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November 2009

Deficit-Neutral Stimulus

EPI's American Jobs Plan:

  • Strengthen the safety net"

    • unemployment compensation
    • COBRA health coverage
    • nutrition assistance)
  • Fiscal relief to state and local governments

  • Investments in transportation and schools

  • Direct creation of public service jobs

  • A new job creation tax credit.

"The American Jobs Plan... will create at least 4.6 million jobs in the first year, at a total first-year gross cost of roughly $400 billion. This entire cost can be recouped within 10 years by enacting a financial transactions tax (FTT), which would take effect three years after enactment... a highly progressive way to raise revenue by imposing a small tax on the sale of stocks and other financial products..."

At this point, anything that boosts the government's deficit over the next two years passes the benefit-cost test--anything at all. And EPI's ways of spending money are much better than anything the Senate is likely to come up with by itself.

The problem with an FTT, of course, is that it needs to be applied everywhere in the world all at once--or midtown Manhattan simply moves to Canary Wharf


And I Was Just This Morning Saying That the World Economy Had Dodged a Bullet...

Silly me. The bullet is still headed this way...

Robin Wigglesworth in Abu Dhabi and Simeon Kerr in Dubai:

Dubai rejects guarantee for Dubai World: The government of Dubai on Monday said it would not guarantee the debt of Dubai World as it sought to clarify comments made last week by the state-owned entity that sent shockwaves through global markets. In its first public comments since the crisis erupted over the liabilities of its public companies, Dubai’s department of finance on Monday outlined its policy towards the outstanding loans, which total $59bn. Abdulrahman al-Saleh, director general of Dubai’s department of finance, said in an interview with Dubai TV that creditors had to take responsibility for their own lending decisions and differentiate between advances to companies and the state. He also said global markets had overreacted to the news. Mr Saleh admitted that creditors of Dubai World, which owns DP World, the ports operator, and Nakheel, the property investment company, would be affected in the short-term but claimed there would be long-term benefits as the government restructured the business.

The Dubai department of finance said last week it would request a standstill on all Dubai World’s debts, including a $4bn sukuk or Islamic bond payable on December 14. Global investors were confused by the standstill request as Dubai officials had said for the previous three months that the trading and financial hub would face no problems in paying off its debts. The local Dubai Financial Market closed down 7.3 per cent on Monday, its biggest drop in a year, in its first trading session since the Eid al-Adha holiday. Other Gulf markets were closed because of the holiday. But shares in DP World, one of Dubai’s most valuable state assets, tumbled 15 per cent on the Nasdaq Dubai bourse. Five-year credit default swaps for Dubai rose on Mr Saleh’s comments, widening to 594.6 basis points according to CMA Datavision, after earlier tightening on UAE central bank intervention announced on Sunday.

Elsewhere, Dubai World has made the payment owed today on a Dh130m coupon on a sukuk issued by the Jebel Ali Free Zone Authority, the industrial park next to Dubai’s largest port owned by Dubai World, bankers said. But Nakheel, the company at the centre of Dubai’s financial woes, on Monday asked for all three of its sharia-compliant bonds worth $5.25bn to be suspended from trade “until it is in a position to fully inform the market”. Sentiment was not helped by a note from EFG-Hermes, a local investment bank, which said that the estimates of Dubai’s $80bn debt burden, consisting of bonds and syndicated loans, could rise to $120bn-$150bn if bilateral loans and other missing information were included.

In Dubai the mood among traders returning to work after the religious holiday was sombre. “We are very disappointed – we had expected the market to drift down. Instead it fell down ... just like that,” said Muhammed, a private investor, as he looked at a ticker covered in red. “This is punishment day. Why didn’t we sell last week? This is punishment for the unexpected news from Dubai World last week,” he added. The UAE markets limit trade on liquid stocks when they fall 10 per cent. Emaar, a major listed developer in Dubai and an important bellwether for the emirate, slumped 9.9 per cent as soon as the DFM opened.

The Abu Dhabi Stock Exchange, the third bourse in the United Arab Emirates, lost more than 8 per cent in heavy trading. “It’s a short-term panic sell-off,” said Emad Mostaque, an emerging markets fund manager at Pictet in London. “There are 100m sell orders on all the higher traded shares.” The UAE markets close again on Wednesday and Thursday for the country’s national day, before reopening on Sunday.

Egypt’s bourse lost 7.9 per cent as international investors take a more negative view over regional risks.


links for 2009-11-30

  • If you’re where I’m from, it’s impossible to hear [Springsteen's] songs and miss their intended meaning. I’m not saying that makes me better than David Brooks. Far from it. But how can people who get millions of dollars in speaking fees, who live in mansions in Connecticut and attend exclusive parties inside the Beltway claim that not having a universal health care system because of fears (stirred up by them) of socialism is what’s good for middle America
  • The current LRB has a wonderful example of one style of academic review: the long essay outlining the book that ought to be written about the subject, concluded by a paragraph dismissing the work under review. But what a paragraph!: "André Burguière does not want to admit this. For him Annales remains a cause to fight for. But his book will do the cause no good at all. It is written seemingly without any knowledge of the wider historiography. Lutz Raphael’s Die Erben von Bloch und Febvre, the best and most comprehensive account of the school, is mentioned in the bibliography, but there is no sign that Burguière has read it. Self-important, pompous, pretentious, solipsistic, often obscure, sometimes barely coherent, his book seems to address itself only to those in the know. The translation by Jane Marie Todd renders all these faults with exemplary accuracy."
  • Tom Friedman can declare with a straight face that "anyone who shoots up innocent people is ... mentally imbalanced" without seeing how clearly that applies to himself and those who think like he does.  It's that self-absorbed disconnect -- seeing Hasan's murder of American soldiers as an act of consummate evil and sickness while refusing to see our own acts in a similar light -- that shapes most of our warped political discourse.  And note the morality on display here:  Hasan attacks soldiers on a military base of a country that has spent the last decade screaming to the world that "we're at war!!," and that's a deranged and evil act, while Friedman cheers for an unprovoked war that killed hundreds of thousands of innocent civilians and displaced millions more -- all justified by sick power fantasies, lame Mafia dialogue, and cravings more appropriate for a porno film than a civilized foreign policy -- and he's the arbiter of Western reason and sanity.
  • ...that Obama has listened too much to Larry Summers, who is a deficit hawk, and who was never really a full believer in Keynesian prescriptions... He thought things should be left more to central bankers. And so went w/ a small stimulus. Here's the thing: this might not have been so bad but for a Fed which is perfectly content with 1.4% inflation and 9.7% unemployment. And but for Macroeconomists like Alan Blinder who call this "hitting the bulls-eye".
  • I wrote the blog entry in question, and it hasn’t stood the test of time nearly as well as Pittman’s article. At the time — between the collapse of Bear Stearns’s subprime hedge funds and the collapse of the bank itself — I was well aware of subprime alarmism, not only because of the Bear news, but also because I’d spent five months working for Nouriel Roubini. So I concentrated on the way that the story tried to back up its headline, dismissing its damning litany of problems with subprime credit ratings more generally as “2,000 words of throat-clearing”. Sorry, Mark. In hindsight, your story was indeed prescient, and helpfully aggregated a lot of the well-founded worries that the subprime crisis was going to get much, much worse, and that none of the ratings on subprime CDOs could be trusted. It wasn’t until a good six months after your article was published that I finally understood the importance of what you’d been saying.
  • Debra Doyle has pointed me at a piece by Mary Beard in her weblog, A Don’s Life, at TLS. It’s titled Pedicabo ego vos et irrumabo: what was Catullus on about?, and as Doyle says, it’s "A truly marvelous blog entry and comment thread, in which a discussion of the difficulties of translating certain Latin obscenities in Catullus becomes entangled with a discussion of the relative merits of oldest-first versus newest-first comment posting order." True. We do like that sort of thing.
  • I would say that this is blinkered, but we’re talking about Thomas Friedman, so that would be redundant. One of the most irritating things I have noticed during the last decade has been the whining from American pundits about how ungrateful the world’s Muslims have been in response to our alleged beneficence on their behalf. The grimly amusing part of this is that the whining pundits accept the assumptions of pan-Islamists, but put them to different, limited use: Muslims everywhere must feel gratitude for any assistance we have ever rendered to a Muslim population. Of course, if our policies have ever adversely affected a Muslim population, Muslims everywhere should not think that they have any particular interest in this, but should instead resist the siren song of pan-Islamism...

What Does the Obama Administration Think that It Is Doing?

Lizardbreath:

Unfogged: "Black Jail" In Afghanistan: We're apparently still holding prisoners incommunicado at Bagram for weeks at a time without access to the Red Cross. There's no possible excuse for this -- it's not as if there's domestic political pressure that makes abiding by international law and norms of civilized behavior in this regard particularly difficult. No part of the public who would think of this as being soft on terrorists is paying enough attention to make it an issue. I would really like to be making excuses for the Obama administration as generally well intentioned on this sort of human rights issue, but I have no idea at all of how one could possibly justify this sort of thing...

As far as our grand strategy goes, this is a big mistake...


A Very Odd Choice of Voices in a Front-Page New York Times Article...

Why do Jason DeParle and Robert Gebeloff think that Robert Rector is worth quoting?

It is a mystery:

The Safety Net - Food Stamp Use Soars, and Stigma Fades: Now nearly 12 percent of Americans receive aid — 28 percent of blacks, 15 percent of Latinos and 8 percent of whites. Benefits average about $130 a month for each person in the household, but vary with shelter and child care costs. In the promotion of the program, critics see a sleight of hand. “Some people like to camouflage this by calling it a nutrition program, but it’s really not different from cash welfare,” said Robert Rector of the Heritage Foundation, whose views have a following among conservatives on Capitol Hill. “Food stamps is quasi money.” Arguing that aid discourages work and marriage, Mr. Rector said food stamps should contain work requirements as strict as those placed on cash assistance. “The food stamp program is a fossil that repeats all the errors of the war on poverty,” he said...

Not, mind you, that Stacy Dean of CBPP sounds much better. The general pitch of the Food Stamps program is, was, and always has been "this program is here to help you"--except in the age of Ronald Reagan, who said: "She has eighty names, thirty addresses, twelve Social Security cards and is collecting veteran's benefits on four non-existing deceased husbands. And she is collecting Social Security on her cards. She's got Medicaid, getting food stamps, and she is collecting welfare under each of her names..." That's why the Food Stamps program has, historically, been much stronger than other social insurance programs.

DeParle and Gebeloff:

Support for the food stamp program reached a nadir in the mid-1990s when critics, likening the benefit to cash welfare, won significant restrictions and sought even more. But after use plunged for several years, President Bill Clinton began promoting the program, in part as a way to help the working poor. President George W. Bush expanded that effort, a strategy Mr. Obama has embraced. The revival was crowned last year with an upbeat change of name. What most people still call food stamps is technically the Supplemental Nutrition Assistance Program, or SNAP. By the time the recession began, in December 2007, “the whole message around this program had changed,” said Stacy Dean of the Center on Budget and Policy Priorities, a Washington group that has supported food stamp expansions. “The general pitch was, ‘This program is here to help you’”...

