February 2010
Paul Krugman in Hell: Why Oh Why Can't We Have a Better Press Corps?
Paul Krugman writes:
Revisionist Histor: On the This Week panel today I didn’t get a chance to weigh in on the biggest whopper from Sen. Lamar Alexander, who told Elizabeth Vargas that reconciliation — I don’t have the exact transcript — had in the past been used for small things and “to reduce the deficit”. In fact, reconciliation was used to pass the two major Bush tax cuts, which increased the deficit — by $1.8 trillion. And there’s no penalty for this kind of deception.
Read through the 'This Week' Transcript. It's truly terrifying. You try to figure out why anybody thinks it's a good idea for these people to have the jobs that they do--and you can't:
KRUGMAN: I think the [health care] summit actually served its purpose, from [Obama's] point of view, which was to demonstrate that the Republicans are not going to give on anything... they're going to make every possible claim, they're going to say things that aren't true, like premiums are going to go up under this bill, which isn't going to happen.... George [Will] and I actually have the same view [on this], but I think the better metaphor is [that health care reform is] a three-legged stool. You have to have guaranteed issue... [so that] pre-existing conditions are covered. To make that work, you... have to have a mandate. And to have that work, you have to have large subsidies. So the bill has to be more or less what it is. It has to be a comprehensive reform. And the Democrats... have to do this. They... can't go into November elections...
VARGAS: And that's the big question, Cokie.
ROBERTS: That's the big question. That is the big question. There's no certainty at this point that there are 217 votes in the House and 51 in the Senate, no matter what procedure they use. So that is still where they are hung up, which is where they've been hung up all along. Now, the White House did a couple of smart things in terms of what people were upset about. You heard Senator Alexander talk about, in the dead of night, 2,700 pages, Christmas Eve. Those are the talking points. And -- and so the White House puts it up on the Web, has a, you know, seven-hour meeting, and takes out the special provisions, particularly for Nebraska. And so that -- they're trying to fix the things that they see are -- that the public has had problems with. And it is true that you can -- you can sing it round or flat, George, about whether the public's for this bill or not. In a recent poll that we came out with, 58 percent -- a Kaiser poll -- 58 percent said they would be angry or disappointed if a bill didn't pass. So I think that that is what the Democrats are going with.
VARGAS: They want something. They're just...
ROBERTS: They want something, and the Democrats just have to, you know, say their prayers, and vote for a bill, and hope it works for them.
DONALDSON: But, Cokie, it's true. I think in the short run they're going to lose seats, because they dropped the ball... (CROSSTALK)
ROBERTS: They're going to lose seats anyway.
DONALDSON: They dropped the ball last summer. The Republicans brilliantly picked it up. It probably won't be reversed by November. But this is the only chance in how many years to do this?
ROBERTS: Right.
DONALDSON: And I think history will show that they were right if they get it done.
VARGAS: George?
WILL: Two things. First of all, Sam, you want the president to be Ulysses Grant, who won the war by his wonderful indifference to his own casualties, and I think some members in the Senate and in the House would not approve of that.
DONALDSON: Did I not just say that they may lose some seats? Were you listening?
WILL: By the millions. Now -- second, now, Paul says that, in fact, the Republicans have no ideas. They do, cross-selling across state lines, tort reforms, all those. Just a second, Paul. Then you say they're telling whoppers. That was your view about Lamar Alexander when he said, for millions of Americans, premiums will go up. You said in the next sentence in your column, I guess you could say he wasn't technically lying, because the Congressional Budget Office says that's true.
KRUGMAN: No, it's not what it says.... Can I explain? This is...
WILL: Wait. Let me -- let me set the predicate here, because you then go on and say the Senate does say the average premiums would go up, but people would be getting better premiums.
KRUGMAN: Look, let me explain what happens, because you actually have to read the CBO report.... [T]he CBO report tells you... that... what the bill will do is bring a lot of people who are uninsured, who are currently young and therefore relatively low cost, into the risk pool, which will actually bring premiums down a little bit. It will also... lead a lot of people to get better insurance... people who are currently underinsured, who have insurance policies that are paper thin and don't actually protect you in a crisis, will... get... full coverage. That makes the average payments go up, but it does not mean that people who currently have good coverage under their policies will pay more.... [T]hey'll end up paying a little bit less.
WILL: One question. If the government came to you and said, "Professor Krugman, you have a car. We're going to compel you to buy a more expensive car," but it's not really more expensive, because it's a better car, wouldn't you tell them to get off your land?
KRUGMAN: Catherine Rampell did a very good piece in the Times blogs recently which said that the main obstacle to the people who are uninsured is not that they are choosing not to be insured. It is income.... [Y]oung people who are not buying insurance because they're not... able to afford it will be brought in through the subsidies. And that will end up being better even for the people who are currently insured.
ROBERTS: One of the things that the -- the Congress has failed to do until now is convince people who have insurance, which is most of us, that this bill will work for them, and that's why this argument is important. But the -- the one thing that has been added on, apparently, since we haven't actually seen the bill in the last week, is the decision to have the federal government regulate rates, and that could be extremely popular with people...
DONALDSON: ... old guys, they say to us, "We're going to cut your Medicare." They're not going to cut Medicare benefits, not touch them. What they want to cut in the bill, as I understand it, is Medicare Advantage, which was put in with a government subsidy of 15 cents for every dollar, take the 15 cents away. The private insurers now can compete on their own and use that money elsewhere, and you could argue where it should be used, but it's not correct that they're trying to cut Medicare.
VARGAS: I do want to get to one other issue related to this health care bill, which is the language on abortion, because it almost died in the House, the health care bill, because of abortion. There was the Stupak amendment, which attached highly restrictive language to when abortions could be covered, and there -- Bart Stupak says this is unacceptable, this current bill, as Obama has proposed it, and he says 20 other members of the House will have problems with it, too. Will abortion kill this thing in the end?
WILL: Well, Alan Frumin's 15 minutes of fame have arrived. He is the hitherto obscure, but soon to be quite famous parliamentarian of the Senate, and it will be his job to rule on what can and cannot be passed under reconciliation. That is, is it a budgetary-related thing? You can argue about a great many things in the health care bill. Can you say that's budget-related? No one thinks you can change the abortion language under reconciliation.
KRUGMAN: Let me just point out...
VARGAS: And, Cokie...
KRUGMAN: ...that in 2001 the Senate parliamentarian was in doubt about... things Republicans were doing through reconciliation, and they dealt with that by firing him and replacing him.
VARGAS: And, Cokie, can Speaker Pelosi, given this issue, if they can't get through on reconciliation some sort of changing of the abortion language... can she find the votes?
ROBERTS: It's going to be very, very tough. That's what I said at the beginning. I mean, this -- this bill is not at the moment passable by Democratic votes.
DONALDSON: She'll get the votes.
ROBERTS: I think in the end she will, too.
DONALDSON: In the end, the Democrats understand the old phrase, "We hang together or we hang separately."
ROBERTS: At the moment...
VARGAS: Well, and they're on record already taking an unpopular vote.
ROBERTS: ... the calculation...
VARGAS: It's going to kill them in November.
ROBERTS: The calculation that they've made all along -- and I personally think it's a correct calculation -- is that it's worse to do nothing than to do something and that, in the long run, people will like this bill.
WILL: Can I say something that Paul and I might actually agree on?
VARGAS: Sure.
WILL: Twenty years from now, the country is going to be spending a larger portion of its GDP on health care than it is now for three reasons. We're getting older, and as we age, we get more chronic diseases that interact with one another. Second, we're getting richer; we can afford to buy more medicine. And, third, medicine is becoming more competent. Therefore, we're going to spend more on health care.
KRUGMAN: But there's a...
(What Paul wanted to say here was: "There is a big difference between, twenty years from now, spending 20% of GDP on health care with universal coverage and spending 25% of GDP on health care with one-quarter of the non-elderly population uninsured and getting substandard coverage.)
ROBERTS: The other thing is, you know, the health care industry is the biggest employer in most of our cities now. So when -- when the speaker talks about a job creation bill...
VARGAS: A jobs bill, exactly.
ROBERTS: ... it's true.
VARGAS: Let's shift a little bit to Charlie Rangel, because we heard Speaker Pelosi talk about the fact that what he did didn't endanger national security, but it doesn't look good. We've got a handful of Democrats who have now started to join Republicans and calling for him to step down as chairman of the House Ways and Means Committee, a powerful post in the House of Representatives. Can he hold this post, Cokie?
ROBERTS: Yes, he can hold it, as long as people -- you know, his colleagues say he can hold it. But whether it becomes too hot for him to hold is something that, you know, sort of evolves. And you see what happens in the papers in New York and all of that and whether he can withstand it....
[...]
VARGAS: And now let's go to the New York governor, because the state of New York has quite a brouhaha playing out this weekend, the end of last weekend, this weekend. Governor David Paterson stepping down amid allegations that he and his state police contingent improperly tried to influence a woman involved in a domestic violence dispute with one of his closest aides...
[...]
VARGAS: And then, of course, this weekend, we have a brand-new White House social secretary appointed to replace Desiree Rogers, a close friend of the Obamas who is exiting after a bumpy tenure, I would say. Cokie, you spoke with her. She -- she was highly criticized after the Obamas' first state dinner in which she arrived, looking absolutely gorgeous, but in what some people later said was far too fancy a dress, but most importantly, that was the state dinner that was crashed by the Salahis, who walked in without an invitation when the social secretary's office didn't have people manning the security sites.
ROBERTS: Well, I talked to -- I did talk to her, Desiree, yesterday at length. She is from my home city of New Orleans and fellow Sacred Heart girl.
