively cheap in Britain, it was worth developing the macro-inventions there and worth using them in their early, primitave forms. These forms were not cost-effective elsewhere.... However, British engineers improved this technology.... This local learning often saved the input that was used excessively in the early years of the invention's life and which restricted its use to Britain. As the coal consumption of rotary steam power declined from 35 pounds per horsepower-hour to 5 pounds, it paid to apply steam power to more and more uses.... Old fashioned, thermally inefficient steam engines were not "appropriate" technology for countries where coal was expensive. These countries did not have to invent an "appropriate" technology for their conditions, however. The irony is that the British did it for them....

[T]he British inventions of the eighteenth century--cheap iron and the steam engine, in particular--were so transformative... the technologies invented in France--in paper production, glass, and knitting--were not, The French innovations did not lead to general mechanization or globalization.... The British were not more rational or prescient than the French... simply luckier in their geology. the knock-on effect was large, however: there is no reason to believe that French technology would have led to the engineering industry, the general mechanization of industrial processes, the railway, the steamship, or the global economy.... [T]here was only one route to the twentieth century--and it traversed northern Britain.

What Bob Allen said.

N.F.R. Crafts (2004), "Steam as a General Purpose Technology: A Growth Accounting Perspective," Economic Journal 114:495, pp. 338-51.

Kevin O'Rourke and Jeffrey Williamson (1999), Globalization and History: The Evolution of a Nineteenth-Century Atlantic Economy (Cambridge: MIT Press).

Ben Bernanke's Tenure

Jon Hilsenrath, Sudeep Reddy, and David Wessel write:

White House Ponders Bernanke's Future: As the White House begins to ponder whether to reappoint or replace Ben Bernanke when his term expires in January, the Federal Reserve chairman's standing on Wall Street is on the rise while attacks on him from Congress mount. Treasury Secretary Timothy Geithner is expected to play a key role in advising President Barack Obama on whether to reappoint Mr. Bernanke. Mr. Geithner has worked closely both with Mr. Bernanke and with the leading alternative for the powerful post -- Lawrence Summers, the former Treasury secretary, who is currently the president's top economic adviser.

Before making a decision later this year, the White House also is expected to look at other economists, including Roger Ferguson and Alan Blinder, former Fed vice chairmen; Janet Yellen, president of the San Francisco Federal Reserve Bank; and Christina Romer, chairman of Mr. Obama's Council of Economic Advisers.

Mr. Bernanke's reputation on Wall Street has ebbed and flowed. But a Wall Street Journal survey conducted this week of 46 private-sector economists found that 43 endorsed his reappointment. "Bernanke's leadership during this financial crisis was outstanding, but not flawless," said Scott Anderson of Wells Fargo & Co., one of those surveyed. "But given human limitations and the limitations of economic and financial knowledge he deserves another tour of duty." Some saw benefits to continuity. "Don't change horses in midstream," said David Wyss of Standard & Poor's. Others cited the alternatives: "Stated differently: Don't appoint Summers," said Nicholas Perna of Perna Associates.

The White House isn't rushing to decide on reappointing Mr. Bernanke, who hasn't sent any signal that he wants to leave the post. The Intrade online wagering Web site puts 60% odds on reappointment. But a bad turn in the economy could prompt Mr. Obama to seek a new helmsman of his own choosing, or new embarrassing revelations about Mr. Bernanke's handling of the financial crisis could alter the picture before the president makes a decision. For now, the White House is concentrating on finding new members for the Fed board. Two of the seven seats are vacant. Two sitting governors -- Kevin Warsh, 39 years old, and Donald Kohn, 66 -- are widely believed to be eyeing the exits. The White House is seeking at least one candidate with financial-market experience, a tough task at a time when likely choices are tainted by Wall Street ties....

Mr. Bernanke has come under tough questioning on Capitol Hill, and new powers that the Obama administration proposes to give the Fed have intensified congressional scrutiny of the central bank. "If these new powers are going to be granted to the Fed, then maybe a professor of economics will never again be the best choice for the Fed chairman," said Darrell Issa (R., Calif.). Rep. Brad Sherman (D., Calif.) accuses the Fed of "a Wall Street mentality." Regarding Mr. Bernanke, he said, "Of those who are infected... better than average," but he said he would prefer a Fed chairman with "populist Democratic values."