But I suppose that I should give DeParle and Gebeloff a pass for highlighting Food Stamp recipient Greg Dawson, who appears desperate to emphasize that unlike other Food Stamp recipients--who are immoral--he is a good guy. That is interesting as an attitude: it is valuable for the fact that the assertion is made even though the assertion is false:

With most of his co-workers laid off, Greg Dawson, a third-generation electrician in rural Martinsville, considers himself lucky to still have a job. He works the night shift for a contracting firm, installing freezer lights in a chain of grocery stores. But when his overtime income vanished and his expenses went up, Mr. Dawson started skimping on meals to feed his wife and five children. He tried to fill up on cereal and eggs. He ate a lot of Spam. Then he went to work with a grumbling stomach to shine lights on food he could not afford. When an outreach worker appeared at his son’s Head Start program, Mr. Dawson gave in. “It’s embarrassing,” said Mr. Dawson, 29, a taciturn man with a wispy goatee who is so uneasy about the monthly benefit of $300 that he has not told his parents. “I always thought it was people trying to milk the system. But we just felt like we really needed the help right now.”...

Like many new beneficiaries here, Mr. Dawson argues that people often abuse the program and is quick to say he is different. While some people “choose not to get married, just so they can apply for benefits,” he is a married, churchgoing man who works and owns his home. While “some people put piles of steaks in their carts,” he will not use the government’s money for luxuries like coffee or soda. “To me, that’s just morally wrong,” he said. He has noticed crowds of midnight shoppers once a month when benefits get renewed. While policy analysts, spotting similar crowds nationwide, have called them a sign of increased hunger, he sees idleness. “Generally, if you’re up at that hour and not working, what are you into?” he said.

Still, the program has filled the Dawsons’ home with fresh fruit, vegetables, bread and meat, and something they had not fully expected — an enormous sense of relief. “I know if I run out of milk, I could run down to the gas station,” said Mr. Dawson’s wife, Sheila...

Though why buying milk at the high-margin gas station is not morally wrong is beyond me...


UPDATE: A bunch of commenters don't seem to get the last point: I don't think it's immoral to buy steak or coffee or soda with Food Stamps. I don't think it's immoral to shop at midnight. I don't think it's immoral to buy milk at the gas station because the local supermarket is only open 8-6 and the 24-hour market is 40 miles away.

But sauce for the goose is sauce for the gander as well.


Jawboning on Mortgage Refinancing...

Lee Ohanian of UCLA would say that this program ought to be really, really effective. I, by contrast, have very serious doubts.

Peter Goodman:

Treasury to Pressure Mortgage Companies to Cut Payments]: The Obama administration on Monday plans to announce a campaign to pressure mortgage companies to reduce payments for many more troubled homeowners, as evidence mounts that a $75 billion taxpayer-financed effort aimed at stemming foreclosures is foundering. “The banks are not doing a good enough job,” Michael S. Barr, Treasury’s assistant secretary for financial institutions, said in an interview Friday. “Some of the firms ought to be embarrassed, and they will be.” Even as lenders have in recent months accelerated the pace at which they are reducing mortgage payments for borrowers, a vast majority of loans modified through the program remain in a trial stage lasting up to five months, and only a tiny fraction have been made permanent.

Mr. Barr said the government would try to use shame as a corrective, publicly naming those institutions that move too slowly to permanently lower mortgage payments. The Treasury Department also will wait until reductions are permanent before paying cash incentives that it promised to mortgage companies that lower loan payments. “They’re not getting a penny from the federal government until they move forward,” Mr. Barr said...


A Decision the George W. Bush Administration Has Never Explained

This seemed inexplicable at the time, and is even more inexplicable now:

U.S. forces missed chance to get bin Laden: WASHINGTON, Nov 29 - The U.S. military could have captured or killed Osama bin Laden in 2001 if it had launched a concerted attack on his hideout in Afghanistan, according to a report prepared for the Senate Foreign Relations Committee.

The report, written by staff working for the Democratic majority on the committee, said the al Qaeda leader’s escape was a lost opportunity that altered the course of the war and paved the way for insurgencies in Afghanistan and in Pakistan. ”Removing the al Qaeda leader from the battlefield eight years ago would not have eliminated the worldwide extremist threat,” the report said. ”But the decisions that opened the door for his escape to Pakistan allowed bin Laden to emerge as a potent symbolic figure who continues to attract a steady flow of money and inspire fanatics worldwide.”

U.S. soldiers and Afghan militia forces launched a large-scale assault on the Tora Bora mountains in 2001 in pursuit of bin Laden, believed to be hiding in the region with supporters after the Taliban government was removed from power. U.S. military leaders allowed Afghan militiamen to spearhead the assault and bin Laden managed to escape. The report said U.S. commanders rejected requests for more troops to launch a rapid assault in the area, relying instead on air strikes and the Afghan militias to lead the attack and Pakistan’s Frontier Corps to seal off escape routes. ”The vast array of American military power, from sniper teams to the most mobile divisions of the Marine Corps and the Army, was kept on the sidelines,” it said.

The report was especially critical of military leaders under former President George W. Bush, including former Defense Secretary Donald Rumsfeld and his top military commander, retired General Tommy Franks. Democratic Senator John Kerry, the chairman of the committee, has argued the Bush administration missed a chance to get bin Laden and his top lieutenants in Tora Bora just months after the Sept. 11 attacks on the United States...


links for 2009-11-29


Why Are Good Macro Policies Political Losers?

First of all, three points to serve as background:

  • From the day after the collapse of Lehman Brothers, the policies followed by the U.S. Treasury and the U.S. Federal Reserve and the U.S. administrations have been very helpful. They have been good ones. The alternative--standing back and watching the markets deal with the situation--would have gotten us a much higher unemployment rate than we have now. Credit easing by the Fed and support of the banking system by the Fed and the Treasury have significantly helped the economy: have kept things from getting much worse.

  • The fact that investment bankers did not go bankrupt last December and are profiting immensely this year is a side issue. Each extra percentage point of unemployment lasting for two years costs us $400 billion. A recession twice as deep as the one we have had would have cost us as a country some $2 trillion--and cost the world as a whole four times as much. In that scale and context the bonuses of Goldman Sachs are rounding error. And any attempt to make investment bankers suffer more last fall and winter would have put the entire support operation at risk: as Federal Reserve Vice Chair Don Kohn said, ensuring that a few thousands investment bankers receive their just financial punishment is a non-starter when attempts to do so put the jobs of millions of Americans--and tens of millions outside the United States--at risk.

  • The Obama administration's fiscal boost program has also significantly helped the economy: aid to impacted states has been a big win, the jury is still out on the effect of the tax cuts in the stimulus, and the flow of government spending on a whole variety of relatively useful causes is in train and is boosting production and employment in the same way that everyone's boost to spending boosts production and employment. And the cost of carrying the extra debt incurred is extraordinarily low: $12 billion a year of extra taxes would be enough to finance the fiscal boost program at current interest rates, and for that cost American taxpayers will get an extra $1 trillion of produced goods and services and employment will be higher by about ten million job-years.

The big valid complaints about policy over the past fourteen months are not that it has run up the national debt and not that it has rewarded the princes of Wall Street, but rather that it has, if anything, been on too small a scale--that we ought to have done more.

Yet these policies appear, somehow, to be political losers in Washington right now: nobody is proposing to do more along the same lines. This is strange: usually when something works the natural impulse is to do it again.

So we have a big puzzle: Just what is going on in America? Good policies that are working to boost production and employment without causing inflation ought to be politically popular, right?

I think two different things are going on--one with respect to the Obama fiscal boost that is the ARRA, and a second with respect to the TARP and related banking-sector support policies.

With respect to the ARRA--the stimulus package, the Obama fiscal boost--it seems to me that what is going on on the American right is simply (a) an outbreak of extraordinary intellectual and political dishonesty that (b) the press refuses to see.

For two and a half centuries economists have believed that the flow of spending in an economy goes up whenever groups of people decide to spend more. Sometimes and to some degree these increases show up as increases in prices and sometimes and to some degree as increases in production and employment. Sometimes these increases come because there is more spendable cash in the economy and sometimes because changes in opportunity cost make people want to spend the cash they have more rapidly. But always it has been that spending goes up whenever groups decide to spend more--and the government's decisions to spend more are as good as anybody else's, as good as the decisions of the mortgage companies and new homebuyers to spend more buying new houses during the housing bubble of the mid-2000s or of the princes of Silicon Valley to spend more building new companies during the dot-com bubble of the late-1990s.

Chicago economists' arguments that fiscal stimulus can't work are at best incoherent and usually simply wrong. Republican politicians' arguments that fiscal stimulus isn't working are simply ripped out of the Newt Gingrich playbook: lie all the time. Remember that back in 1993 when the Democrats' analyses led them to seek to reduce the deficit and spend less--well, back then the Republicans said that would destroy the economy too. And they were very wrong. But how many media stories about Republican claims make even a small attempt to evaluate them?

A stronger--but not much stronger--argument is that the ARRA is boosting employment and production, but at too great a long-run cost because it has produced too large a boost in America's national debt. If interest rates on U.S. Treasury securities were high and rising rapidly as the debt grew, I would agree with this argument. But that is not the case. Interest rates on U.S. Treasury securities are very low. They are not rising. The argument that the economy has too much debt--that the market does not want more debt--is belied by every single Treasury auction at which the market gobbles up huge new tranches of U.S. Treasury debt at high prices. What the market is telling us is that while the economy has too much private debt--prices of corporate bonds are low, and firms find financing expensive--the economy has too little public U.S. government debt, which everyone wants to hold. Those who claim that we have a debt problem, and you can't cure a debt problem with more debt suppress--sometimes deliberately--that since the start of the financial crisis private debt and U.S. Treasury debt have been very different animals, moving in different directions and behaving in very different ways.

That’s what is going on on the fiscal policy side—with the stimulus package. But what is going on on the banking policy side—with the TARP and its siblings? That I need to think more about...


Anti-Social Darwinism, British Belle Epoque Class...

D.H. Lawrence to Blanche Jennings, October 9, 1908:

The Letters of D. H. Lawrence: ...Pray do not trouble me about that paper on Art; I did not want it, I wanted your acknowledgement. I'm glad you like iut--I had much rather you found it to your taste than that your friend 'J' should. She is a Ruskinite; well, all Ruskinites are not fools. Does she herself 'make haste to see that none are in need of employment, food, or raiment', or does she spend the bulk of her time--her leisure--in reading appreciated novels and serious if not profound discourses on all manner of irrelevant subjects; in listening to lectures on Pre-Raphaelitism and the Ideal Home in attending concerts and Shaw-plays? I wrote the perp for her, not for the Bottom Dog; but because I would ask her to make up her m ind to turn her nose from the slum-stink; she is offended on behalf of poor, hungry, stinking humanity; as a matter of fact the snifs she takes are few and cautious; then, with the memory of a bad odor in her nostrils, or the report of a bad odor in her ears, she holds her head high and waxes indignant; feels virtuous on the strength of that same 'righteous indignation'. What devil was it that decreed that above all things men (and women supremely) must to themselves seem superbly virtuous? The deep damnation of self-righteousnss sticks tight to every creed, to every 'ism' and every 'ite'; but it lies thik all over the Ruskinite, like painted feathers on a skinny peacock.

As for the paper, keep it as long as you like, give it to whom you like, and to you think I could do anything with it? Where could I send short stories such as I write? Not to any magazine I know of--an you advise me? I will take to writing frivolously and whimsically if I can--if I could but write as I behave! There, I've had twenty years experience in dishing up my strong flavoured feelings in a nice smooth milk sauce with a sprinkle of nutmeg or cinnamon, but I've only had a few months of experience in making melted butter to be served with my writing.

I'm glad you're living in 'opulent idleness'. I've had three weeks of it (no mine was bourgeois idleness, that only keeps two maids) and I find it extremely suitable to me.