DONALDSON: What's the name of the city?
ROBERTS: New Orleans.
DONALDSON: I love to hear her say it.
ROBERTS: But -- and she has lots of good explanations about that dinner. And basically, the bottom line is, it's the Secret Service. But she -- but her -- her major point is -- and I -- and I completely take this -- is that she -- she put on 330 events at the White House last year and did open the building to all kinds of people who had not been there before. And they had wonderful music days of all kinds of music, where you had during the day, the musicians would work with kids in Washington and teach them things before coming on at night.
DONALDSON: Cokie, that's irrelevant.
ROBERTS: Well, I don't think it's irrelevant.
DONALDSON: I mean, it's irrelevant. People who work for the president understand or should understand their place, which is to be spear-carriers. There are two stars in anyone's White House, the president and the president's spouse. After that, this passion for anonymity that once was a hallmark of people who worked for a president, has been lost. She wanted to be a star herself...
ROBERTS: And it's been lost. Look at all the people who work for presidents and then go out and write books about them.
DONALDSON: I think you're right.
VARGAS: Do you think she was -- did she quit, or was she asked to leave?
DONALDSON: She was asked to.
ROBERTS: She says she quit.
DONALDSON: Oh, well...
ROBERTS: And she certainly has lots...
DONALDSON: And to spend more time with your family.
ROBERTS: No, no, to go into the corporate sector and make some money, where she'll make a lot of -- she'll do fine.
DONALDSON: Good luck to her. I don't wish her ill.
DONALDSON: It's just that she didn't understand...
ROBERTS: She'll do very well.
DONALDSON: ... she was not a star in the sense that she should make herself prominent.
VARGAS: George?
WILL: It is axiomatic that when there's no penalty for failure, failure proliferates. She failed conspicuously in her one great challenge, which was the first state dinner, and she's gone. If she's gone because she failed, that's a healthy sign.
VARGAS: The big question, of course, because she was one of that close contingent of Chicago friends is whether or not she's just the first to leave or if we'll see other...
ROBERTS: But you'll see people leave.
ROBERTS: I mean, that's what happens. It's a perfectly normal thing that happens in administration, is that people come, and they come in at the beginning, and then it's time to -- to go back to life.
KRUGMAN: Can I say that 20 million Americans unemployed, the fact that we're worrying about the status of the White House social secretary...
VARGAS: It's our light way to end, Paul.
DONALDSON: Paul, welcome to Washington.
VARGAS: Thank you.
DONALDSON: Nice to see you.
VARGAS: All right. You can get the political updates all week long by signing up for our newsletter on abcnews.com. Thank you, everybody.
Why oh why can't we have a better press corps?
A Carbon Tax Last Year Would Have Been Nice... A Carbon Tax Last Year Would Have Been Really Nice...
Hell, a BTU tax seventeen years ago would have been even better.
Reuters: World warming unhindered by cold spells: The pace of global warming continues unabated, scientists said on Thursday, despite images of Europe crippled by a deep freeze and parts of the United States blasted by blizzards.... "It's not warming the same everywhere but it is really quite challenging to find places that haven't warmed in the past 50 years," veteran Australian climate scientist Neville Nicholls told an online climate science media briefing. "January, according to satellite (data), was the hottest January we've ever seen," said Nicholls of Monash University's School of Geography and Environmental Science in Melbourne. "Last November was the hottest November we've ever seen, November-January as a whole is the hottest November-January the world has seen," he said of the satellite data record since 1979. The World Meteorological Organization (WMO) said in December that 2000-2009 was the hottest decade since records began in 1850, and that 2009 would likely be the fifth warmest year on record. WMO data show that eight out of the 10 hottest years on record have all been since 2000....
Scientists say global warming is not uniform in all areas and that climate models predict there will likely be greater extremes of cold and heat, floods and droughts. "Global warming is a trend superimposed upon natural variability, variability that still exists despite global warming," said Kevin Walsh, associate professor of meteorology at the University of Melbourne. "It would be much more surprising if the global average temperature just kept on going up, year after year, without some years of slightly cooler temperatures," he said in a written reply to questions for the briefing...
I think it's time for me to make a formal apology to Al Gore for not doing enough to boost his issues and his voice over the past two decades.
Don't Break Your Part of the Internet!! The Atlantic Monthly's Redesign Does Not Seem to Have Been Well-Thought Out...
The Atlantic Monthly demonstrates how not to play well with others:
You know, those media companies that will survive will be those where the bosses tell their flunkies: "You can redesign the website if you want, but don't break things."
Accoutrements of Civilization: Twenty-First Century Edition: The Machine of the Winter
Ed Luce Tells Barack Obama to Get Renaissance on the Congress
"Enough," he says:
Forget bipartisanship Obama: shoot for the moon: The problem started even before he was inaugurated. Mr Obama was faced with two conflicting objectives. First, try to revive a rapidly sinking economy by crafting a big fiscal stimulus – one that should be “timely, targeted and temporary” in the words of Lawrence Summers, Mr Obama’s chief economic adviser. Second, try to win over as many Republican votes as possible. In the event, Mr Obama got the worst of both worlds – a poorly designed stimulus that won only three (out of 41) Republican votes in the Senate. The price of those three was high. In order to appeal to the Republicans, a third of the “stimulus” was frittered away in minute tax cuts that most families either saved or used to help reduce their household debts. Designed to stimulate the economy and Republican support, the tax cut achieved neither. Second, its overall size was cut from $1,200bn to about $800bn – considerably lower than most economists believed was necessary to kick-start the economy. In order to win over Susan Collins, a Republican senator from Maine, the Democrats removed $83bn of short-term spending from the bill at the cost of 400,000 jobs....
A year later, little has changed. This week pundits got excited about a $15bn jobs promotion bill that was enacted in the Senate. The excitement was confined to political observers, who noted that the bill passed with the support of 13 opposition votes, including that of Scott Brown, the Republican who took the late Ted Kennedy’s Senate seat in last month’s Massachusetts election. It was celebrated as a victory for bipartisanship. What it did not herald was much of a victory for jobs. Economists confined their observations to the fact that the bill, which offers employers a one-year holiday on the 6.2 per cent payroll tax they pay if they hire someone who has been out of work for more than two months, was unlikely to make a notable dent in unemployment. Businesses are suffering from a lack of demand not supply....
Finally, Mr Obama’s bipartisan instincts arguably contributed to the parlous state of healthcare reform today. The most serious blow to the bill came last summer when Mr Obama allowed a small group of centrist Democratic and Republican senators to negotiate on a compromise. The exercise robbed Mr Obama of three valuable months and ceded the initiative to people who had no prior record of fighting for healthcare reform. It also created the space for the demagogic “townhall” meetings in which the bill was depicted as a Trojan horse for socialism, euthanasia and an all-seeing federal bureaucracy. The net result? No Republican votes....
American presidents with the greatest record of bipartisan legislative achievement, notably Franklin Roosevelt, Lyndon Johnson and Ronald Reagan, got their way by intimidating opponents, not by splitting the difference. As Machiavelli famously observed, it is better for a prince to be feared than loved. For all his intelligence, nobody fears Mr Obama...
Add financial regulation and climate change to the list of issues where a "bipartisan approach" has served Obama ill...
Changing Search Equilibrium in the Labor Market
Tyler Cowen sends us to the Economist:
Recruitment firms: Joining the queue: The recession has accelerated big changes for firms that help people find jobs: “IN 2008 10m people came to us, and we placed 4m in jobs. In 2009 it was 11m, and we only placed around 3m. It’s been a tough year.” So says Jeff Joerres, the boss of Manpower, an employment-services firm best known for its army of temporary workers. The highest unemployment rates in decades have meant that more people than ever have turned to firms that specialise in finding people jobs. But at a time when firms are hiring far less, if at all, that can easily add up to more disappointed clients. One thing Manpower has got better at during the recession, says Mr Joerres, is figuring out quickly which job-hunters can be helped, and which to send elsewhere rather than risk leading them on. In the final quarter of 2009 Manpower’s profits were down by 62% from the same period a year earlier, on revenues that were 4% lower.... Monster, an online job-listing firm, posted a loss in the fourth quarter. Its shares, though up since last March, remain two-thirds lower than in February 2007, before the deterioration of the American economy became apparent. Even so, Sal Iannuzzi, Monster’s boss, is upbeat... his firm, like many in the industry, has made big changes to improve its prospects as the market recovers.... Monster has developed a search engine called 6Sense, which is designed to help recruiters screen out “aspirational applicants” (the spammers). It also allows recruiters to search for suitable candidates themselves....
Manpower is increasingly having to compete by finding new ways to help recruiters, helping them manage high-powered but short-lived projects, for example. Companies are putting together many more ad hoc teams often connected virtually around the world, notes Mr Joerres. “Perhaps only 20% of a team will be on the full-time staff,” he says, “so they need a much more on-demand talent spigot, which we can provide.” Recruiters are clearly becoming far more sophisticated, thanks to the new search tools that are available, says Aberdeen’s Mr Saba: “You’d think with 10% unemployment, jobs would be filled more quickly, but the focus on sourcing the right people, screening them and so on means that the time to fill has not fallen.” Mr Joerres believes that the increasing sophistication of recruiters means that firms will do less “anticipatory hiring” than in previous recoveries. Instead, firms will wait to get exactly the staff they need, when they need them...
Which would mean an even more jobless recovery...
Literature: Best Sex Scene
From Roger Zelazny, Isle of the Dead:
"It's getting chilly out here."