Still, Mr. Bernanke has influential admirers -- including Rep. Barney Frank (D., Mass.), chairman of the House Financial Services Committee, and Rep. Carolyn Maloney (D., N.Y.), chairman of the Joint Economic Committee. Ms. Maloney, who backs Mr. Bernanke's reappointment, said, "He's basically an academic working in a nonpartisan way to save the economy." Mr. Bernanke would need to be confirmed by the Senate if reappointed for a second four-year term. Both the chairman of the Senate Banking Committee, Christopher Dodd (D., Conn.), and the panel's senior Republican, Richard Shelby of Alabama, have been critical of the Bernanke Fed...

A year ago I would have said that Ben Bernanke was almost certain to be a one-term Fed chair. The financial crisis was bad enough and enough decisions had to be made quickly enough that it was certain that he would make some big mistakes, and in the aftermath too many people would remember and he would be too damaged to be the right choice moving forward.

But given the quality of the opposition to a Bernanke reappointment that Hilsenrath and company have been able to dig up, it seems that I was wrong. The complaints about Bernanke seem... incoherent. And the consensus judgment appears to be the correct "outstanding but not flawless."

And, yes, Larry (or Janet, or Roger, or Allen, or Christy) would in all likelihood be very, very good at the job as well.

David Frum Writes About the Republican Succession


The Republicans' dwindling options - THE WEEK: The GOP is a party of orderly succession.  Ronald Reagan finishes second in 1976, wins in 1980. George H.W. Bush finishes second in 1980, wins in 1988. Bob Dole finishes second in 1988, wins in 1996. John McCain finishes second in 2000, wins in 2008. This succession will be complicated in 2012 by the unusual fact that two men can plausibly claim to have finished second in 2008: Mitt Romney... Mike Huckabee....   So how to choose? Republicans have to worry that Huckabee -- like Palin -- cannot win a national election, even under the most favorable circumstances. Romney? That’s a more open question. There are two Romneys: the pragmatic, results-oriented candidate who got himself elected Republican governor of Massachusetts -- and the phoney hyper-ideological ex-candidate who addressed the Republican convention in St. Paul in 2008:

For decades, the Washington sun has been rising in the east -- Washington has been looking to the eastern elites, to the editorial pages of the Times and the Post, and to the broadcasters from the coast. If America really wants change, it's time to look for the sun in the west, cause it's about to rise and shine from Arizona and Alaska!

Last week, the Democrats talked about change. But let me ask you -- what do you think Washington is right now, liberal or conservative? Is a Supreme Court liberal or conservative that awards Guantanamo terrorists with constitution rights? It's liberal! Is a government liberal or conservative that puts the interests of the teachers union ahead of the needs of our children? -- It's liberal!

Is a Congress liberal or conservative that stops nuclear power plants and off-shore drilling, making us more and more dependent on Middle East tyrants? -- It's liberal! Is government spending - excluding inflation - liberal or conservative if it doubles since 1980? -- It's liberal!

Twenty years of Republican presidencies since 1980? Eighteen years of Republican majorities in the Senate? Twelve years of Republican majorities in the House? Seven of the nine Supreme Court appointments? Never happened! And for that matter, Massachusetts isn’t in the east either.   The big question for Republicans is: which Romney will show up in 2012? The electable or the unelectable, the serious or the cynical, the commanding or the pandering? All Republicans have to hope that Romney brings his best self to the next election cycle -- if only because after this week, we are seriously running out of alternatives.

It's also going to get seriously ugly in Republican primary time in 2012. Remember this from Huckabee at the end of 2007:

Libby Quaid: Republican presidential hopeful Mike Huckabee, an ordained Southern Baptist minister, asks in an upcoming article, "Don't Mormons believe that Jesus and the devil are brothers?" The article, to be published in Sunday's New York Times Magazine, says Huckabee asked the question after saying he believes Mormonism is a religion but doesn't know much about it. His rival Mitt Romney, the former Massachusetts governor, is a member of the Mormon church...

The problem is that for Romney to actually be a president who might be worth electing he has to be a Jack Kemp-style Republican starting now: it takes quite a while to build up a policy and governing apparatus that can function well. And right now all of Romney's political advisors are telling him that he dare not be a Jack Kemp Republican.