Concerning Daisy Lord, I am entirely in accord with you.[1] If I had my way, I would build a lethal chamber as big as the Crystal Palace, with a military band playing softly, adn a Cinematograph working brightly; then I'd go out in the back streets and main streets and bring them all in, all the sick, the halt, and the maimed; I would lead them gently, and they would smile me a weary thanks; and the band would softly bubble out the 'Hallelujah Chorus'.

I have no more time. I will send ou my new address. Write to me...


[1] Daisy Lord was sentenced to death in July 1908 for the murder of her illegitimate child; on August 15 the death sentence was commuted to life imprisonment http://roehampton.openrepository.com/roehampton/bitstream/10142/47339/10/Microsoft%20Word%20-%20Chapter%20Eight.pdf


American Enterprise Institute Total Fail...

And "Chip" chimes in with a defense of Alan Sloan, and a demonstration of yet more... "quote mining" by AEI senior fellows James Glassman and Kevin Hassett:

When Allan Meltzer Ceased Being a Real Economist...: Chip said...

Here is the full quote from Alan Sloan http://www.tcsdaily.com/discussionForum.aspx?fldIdTopic=7385&fldIdMsg=11145:

One of the maxims of investing is that if something sounds too good to be true, it probably is too good to be true. Which brings us to one of the hottest business books around, Dow 36,000 (Times Books, $25) by James Glassman and Kevin Hassett. I don't normally review books, but Dow 36,000 has lots of buzz, as we say in the trendsurfing business. With good reason. Hassett is a former senior economist with the Federal Reserve Board, Glassman is a smart writer who for the past six years produced a fine business column for The Washington Post. More than that, Glassman and Hassett have a head-turning thesis: that over the long term, U.S. stocks are no riskier than your grandmother's boring Treasury bonds and that the Dow, far from being overvalued, should be around 36,000. So you see why the book is buzzworthy. It's also schizophrenic. It has wonderfully clear explanations of financial theory, excellent advice on general investing approaches. But it's also got seriously flawed parts, where the authors assert claims with mathematical precision but actually play fast and loose with numbers.

My problem with Dow 36,000 has nothing to do with the fact that the Dow has fallen more than 1,000 points from its all-time high on Aug. 25. Stomach-churning, but for long-term investors, a mere blip. My problem is that even if you accept the thesis that U.S. stocks are no riskier over the long term than Treasury bonds--which I don't--you have to torture the numbers to justify 36,000 as a reasonable price for the Dow today.

Glassman and Hassett turn this into:

One of the hottest business books around.... It has wonderfully clear explanations of financial theory [and] excellent advice on general investing approaches.

So add Alan Sloan to Burton Malkiel on the list of those grossly and mendaciously misrepresented be the back cover of Dow 36000.


By contrast, the blurbs from Arthur Louis http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/1999/12/07/BU105598.DTL, Jim Jubak, and Allan Meltzer all appear to be fair...


More on American Enterprise Institute Quality, and Kevin Hassett and James Glassman's "Dow 36000"

In comments, John rescues the honor of Princeton's Burton Malkiel by pointing out where Kevin Hassett and James Glassman's claim that Malkiel had called their book "a well-written treatise that cannot be dismissed..." actually came from:

When Allan Meltzer Ceased Being a Real Economist...: John said...

Thanks for posting that photo. I am getting a kick out of reading those blurbs and the use of ellipses.

Burton Malkiel's blurb says: "Dow 36,000 is a provocative and well-written treatise that cannot be dismissed...."

What Burton Malkiel actually said: "Dow 36,000 is a provocative and well-written treatise that cannot be dismissed as easily as many of its critics have suggested. But what is at stake here is much more important than a debate among economists. This is a book with the goal of giving investment advice. For this reason I believe Dow 36,000 is a dangerous book that may lead some investors who can ill afford the significant risks of equity investments to throw caution to the wind."


When Allan Meltzer Ceased Being a Real Economist...

Those of us who liked Allan Meltzer's history of the Federal Reserve were shocked when he showed up this summer as a Republican hack, writing:

http://gopleader.gov/UploadedFiles/10-30-09_Meltzer_memo.pdf: There is no greater recognition of the failure of the stimulus program to create jobs than the efforts to mislead the public into believing the program had saved thousands, or millions, of jobs. One can search economic textbooks forever without finding a concept called “jobs saved.” It doesn’t exist for good reason: how can anyone know that his or her job has been saved? The Administration can make up any number it pleases. The number has no meaning...

As I wrote at the time:

If the concept of "jobs saved" does not exist, how come [in his Monetary History of the United States] Milton Friedman says that an extra $1 billion of open market operations in late 1931 would have stopped the Great Depression in its tracks?...

It has now been pointed out to me that the rot is at least a decade old: Allan Meltzer gave a truly remarkable blurb to Kevin Hassett and James Glassman's Dow 36,000 a decade ago:

As you will all recall, there are three big things very wrong with Dow 36,000:

  • It's arithmetic is simply wrong: they use the earnings yield where the valuation formulas say to use the dividend yield.

  • It is extremely hazardous to confidently predict the complete evaporation over the next three-to-five years of a market phenomenon--the equity return premium--that has been around for more than a hundred.

  • Should the equity return premium ever collapse, it will collapse not with a fall in the required return on stocks to the current real Treasury bond required return, but by a convergence of both stock and bond returns to some intermediate value.

Allan Meltzer should have known better. Indeed, I suspect that at the time he did know better.


Dubai: Why, Yes, Our Collateral Is Underwater. Why Do You Ask?

Google Image Result for http://www.designbuild-network.com/projects/palm-jumeirah/images/5-palm-jumeirah.jpg

Paul Krugman is judicious and sober:

Rashomon in the desert: Dubai or not Dubai — that is the question. Dubai’s sorta-kinda default (a state-owned enterprise seeking a rescheduling of its debts) is, by itself, not that big of a deal. But who else looks like Dubai? What kind of omen is this for the next stage in the financial crisis?

As far as I can tell, there are three ways to look at it — three stories, if you like, about what Dubai means.

  • First, there’s the view that this is the beginning of many sovereign defaults, and that we’re now seeing the end of the ability of governments to use deficit spending to fight the slump. That’s the view being suggested, if I understand correctly, by the Roubini people and in a softer version by Gillian Tett.

  • Alternatively, you can see this as basically just another commercial real estate bust. Either you view Dubai World as nothing special, despite sovereign ownership, as Willem Buiter does; or you think of the emirate as a whole as, in effect, a highly leveraged CRE investor facing the same problems as many others in the same situation.

  • Finally, you can see Dubai as sui generis. And really, there has been nothing else quite like it.

Gillian Tett is less happy:

Greece and Dubai show system remains unstable: A watershed in the derivatives world could be reached this week: the cost of insuring against a bond default by Greece, using credit derivatives, may rise above the comparable metric for Turkey for the first time.... [O]n Thursday – as markets reeled from the Dubai shock and investors fled from risk – the bid-offer spread on five-year Greek CDSs was 201bp-208bp, according to Markit. That of Turkish CDSs was 207bp-212bp, leaving them neck and neck (and according to Bloomberg data, in some trades the Greek CDS was even higher than Turkey). All this is a bitter blow to Greek pride. However, there is a much bigger moral here, which cuts to the heart of the Dubai saga, too.

Two years ago, global investors generally did not spend much time worrying about so-called “tail risk” (a banking term for the chance that seemingly remote, nasty events might occur). After all, before 2007, when the world was supposedly enjoying the era of the “Great Moderation”, the world seemed so stable and predictable that it was hard to imagine truly unpleasant events occurring. But in the past two years, a seemingly safe financial system has crumbled, and – to paraphrase Lewis Carroll – investors have repeatedly been asked to believe six impossible things before breakfast, ranging from the collapse of Lehman Brothers to the implosion of Iceland (and much else). Tail risk, in other words, has leapt into investor consciousness. And while the financial markets have stabilised in the past six months, that lesson about tail risk cannot be easily unlearnt... has left investors looking like veterans from a brutal war. Long after the fighting has stopped, the mere sound of a “bang”, is apt to leave them running for cover.

All this does not mean – let me stress – that it is correct to expect the world to melt down imminently.... [But t]ail risk has resurfaced with a vengeance.... For while investors used to assume that it was just emerging market countries that were prone to suffering truly nasty fiscal shocks, the debt fundamentals in Dubai are not necessarily so different from those in developed nations... the fundamental imbalances that created the crisis in the first place – such as excess leverage – have not yet disappeared. Beneath any aura of stability huge potential vulnerabilities remain. If Thursday’s events prompt investors to remember that, so much the better; not just in Dubai but in Greece, too.


The Hydropolis!

This should have opened by now--if they ever found anybody who was happy to have their collateral start underwater:

Hydropolis, The Underwater Hotel in Dubai Due To Be Completed Soon: The financial crisis is not over yet, but those guys from Dubai never knew what’s up with this crisis. Tourism in United Arab Emirates is going great and in order to do that, the Arab sheiks are funding a lot of astonishing structures like the Burj Dubai, but the latest construction that will be opened in a few weeks is simply amazing.

The Hydropolis was designed by Joachim Hauser and construction began in 2005, and it was due to be completed by the end of 2006, but there were some technical difficulties like design issues, and the rough sea. That’s history now as the underwater hotel who cost £300 million will be completed in the next few weeks.

Although it’s not the first underwater hotel, Hydropolis is definitely the most extravagant underwater hotel. Hydropolis consists of the land station which will serve as welcome area, a connecting tunnel, and the 220-suite hotel. The underwater hotel is one of the biggest contemporary constructions, and it’s located at about 20-30 meters below the surface.

Joachim Hauser says that the underwater hotel could only be built in Dubai as it has a very open-minded, international community, but I think this can be done because they have money and a natural exoticness...

Safari


links for 2009-11-27


Buce: Short Memories: Republicans and Civil Rights

Buce writes:

Underbelly: Short Memories: Republicans and Civil Rights: Short Memories: Republicans and Civil Rights There's a curious case of memory loss that seems to be afflicting both left and right this morning over the history of civil rights legislation. Link, (link). Start with Republican Rep. Virginia Foxx of North Carolina:

Just as we were the people who passed the civil rights bills back in the '60s without very much help from our colleagues across the aisle," said Fox. "They love to engage in revisionist history.

Shift now to Democratic Rep. Dennis Cardoza of North Carolina:

Today, what I’m hearing on the floor really takes the cake. The gentlelady from North Carolina, in her statement just now, indicated that the Republican GOP had passed the Civil Rights Act legislation with almost no help from the Democrats. I can’t believe my ears. It was the Kennedy and Johnson administration where we passed that Great Society legislation. It was over the objections of people like Jesse Helms from the gentlewoman’s state that we passed that civil rights legislation. John Lewis…

In response, Republicans gleefully jumped on the fact that Cardoza was wrong about Jesse Helms: he wasn't even in the Senate until 1972.

But on the larger issue--comments are still pouring in and I won't pretend to be keeping up with them; still, the fact is that Foxx actually had a kind of a point here. What she was really talking about the Civil Rights of 1957, which was passed on the initiative of the Eisenhower Administration, over the dead-body opposition of the Senate Democratic leadership--and only after the Democrats had so gutted it as to leave it largely meaningless.

How fast memories fade: recall that the pre-1960 Democratic party was a monstrous two-headed beast with liberal (sometimes radical) union members, blacks and intellectuals on one side and reactionary So;uthern whites on the other. It was the Republicans who still carried a progressive tradition on civil rights, going back to the founding of the party at the beginning of the Civil War.