"Yes."
"Let's repair within."
"I'd like to repair."
I put down my cigar and we stood and she kissed me. So I put my arm around her trim and sparkling, blue-kept waist and we moved away from the bar, toward the archway, through the archway and beyond, into the house we were leaving.
Let's make it a triple-asterisk break...
Ten Things Worth Reading, Mostly Economics: February 28, 2010
1) Sahil Kapur: Mitt Romney’s health care hypocrisy:
On Real Time With Bill Maher last night, Financial Times editor Chrystia Freeland made the point (I’m not getting this word for word) that Republicans have every right to declare they oppose any kind of comprehensive health care reform and declare they aren’t interested in covering the uninsured. Sure, of course they do. But then Freeland referenced Mitt Romney’s criticisms of Democratic health care reform at CPAC as legitimate and fair. Ahem. There’s just one problem: Governor Romney’s 2006 health care plan for Massachusetts comprised the exact three core components as the current private sector-oriented Democratic bill — insurance regulations, subsidies and an individual mandate. Don’t take my word for it. Here’s the conservative Wall Street Journal editorial board:
In a rational world, the prognosis for ObamaCare would wait on the evidence in Massachusetts, given that the commonwealth’s 2006 program closely resembles what Democrats are trying to do in Washington… The Massachusetts law, which was championed by former GOP Governor Mitt Romney…
And here’s what Romney said on health care at this year’s CPAC:
Congressional Democrats are gearing up to take over the health care system. We need to advance a conservative plan – one based on free choice, personal responsibility, and private medicine; one that doesn’t add massive new federal spending. I like what I proposed in Massachusetts when I was governor. And even though the final bill and its implementation aren’t exactly the way I wanted, the plan is a good model. Today, almost every Massachusetts citizen who had been uninsured now has private, free-market coverage, and we didn’t have to raise taxes or borrow money to make it happen. We may find even better ideas in other states. But let’s make certain that conservative principles are front and center. A big-government takeover of health care is the next thing liberals are going to try, and it’s the last thing America needs.
So the plan he signed into law a few years ago was based on free-market principles. But virtually the same plan now being considered by the other party on a national level is a socialist, government takeover. Interesting.
2) Robert Hall: By How Much Does GDP Rise If the Government Buys More Output?:
During World War II and the Korean War, real GDP grew by about half the increase in government purchases. With allowance for other factors holding back GDP growth during those wars, the multiplier linking government purchases to GDP may be in the range of 0.7 to 1.0, a range generally supported by research based on vector autoregressions that control for other determinants, but higher values are not ruled out. New Keynesian macroeconomic models yield multipliers in that range as well. Neoclassical models produce much lower multipliers, because they predict that consumption falls when government purchases rise. Models that deliver higher multipliers feature a decline in the markup ratio of price over cost when output rises, and an elastic response of employment to increased demand. These characteristics are complementary to another Keynesian feature, the linkage of consumption to current income. The GDP multiplier is higher—perhaps around 1.7—when the nominal interest rate is at its lower bound of zero.
3) John Quiggin: Invulnerable zombies: the Efficient Markets Hypothesis — Crooked Timber:
The ultimate zombie is one that is completely invulnerable. Neither special bullets nor hammer blows nor even decapitation can finally lay this undead being to rest. But dramatic logic requires that a zombie invulnerable to external threats must be subject to a subtle, but ultimately terminal, flaw that ends in its own destruction.... This set of observations from Scott Sumner in a blog post aptly titled ‘Defending the indefensible’ at least recognises the difficulties of the position
But why is Fama’s theory now in such disrepute? Because in the past ten years the world economy has seen two very important bubble-like patterns, indeed arguably the only two such market cycles in the US during my lifetime with macro significance. And they were both predicted by lots of experts because they violated popular theories of fundamentals.... People think they have made accurate predictions because an upswing is always EVENTUALLY followed by a downturn. Then add in the fact that The Economist really did make accurate predictions in two of the most important events in modern history. Do you think it will be possible to convince them that they just got lucky? About as likely as a husband convincing an already suspicious wife that he is innocent after twice being caught in bed with two separate women. So I feel sorry for Fama. He’s probably right, but I don’t see how he could ever convince anyone in this environment....
As a well known blogger would say, ‘Indeed’. Looking at the evidence of the two gigantic bubbles of the last decade, it’s hard to see how Sumner maintains his own faith, and he never really gives an explanation, except to say that it’s easy to misperceive bubbles. As far as macroeconomics is concerned, the experience of the Great Depression and of the current Global Financial Crisis (which as Sumner implies, really began with the 2001 recessions) is pretty strong evidence that neoliberalism is not the right policy, at least not for all occasions and not in the forms that prevailed in the 1920s or the 1990s. But the ultimate response to this invulnerable zombie must be the same as Popper on Freudian psychology. If the Great Depression, the dotcom boom and bust and the current Global Financial Crisis are all consistent with the efficient markets hypothesis, the hypothesis can’t tell us much of interest about anything. At most, it says that even when markets are way out of line with economic reality, it is hard to exploit this fact to make a profit.... [We] already knew that...
4) Ed Hugh: Too Soon To Cry “Victory” On Latvia?:
Latvia’s great economic fall may be coming to an end, but as I explained in this post here, that is not the same thing at all as resuming growth. To get back to growth Latvia’s internal devaluation needs to be driven hard enough and deep enough to generate a sufficient export surplus to drive headline economic growth at a sufficient speed to start creating jobs again. This is not about a fiscal adjustment, it never was, and it is little consolation for Latvia to be compared with Greece and told that they are doing just that little bit better. Cry Victory we are told, and unlease the jobs of war. Would that things were as easy done as said!
5) Andrew Samwick: Have Republicans Forgotten the Purpose of a Political Party?:
Why are the Republicans not using their elected offices to advance policies that serve their own supporters? Their main voting constituency is middle class (or higher) white families in the suburbs, particularly the husbands and fathers in that constituency. They don't face the raft of problems that others do in our society. But one big problem that they do face is that something beyond their control happens to someone in their family. Medical catastrophes have to rank high on that list -- they certainly do for me. If a member of my family were to be afflicted with an expensive medical condition, then I am financialy viable only for as long as I stay insured with my current employer. Put simply, there are gaps in private insurance markets that leave such families exposed. This is plain to see and should be the focus of Republican efforts on health care reform...
6) GRAPH OF THE DAY: The Senate:
7) SECOND BEST NON-ECONOMICS THING I HAVE READ TODAY: Adam Serwer:
The Senate is holding a hearing today where several current and former Blackwater employees will be testifying, but honestly the only way Congress would stop giving Blackwater money is if it started registering black people to vote.
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Scott Horton: More Investigations for the Torture Lawyers:
I am just back from the Alliance For Justice’s panel discussion on the OPR Report, at which I spoke, at the Washington office of Wilmer Hale. The show-stealer was the presentation by Georgetown professor Michael Frisch, one of the District of Columbia’s leading legal ethics experts and a long-time enforcer for the D.C. Bar Council. Frisch eviscerated both the OPR report and the David Margolis memo. The key ethics inquiry, he argued, was under Rule 1.2(d)—whether Yoo, Bybee, and Bradbury were actually counseling a crime. In this case, the evidence that their advice was designed to facilitate torture is clear-cut, torture is a felony, and multiple players putting a scheme in place to torture is a conspiracy to torture. Yet neither the OPR report nor David Margolis even considered this question, focusing all their energy instead on two weak and rarely enforced provisions of the ethics code dealing with the duty of candor and the duty to exercise independent professional judgment. Frisch also reviewed Margolis’s disingenuous use of D.C. case law in some detail, noting that in one key passage Margolis distorted a case that Frisch managed for the D.C. Bar. Finally, he said that the Justice Department, when presented with evidence of a serious ethics lapse by its officers, had a duty under Rule 8.3 to turn the matter over to the D.C. Bar for action. Not only did it fail to do this, its memos suggest it wasn’t even aware of the obligation. The lesson to draw from this, Frisch suggested, is that the Justice Department has failed to show it is capable of self-regulation.
Frisch is certainly right about this. Indeed, he’s being charitable to the Justice Department. The solution that suggests itself is to abolish OPR and place its mandate in the hands of the Department’s inspector general, who is both autonomous and has demonstrated the competence and energy that the task requires. Eric Holder, however, suggests that everything is just wonderful at DOJ, this best of all possible worlds–even at OPR. The New York Times had a sober editorial today, making some obvious points:
Poor judgment is an absurdly dismissive way to describe giving the green light to policies that have badly soiled America’s reputation and made it less safe. As the dealings outlined in the original report underscore, the lawyers did not offer what most people think of as “legal advice.” Mr. Yoo and Mr. Bybee were not acting as fair-minded analysts of the law but as facilitators of a scheme to evade it. The White House decision to brutalize detainees already had been made. Mr. Yoo and Mr. Bybee provided legal cover.
More to the point, the Times zeroes in on what strikes me as the fishiest part of the whole DOJ ethics escapade: the “disappearance” of John Yoo’s and Patrick Philbin’s emails. Emails at an institution like the Justice Department don’t just “disappear.” Someone deleted them. Moreover, for a deletion to be effective enough to avoid an investigation, extraordinary steps have to be taken. In a criminal investigation (as should have taken place), this would have been an act of criminal obstruction. What’s out there that they don’t want us to see?