Calling All Republican Politicians...

Abraham bargained YHWH down to promising that He would not destroy Sodom and Gomorrah if Abraham could find ten righteous people in the two cities. Can anybody help me find ten righteous Republican office-holders who will say that the people of Iowa really, badly need to elect a different representative than Steven King?

Anybody seen even one?

Faiz Shakir:

Think Progress: King’s New Rationale For Voting Against Slave Labor Resolution: It Wasn’t ‘A Balanced Depiction Of History’: Yesterday... right-wing Rep. Steve King (R-IA) was the lone dissenter on a House vote to acknowledge the role that slave labor had in constructing the U.S. Capitol. The resolution would merely authorize the placement of a marker inside the new Capitol Visitor Center to acknowledge the work of slaves. In an attempt to quell the criticism, King spun his vote as an effort to defend religion. He said in a statement that he opposed the slave labor resolution because it was put up for a vote before the depiction of “In God We Trust” could be considered in the Visitor Center. But in an interview with Radio Iowa yesterday, King offered a new explanation for his vote, complaining that the slave labor resolution wasn’t a “balanced depiction of history”:

KING: I would just add that there were about 645,000 slaves that were brought to the United States. And I’m with Martin Luther King, Jr. on this. His documents, his speeches – I’ve read most of them. And I agree with almost every word that came out of him. Slavery was abhorrent, but it was also a fact of life in those centuries where it existed. And of the 645,000 Africans that were brought here to be forcibly put into slavery in the United States, there were over 600,000 people that gave their lives in the Civil War to put an end to slavery. And I don’t see the monument to that in the Congressional Visitor Center, and I think it’s important that we have a balanced depiction of history...

The Capitol Visitor Center is simply trying to recognize the work of those who built the Capitol. But King is apparently concerned that slaves are being unduly recognized while Union soldiers who fought for their emancipation are not getting any credit.... If he steps right outside the Capitol, he’ll see the Ulysses S. Grant memorial, a monument that commemorates the former general of the Union Army.... Grant’s statue is flanked on either side by monuments of fighting Union Artillery and Cavalry groups. The Grant statue faces west toward the Lincoln Memorial, which of course honors the President who led the effort to free the slaves. In addition, at the Congressional Cemetery lies the Arsenal Monument, a memorial in honor of women who died while performing services for the Union Army. And there’s also an African American Civil War Memorial that honors the contributions that African-American troops made to the war effort...

We will not mention King's mind-blowing claim that Stonewall Jackson made his flank march at Chancellorsville and George Pickett made his charge at Gettysburg "to put an end to slavery"...

links for 2009-07-09

What, Me Worry?: Few Expected Green Shoots in the Bond Market

Paul Krugman has a chart:

Bond panic subsiding? - Paul Krugman Blog -

and writes:

Bond panic subsiding?: Over the course of the spring there was a substantial rise in long-term interest rates; it was fed partly by talk of green shoots, but also, I suspect, by all the yelling about deficits and inflation. And, of course, the rise in rates was itself taken as evidence that inflation fears etc. were justified.

But the panic seems to be subsiding. Rates are still well above their post-Lehman lows, when credit markets were completely frozen and everyone was piling into govt. debt. But they’re low by historical standards, and not giving much ammunition to the worriers these days.

On the contrary, they are giving a significant amount of ammunition to the worriers--my brand of worriers, a different kind of worriers. We worry that the next two years are going to bring what happened after the end of the 2001 recession: something like this:

A recovery in which unemployment is higher two years later than when the recovery began is not much of a recovery. And I don't see what is going to keep the probability of such an eventuality low.

The lower are ten-year Treasury interest rates, the more are people trading in the bond market willing to bet their money that the future holds that kind of non-recovery recovery. And so I worry.

Republicans: The Party for People Who Don't Like Black People

David Kurtz of TPM:

Glad He Cleared That Up: We've gotten an explanation from Rep. Steve King (R-IA) for why he was the lone vote against acknowledging the role of slaves in building the U.S. Capitol. He did it to protest "a several year effort by liberals in Congress to scrub references to America's Christian heritage from our nation's Capitol":

Our Judeo-Christian heritage is an essential foundation stone of our great nation and should not be held hostage to yet another effort to place guilt on future Americans for the sins of some of their ancestors.

So there you have it.