Eisenhower himself, as many have observed, wasn't deeply hostile to blacks, but he just didn't get it: the real motivation came from the "northeast" wing of the party, notably Attorney General Herbert Brownell. Leading the Senate opposition was Majority Leader Lyndon Johnson. As others have remarked, this created thre ironic mirroring in which the forces in fazvor of enhanced civil rights were led by a man who had no particular taste to it, while the opposition came from one southerner whose attitude towards racial minorities was one of genuine compassion.

When he signed the Civil Rights Act, Johnson famously said he figured he'd delivered the south to the Republicans for a long time to come. That was the year Rep. Foxx turned 21.

Update: I am catching offline flac for having saddled Lyndon Johnson with the onus of "leading the Senate opposition." The point is made that Johnson was in fact the person who jammed the bill through. ITechnically correct, but am unrepentant. I don't doubt the sincerity of Johnson's compassion for blacks. But he had two choices: one, let the bill fail, at the behest of the old bulls who still dominated the august body (e.g., Johnson's personal mentor, Richard Russell of Georgia). And two, strip it naked and deprive of all nourishment and push it forth into a hostile world. Johnson knew he couldn't make his bones as a Presidential candidate in 1960 without a civil rights scalp in his belt. So he chose the path of betrayal.

I am, at the end of the day, something of the Johnson fan. He certainly is the most interesting president of my lifetime (or perhaps a close second, behind Richard Nixon). But there is no point in obscuring how many grandmothers he had to pitch under how many speeding locomotives to get where he wanted to be.


Time to Reread the History of Austria's Creditanstalt in 1931...

Interesting time. In Europe, the Creditanstalt's bankruptcy and what followed was what turned the recession into the European Great Depression...

Roula Khalaf: The emirate has a lot of explaining to do: It came in a short statement about the restructuring of Dubai World, one of the emirate’s biggest and best-known companies, with the big news buried towards the end. But the decision to ask bondholders of the company and its most troubled subsidiary, Nakheel, to extend maturities from December to May 2010 was a bombshell. And the Middle East’s most glamorous and creative emirate will pay the price of its decision for a long time to come.

For months, all indications in Dubai were that the heavily indebted city-state, symbol of the rise of the region as an economic powerhouse as much as of the excesses of the pre-financial crunch days, would meet the obligations of the companies it owns, and that Nakheel’s $4bn debt due in December would be repaid. Only a few weeks ago, bankers in the region were so upbeat that some had suggested that Dubai might not even need to raise more funds to pay debts due this year. It helped of course that the emirate was showing signs of recovery, with fewer expatriates packing their bags than had been expected, retail sales on the rise and the real estate sector, devastated by the economic crisis, beginning to stabilise. The government itself looked confident too, and it went to the markets to raise funds, bringing in $2bn in Islamic bonds last month.

As always, though, the problem in Dubai is that no one had all the facts, and perhaps some in the financial community had all the wrong assumptions. The whole affair, one financial analyst told me on Thursday, was “typical of the way things work in Dubai – top down and in a vacuum, and that makes it very difficult for investors”. True, top officials had indicated repeatedly that Dubai would not default on its debt – and Nakheel, developer of the extravagant Palm real estate project, was too important for Dubai to allow it to default. What officials have not explicitly said, however, was that the repayments would be made on time.

Interestingly, moreover, the prospectus that Dubai recently issued to test market appetite for government bonds said that the government was “not legally obliged” to meet the obligations of related entities – what is commonly referred to as Dubai Inc – but might at its sole discretion decide to extend such support. Most of the funds raised in the past year – including from Abu Dhabi banks on Wednesday, the same day that Dubai said it intended to call a “standstill” until May 30 on all its Nakheel and Dubai World debt due in December – were by the government itself, rather than individual companies.


links for 2009-11-26


Thanksgiving

Thanksgiving I:

Making Light: Thanksgiving: By the President of the United States of America.

A Proclamation.

The year that is drawing towards its close has been filled with the blessings of fruitful fields and healthful skies.

To these bounties, which are so constantly enjoyed that we are prone to forget the source from which they come, others have been added, which are of so extraordinary a nature, that they cannot fail to penetrate and soften even the heart which is habitually insensible to the ever watchful providence of Almighty God.

In the midst of a civil war of unequaled magnitude and severity, which has sometimes seemed to foreign States to invite and to provoke their aggression, peace has been preserved with all nations, order has been maintained, the laws have been respected and obeyed, and harmony has prevailed everywhere except in the theatre of military conflict; while that theatre has been greatly contracted by the advancing armies and navies of the Union.

Needful diversions of wealth and of strength from the fields of peaceful industry to the national defense, have not arrested the plough, the shuttle or the ship; the axe has enlarged the borders of our settlements, and the mines, as well of iron and coal as of the precious metals, have yielded even more abundantly than heretofore. Population has steadily increased, notwithstanding the waste that has been made in the camp, the siege and the battlefield; and the country, rejoicing in the consciousness of augmented strength and vigor, is permitted to expect continuance of years with large increase of freedom.

No human counsel hath devised nor hath any mortal hand worked out these great things. They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy. It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People.

I do therefore invite my fellow citizens in every part of the United States, and also those who are at sea and those who are sojourning in foreign lands, to set apart and observe the last Thursday of November next, as a day of Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens.

And I recommend to them that while offering up the ascriptions justly due to Him for such singular deliverances and blessings, they do also, with humble penitence for our national perverseness and disobedience, commend to His tender care all those who have become widows, orphans, mourners or sufferers in the lamentable civil strife in which we are unavoidably engaged, and fervently implore the interposition of the Almighty Hand to heal the wounds of the nation and to restore it as soon as may be consistent with the Divine purposes to the full enjoyment of peace, harmony, tranquillity, and Union.

In testimony whereof, I have hereunto set my hand and caused the Seal of the United States to be affixed.

Done at the City of Washington, this Third day of October, in the year of our Lord one thousand eight hundred and sixty-three, and of the Independence of the United States the Eighty-eighth.

By the President: Abraham Lincoln

William H. Seward, Secretary of State

Thanksgiving II:


A Good Unemployment Insurance Weekly Claims Number... Isn't It? Report

The Bureau of Labor Statistics Reports:

ETA Press Release: Unemployment Insurance Weekly Claims Report: In the week ending Nov. 21, the advance figure for seasonally adjusted initial claims was 466,000, a decrease of 35,000 from the previous week's revised figure of 501,000. The 4-week moving average was 496,500, a decrease of 16,500 from the previous week's revised average of 513,000.... The advance number of actual initial claims under state programs, unadjusted, totaled 543,926 in the week ending Nov. 21, an increase of 68,080 from the previous week...

Economagic: Economic Chart Dispenser

In short, the seasonal adjustment factor predicts that new UI claims should rise by 103,000 in the week before Thanksgiving relative to two weeks before Thanksgiving. Because claims only went up by 68,000, the BLS thinks that is very good news for the job market--not as many people are being laid-off from construction and Christmas rush goods-producing jobs as December nears.

The worry is that not as many people are being laid off because there aren't as many people at work in construction and Christmas rush goods-producing jobs to be laid off, and that we should be at the very least cautious in interpreting one-week movements in unemployment insurance claims. Perhaps we want to argue that the labor market is improving in a sense, but we should be clear on what sense that improvement is. It is:

in a normal year new weekly unemployment insurance claims rise by about 100,000 in the month before Thanksgiving; this year they have risen by only about 50,000. So things are getting better.

I really wish I could find a real expert on this seasonal adjustment factor...

Economagic: Economic Chart Dispenser

Economagic: Economic Chart Dispenser


links for 2009-11-25


This May Make My Life Significantly Easier...

Teresa Nielsen Hayden:

Making Light: Restoration Hardware et al. vs. the TSA: I was checking out the stocking-stuffer gadgets the other day at Restoration Hardware and found a nifty little object called a Utili-Key. Unfolded, it’s a combination screwdriver (phillips head, micro-flat, eyeglass), knife blade (partly serrated), and bottle opener. Which is useful. Folded, it looks like a key, which means it can lurk like a sleeper agent on your keychain. (There’s also an eight-tool version, but it doesn’t look as much like a key.)...


What Are the Central Bankers Thinking?

Ryan Avent calls for Ben Bernanke's head:

The threatened Fed: There is ample reason to feel that the recovery might be weak and jobless. Fed projections basically reflect this. The Federal Open Market Committee generally expects growth for the American economy in the neighbourhood of 2.5% to 3.5% in 2010, with the unemployment rate holding between 9.3% and 9.7%. Expectations for growth in 2011 and 2012 are higher, ranging roughly from 3% to 5%, and the FOMC believes that the unemployment rate might possibly fall as low as 6.8% by the end of 2012. That's five years after the onset of the recession.... Core inflation is forecast to reach no higher than 1.7%, even into 2012.

But the minutes reflect no inclination to do anything more than what has already been put in motion. Indeed, participants remain very concerned about how they'll pull back on their various interventions.... [I]t's hard to know quite what to say. There was some interesting writing last week on the subject of Fed independence and whether or not the central bank could actually generate some inflation, if it wanted to.... [T]he FOMC believes that it probably could... yet it will not, despite its own forecasts indicating that full employment—the maintenance of which is one of the Fed's primary goals—isn't likely to return for at least the next three years.

I noted last week that political control of monetary policy would inevitably lead to accelerating inflation. Central bankers seem to have warped this truth into its mistaken corollary—that price stability means never doing what political actors want, even if what they want is actually what's best. But now the Fed finds itself in a real bind. If it continues ignoring unemployment, then it may face angry legislators determined to rein in the central bank. If it agrees that taking more steps to try and engineer some inflation is a good idea, it may well be perceived to have given in to political pressure.

Another way to put this is to note that there's no avoiding the threat to Fed independence here; there is no safe path to protection of the sanctity of monetary policymaking. Given that, the best thing for the politicians to do may well be to try and put the central bank in a position where it feels confident enough to do the job it's actually supposed to do. And I think that means new blood. Replacing Mr Bernanke with someone publicly committed to focusing on all aspects of the central bank's mission...

Me? I can't see anyone I trust to better analyze central banking issues than Ben Bernanke. I would settle for the Federal Reserve's adoption of a formal 3% per year GDP deflator inflation target. Just saying.


Debts and Deficits: Martin Wolf Is Right

In general, Martin Wolf is right. Paul Krugman too. And when they explicitly degree they are superright and you can take that to the bank.

Today Martin Wolf has, as usual, very smart things to say about the deficit and the debt:

Give us fiscal austerity, but not quite yet: While the increase in the debt ratio is very large in both [Britain and the U.S.], the levels expected to be reached by 2014 are not historically exceptional, particularly for the UK.... [T]hose past record levels did not create insuperable problems. In the 19th century, both countries grew out of their debt satisfactorily, with price stability. In the second half of the 20th century, they did so again, though inflation then helped.

This is not surprising. Assume that the real rate of interest is 2.5 per cent. Then the servicing costs, in real terms, of a debt burden of 100 per cent of GDP is just 2.5 per cent of GDP – almost a bagatelle. Assume, too, that the trend rate of growth equals the real interest rate (a not unreasonable assumption). Then the requirement for debt stability is a balanced primary budget (that is, before interest payments). Again, this is hardly crippling.

So what is the problem? It is that people may lose confidence that the governments will ultimately bring deficits under control.... [C]utting peacetime deficits is hard: every pound or dollar comes with a lobby group attached. Merely promising to cut deficits lacks plausibility....

Yet even if the fiscal rope is not infinitely long, slashing deficits now would be wrong. It is extremely likely this would tip economies back into recessions, as happened in Japan in the 1990s. Furthermore, the results would also probably include expansion of quantitative and credit easing by central banks. Yet those policies, too, risk undermining credibility....