9) STUPIDEST THING I HAVE READ TODAY: A twofer... threefer first the oious Washington Post's Marc Thiessen as observed by Jonathan Bernstein: You Couldn't Make This Stuff Up:
The hallmark of Mark Thiessen's defense of torture is that he's oblivious to criticism. Oh, and either deeply dishonest, deeply stupid, or both:
There’s a standard of torture in civil law,” he said, “which is severe mental pain and suffering. I also have a common-sense definition, which is, "If you’re willing to try it, it’s not torture." Thousands of American soldiers have been willing to undergo waterboarding as part of their resistance training, Mr. Thiessen notes; therefore, it stands to reason that it is not torture.
C'mon, Mark... resistance to what? Could it be... torture?
You just know that coming soon is the S&M defense. I mean, who needs law when we have Mark Thiessen's common sense?
Second and third, Rich Lowry and Ramesh Ponnuru as observed by Jonathan Bernstein: Read Stuff, You Should:
[W]hat's not worth reading. Today's item is the Lowry/Ponnuru National Review cover story, "An Exceptional Debate: The Obama Administration’s Assault on American Identity." The frustrating thing about it is that there are actually some worthwhile points in it; you could see a sensible conservatism emerging from some of the things that these gentlemen believe about America. Alas, as an essay, it's a mess, and not worth reading. Instead, turn to Damon Linker's fine take-down. One thing to add: Lowry & Ponnuru are wrong about Tocqueville, who not only devoted a large portion of his study of Democracy in America to the evils of slavery and the treatment of American Indians, but also was far more ambivalent about the rest of what he saw than they realize.
10) HOISTED FROM THE ARCHIVES: When Microsoft Word Attacks!:
Fontana Labs screams for help:
Unfogged: Section breaks in Word: Does anyone know how to get rid of these? I accidentally inserted one into a document (I wanted to set aside a block of text by using '*,' which autocorrrect irritatingly turned into a break), and my attempts to delete it just made it reproduce. Now my efforts (I highlight the text on either side of a break, then press 'delete') just move them somewhere else. A little whimsical music in the background and we'd have a charming children's movie about the alienation of modern life...
From Vernor Vinge's A Fire Upon the Deep:
And all the newborn [intelligence's] attention turned upon the fleeing [human] vessels. Microbes, but suddenly advanced. How could this happen? A million schedules were suddenly advanced. An orderly flowering was out of the question now, and so there was no more need for the humans left in the Lab. The change was small for all its cosmic significance. For the humans remaining aground, a moment of horror, staring at their displays, realizing that all their fears were true (not realizing how much worse than true). Five second, ten seconds, more change than ten thousand years of a human civilization. A billion trillion constructions, mold curling out of every wall, rebuilding what had been merely superhuman. This was as powerful as a proper flowering, but not quite so finely tuned...
In order to tame Microsoft Word, you need to know that hexapodia is the key insight--no, you need to know:
- Control-z undoes whatever abomination Word has just committed.
- Copy it into WordPerfect, turn on reveal codes, and fix it in a couple of seconds. As a matter of fact, always work in WP and then save as Word.
The last thing heard from Fontana Labs was:
Oh good Lord. Pasting an apparently clean section of text into a new document produces a row of these dots that wasn't in the original. I cannot believe this is happening...
Before the mighty Becks came to the rescue with:
What you're seeing is not a line of characters or even a drawing object. Rather, it's a border. By default, if you enter three or more hyphens (-), underscores (_), equal signs (=), or asterisks (*) followed by a carriage return, Word automatically gives the current paragraph a thin, thick, double, or dotted bottom border. You must have done this accidentally. To get rid of the line, put the cursor directly above it and select Borders and Shading from the Format menu. Click the None box and click OK. To prevent the automatic insertion of borders, select AutoCorrect Options from the Tools menu, click the AutoFormat As You Type tab, and uncheck Border lines. In Word 97, the menu item is AutoCorrect and the check box is labeled simply Borders...
links for 2010-02-28
Gung Hay Fat Choy!!
Economics Posts-Only RSS Feed...
http://delong.typepad.com/sdj/economics/rss.xml
Now there have to be fun things I can do with category-specific RSS feeds, don't there?
Refutations and Conjectures: Economics as Anti-Popperian Discipline
Robert Waldmann writes:
Zombie Economics: Just from the first two words of the title "Zombie Economics:" I assumed the book was about reanimation of refuted hypotheses. I'd say the point is not that economists have come up with a lot of false hypotheses. That's normal and just the way hypotheses are. The point is that the status of those so-called hypotheses is not reduced by empirical evidence.
As noted by Quiggin, one problem is that they aren't hypotheses at all but rather statements so vague that they can't be tested. The other problem is that many economists draw policy implications of statements so vague that they can't be tested.
The Murdochization of the Wall Street Journal News Pages
Felix Salmon, first on Susan Pulliam, Kate Kelly, and Carrick Mollenkamp:
The sensationalist WSJ: [T]he front page of today’s Wall Street Journal... three main items.... The big headline splashed across the top is “Hedge Funds Pound Euro.”... The story is accompanied by a chart showing the recent deterioration in the value of the euro, for all the world as though it were caused by the hedge funds in question. There’s even hints of conspiracy: the story begins with the tale of a few fund managers having dinner — together! And talking about the euro! There’s only the vaguest hint, in the ostensibly-sober WSJ, that it’s ridiculous to think that hedge funds could cause a large medium-term change in the value of the euro against the dollar. They can certainly bet on such a move, and make money if it happens, but you can’t manipulate the largest currency pair in the world, when it’s freely floating and does over a trillion dollars in volume per day. But that doesn’t stop the WSJ from trying. After talking about nothing but currency trades for the first 11 paragraphs of the story, there’s then a screeching of gears and those demons du jour – credit default swaps (CDS) – are shoehorned into the story, which suddenly starts talking about bets on Greece’s creditworthiness. While it’s true that worries about Greece can have an adverse effect on the euro, again it’s pushing the limits of credibility to suggest that hedge funds are deliberately trying to manipulate the market in Greek credit so as to make money on their foreign exchange plays.
Especially when, as the article concedes, the only named player in Greek CDS — John Paulson — is now reportedly bullish on the country.
Basically, the article is long on sensationalism and short on news — much like the big photo on the page, a human-interest picture from Haiti, underneath which we find a crypto-denialist story about climate change carrying the headline “Push to Oversimplify at Climate Panel”...
And then on Jeffrey Ball and Keith Johnson:
We find a crypto-denialist story about climate change carrying the headline “Push to Oversimplify at Climate Panel”: The story talks about “institutional bias” at the the Intergovernmental Panel on Climate Change (IPCC), but there’s clearly an institutional bias at the WSJ on this issue too, as evinced by things like the paragraph which begins with this: Even some who agree with the IPCC conclusion that humans are significantly contributing to climate change say the IPCC has morphed from a scientific analyst to a political actor. That kind of language makes it seem that there’s a pretty symmetrical argument about the existence of anthropogenic climate change, and that even some people on the IPCC side — the side of the believers — are still critical of the U.N body. But of course there isn’t a serious scientific debate over the existence of anthropogenic climate change, not that you’d ever learn that from reading this story.
And just look at... [what] the WSJ presents as evidence of oversimplification.... It’s simplification, yes — it’s taken four different time-series of historical temperature, and averaged them. But I don’t think it’s oversimplification: they all show pretty much the same thing, that temperatures stayed pretty constant, within a 0.5-degree range, from the year 1000 to the beginning of the industrial revolution. Since then, temperatures have been rising sharply, and all the different scientific scenarios for the future show them continuing to rise dramatically....
[T]he paper is aggressively becoming both sensationalist and political. That might be a sensible move, from the point of view of selling copies, especially on the newsstand. But it will also inevitably serve to erode the trust that many people, on Wall Street especially, have in the reporting of the WSJ.
Buce on Recourse and the Foundations of Industrial Market Economies
Buce:
Underbelly: Recourse Again: Mark Perry Gets it Backwards: Per Mark J. Perry, here's reason #1 why the Canadians avoided a bank meltdown: recourse lending:
Almost all Canadian mortgages are “full recourse” loans, meaning that the borrower remains fully responsible for the mortgage even in the case of foreclosure. If a bank in Canada forecloses on a home with negative equity, it can file a deficiency judgment against the borrower, which allows it to attach the borrower’s other assets and even take legal action to garnish the borrower’s future wages. In the United States, we have a mix of recourse and non-recourse laws that vary by state, but even in recourse states, the use of deficiency judgments to attach assets and garnish wages is infrequent. The full recourse feature of Canadian mortgages results in more responsible borrowing, fewer delinquencies, and significantly fewer foreclosures than in the United States...
This is weird in so many ways that it is hard to know where to begin, but grant him his general proposition: There is indeed something problematic about the asymmetric heads-I-win, tails-you-lose structure of non-recourse finance. The trouble is... "non-recourse" [is] under almost every rock in the capitalist garden. I'm sure Perry would be happy to show you how the same problem underlies the bankruptcy discharge, where the debtor gets to walk away from his just debts. I'll bet (although I do not know) that he feels the same way about bank insurance, like the free-handed taxpayer guarantees that allowed the mischief-makers to bring down the Savings & Loan industry in the 80s/90s. But... a call option on LittleCo stock... [is] the right to take the stock or throw it away--analytically no different from my right when I buy my home on a nonrecourse mortgage. I have not heard Perry howling for the abolition of the conditional claims market.... Or consider the corporate limited liability form itself, the greatest social invention, so Bertrand Russell is supposed to have said, of the 19th Century. Restated: the equity stake in a leveraged company is a call option on the assets--you can take or walk away, just as with stock options, just as with the nonrecourse mortgage.