New York Times Crashed-and-Burned Watch (Noah Milman on Ross Douthat Department)

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

Re-Entering the Palin-Drome: As someone who was quite enthusiastic about Sarah Palin for about 30 seconds, and then walked a long way back towards disliking her intensely.... I feel a certain obligation to make three points....

Point #1: There is an assumption running through Ross’ column that Palin, had she not been thrust into the arena too early and too quickly, might have developed into the kind of right-populist leader that the GOP really needs. That was, in fact, what I thought when I first heard of her (from Reihan, as it happens) some while before her sudden stardom: this looks like someone really promising, and... [McCain] needs to take a big risk because the safe choices aren’t going to do it, and she looks really promising. But it’s not what I think now, because I’ve seen how she actually performed. Ross is perfectly willing to say that she performed poorly. He doesn’t seem to be very willing to say that her performance reflects things about her fundamental character. Why?...

Point #2: The column, and Ross’ writing about Palin generally, treats her not so much as an actual person so much as a symbol, a personification of a certain type of person. There’s an expression for that: identity politics.... I’m surprised by the degree to which movement conservative politics in this country have become entirely the politics of identity, and the Palin phenomenon is the best evidence thereof. I think Ross should be against this trend....

Point #3: Ross is critical of the idea of meritocracy.... I’m interested, though, in how Sarah Palin represented a meaningful response to that idea. Meritocracy, in practice, means the selection of the “best and the brightest” for positions of power and authority, primarily by means of testing and scholastic hoop-jumping... “Mandarins.”... [T]here are alternative roads to power and authority... work[ing] your way up slowly through an organization... nepotism... "Talents”... who distinguished themselves by achievement in an entrepreneurial fashion.... Sarah Palin would, presumably, be one of this last group. But what, exactly, is her achievement, beyond her one election to the Alaska governorship?... [W]hat exactly is the great counter-meritocratic message that Palin purportedly embodies, and that Ross wants to salvage (presumably for some future candidate) from the wreckage of her brief career on the political stage?

American Right Wing Crashed-and-Burned Watch: Watching Sarah Palin

The Jeffersonian Democratic ideal was that the agrarian salt-of-the-earth people were virtuous, and would choose smart and virtuous men to be public servants--stewards of their interests and protectors of their government against corruption and luxury.

There is, however, one difference between the rhetoric of the Irving Kristol generation and the rhetoric of the William Kristol generation. In the Irving Kristol generation it was OK for the "gentlemen" to be hard-working or smart--it wasn't necessary, but it wasn't a positive disability.

For the William Kristol generation, however, it is. For them there are four legitimate ways to become rich and powerful:

  • You can peddle influence--use your Republican political connections to enrich a company, and take a share--that's OK.
  • You can inherit money--that's OK.
  • You can get a job though a relative--that's OK.
  • You can marry money--that's OK.

But work hard? Learn stuff? Think hard? That's not OK--that marks you as an "elitist."

Former Public Interest editor Mark Lilla: How... could younger conservative intellectuals promote a candidate like Sarah Palin... ignorance, provinciality and populist demagoguery... everything older conservative thinkers once stood against? It's a sad tale that began in the '80s, when leading conservatives... began to speak of an "adversary culture of intellectuals."... Irving Kristol... telling readers... that the "common sense" of ordinary Americans on matters like crime and education had been betrayed by "our disoriented elites," which is why "so many people--and I include myself among them--who would ordinarily worry about a populist upsurge find themselves so sympathetic to this new populism."... Over the next 25 years... a new generation of conservative writers... none of their elders' intellectual virtues... no longer to educate and ennoble a populist political tendency, it is to defend that tendency.... They mock the advice of Nobel Prize-winning economists and praise the financial acumen of plumbers and builders. They ridicule ambassadors and diplomats while promoting jingoistic journalists.... David Brooks noted correctly (if belatedly) that conservatives' "disdain for liberal intellectuals" had slipped into "disdain for the educated class as a whole."... There was a time when conservative intellectuals raised the level of American public debate and helped to keep it sober. Those days are gone.... [T]he conservative intellectual tradition is already dead...