So what should be done? I agree fully with the remark by Dominique Strauss-Kahn, managing director of the IMF, in London this week that “it is still too early for a general exit” from accommodative policies.... What is needed, instead, are credible fiscal institutions and a road map for tightening that will be implemented, automatically, as and when (but only as and when) the private sector’s spending recovers.... There are losses to be shared, much of which will fall on public spending, taxation, or both. Once it becomes evident that neither of these countries can rise to the challenge, fiscal crises are inevitable. It would only be a question of when.

Britain is in slightly worse shape. But if the United States (a) sticks to PAYGO, and (b) successfully reforms health and bends the curve, it could spend as much as it wanted on fiscal stimulus without worries.


Did Ezra Klein Just Say that Tim Geithner Should Be Pitched Over the Side?

Ezra Klein:

Ezra Klein: Noam Scheiber defends Timothy Geithner against those demanding his resignation. Scheiber is right on the merits, I think, but the politics matter. Whether Geithner did his best against a bad hand, he created a public relations disaster by bailing out Wall Street and returning it to wild profitability without doing something, anything, to satiate the public's desire for retribution against the guys who almost ruined the economy. The downside of not denying the public a piece of Wall Street's scalp is that vulnerable members of Congress now have little chance but to demand Geithner's.

And this isn't just Geithner's problem, incidentally. It's true for the whole administration. The bailouts were necessary, but they were also understandably unpopular, and there's been virtually nothing done to balance the scales. No windfall profits tax, or transaction tax. No breaking up big banks, or capping salaries across the board. Financial regulation has been sold as a constructive discussion with the banks rather than a punitive measure to prevent future wrongdoing. The absurd result is that Republicans are playing the populist card (while quietly blocking financial regulation) and frustrated congresspeople are turning on the administration, because the administration has kept them from turning on the banks.

The right response to the financial crisis and to extremely high paychecks for actions of dubious social utility is:

  • to bail bankers into the risks they make their firms assume--to mandate Silicon Valley compensation schemes.
  • to impose high capital requirements--and to smoothly and swiftly shut down organizations that fail to meet them immediately.
  • to establish progressive income and wealth taxes.

Delivering Tim Geithner's head to congress does none of those things. And it weakens the administration: Geithner is where he is because for thirty years everyone who has dealt with Tim (except when he is paying his self-employment taxes) has found that when Tim is on your side, you tend to win. He is very good at a huge number of dimensions of this, where "this" is the business of government.

The administration, the country, and the world face lots of challenges right now. And weakening it does not seem to me to be smart.


Everyone Working for the Washington Post Should Hide Their Head in Shame

UPDATE: Yes! Another source of misinformation gone!!

A correspondent sends me a link to Robert Macmillan, Washington Post closing remaining U.S. bureaus.

Thank you, God...


And the thing should be shut down immediately. Just saying.

Howard Gleckman on George "It's My Business to Lie as Much as Possible" Will:

TaxVox: the Tax Policy Center blog :: Off to the Big House: Penalizing Non-Buyers of Health Insurance:

“Democrats health bills depend on forcing individuals to buy insurance or face severe fines or imprisonment.”

George Will, Nov, 19, 2009

Before we spin off into a Thanksgiving reprise of last summer’s death panel lunacy, let’s be clear. Nothing in Will’s statement is true.... if you don’t get coverage, you pay. But “severe fines,” as Will claims? Hardly. Under the Senate bill, someone who refuses to buy would pay an initial annual penalty of $95. Will probably spends more than that for one of his bow ties.  And imprisonment? Give me a break. There is no such penalty in either bill. The  argument, as I understand it, is that those who don’t buy insurance and refuse to pay the fine could be charged with criminal violation of the tax laws.... Some of the tax cheats recently caught up in the UBS scandal got a few months for failing to pay millions of dollars in back taxes, but I have never heard of anyone being sent up the river for failing to pay $95 in taxes. More likely, the IRS would garnish their wages for the 95 bucks. Not exactly hard time in the big house. In truth, the problem is not that the penalty is too harsh. It is that it is much too weak...

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


Ways to Boost Your Student Evaluations

Alex Tabarrok writes:

Marginal Revolution: Sweet Trade: Here is a fun, easy and effective experiment that instructors can use to illustrate the gains from trade.  The instructor puts chocolate bars ("fun-size") or other candy in bags, one bag for each student. (Alternatively, you can use the type of small items that you can find at a dollar store.  Filling the bags is where the most work comes in especially if you have a large class). Students open the bag and are then asked to write down how much they would be willing to pay for the bag's contents.  But before snacking, students are allowed to trade.  After a few minutes of trade, ask the students to write down their valuation again.  Voila!  Gains from trade.  With a few numbers pulled at random from the students you can do a back of the envelope calculation for the total increase in value.  The experiment doesn't take long and the students will appreciate the candy!

A hat tip to Randy Simmons who first introduced this experiment to me.


Hoisted from the Archives (2002): Mark-My-Beliefs-to-Market Time: Argentina

Hoisted from the Archives:

Mark-My-Beliefs-to-Market Time: Archive Entry From Brad DeLong's Webjournal: I am reading Michael Mussa's brand-new very short book on the latest Argentinian financial crisis [Michael Mussa (2002), Argentina and the Fund: From Triumph to Tragedy (Washington: Institute for International Economics: 088132339X)]. In The Importance of Being Earnest, Oscar Wilde gets a laugh out of the idea that a chapter on a rupee crisis is too exciting for young ladies--out of the idea that a technical discussion of anything having to do with international finance can be anything but deadly boring. But reading this is different.

First, I'm weird: I'm an economist, which means (these days at least) that I don't even have the sparkle and flash, the willingness to take risks and go out on limbs, that accountants have. Second, the Argentine crisis is an important setback for human happiness--a much more important tragedy even than the closing of a Zambian copper mine. Plus the crisis has important lessons for international economic policy in the future.

Third, Michael Mussa--former chief economist at the IMF for a decade--is a fearless and witty guy: he (reportedly) spoke of his boss at the IMF, Michel Camdessus, as a man who was 'so optimistic he always sees the glass as half full, even when there's no glass at all'; in this book, he writes of the IMF following its standard approach when a government fails to meet the policy targets it has committed to--the standard 'three-monkeys approach: see no evil, hear no evil, speak no evil'; he writes of the proposals of the Meltzer Commission for IMF reform as '...unnecessary, unworkable... fundamentally misguided...'; and he writes of the Fund staff's spring 2001 analysis of the dynamics of Argentina's debt, '...if, if, if... if my grandmother had wheels, she would be a bus...'

Thus I had no trouble staying awake through the book.

Toward its end, Mussa calls for a thorough evaluation of the Fund's role in Argentina, an evaluation to take the broadest possible scope. He writes (p. 71) that:

.>.. it is my view that the Argentine government's basic decision to combine efforts at macroeconomic stabilization with market-oriented reforms was the right policy approach... the spectacular success of the Argentine economy throughout most of the past decade is attributable to this basic policy choice... the spectacular collapse in 2001 is due to the failure to implement this strategy sufficiently vigorously, especially in... fiscal discipline. Others... may be inclined to the view that the policies... are fundamentally wrong and were doomed form the start.... An evaluation of the Fund's role in Argentina should reflect on this broad question...

And so I have begun thinking: What if I wanted to make the argument that the neoliberal policy mix adopted by President Carlos Menem and Finance Minister Domingo Cavallo was a big mistake, that it was all doomed to failure from the beginning and should not have been undertaken, that from the moment he proposed his Convertibility Plan to stop Argentina's hyperinflation the Sunday Horse was pulling the Argentine cart down a track that led nowhere? What would that argument look like?

As I see it, such an argument would have five steps:

First, the neoliberal program pushed by Domingo Cavallo demanded free markets--the end to protectionism, the end to quantitative restrictions of all kinds, the end of limits on freedom of contract, and most importantly the end to controls on the ability of not just goods but money to flow into and out of Argentina, and the end of the government's ability to force Argentines to denominate their wealth in a unit of account--the peso--whose value it controlled.

Second, the neoliberal program pushed by Domingo Cavallo required a hard peg of the value of the peso to the dollar: nothing else would convince Argentines that the days of hyperinflation had passed, and that they no longer had to dissipate resources and waste time insuring themselves against inflation, but could trust the unit of account.

Third, Argentina is a country in which the government constantly promises the people more than it can deliver. It promises rich oligarchs that it will not collect too much in taxes. It promises workers and consumers a generous social insurance state. It promises rapid economic development, large expenditures on infrastructure, jobs for politically well-connected boys, and so forth. An unequal distribution of income and wealth, a lack of social comity between the working and the middle classes, a viciousness in politics going back to General Galtieri, the Dirty War, Juan Peron and his enemies, and even before means that claims on national product and demands that the government enforce those claims are inevitably going to mount up to more than 100% of what is available. The basic political fight over how national product is to be distributed among social classes is unresolved, and any political movement that makes only promises it can keep is doomed to rapid defeat.

Hence, fourth, in Argentina government deficits--large government deficits--are a law of nature, a fact of life. Moreover, everyone knows that large government deficits are a fact of life and a law of nature. Hence interest rates on Argentine debt will be low and reasonable only rarely and for short periods.

Fifth, points one through four mean that the neoliberal reform program in Argentina in the 1990s had exactly the same chance of avoiding disaster as one would expect if one gave a modern gene-splicing biochemistry lab to Doctor Frankenstein. The fundamental unresolved conflicts of Argentine politics mean that debt is going to mount. The fact that everyone knows that Argentine politics generates chronic deficits means that the interest payments due on that debt are likely to explode. Exploding interest payments mean that the dynamics of Argentine debt are unstable, and thus that the hard-currency exchange-rate peg cannot last. And free access to international capital markets, to dollar-denominated bank accounts, and so on, and so forth, means that when the crisis caused by the contradiction between the hard currency peg and the fundamentals of Argentine politics comes, it will be five times as bad: at least with tight controls on foreign exchange and a primitive, underdeveloped banking system, the amount of damage a government default can do to normal economic life is limited.

From this perspective, pushing neoliberal, market-opening reforms on Argentina looks as wise as giving a supply of gasoline to a bunch of pyromaniacs, on the grounds that gasoline is a very useful and powerful fuel.

My intellectual problem right now is that this argument I have just constructed--which was supposed to be a strawman that I, a card-carrying neoliberal, could easily demolish--feels too convincing.

Michael Mussa (2002), Argentina and the Fund: From Triumph to Tragedy (Washington: Institute for International Economics: 088132339X).