Probably nobody ever understood this better than the bankers.... Why does [J.P. Morgan] look like he is ready to explode? Because it's his own skin in the game. He was a general partner. If the deals went sour, he stood to lose every penny. No wonder he was a prudent lender. No lwonder he staked so much on personal character. Sadly, his successors appear at last to have grasped the full implications of his insight. What caused the late meltdown? Of course you can't bring it down to one cause, but if you had to name just one, I'd say--incorporation of investment banks, the great tectonic shift from unlimited to limited liability.* That's when the bankers stopped having skin in the game: when they shifted to heads-I-win, tails-you-lose. They bankers didn't worry about taking lunatic risks because they knew the downside was yours, or rather ours (indeed, any first semester MBA student can show you, the greater your capacity to shift he losses, the greater the inducement to take a risk and the more lunatic the risks you take).
I grant, there is a great puzzle here: why do shareholders get bankers get away with it--or more generally, why does anybody ever buy stock in a bank?... I don't know the answer to that, but Perry doesn't even seem to notice that it is a problem.
Final Jibe: I think it's pretty rich to see an endorsement of Canadian banking from a crowd who have spent the last dozen years or more telling us about the evils of Canadian health care.
links for 2010-02-27
Ten Pieces Worth Reading, Mostly Economics: February 27, 2010
1) David Leonhardt: Health Economists Urge Passage of Reform:
Obviously, not all economists are in favor of the current proposals in Congress. But a pretty impressive list of health economists and other policy experts has released a letter making the following argument:
We commend the President’s pursuit of bipartisan solutions. Yet the summit made plain that it is now time to move decisively and quickly to enact comprehensive reform. We believe that the only workable process at this point is to use the President’s proposal to finish the job. After long debate, the House and Senate have passed two similar bills that do crucial things to improve U.S. health care.
The signers include Daniel Kahneman, the Nobel laureate and behavioral economist; David Cutler and Len Nichols, who have advised Congress on health policy over the last year; Theda Skocpol, the political scientist; and Henry Aaron of the Brookings Institution.... Like many on this list (and like some opponents of the current bills), I wish the bills did more to reduce cost growth. But after watching the debate over the last year — and seeing just how bad the politics of cost control are — I wonder when we will next see a bill that goes even as far as these do...
After announcing his retirement last week, Sen. Evan Bayh (D-IN) mused about his future employment to CBS News, saying “if I could create one job in the private sector by helping to grow a business, that would be one more than Congress has created in the last six months.” Bayh’s comment about job creation has irked some of his Democratic colleagues. “I’ve got material on my desk that shows the jobs that have been created in Louisiana,” Sen. Mary Landrieu (D-LA) told Politico. “I don’t think that’s true; in fact, I know it’s not true.” In an interview with Politico, Bayh attempted to backtrack a little bit, though he maintained that his statement was “probably largely true” if limited to the past six months:
Bayh walked back his statement in an interview with POLITICO Tuesday, saying it was “hyperbole” and he “wouldn’t say it again.” Still, he said, the statement was “probably largely true” if limited to the past six months — even if what he really meant was “that we’re not doing enough.”
But Bayh’s new claim is discordant with the fact that the stimulus passed by Congress in Feb. 2009 has been creating jobs in the past six months. Yesterday, the Congressional Budget Office reported that the Recovery Act “added between 1.0 million and 2.1 million to the number of workers employed in the United States” in the fourth quarter of last year, which ranges from Oct. 2009 to Dec. 2009.
3) John Emerson: Does Brian Riedl of National Review Finally Get It?:
Not completely on topic, but close enough: when conservatives argue "The New Deal didn't end the depression, World War Two did", aren't they admitting the effectiveness of Keynesian spending and criticizing Roosevelt for not doing enough of it? (And rightly so, considering his Mellonist 1937 budget proposal, which he made as soon as the threat from his left had been eliminated in the 1936 election.)
4) Catherine Rampall Predicts That Her Colleagues in the Press Will Not Do Their Jobs:
[T]he February jobs report... will probably be very, very ugly.... The main culprit behind the expected jobs plunge is the blizzard, which closed businesses and kept people from going to work or even seeking work.... The Labor Department is of course well aware that the blizzard will distort its numbers... officials will... try to isolate the effects of the storm....
But even though everyone will know that “snowmageddon,” and not President Obama, is really at fault for the poor report, the headline number may still be shocking enough to sufficiently discredit economic policy of Democrats...
5) Tom Levenson: Great Read: MacFarquahar on Krugman in the current New Yorker:
[E]conomics as practiced in the academy is in possession, its practitioners believe (and I mostly do too, not that my opinion matters) of a body of methods and a growing number of results that suggest that it is a powerful way of analyzing certain kinds of human behavior, and for making useful predictions about some things. But it is far from as comprehensive in its explanatory power as some of its practitioners — and many more in the economic pundit class — would have one believe. What’s more, it’s important to remember that there is a difference between a valid result and an empirically valuable one. More bluntly: it’s not just possible, but common to come up with something that is absolutely “right” within the framework of economic thinking that is simply false in the real world. MacFarquar writes:
The most successful paper Krugman ever wrote was about target zones, and it was completely wrong. In the years before Europe adopted the euro, it was thought that establishing something between floating exchange rates and fixed ones—a “target zone” within which a currency would be allowed to float—might reap some of the advantages of each. He estimates that by the time the paper was officially published, in 1991, some hundred and fifty derivative papers had already appeared. “Empirically, it doesn’t work at all,” Krugman says. “People loved it as an academic thing, but it had some very strong predictions about interest rates inside target zones. Those predictions all turned out to be wrong. But nobody attacked me for that. I was showing that if target zones worked the way that people say they’re supposed to work, then this is how it would play out.”
Economics — academic economics — “knows” much more than it knows… and that’s perfectly alright for the development of a body of thought. The problem only surfaces either when economics results are given more credence than they deserve in the making of public policy and/or opinion. I’d blurt “supply side” here, except that this was explicitly controversial within the profession, and so the history of supply side policy is not simply a story of a consensus too confidently achieved, but rather of the catastrophic process by which bad ideas are transformed into political certainties…which leads directly to the second half of my diagnosis of pathologies…
…and that would be when economists — or political/ideological allies — present as settled conclusions that are either uncertain or false.
6) DELONG SMACKDOWN OF THE DAY: Eric Rauchway: DeLong Smackdown/Bottomsup:
I’m shocked that in his Keynes compendium, Brad DeLong left out the great economist’s sole regret: that he should have drunk more champagne. Wise words for dark times and advice to keep the season bright. Cheers.
7) GRAPH OF THE DAY:
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Michael Wolff: It’s Not Politics, It’s Bonkers:
Let’s make nuttiness in America the issue. Forget right or left or any matters of ideology. Why not make the pressing public issue about logic, perspective, rationality, proportion, and even humor? There ought to be a new political test: If you talk like a nut, if you act like a nut, if you associate with other nuts, you’re a nut. Joe Stack’s daughter, Samantha Bell, is, like her father, who flew his plane into the IRS office in Austin, Texas, last week, a nut. His suicide and murder of an innocent bystander was, according to Bell, her father’s way of speaking out against injustice. “Nothing will ever be accomplished,” she said, if there aren’t people like her father willing to strike a blow against big government (she also called him a hero, but then, as nuttily, thought better of that and retracted it)....
We think it’s unfair or incorrect or plainly not nice to call people cuckoo, daft, deficient, around the bend. Political debate, I’d argue, is quite often a way to avoid the real subject. The very impersonal and humorless nature of political discussions—so that even in the privacy of our own homes we can sound like talking heads—means we overlook the real emotional subtext: Many American are truly out-and-out over the edge. (Arguably, the more you talk about politics the more distant you are from your emotions and, hence, the nuttier you are.) And the problem keeps getting worse. I would have said the annual CPAC conference, held this past week in Washington, was a pretty estimable collection of people worked up in more or less scary and disproportionate ways. Now Mike Huckabee... says CPAC is way too reasonable for him. The Tea Party movement... is where the real soul of his party is.... Republicans, once the party of boring sobriety and solidness, are now the party of the kooky, the cracked, the unhinged. Republicans are not conservative in the least. Rather, they act out in the most deranged and dramatic ways.
The Democrats, being doggedly literal, in addition to scrupulously respectful about people’s mental health (a liberal issue), accept these barmy conservatives as having a bona fide, if objectionable, political view. Whereas, they might more effectively be arguing that the real issue isn’t taxes or big government or health care, but drugs, alcohol, loneliness, neglect, paranoia, grandiosity, obsessiveness, and so many other American creeds and conditions.
9) IF CLARK HOYT OF THE NEW YORK TIMES WERE NOT ALREADY STUPIDEST-MAN-ALIVE-FOR-LIFE, THIS MAN WOULD BE: University of Chicago Economics Professor Casey Mulligan, as observed by John Quiggin: Zombie economics gets a mulligan: or, how Obamacare caused the Global Financial Crisis:
I’m adding a little section to each of the chapters in my Zombie Economics book called “Reanimation”, about the attempts that are already under way to revive economic ideas killed (at least according to the standard rules of hypothesis refutation) by the global crisis. I wasn’t surprised to find plenty of examples for the efficient markets hypothesis (easy to render immune from any kind of refutation by an appropriate formulation) or for policy ideas that yield big benefits to the rich and powerful, such as privatisation and trickle-down economics. But I was surprised a little while ago to see the crisis described as a transitory blip in the continuing Great Moderation. Still that pales into insignificance compared to this piece by Casey Mulligan of Chicago (h/t commenter Daniel ), in which (I swear this is true!) the crisis is the result of financial markets correctly anticipating the adverse labour market impacts of possible legislation under Obama, such as a health plan that might include means tests....