I cannot help but think that a big role in this is played by the "neoconservative" disciples of Chicago political philosopher Leo Strauss, who pursued a form of intellectual politics that had three planks:

  • They sought as political front-men "gentlemen" who would not understand their ideas and doctrines but who could both be persuaded to follow their lead in designing policies and could win votes from the electorate--Ronald Reagan, Dan Quayle, George W. Bush, Sarah Palin. (George H.W. Bush's and Robert Dole's and Mitt Romney's problem, from their point of view, was that they were too smart).
  • The neoconservatives routinely lied to the outside world--advocated a false "exoteric teaching" that they thought would have good poitical effects.
  • The neoconservatives told the truth about what they believed and thought only to themselves--and not always then, for how could you know whether you were really one of those in on the con or one of the marks and suckers (hoi polloi, outer party, et cetera) for whom the point of the con was to make you think that you were in on the con.

But the "gentlemen" were supposed to undertand at some level that they were the front men and that they did need the smart guys in the back room to do policy and design message. Dan Quayle knew that he needed William Kristol. Ronald Reagan knew that he needed James Baker. What seems to be happening now is the coming of a generation--George W. Bush and Sarah Palin come to mind--who don't seem to understand that populist exultation of the salt-of-the-earth blood-and-soil kneee-jerk reactions of the regular-buy politician is the mask rather thqn the face:

Noah Milman had something to say about Sarah Palin--and Ross Douthat, who I take to be one of Mark Lilla's big targets:

Re-Entering the Palin-Drome: As someone who was quite enthusiastic about Sarah Palin for about 30 seconds, and then walked a long way back towards disliking her intensely.... I feel a certain obligation to make three points....

Point #1: There is an assumption running through Ross’ column that Palin... might have developed into the kind of right-populist leader that the GOP really needs. That was... what I thought... before her sudden stardom: this looks like someone really promising, and... [McCain] needs to take a big risk.... But it’s not what I think now, because I’ve seen how she actually performed. Ross is perfectly willing to say that she performed poorly. He doesn’t seem to be very willing to say that her performance reflects things about her fundamental character. Why?...

Point #2: The column, and Ross’ writing about Palin generally, treats her not so much as an actual person so much as a symbol... identity politics.... I’m surprised by the degree to which movement conservative politics in this country have become entirely the politics of identity, and the Palin phenomenon is the best evidence thereof...

Point #3: Ross is critical of the idea of meritocracy.... I’m interested, though, in how Sarah Palin represented a meaningful response to that idea. Meritocracy, in practice, means the selection of the “best and the brightest” for positions of power and authority, primarily by means of testing and scholastic hoop-jumping... “Mandarins.”... [T]here are alternative roads to power and authority... work[ing] your way up slowly through an organization... nepotism... "Talents”... who distinguished themselves by achievement in an entrepreneurial fashion.... Sarah Palin would, presumably, be one of this last group. But what, exactly, is her achievement, beyond her one election to the Alaska governorship?... [W]hat exactly is the great counter-meritocratic message that Palin purportedly embodies, and that Ross wants to salvage (presumably for some future candidate) from the wreckage of her brief career on the political stage?

The point that we want a multi-dimensional meritocracy is, I think, a very good one...

The Wall Street Journal News Pages Lose Their Mojo II

Not surprising, with Jonathan Weisman on the beat:

A Dig at Berlusconi?: Jonathan Weisman reports from L’Aquila, Italy: President Barack Obama had only been in Italy for a few hours before tongues began wagging over a perceived snub from the U.S. president to Italy’s colorful and embattled prime minister, Silvio Berlusconi.

In Rome just after noon, Obama stood next to the serious, elderly president of Italy, Giorgio Napolitano, a former Italian Communist Party leader, and praised him highly as a man “who has the admiration of the Italian people.” That admiration stems not just from the 84-year-old’s lifetime of service, the U.S. president continued, but because of “his integrity.”

“I had heard of the wonderful reputation of President Napolitano as somebody who has the admiration of the Italian people not only for his longstanding service but also his integrity, and his graciousness,” Obama said. “And I just want to confirm everything I have heard about him is true.”

With Berlusconi enmeshed in scandal over a teenager and alleged call girls caught on tape partying with the prime minister, Obama may not make mention of integrity when he meets the host of the summit of the Group of Eight leading economies here this afternoon.

But then again, the gregarious Berlusconi, always a showman for the cameras, isn’t likely to hold it against Obama.

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