Bergsten, p. viii: "[Mussa's] conclusion that the Fund's last pre-crisis loan to Argentina in August 2001 was 'the greatest mistake the Fund made in my ten years there' is thus of considerable importance in the ongoing debate over this crucial and tragic case."

p. 3: "...in other cases... Mexico in 1995; Indonesia, South Korea, and Thailand in the Asian crisis... Brazil... a Fund-supported program was started only after the crisis was already under way. Thus, any failures of the Fund in the pre-crisis period were those of its relatively low-intensity surveillance activities. For Argentina, the failures of the Fund are clearly associated with the core of the Fund's [activities]... when it is providing financial assistance and when the policy and performance of the member are subject to the intense scrutiny of Fund conditionality..."

p.3: "The end result in Argentina has clearly been a disaster... not intended or, until recently, broadly anticipated--by the Argentine authorities, the Fund, or anyone."

p. 4: "...the Fund did make at least two important mistakes... failing to press the Argentine authorities much harder to have a more responsible fiscal policy, especially during the high growth years... extending financial support to Argentina during the summer of 2001, after it had become... clear that... efforts to avoid default and maintain the exchange rate peg had no reasonable chance of success."

pp. 5-6: "...if the Argentines had decided to move to an alternative, more flexible exchange rate and monetary policy regime that maintained reasonable monetary policy discipline, this would also have been acceptable to the Fund. Indeed, at least some in the Fund... would have welcomed serious consideration of such a move..."

p. 6: "As the crisis deepened... and the deficit targets set in the Fund-supported program were missed, the Argentine authorities sought to undertake further austerity measures. The Fund supported these efforts.... However, had the Argentine authorities decided at some time during 2000-2001 ... to pursue an alternative... debt restructuring and a possible change in the exchange rate regime, the Fund would have supported responsible efforts in this direction..."

pp. 9-10: "In sum, if things had broken more in Argentina's favor, this surely would have helped to preserve the success.... Enumerating the many things that contributed to Argentina's tragedy, however, should not obscure the critical, avoidable failure of Argentine economic policy that was the fundamental cause of the disaster--namely, the chronic inability of the Argentine authorities to maintain a responsible fiscal policy..."

pp. 15-16: "In sum, during the period 1993-1998 when the Argentine economy was performing very well [average annual real GDP growth rate of 4.1%] and the Argentina government was receiving substantial nonrecurring revenues from privatization and enjoyed other temporary fiscal benefits [that amounted to 2 percent of a year's GDP], the public-sector debt-to-GDP ratio nevertheless rose by 12 percentage points [from 29 to 41 percent of GDP]. This clearly was not an adequately disciplined or sustainable fiscal policy..."

p. 16: "Because most industrial countries have government debt-to-GDP ratios above 50 percent and some above 100 percent, it might be asked why a debt-to-GDP ratio of just above 40 percent was worrying for Argentina. There are at least five important reasons. First... Argentina has had little success in raising tax revenues (including social security contributions) of more than 20 percent of GDP.... Second... government debt denominated in foreign currency... held externally, Argentina faced the dual challenge of persuading creditors that it was capable both of raising sufficient fiscal revenues to service its debt and of being able to convert these revenues into foreign exchange with an exchange rate that was rigidly pegged to the U.S. dollar.... the ratio of external debt to exports... more than 400 percent.... Third, it is not just the level of the government debt... it is also how the debt has been behaving.... Fourth... Argentina... was potentially vulnerable to external economic shocks.... the collapse of Brazil's crawling-peg exchange rate in early 1999 had important negative spillovers... the debt-to-GDP ratio jumped from 41 percent in 1998 to 50 percent in 2000.... Fifth... Argentina was clearly vulnerable to changes in financial market sentiment... [that might become] self-fulfilling..."

p. 18: "When the actual fiscal deficit began to exceed the program targets during 1995 because of an economy that was weaker than expected, the Fund... showed unusual flexibility (by past Fund standards) in allowing an upward revision of the deficit target. In my view, this was the right approach.... Unfortunately, the Fund's flexibility... was not applied symmetrically. Starting in late 1995, the Argentine economy began three years of very rapid recovery... one would have expected that the Argentine government's fiscal deficit would have come in well below the permitted target... [but] it was just below or even slightly above.... During 1995, when the recession turned out to be steeper... there was plausible reason to grant waivers.... At other times... it is difficult to understand why the Fund did not make active use of its conditionality to press the Argentine government to maintain a more responsible fiscal policy.... And the fiscal targets were significantly less demanding than they appeared to be (even allowing for stronger-than-expected economic growth) because they conveniently ignored... government borrowing that were viewed by the Argentines as off-budget..."

p. 24: "...the fundamental choice of Argentina's monetary policy framework and exchange rate regime was a choice for the duly constituted government of Argentina. The Fund could advise.... However, the basic choice of regime is a decision of the [Fund] member--at least up to the point where the chosen regime has no reasonable chance of success.... Thus, though an independent observer might conclude that the rigidities of the [exchange rate] Convertibility Plan deserve relatively more weight, and the failures of Argentine fiscal policy relatively less weight, in the blame for the tragedy that ultimately befell Argentina, this is not the relevant perspective from which to view the role of the Fund. For the Fund, the relevant question was--given the choice of Argentina to adopt and maintain the Convertibility Plan--what other policies were necessary to make the stabilization and reform effort a success. Given the plan, failure to maintain a sufficiently prudent fiscal policy would likely prove a fatal error. The Fund, having accepted the Convertibility Plan, had the responsibility to press very hard to avoid this fatal error."

pp. 27-30: "For the Fund, the deteriorating situation in Argentina in the autumn of 2000 presented a critical challenge.... A star pupil that the Fund had praised and supported as a model of economic liberalization and reform was in danger of turning into a basket case.... One approach would have been to continue with an essentially standard Fund-supported program... [of] up to 100% of its Fund quota.... The main difficulty... was that... it was clearly inadequate. A second approach would have been to conclude that because of the continuing recession... further official [Fund] support would be available only on the condition that Argentina reach agreement with its private creditors that would substantially reduce its financing requirements in the coming years.... Necessarily, this rescheduling of private credits could not be entirely voluntary.... [A] decision by the Fund in late 2000 to press Argentina into a debt restructuring that would have amounted to a de facto sovereign default would have been a very weighty matter. The Argentine government was dead set against such action.... At the Fund... there was little enthusiasm for such an approach... the Argentine situation was not seen as without realistic hope.... The third approach... actually adopted... [was] levels of support substantially greater than in standard Fund-supported programs... the deficit target would be set so as to carefully balance the need to keep borrowing within responsible limits... against the very real economic and political difficulties of fiscal consolidation in a deepening recession. Official financing would... meet virtually all of Argentina's projected external financing requirements for 2001, assuming the program's fiscal objectives were met..."

pp. 45-8: "By August 2001... prospects for a favorable outcome were pure fantasy.... [I]nterest rate spreads... were... in the range of 1300 to 1600 basis points. This implied nominal interest rates for the Argentine sovereign... of 18 to 22 percent, with real interest rates even higher due to deflation. Economic recovery was impossible in this situation.... The Argentine government's fiscal policy... could not meet its targeted objectives.... The political consensus to raise the huge primary surplus... required to demonstrate sustainable debt dynamics... was, quite understandably, nowhere apparent.... An emergency injection of another $6 billion in cash from the Fund was urgently needed just to stave off immediate default and keep the farce going for another few months.... [A] wide range of analysts... often with differing views on many issues concluded that the game was over for Argentina. Only a fool would conclude otherwise. Why, then, did the Fund... acquiesce in this folly?... Here there was a failure of intellectual courage... and a failure of moral courage.... Argentina was not helped... assistance that was potentially far more valuable in helping to contain the damage once a de facto sovereign default had occurred was instead squandered in a futile effort to avoid the inevitable..."

pp. 60-64: "What should be the elements of the policy program...? Six elements can be delineated.

First, the program should be based on realistically optimistic economic assumptions... real GDP will likely fall 10 to 15 percent in 2002... the value of the peso at the end of 2002... 20 or 25 U.S. cents... domestic inflation... headed over 200 percent [in 2002]...

Second.. the government budget needs... the deficit... within the bounds of what can be financed without... hyperinflation.... Tax revenues are likely to be very low because of the economic collapse and very poor tax compliance... substantial costs to the government from dealing with the mess it has created in the Argentine banking system... the absolutely essential task of reining in the deficits of the provinces and terminating their discretionary authority to borrow...

Third... a reasonable framework for monetary policy... contain the initial inflationary surge from the collapse of the peso and then bring the inflation rate down to more moderate levels during the course of the next two years...

Fourth... [a] unified floating exchange rate... the peso inevitably will depreciate very substantially (from its old parity) in real terms--and even more so in nominal terms...

Fifth, something needs to be done to clean up the horrendous mess in the Argentine banking system.... Four actions of the Argentina government have made the banking system... insolvent.... (1) The government defaulted on its... own dollar-denominated debt... held by Argentine banks. (2) The government reneged on... the Convertibility Plan.... (3) The government mandated that dollar-denominated loans of Argentine banks were payable in pesos. (4) The government mandated that dollar-denominated deposits at Argentina banks be converted into pesos at a [higher] exchange rate...

The first three actions together effectively forced a massive write-down in the dollar value of [bank] assets... a write-down that was unavoidable.... The Argentine government.. lacked the political courage to tell the Argentine people... that the U.S. dollar value of their deposits... was being sharply reduced as a result of government actions. Instead, through the fourth action, the Argentina government sought to purvey the fiction that most of the dollar value of deposits could be preserved... and shift the blame for the losses of depositors from the government to Argentine banks. Now the Argentine public has, with good reason, lost confidence in the banking system and... the government.... Moreover, the owners of Argentine banks... robbed of all their invested capital... have little reason to believe any promises of the Argentine government... no incentive for [anyone]... to put in new capital to refloat the banking system... Sixth... signal their intention to pursue good-faith efforts to deal responsibly with their external sovereign debt.... [F]oreign creditors... need to recognize that... they will not be made whole, but... need to share in the enormous economic losses.... Argentine authorities must ensure that foreign investors are... not forced to accept disproportionately large losses...

p. 67: "The Fund is expected to... act both as a sympathetic social worker and as a tough cop."

"the 'three-monkeys approach' to dealing with government failures to meet policy targets that it has promised the Fund: see no evil, hear no evil, speak no evil..."

p. 71: "... it is my view that the Argentine government's basic decision to combine efforts at macroeconomic stabilization with market-oriented reforms was the right policy approach... the spectacular success of the Argentine economy throughout most of the past decade is attributable to this basic policy choice... the spectacular collapse in 2001 is due to the failure to implement this strategy sufficiently vigorously, especially in... fiscal discipline. Others... may be inclined to the view that the policies... are fundamentally wrong and were doomed form the start.... An evaluation of the Fund's role in Argentina should reflect on this broad question..."

p. 74: proposals of the Meltzer Commission as "...unnecessary, unworkable... fundamentally misguided..."

p. 78: of the Fund staff's spring 2001 analysis of Argentina's debt dynamics, '...if, if, if... If my grandmother had wheels, she would be a bus...'


The Peculiar Puzzle of Blanche Lincoln and Carl Hulse

Matthew Yglesias writes:

Matthew Yglesias: Blanche Lincoln, Racing Horse: Blanche Lincoln has emerged as one of the pivotal votes in the US Senate debate about health care reform. So an article about her and her role in the debate seems like a smart thing for a newspaper to run. Which makes Spencer Ackerman’s tweet quite apropos: “Hey let’s say that I didn’t pay any attn to HC yesterday. Shouldn’t this piece [by Carl Hulse in the New York Times tell me why Lincoln opposes the bill?” Exactly. It’s striking to me how little scrutiny the stated views of public option opponents tend to get....

The situation is even weirder, for, as Ivan Volsky points out:

Blanche Lincoln’s Website Still Says She Supports The Public Option

This leads to the question: just what in the Holy Name of the One Who Is does Carl Hulse think that he is doing?

Carl Hulse: Blanche Lincoln, Clout Rising, Cements Role at Heart of Health Debate: No sooner had Senator Blanche Lincoln promised to deliver one crucial vote in support of a health care overhaul than she threatened to withhold the next one... keep her squarely at the center of the increasingly contentious health care fight.... Mrs. Lincoln, Democrat of Arkansas, said that more than $3 million in health care advocacy advertisements aimed at her had already been broadcast in Arkansas. But she insisted Saturday that her position on health care would not be shaped by political considerations. “I’m thinking about the 450,000 Arkansans who have no health insurance,” she said as she lent her support to an initial procedural step in the most closely watched floor speech of the day. “I’m not thinking about my re-election, the legacy of a president or whether Democrats or Republicans are going to be able to claim victory in winning this debate.”