There is one problem with Mulligan’s neat explanation. Writing in October 2008, when the crisis had already erupted and when Obama’s victory was virtually assured Mulligan had this to say about proposals for economic stimulus:
So, if you are not employed by the financial industry (94 percent of you are not), don’t worry. The current unemployment rate of 6.1 percent is not alarming, and we should reconsider whether it is worth it to spend $700 billion to bring it down to 5.9 percent.
This piece, which got the endorsement of his Chicago colleague, Freakonomist Steven Levitt, doesn’t even mention the possibility that a Democratic Congress might raise taxes, or that the health plan that was a central plank of candidate Obama’s platform might include means tests. Yet he now claims that these possibilities (still hypothetical as of 2010) caused a massive increase in unemployment, the anticipation of which caused the crash!
10) HOISTED FROM THE ARCHIVES: DeLong (March 10, 2007): Your One-Stop Shop for All Your 70th Anniversary Leftist Sectarian Polemic Blogging Needs:
In anticipation of the 70th anniversary of the bloody Stalinist suppression of the Partido Obrero de Unificación Marxista in the Barcelona May Days, we are--thanks to Jacob Levy--proud to bring you the latest in sectarian Marxist polemics blogging. First, we have Eric Hobsbawm declaring that George Orwell was a Traitor to Humanity by telling the truth about what he saw in Spain:
Eric Hobsbawm: Writers supported [the Republican cause in] Spain... Hemingway, Malraux, Bernanos and virtually all the notable contemporary young British poets - Auden, Spender, Day Lewis, MacNeice - did. Spain was the experience that was central to their lives between 1936 and 1939.... [P]olemics about the civil war [within the Left]... have never ceased since 1939. This was not so while the war was still continuing, although such incidents as the banning of the dissident Marxist Poum party and the murder of its leader Andrés Nin caused some international protest. Plainly a number of foreign volunteers... were shocked by... the behaviour of the Russians and much else.... And yet, during the war, the doubters remained silent... They did not want to give aid to the enemies of the great cause.... The exception proves the rule: George Orwell's Homage to Catalonia.... Orwell himself admitted after his return from Spain that "a number of people have said to me with varying degrees of frankness that one must not tell the truth about what is happening in Spain and the part played by the Communist Party because to do so would prejudice public opinion against the Spanish government and so aid Franco."... [P]olemics... are legitimate... only if we separate out debate on real issues from the parti pris of political sectarianism, cold-war propaganda and pure ignorance.... A serious war conducted by a government requires structure, discipline and a degree of centralisation. What characterises social revolutions like that of [Spain in] 1936 is local initiative, spontaneity, independence of, or even resistance to, higher authority.... In short, what was and remains at issue in these debates is what divided Marx and Bakunin. Polemics about the dissident Marxist Poum are irrelevant.... The conflict between libertarian enthusiasm and disciplined organisation... remains real.... Wars, however flexible the chains of command, cannot be fought, or war economies run, in a libertarian fashion. The Spanish civil war could not have been waged, let alone won, along Orwellian lines.... Moral revulsion against Stalinism and the behaviour of its agents in Spain is justified.... [Y]et... not central to the problem of the civil war. Marx would have had to confront Bakunin even if all on the republican side had been angels.... [A]mong those who fought for the republic as soldiers, most found Marx more relevant than Bakunin...
Second, we have a reply by Stephen Schwartz, whose affection for Eric Hobsbawm is far smaller than mine:
Eric Hobsbawm's Stalinist Homage to Catalonia | Jewcy.com: Eric Hobsbawm... political and pseudo-intellectual legacy of Stalinism... banal but repellent rehash... long-discredited clichés... fundamental lie of Stalinist propaganda, which holds that the Republicans would have won the war if they had submitted to dictation from Moscow.... Hobsbawm... contemptible exercise in pseudo-history... CNT militants in the uprising at Casas Viejas, a rural hamlet in Andalusia, in 1933.... Jerome Mintz... exposed Hobsbawm as a mendacious tourist.... “[H]is account is based primarily on a preconceived evolutionary model of political development rather than on data gathered in field research.” Mintz correctly states, “The model scales labor movements in accord with their progress toward mass parties and central authority... [Hobsbawm] explains how anarchosyndicalists were presumed to act rather than what actually took place... his evolutionary model misled him on virtually every point.”... In Spain today Mintz’s work, based on extensive and serious research and interviews, enjoys high esteem.... The Stalinist view of [George] Orwell put forward by... [Hobsbawm] dismisses Homage to Catalonia because it was turned down by a Soviet-lining publisher.... For Hobsbawm, Orwell is not only illegitimate because his book did not sell well, but because he was “an awkward, marginal figure.”... As to the POUM... Hobsbawm.. refers with something approaching disdain to “the murder of its leader Andrés Nin [having] caused some international protest.... Andreu Nin (1892-1937) was not simply... leader of an anti-Stalinist party.... To kill Nin was not the same as it would have been to murder, say, the American Trotskyist Max Shachtman, but would have been more like liquidating John Dos Passos....
Hobsbawm informs us “Wars, however flexible the chains of command, cannot be fought, or war economies run, in a libertarian fashion. The Spanish civil war could not have been waged, let alone won, along Orwellian lines.” Once again, the Stalin-nostalgia betrays his ignorance of Spanish reality.... [T]he militia units generally fought better than the militarized units.... [T]he Stalinist-controlled International Brigades and the militarized Republican soldiery with whom they were coordinated were known for incompetence in battle, desertion, and, in the case of many of the foreigners, their reassignment to special groups ordered by the Russians to kill leftist dissidents, since the Spanish would not carry out such duties.... The Spanish knew so many things that Hobsbawm will never know – and above all, they know that while Orwell’s methods might not have guaranteed the victory of the Spanish Republic, those of Stalin and his admirers assured its defeat.
Project Syndicate: A Stimulus Opponent Who Can Actually Find His ---!
Stimulus Arithmetic
In the Wall Street Journal on February 23, Robert Barro made an intelligent argument against the American fiscal stimulus—the ARRA. It is a great relief after wading through the works of those who claim, one way or another, that the basic principles of economics set out by Say and Bastiat make it impossible for government decisions to spend. (They would, if they thought about it for even a minute, realize that their arguments also entail the conclusion that nobody else's decisions to spend can alter the flow of economic activity either, and hence that recessions simply do not happen. Which raises the question of why the unemployment rate has risen from 5% to 10%, but I digress.) Barro is, thankfully, not one of that crew. So my first desire is to wind up Barro and turn him loose to deal with those who stopped reading the economics literature before 1890, and not only never understood Milton Friedman[1] but never understood Friedman’s predecessors like Irving Fisher and Knut Wicksell.
However, I think Barro has gotten some key things wrong. First, I believe that Barro makes an error of logic in assessing how his own view of the situation applies to the question of what macroeconomic policy should be.
Barro writes, in “The Stimulus Evidence One Year On,”[2] that he:
estimate[s] a spending multiplier of around 0.4 within the same year and about 0.6 over two years.... [T]he [tax] multiplier is around minus 1.1.... [Thus] GDP would be higher [because of the ARRA stimulus] than otherwise by $120 billion in 2009 and $180 billion in 2010...
and by $60 billion in 2011.
That is roughly 1.3 million more people employed in America in 2009, 1.9 million more people employed in 2010, and 0.7 million people employed in 2011. Suppose that what the government spent money on is worth to us on average 2/3 of what private-sector spending is worth. Then according to Barro we spent $600 billion on the ARRA and got $400+$120+$180+$60 billion = $760 billion worth of goods and services in return, for a net social profit of $160 billion. And it is not as though that $160 billion would have been offset by a loss of leisure time on the part of those who are not but would have been employed. The cyclically-unemployed do not place a high value on their lost leisure.
Only if you think there are additional large costs lurking down the road—that the ARRA has destabilized price expectations and set in motion a damaging and destructive spiral of deflation, or that the ARRA has used up America's debt capacity and so interest rates have spiked and amortizing the debt will be very costly—does the social profit turn negative. And neither of those things have happened. As the London Economist’s “Demcracy in America” correspondent wrote on Wednesday:
You can argue that private actors will spend the money in ways that generate more employment than government.... It's pretty hard to make this argument at a time when banks are not lending... because they see few promising opportunities.... You can argue that government programmes generally take years to get underway, and by the time the spending gets going, the economy will already be in recovery... this argument looks much weaker now than it did a year ago: the recession has been far deeper than expected, we seem to be having a jobless recovery, and unemployment looks set to stay above the 5% “full employment” level for many years...
The long-term nominal and real Treasury rates continue to be absurdly low, so much so that I rub my eyes whenever I see them. Just today the Treasury auctioned $32 billion more of seven-year notes at a yield of 3.08% per year. And the market forecast of inflation—the spread between TIPS and normal Treasuries—remains extremely well behaved. As Martin Feldstein wrote yesterday, the market continues to expect consumer price inflation to average only 2.5% per year over the next several decades.[3]
Thus I really do not understand the logic behind Barro’s last paragraph in his op-ed, in which he claims:
The fiscal stimulus package of 2009 was a mistake. It follows that an additional stimulus package in 2010 would be another mistake...
Second, I think Barro makes an error of analysis in reading the current situation. I think Stanford’s Bob Hall[4] has a better read on what is going on with respect to the current sizes of multipliers:
With allowance for other factors holding back GDP growth during those [years of total] wars, the multiplier linking government purchases to GDP may be in the range of 0.7 to 1.0... but higher values are not ruled out.... Multipliers are higher—perhaps around 1.7—when the nominal interest rate is at its lower bound of zero, as it was during 2009...
The problem, I think, is that Barro tries to use the total war years of the twentieth century to
realistically evaluate the stimulus... the main results come from fluctuations in defense outlays associated with major wars such as World War I, World War II and the Korean War...
Because
the defense-spending multiplier can be precisely estimated...
This suffers from the standard economist's problem of looking for one's lost keys under the lamppost because the light is better there. Yes, the total war defense-spending multiplier can be relatively precisely estimated. But we are not interested in what the multiplier is when the unemployment rate is 3%, we are interested in what the multiplier is when the unemployment rate is 10%. And we are not interested in what the multiplier is when the government is taking all kinds of other steps to diminish consumption and boost private savings via rationing and patriotism-based bond drives, we are interested in what the multiplier is under more normal conditions.
Third, Barro characterizes the stimulus bill as a two-year $600 billion increase in government purchases. But about half of the stimulus money spent to date is on the tax and transfer side, and about a quarter is direct aid to states which enables them not to raise taxes during this recession. It seems to me that Barro should be weighted-averaging his spending multiplier of 0.6 and his tax multiplier of 1.1 to get an ARRA multiplier of 0.9—in which case our social profit is not $160 billion but rather $340 billion, and we should certainly do this again, and again, and again. (Until, that is, there are signs that additional stimulus may start to threaten price-level or debt-management stability, or until unemployment falls far enough to make Barro’s multipliers overestimates.)
Fourth, Barro complains that because Christina Romer has “not [carried out] serious scientific research... on spending multipliers...” he “cannot understand her rationale for assuming values well above one...” To say that policymakers should rely only on their own personal research to formulate policy seems to me simply bizarre.
Fifth, Barro assumes that spending in 2009-2010 is then offset by levying equal taxes in 2011-2012, claiming that “the timing of future taxes does not matter.” But it does. It matters very much. At the moment the U.S. Treasury can borrow at a real interest rate of zero for five years—and shove all of five-year inflation risk onto the lender at that. Time preference means that the $600 billion addition to the debt today that Barro sees as the cost of stimulus is—because of the easy terms on which the Treasury can finance things right now—not nearly as burdensome as a demand to pay $600 billion now would be. We get the goods now. But the costs are delayed until later, when we will in all likelihood be richer and feel the costs less severely.
Sixth, when future taxes will be levied to amortize the added debt induced by the stimulus, they will be levied at a time at which nominal interest rates will not be stuck at their current floor of zero. The Federal Reserve will then be able to ease monetary policy—reduce interest rates—to offset the fiscal drag. There will be no lost production and employment through Keynesian channels. So I do not see why Barro believes that, although the stimulus boosts employment now, amortizing the stimulus must inevitably reduce employment at some point in the future.
[1] Who argued that the stimulative effects of expansionary fiscal policy were, as long as interest rates were at more-or-less normal levels, “certain to be temporary and likely to be minor”—but who agreed that the stimulative effects on production and employment were there.
[2] http://online.wsj.com/article/SB10001424052748704751304575079260144504040.html
[3] http://www.project-syndicate.org/commentary/feldstein20/English
[4] http://muse.jhu.edu/journals/brookings_papers_on_economic_activity/summary/v2009/2009.2.hall.html
February 25, 2010: 1507 words
Tim Besley and Andrew Scott Have a Very Good Idea for Britain
Basically, it's that Britain create a Congressional Budget Office:
Time for independent fiscal policy committees: Plainly, a new device is needed to restore credibility to governments’ long-term public finances.... [T]he problem is that the budgetary process is not sufficiently transparent. A related problem used to exist for monetary policy, but substantial reform – especially creation of the Bank of England Monetary Policy Committee (MPC) redressed this, but reform of the fiscal process has been limited. Plainly this problem is not unique to Britain. The solution, as with monetary policy, is to institutionalise fiscal transparency and ensure the proper long-term scrutiny of public finances. Achieving this requires the creation of a politically neutral, expert body. To take the example we are most familiar with this could, the idea would be to create a body that would assess the UK’s fiscal position twice a year – about two months before the Budget and the Pre-Budget Report...
By symmetry, the U.S. should probably create a real Shadow Open Market Committee as well...
I Endorse Almost Everything Alex Tabarrok Says Here
The one thing I object to is his claim that real wages "need" to fall: they don't, because what needs to happen is that demand needs to rise.
But all the stuff about how creating an insider-outsider economy would be a really bad idea is, I think, dead-on:
Marginal Revolution: Insiders, Outsiders and Unemployment: From today's NYTimes:
The Obama administration is planning to use the government’s enormous buying power to prod private companies to improve wages and benefits for millions of workers, according to White House officials and several interest groups briefed on the plan.... Because nearly one in four workers is employed by companies that have contracts with the federal government, administration officials see the plan as a way to shape social policy and lift more families into the middle class.
At a time of 10% unemployment when real wages need to fall this is bad business cycle policy. I am more worried, however, about the long term consequences of creating a dual labor market in which insiders with government or government-connected jobs are highly paid and secure while outsiders face high unemployment rates, low wages and part-time work without a career path.
Long-term unemployment is at shockingly high levels which in itself creates a dynamic of persistence because the longer a worker is unemployed the less employable they become (in part due to loss of human capital and signaling problems). Thus, getting these workers back to work is going to be hard enough as it is. Labor regulations which raise wages and make hiring and firing workers even more costly will make re-employing the long-term unemployed even more difficult.
Moreover, once an economy is in the insider-outsider equilibrium it's very difficult to get out because insiders fear that they will lose their privileges with a deregulated labor market and outsiders focus their political energy not on deregulating the labor market but on becoming insiders--see Blanchard on Summers on hysteresis in unemployment and more recently Larry Ball here. Many European economies found themselves stuck in the insider-outsider equilibrium and as a result unemployment levels in places like France and Italy hovered at 9% or more for decades.
Jonathan Chait Is Scarily Correct Once Again...
... even if neither he nor his copy editor can successfully spell "prophecy":
Crist: The Prophesy Unfolds: Might as well keep beating this drum. Since December I've been saying that Charlie Crist might be elected to the Senate, but it won't be as a Republican. The Hill notes that Crist just might be edging in this direction:
Either Charlie Crist realizes he can’t escape the stimulus, or he’s leaning toward an independent run for Senate. Crist is saying some curious things for a man in the midst of a conservative primary challenge....
[...]
Crist met with Obama in Washington this week after (not-so-smoothly) ignoring him late last year. He has also parted ways with some key campaign staff, including political director Pablo Diaz and new media consultant Sean Doughtie, who said simply, “The campaign was going in a different direction.” The campaign is definitely headed in a different direction, which is to be understood, what with its declining poll numbers. The question is what kind of direction.
It's got an outside shot at working, but outside shot beats no shot.
Ten Pieces Worth Reading, Mostly Economics: February 26, 2010
1) Martin Feldstein: How Safe Are Your Dollars?:
[T]he big risk to any investor is the possibility that inflation will virtually annihilate a currency’s value. That happened in a number of countries in the 1970’s and 1980’s. In Mexico, for example, it took 150 pesos in 1990 to buy what one peso could buy in 1980. That is not going to happen in the US. Large budget deficits have led to high inflation in countries that are forced to create money to finance those deficits because they cannot sell longer-term government bonds. That is not a risk for the US. The rate of inflation actually fell in the US during the early 1980’s, when the US last experienced large fiscal deficits. Federal Reserve Chairman Ben Bernanke and his colleagues are determined to keep inflation low as the economy recovers....
Looking forward, investors can protect themselves against inflation in the US by buying Treasury Inflation-Protected Securities (TIPS), which index interest and principal payments to offset the rise in the consumer price level. The current small difference between the real interest rate on such bonds (2.1% for 30-year bonds) and the nominal interest rate on conventional 30-year Treasury bonds (now 4.6%) implies that the market expects only about 2.5% inflation over the next three decades. So the good news is that dollar investments are safe. But safe doesn’t mean the investment with the highest safe return. If the dollar is likely to fall against the euro over the next several years, investments in euro-denominated bonds issued by the German or French governments may provide higher safe returns. Even if the dollar is perfectly safe, investors are well advised to diversify their portfolios.
2) M.S.L The stimulus and jobs bills: Tax cuts can in fact create jobs:
SEE what you think of this argument: it's impossible for tax cuts to create jobs. When the government cuts taxes, it simply has to borrow more money to cover its spending. This sucks money out of capital markets, which means financial institutions have less money to lend to businesses. That means businesses can't start up or expand. Whatever jobs are created by tax cuts, an equal number will be destroyed by increased borrowing; all the government is doing when it cuts taxes is taking money from one place and giving it to another. Most people would agree that this is a silly argument. But it is nearly the same argument that the Heritage Foundation's Brian Riedl and University of Chicago economist John Cochrane are currently making against the effectiveness of last year's American Recovery and Reinvestment Act (the stimulus). The CBO thinks the ARRA, which included $288 billion of tax cuts and $499 billion of spending, added between 1m and 2.1m jobs to the American economy by the end of 2009. Moody's, IHS Global Insight, and Macroeconomic Advisers think it added between 1.6m and 1.8m jobs. Mr Riedl and Mr Cochrane don't just argue that this figure is too high. They argue that the ARRA has created no jobs whatsoever, and that, moreover, it is theoretically impossible for the government to reduce unemployment. Deficit spending, they say, simply soaks up capital which would otherwise have been spent by the private sector. They are thinking of deficits created by spending hikes rather than tax cuts, but there is no reason why this should make a difference to their argument: all government deficit spending does, to quote Mr Cochrane, is "take money from one place and give it to another," which cannot create jobs. This way of thinking about the economy makes no sense.... Indeed, the model seems to make it impossible for private borrowing and spending to create jobs, since this activity simply takes money from one place and gives it to another. No economists apart from Eugene Fama appear to agree with Messrs Riedl and Cochrane....