Yet the political implications are inescapable.... The health care fight has come at a time when Mrs. Lincoln’s influence is increasing in the Senate. A committee shuffle after the death of Senator Edward M. Kennedy elevated her to chairwoman of the Agriculture Committee.... Some Democrats and other observers say they believe Mrs. Lincoln can make a case that her central role in the debate is a positive development in a state where people lack health insurance at a higher rate than the national average. The Democrats’ bill would offer subsidies to low- and moderate-income people to help them buy insurance.... Mrs. Lincoln has to juggle their interests with those of business leaders and others in Arkansas opposed to the measure. She said it was her constituents’ views and needs — not the contents of political commercials — that would determine her position. “My first loyalties are with the people of Arkansas,” she said. “Not insurance companies, the health care industry or my political party.”

The only explanation is that Carl Hulse thinks that it would be really embarrassing if he were to ask Senator Lincoln questions like: "Why do you think the health care bill as a whole would be good for the people of Arkansas?" and "Why do you think the public option would be bad for the people of Arkansas?"

And unless the New York Times has reporters who will ask such questions, there is no point to having a New York Times.

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


Good News for Health Care Reform...

But bad news for the American press. Ezra Klein and Stan Collender pile on to David Broder. Each day the Washington Post publishes David Broder is another day of humiliation for serious journalists working for the Post, for Newsweek, etc.--and also a day of humiliation for all those working for Stanley Kaplan Test Prep.

Stan Collender:

What Is David Broder Thinking?: David Broder has a column in today's The Washington Post that I find close to incomprehensible.  First he says that the Congressional Budget Office's substantive, detailed analysis shows that the bill proposed by Senate Majority Leader Harry Reid (D-NV) will reduce the deficit. 

(Note to David: CBO does not give its "blessing" to legislation; all it does is score the bill.)

Second, he says that the CBO scoring that shows the bill reducing the deficit compared to existing law is not as valuable as polls that show that Americans don't believe it.  And he says that the polls are somehow more correct than CBO even though one group actually analyzed the bill while the other got its almost certainly less-than-complete-and accurate information from someone else. Third, Broder says "every expert I have talked to says that the public has it right. These bills, as they stand, are budget-busters." 

(Question: David...Did you talk to the current director of the Congressional Budget Office who actually did the analysis rather than a former CBO director who didn't?)

Ezra Klein, who also writes for The Washington Post, also takes Broder to task for making other similarly inconsistent claims.  You also have to like Ezra's take on the strange view of deficit hawks towards health care:

I'm confused by the budget hawks who that take the line: "This bill needs to cut the deficit, and I don't believe Democrats will cut the deficit, but since the actual provisions of the bill unambiguously cut the deficit, then I guess Congress won't stick to it."

And here is Ezra Klein, trying to repair some of the damage:

Ezra Klein: You can't cut the deficit without a bill that cuts the deficit: David Broder has a column today expressing skepticism that health-care reform will really cut the deficit. But he doesn't provide much evidence for the charge.

The specific budget gimmick mentioned in the column is that Reid has delayed the subsidies "from mid-2013 to January 2014 -- long after taxes and fees levied by the bill would have begun." But not that long. The excise tax, for instance, begins in 2013. More to the point, it's not clear what Broder's complaint is. Reid delayed the implementation of the subsidies in order to ensure the bill's deficit neutrality in the first 10 years, which is what Broder wants. Why attack him for it? Then we get this:

There is plenty in the CBO report to suggest that the promised budget savings may not materialize. If you read deep enough, you will find that under the Senate bill, "federal outlays for health care would increase during the 2010-2019 period" -- not decline. The gross increase would be almost $1 trillion -- $848 billion, to be exact, mainly to subsidize the uninsured. The net increase would be $160 billion.

Huh? The net increase of $160 billion in the first 10 years is part of CBO's analysis, not a caveat to it. It doesn't mean the bill doesn't cut the deficit, it just means that overall spending is larger before you add revenues into the equation. Moreover, the CBO continues: "during the decade following the 10-year budget window, the increases and decreases in the federal budgetary commitment to health care stemming from this legislation would roughly balance out."

In other words, the revenue and the savings grow more quickly than the costs. Extend that line out further and, yes, federal spending on health care falls as a result of this bill. In other words, the bill satisfies Broder's conditions. But he doesn't come out and say that.

Instead, he pivots to the now-traditional argument that Congress won't be able to stick to the savings and revenue measures in this bill. That, however, is another way of saying that Congress can't cut health-care costs and the American government will go bankrupt. For one thing, that's not a very good reason not to at least try and avert that outcome. But if Broder's position is that we face certain fiscal collapse, then the only real question is whether we would prefer that 30 million Americans had insurance in the meantime, or went uninsured over that period.

More broadly, I'm confused by the budget hawks who that take the line: "This bill needs to cut the deficit, and I don't believe Democrats will cut the deficit, but since the actual provisions of the bill unambiguously cut the deficit, then I guess Congress won't stick to it."

People who want to cut the deficit should support this bill, and support its implementation. The alternative is no bill that cuts the deficit, and thus no hope of cutting the deficit.

A good piece, by contrast, comes from Ron Brownstein:

A Milestone In the Health Care Journey: Jonathan Gruber... likes what he sees in the Reid proposal. Actually he likes it a lot. "I'm sort of a known skeptic on this stuff," Gruber told me. "My summary is it's really hard to figure out how to bend the cost curve, but I can't think of a thing to try that they didn't try. They really make the best effort anyone has ever made. Everything is in here....I can't think of anything I'd do that they are not doing in the bill. You couldn't have done better than they are doing." Gruber may be especially effusive. But the Senate blueprint, which faces its first votes tonight, also is winning praise from other leading health reformers like Mark McClellan, the former director of the Center for Medicare and Medicaid Services under George W. Bush and Len Nichols, health policy director at the centrist New America Foundation. "The bottom line," Nichols says, "is the legislation is sending a signal that business as usual [in the medical system] is going to end."...

[The bill includes] just about all the systemic reforms analysts from the center to the left have identified as the most promising strategies for changing the economic incentives in the medical system.... Most of the other big ideas for controlling costs (such as medical malpractice reform) tend to draw support primarily among Republicans. And since virtually, if not literally, none of them plan to support the final health care bill under any circumstances, the package isn't likely to reflect much of their thinking. In their November 17 letter to Obama, the group of economists led by Dr. Alan Garber of Stanford University, identified four pillars of fiscally-responsible health care reform.... As OMB Director Peter Orszag noted in an interview, the Reid bill met all those tests.... McClellan, the former Bush official and current director of the Engleberg Center for Health Care Reform at the Brookings Institution, was one of the economists who signed the November letter. McClellan has some very practical ideas for improving the Reid bill (more on those below), but generally he echoes Orszag's assessment of it. "It has got all four of those elements in it," McClellan said in an interview. "They kept a lot of the key elements of the Finance bill that I like. It would be good if more could be done, but this is the right direction to go."...

On delivery reform... a series of measures to change the way providers are paid for delivering care to Medicare recipients; the hope was that once Medicare instituted these reforms, private insurers would also adopt many of them. "The goal here is that the things we do in Medicare will translate over into the private sector, and there is quite a bit of historical precedence for that," said one Democratic aide involved in drafting the package... hospitals under current law must report on their performance in treating patients... under the bill, their Medicare payments, for the first time, would be affected by their ranking on those reports. Hospitals would also be penalized if they readmit too many patients after surgery or allow too many to acquire infections while in the hospital.... The other set of Baucus proposals were intended to promote more coordination among providers.... Finally, the Reid bill maintains the two powerful institutions the Finance legislation proposed to promote these reforms and develop new ones. The one that's attracted the most attention is an independent "Medicare Advisory Board."... a Center for Medicare and Medicaid Innovation in the Health and Human Services Department.... No one can say for certain that these initiatives will improve efficiency enough to slow the growth in health care spending.... "CBO is there to score savings for which we have a high degree of confidence that they will materialize," says Reischauer, now president of the Urban Institute. "There are many promising approaches [in these reform ideas] but you...can't deposit them in the bank." In the long run, Reischauer says, it's likely "that maybe half of them, or a third of them, will prove to be successful. But that would be very important."...

Even if Obama signs into law a final bill embodying all these reform proposals, many skeptics wonder if they can bend, much less break, the seemingly inexorable increase in health care spending. Reischauer understands that skepticism, but isn't able to entirely suppress a kernel of optimism that this latest reform agenda may prove more effective than its predecessors. "One never knows whether we're turning the corner or if this is just playing the same old game for another inning," he says. "But I sense there's something different out there. I think the medical profession and its leaders have read the handwriting on the wall and are trying to evolve." If so, the ideas the Senate will begin voting on tonight could mark a milestone in that journey.


The People Who Sell Their Forecasts to Paying Clients Believe the Stimulus Is Working

Only those who make their nut one way or the other by pleasing Republicans claim that it isn't. Jackie Calmes and Michael Cooper are on the case:

Jackie Calmes and Michael Cooper: Now that unemployment has topped 10 percent, some liberal-leaning economists see confirmation of their warnings that the $787 billion stimulus package President Obama signed into law last February was way too small. The economy needs a second big infusion, they say. No, some conservative-leaning economists counter, we were right: The package has been wasteful, ineffectual and even harmful to the extent that it adds to the nation’s debt and crowds out private-sector borrowing.

These long-running arguments have flared now that the White House and Congressional leaders are talking about a new “jobs bill.” But with roughly a quarter of the stimulus money out the door after nine months, the accumulation of hard data and real-life experience has allowed more dispassionate analysts to reach a consensus that the stimulus package, messy as it is, is working. The legislation, a variety of economists say, is helping an economy in free fall a year ago to grow again and shed fewer jobs than it otherwise would...

Econbrowser: Baselines, Counterfactuals and the Stimulus


In Which Dean Baker Is Unhappy with the New York Times's Edmund Andrews

Dean Baker:

In Just a Decade the U.S. Interest Burden Could Be as High as It Was in 1992!!!!!!!:

That might not sound scary to most people, but this was the punch line of a front page NYT news story.... The fourth paragraph asserts that:

Even as Treasury officials are racing to lock in today’s low rates by exchanging short-term borrowings for long-term bonds, the government faces a payment shock similar to those that sent legions of overstretched homeowners into default on their mortgages.

No, this is wrong.... [N]o evidence [is] presented in this article that the rise in interest rates will place the U.S. government in a situation where it will be unable to pay its bills.... [N]o one cited in this article makes such a claim.

The article is also completely unbalanced...

It is too bad. The three things people need to know about the deficit are:

  • In the long term--after 2020--we get health care spending under control or else.
  • In the medium term--between 2012 and 2020--we don't have a debt and deficit problem if congress sticks to PAYGO; we do if it doesn't.
  • In the short term--between now and 2012--our problem is not that our deficit is too large but that it is too small.

And Edmund Andrews's piece doesn't help people learn any of those three.


Historians at Play

In the British Deborah Lipstadt-David Irving trial between the historian and the holocaust denier, an Irving victory would have meant, in Britain:

  • that Lipstadt and her publisher, Penguin, would have had to pay substantial damages to Irving.
  • that the copies of Lipstadt's book in Britain would have been pulped and the sale oif the book in Britain would have been forbidden.

By contrast, a Lipstadt victory would have meant:

  • that Irving could continue to live his life, write his books, and give his speeches unmolested by the law.

Ari Kelman comes into this story at the end, reading Richard Evans's account of life as an expert witness in the case:

The banality of book reviews: [O]n page 240 of the American edition of Evans’s book, I found this odd tidbit:

If it was depressing that a historian of Erickson’s [author's note: Professor John Erickson] standing could leap into print without having actually considered the details of the trial and the judgment, then it was, if anything, more depressing that two other historians of the older generation, Sir John Keegan and Professor David Cameron Watt, actually testified on Irving’s behalf in court.

Wait, what? Keegan testified on Irving’s behalf? Well, okay. So what did he say?

Keegan: Like many who seek to shock, he [Irving] may not really believe what he says and probably feels astounded when taken seriously. He has, in short, many of the qualities of the most creative historians. He is certainly never dull. Prof. Lipstadt, by contrast, seems as dull as only the self-righteously politically correct can be. Few other historians had ever heard of her before this case. Most will not want to hear from her again. Mr. Irving, if he will only learn from this case, has much that is interesting to tell us...

And so, Keegan concludes, Irving should win, Lipstadt's books should be pulped, and she and Penguin should have to pay David Irving a huge amount of £££££££££.

Is it wrong to say that this astonishing lapse of judgment on Keegan's part should make one reassess every word he has ever written?

And Civil War historian James MacPherson piles on, saying of Keegan:

The American Civil War - A Military History: The analytical value of Keegan’s geostrategic framework is marred by numerous errors that will leave readers confused and misinformed. I note this with regret, for I have learned a great deal from Keegan’s writings.... “The Ohio and its big tributaries, the Cumberland and the Tennessee,” he writes, “form a line of moats protecting the central Upper South, while the Mississippi, with which they connect, denies the Union any hope of penetration.” The reality was exactly the contrary. These navigable rivers were highways for Union naval and army task forces that pierced the Confederate heartland, capturing Nashville, New Orleans, Memphis and other important cities along with large parts of Tennessee, Louisiana, Mississippi, Alabama and Arkansas.... He confuses the Ohio and Tennessee Rivers, seems to place the Confederate forts Henry and Donelson on the wrong rivers, has the Kanawha River join the Monongahela River at Pittsburgh to form the Ohio River (it is the Allegheny River that joins the Monongahela, while the Kanawha empties into the Ohio 150 miles southwest of Pittsburgh) and shifts the state of Tennessee northward....

The Confederates did not abandon their strong point on Island No. 10 on the Mississippi River; Union forces surrounded and captured it with its 5,000 defenders. Tunnel Hill at Chattanooga is not a feature of Lookout Mountain, and the battle of Cedar Mountain did not take place in the Blue Ridge.... [W]rong dates for a half-dozen battles on the map at the beginning of the book. North Carolina did not escape Union invasion until almost “the end of the war” (it was first invaded in February 1862); the old canard that some Union soldiers were bayoneted in their blankets at Shiloh is simply not true; at least 10 percent of United States soldiers in 1865 were black, not 3 percent; the British government recognized the Confederacy’s belligerent status under international law in May 1861, not 1863; and so on....

Keegan declares that Lincoln “never learnt the importance of visiting armies in the field, from which he might have discovered a great deal,” apparently unaware that Lincoln visited armies in the field 11 times, spending 42 days in their camps.... Keegan makes the astonishing claim that at the outbreak of the conflict “almost all” of [the U.S. Navy's] “antiquated” warships were sailing vessels and that “none had been launched later than 1822.” In fact, 57 of the Navy’s ships had been launched since 1822, and 23 of them were steamships.... And what is one to make of the statement by Keegan, a native Englishman, that the British prime minister during the American Civil War was Benjamin Disraeli? (It was Viscount Henry Palmerston.)...

“The genius” of the Gettysburg Address, [Keegan] writes, “lies less in his magnificent words than in his refusing to differentiate between the sacrifice of the North and the South.” This assertion could not be more wrong. The soldiers who “gave the last full measure of devotion” at Gettysburg so that the “nation might live” were Union soldiers. No Confederates were buried in the cemetery that Lincoln dedicated; they fought to break up the nation that the “brave men” whom Lincoln honored fought to preserve. Far from refusing to differentiate between the sacrifice of the North and the South, Lincoln made the most profound differentiation.

Let me note that this is not the first time Keegan has done this:

Things That Make You Go, "Hmmm...": So I was reading a book edited by Robert Cowley, What If? The World's Foremost Military Historians Imagine What Might Have Been, when I came across the first "thing that made me go, 'Hmmm...'" I was reading an essay by John Keegan, British military historian, and came across the passage: "Molotov, the Soviet foreign minister... proposed that the Soviet Union... guarantee Bulgaria's frontiers, despite already having taken a large share of Bulgarian territory..." I stopped. I reread it. Bulgaria? The Soviet Union doesn't border on Bulgaria. The Soviet Union never bordered on Bulgaria. What slice of Bulgarian territory did Stalin snatch? What could Keegan possibly mean? And then it struck me: Romania. He means Romania. He has lost track of which Balkan country is which--forgotten that it is oil-rich Romania that borders on Russia and lost its northern Moldavian province to Stalin, and Bulgaria that is to the south and borders on Turkey.

Also holocaust denier David Irving's other historian friend, D.C. Watt:

Things That Make You Go, "Hmmm...": Archive Entry From Brad DeLong's Semi-Daily Journal: nd then there was D. Cameron Watt's How War Came: The Immediate Origins of the Second World War. At one point Watt writes of how the German offensive against Poland was planned to be a "... great encircling manoeuvre... on the model of a Zulu impi or the Roman armies against Carthage at Cannae..." Now I realize that the purpose of Watt's similes is not to inform the typical reader--few, very few, readers know in any detail the military organization established by Shaka Zulu, or have received a classical education. These similes are not there to help the reader by comparing what the author is describing to something the reader already knows well. These similes are there to impress readers with the breadth of Watt's mind and the depth of his scholarship. But if Watts wants us to be impressed, shouldn't his scholarship and learning be deep enough for him to get the winner of Cannae correct? Shouldn't he remember that the Romans under the command of the consuls Lucius Aemilius Paullus and Caius Terrentius Varro did not encircle and destroy the Carthaginians at Cannae, but were themselves encircled and destroyed by the Carthaginian army commanded by Hannibal?

Ari Kelman wonders if there is a connection between thes two episodes:

James McPherson savages Keegan’s efforts as terribly sloppy.... [J]ust last week Eric and I taught Richard Evans’s Lying About Hitler in our graduate seminar. As I starting reading the Evans, I kept thinking about McPherson’s review and about the responsibilities historians have when it comes time to consider deeply flawed work produced by people they admire. It seems to me that reviews often are nowhere near as harsh — with “harsh” here meaning analytically rather than personally acute — as they should be. I’ve typically assumed this arises out of misplaced professional courtesy.... [M]uch of Evans’s book is about historians who, after notorious Holocaust denier David Irving dragged Deborah Lipstadt into court for having called him a liar... were forced to take off the gloves and assess, in public and for the record, how their colleagues went about doing history: both their methods and the final products they produced. It’s a fascinating and somewhat distressing story.... [W]hat, I wondered, had caused McPherson to train his guns on Keegan?... McPherson... is renowned for his intellectual generosity and his personal decency...

Keegan is not himself a Nazi sympathizer... [rather] a proud member of an old boy’s club that has more room on its rolls for Holocaust deniers than for women who expose them.... I have no idea if McPherson knew about this episode. But I’m guessing that he did. And I have no idea if that knowledge about Sir John’s past liberated McPherson from the shackles of polite scholarly discourse. But I’m guessing that it did...

I would put it somewhat differently. Hitler and his followers liked to kill people. They liked to order people to kill people. They preferred to kill unarmed men, and women and children--killing armed men, after all, is dangerous. Hitler and his followers killed a lot of people: 35 million or so, 6 million of them Jews, about 25 million Slavs. For John Keegan and D.C. Watt, these are not terribly important or interesting features of the Nazi regime, and histories of the 1930s and 1940s should not overstress them.


UPDATE: D.C. Watt's defense of Irving is even more loathsome than Keegan's. I talked about this before:

After Irving lost the trial, diplomatic historian Donald Cameron Watt believed that Irving's work had been subject to excessive scrutiny and held to an excessively high standard: "five historians with two research assistants... querying and checking every document cited in Irving's books." "Show me one historian," Watt demanded, "...who has not broken into a cold sweat at the thought of undergoing similar treatment." On the witness stand Watt asserted that "there are other senior historical figures... whose work would [not] stand up to this kind of examination" (see Evans, 2000, pp. 245-6). Watt argued that the active shaping of one's views and interpretations of the past by one's present politics did not keep one from being a historian, and even a great historian: "Edward Gibbon's caricatures of early Christianity... A.J.P. Taylor," and others clearly "allowed their political agenda... to influence their professional practice," like Irving. In Watt's view, "only those who identify with the victims of the Holocaust disagree" with the proposition that Irving is a reputable historian. And, in Watt's view, Irving's critics are not primarily concerned with pointing out flaws in his historical writings but with stoning a heretic: "[f]or them Irving's views are blasphemous and put him on the same level of sin as advocates of paedophilia" (Evans, 2000, pp. 244-6).

Cnsider the example raised by Donald Cameron Watt: A.J.P. Taylor. A.J.P. Taylor set out to write the Origins of the Second World War as if Hitler were an eighteenth-century king who aimed at reversing the (limited) results of the last (limited) war: a portrait of Hitler as, as John Lukacs phrased it, like the Empress Maria Theresa maneuvering to recover the lost province of Silesia. All evidence that Hitler was something else is thrown overboard, or ignored completely. Now Taylor's history is not history as it really happened. All you have to do is glance an inch beyond the frame of Taylor's picture--at Nazi domestic policy and the Night of Broken Glass, or at Hitler's conduct of World War II--and you find events grossly and totally inconsistent with Taylor's portrait of an opportunist looking for diplomatic victories on the cheap.

And yes, Mr. Watt. It may be the case that only historians who identify with the victims of the Holocaust believe that Irving is not a reputable historian. But all moral men and women, given a choice between Nazis and victims, identify with the victims. Those who do not and who either identify with Nazis or hold themselves in suspense between the two are as far from the moral universe of the rest of us as, well, are advocates of paedophilia.

Me, I think that all historians should to some extent identify with the victims--even if the victims are Jews.

And I think historians should not tell lies about what kinds of people their historical subjects were.

But then Keegan and Watt probably dismiss me too as "politically correct."


links for 2009-11-22


Approaching Once-in-a-Decade Retrospective: Marking My Beliefs to Market

Back on March 3, 2000 I marked my beliefs to market: took a look back at the ten most important things I had believed in the 1990s, and tried to assess how accurate my beliefs had been.

Now March 3, 2010 is coming up. What are the ten most important things that I have believed most strongly in the 2000s? And how have my beliefs turned out?

Suggestions, please...


Department of "Huh?"

When you praise Idi Amin, you've gone beneath the bottom of the barrel and out into the earth...

Xeni Jardin::

Hugo Chavez, cannibalism apologist: Is Bruce Vilanch writing for Hugo Chavez now? 'Cause the Venezuelan leader's comedy material is pretty good lately: now he's a cannibalism apologist. In a recent speech, Chavez praised Zimbabwe's Robert Mugabe, Iran's Mahmoud Ahmadinejad, and the late Ugandan dictator Idi "Butcher of Uganda" Amin. Said Chavez: "We thought he was a cannibal... I don't know, maybe he was a great nationalist, a patriot." (thanks Antinous)