You can make all kinds of potentially valid arguments against stimulus... that government is exceptionally unwise in its spending decisions... that private actors will spend the money in ways that generate more employment... that government programmes generally take years to get underway.... What you can't really do is make a serious, extended argument that it is theoretically impossible for the government to create jobs. Yet that is what Messrs Cochrane and Riedl have been doing. It sounds vaguely logical, in a common-sense sort of way, and it might be convincing to many voters who lack a solid background understanding of how the economy works. It is, in other words, a politically useful argument. But it's hard to see how it can be made sincerely by people who do have a solid background understanding of how the economy works.
The problem with such arguments is a political one. They won't influence serious economists, because they don't make sense. But they can influence the political sphere, because they can gain currency among partisan voters. It's the responsibility of serious people to stay away from such arguments...
FIFTEEN BILLION DOLLARS: I'm honestly not sure why they bothered, as "looking like we're doing something about jobs" is not the same as actually doing something about jobs.
4) Jim Hamilton: Treasury Supplementary Financing Program (SFP):
The SFP, the U.S. Treasury's program for assisting with the balance sheet of the Federal Reserve, is making a sudden and dramatic comeback. First a little background. Whenever the Federal Reserve buys an asset or makes a loan, it simply credits new reserve deposits to the account that the receiving bank maintains with the Fed. The bank would then be entitled to convert those deposits into physical dollar bills that it could ask the Fed to deliver in armored trucks. Banks currently hold $1.2 trillion in such reserves, or more than a hundred times the average level of these balances in 2006, and more than the total cash the Fed has delivered since its inception a century ago. The traditional way the Fed would bring those reserves back in (and thus prevent them from ending up as circulating cash) would be to sell off some of its assets. The Treasury's Supplementary Financing Program was introduced in the fall of 2008 to assist the Fed in its massive operations to prop up the financial system at the time. The SFP represents an alternative device by which the Fed could reabsorb the reserves it created. Essentially the Treasury borrows on behalf of the Federal Reserve, and simply holds the funds in the Treasury's account with the Fed. When a bank delivers funds to the Treasury for purchase of a T-bill sold through the SFP, those reserve deposits move from the bank's account with the Fed to the Treasury's account with the Fed, where they now simply sit idle, and aren't going to be withdrawn as cash. In a traditional open market sale, the Fed would sell a T-bill out of its own portfolio, whereas with the SFP, the Fed is asking the Treasury to create a new T-bill expressly for the purpose. But in either case, the sale of the T-bill by the Fed or by the Treasury through the SFP results in reabsorbing previously created reserve deposits.
The Treasury's press release says only this: "Treasury anticipates that the balance in the Treasury's Supplementary Financing Account will increase from its current level of $5 billion to $200 billion. This will restore the SFP back to the level maintained between February and September 2009. This action will be completed over the next two months in the form of eight $25 billion, 56-day SFP bills. Starting tomorrow, SFP auctions will be held each Wednesday at 11:30 a.m. EST, unless otherwise noted." So this is going to be implemented immediately and on a large scale. But why? If the goal were indeed to drain reserves, the Fed could do this by selling some T-bills out of its own holdings, currently some 3/4 trillion, or could do this with reverse repos or the Term Deposit Facility, not to mention selling some of its trillion dollars worth of MBS. And just two weeks ago Fed Chair Ben Bernanke seemed to be saying that such steps were still far in the future, and did not even mention the possibility of a surge in the SFP.
5) Alexander Bolton: Brown helps Reid win on jobs bill:
Senate Majority Leader Harry Reid (D-Nev.) scored a victory Monday when Sen. Scott Brown and four other Republicans helped to advance his $15 billion jobs bill. The procedural vote was approved 62-30 and allowed Democrats to move toward passage.... Republican Sens. Olympia Snowe (Maine), Susan Collins (Maine), Kit Bond (Mo.) and George Voinovich (Ohio) joined Brown (Mass.) in voting with the bulk of Democrats to end debate. Sen. Ben Nelson (Neb.) was the lone Democrat to vote against the motion to end debate. Democrats are blocking any amendments to the bill, and final passage is expected as early as Wednesday.
Brown released a statement Monday that said he was disappointed with the way the process was handled, but acknowledged Republicans and Democrats have to work together to get the economy back on track. “I came to Washington to be an independent voice, to put politics aside, and to do everything in my power to help create jobs for Massachusetts families,” Brown said in the statement. “This Senate jobs bill is not perfect. I wish the tax cuts were deeper and broader, but I voted for it because it contains measures that will help put people back to work.”...
Lawrence Mishel, head of the union-affiliated Economic Policy Institute, called the Senate jobs bill “small, puny.” The jobs bill includes four components: a tax credit to employers who hire new workers; a provision giving small businesses more leeway to write off the cost of capital investments; the Build America Bonds, which would subsidize the borrowing costs of state and local governments; and a one-year extension of surface transportation authorization funding. Democratic lawmakers have tried to address the concerns of allies by promising to pass additional legislation. “This is not the end of our debate on creating jobs through legislation this year, it’s the beginning of that debate,” said Sen. Ben Cardin (D-Md.). “There will be another package a few weeks from now, and another package [after that],” said Sen. Jeff Merkley, a Democrat from Oregon, which has an 11 percent unemployment rate...
6) DELONG SMACKDOWN OF THE DAY: HTML Mencken::
When I hear the phrase “latte-sipping elitist,” I think of several things. Culturally, I think of scenesters or scenester wannabes, arbiters of taste, awful people very much on the make, navel-gazing yuppie scum… Fuck it; I could go on and on, but here’s a good shorthand: I think of people who write for Gawker. Politically, I think of people in the professions, some of them moving in and out of government, or otherwise involved in policy-making, who are very attuned to and conscientiously follow conventional liberal positions on cultural issues but are clueless — and often more than a little callous — when it comes to class issues. The shorthand here is “Brad DeLong.” I myself never use “latte-sipping elitist” but I have and do use “technocrat elitist,” in the exact same spirit I recognize in the former phrase, when describing such people who regard their poor countrymen with only a bit more humanity than Trevelyan and Lord John Russell had for the Irish.
7) GRAPH OF THE DAY:
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Ta-Nehisi Coates: The Meaning Of Newsweek's "Terrorism Debate":
I think Glenn Greenwald is right to be outraged by Newsweek's debate around whether the IRS bomber is a terrorist or not. Take this example from Michael Isikoff: "ok, just to weigh in on this -- I think some of the comments miss what I take to be the fundamental distinction. The underpants bomber, for all his ineptitude, was equipped and dispatched by a foreign enemy -- Al Qaeda in the Arabian Peninsula-- whose ultimate leader (bin Laden) has declared war on the United States and who has demonstrated his willingness and intent to inflict mass casualties on our civilian population. That makes underpants man a terrorist and had he been captured overseas, would have made him an enemy combatant-- and why the Obama administration dispatches the U.S. military and Predator drones to destroy the people who sent him here. Similarly, the Fort Hood shooter may have been a disturbed 'lone wolf' but he was in ideological alignment and in communication with a member of the same foreign enemy. That makes them both terrorists. The Austin tax protestor, the anthrax scientist wacko, the Unabomber-- all did heinous things that we can describe any way we want -- certainly what they did were terrorist acts-- but they all remain a very different kettle of fish, which is why Mr. underpants man gets more attention that Austin tax protestor flying plane into building."
I have a great respect for Isikoff as a reporter, but this strikes as really weak logic. Isikoff concedes that the "Austin Tax Protester" committed "terrorist acts," but then claims he's not a terrorist. Under what circumstances could one commit "murderous acts" and not be murderer? In what instance could one commit an act of rape but not be a rapist? How does one commit an act of burglary, and yet not be labeled a burglar? The implications are chilling. By Isikoff's lights--and by the lights of several of his colleagues--the Ku Klux Klan, an organization responsible for the murder of thousands of innocent people, the men who turned Birmingham into "Bombingham," who hurled molotov cocktails into the homes of Detroiters who dared moved west of Woodward, who lynched black men in the streets, who brought food, children and wives to the spectacle, who smiled next to smoking corpses in post-cards for far-off relatives, who displayed the knuckles and testicles of black men in pickle jars, were not terrorists, but "Ethnic Intrusion Protesters." This is not merely about semantics. I deeply suspect that our inability to grapple with and understand our own history of home-grown terror, indeed defining it as something else, inhibits our understanding of the very terror we now face and claim to be at war with. I wish I could claim that Newsweek reporters, in embracing a vocabulary wish allows a murderer to be transformed into "The Austin Tax Protester," were betraying an ancient trust. In fact, who knows the history of black people in this country, knows that that the white press crumbled, and was at times even complicit, the Klan's century-long reign of terror. This notion that the press has "fallen," that the news medium has reached a new singular low, is belied by black history. I guess I should be happy. At least the press is debating whether he's a terrorist. Fifty years ago they would have been looking the other way. No. They would have egged him on.
9) STUPIDEST THING I HAVE READ TODAY: Rich Lowry and Ramesh Ponnuru, as observed by The League of Ordinary Gentlemen:
As a fan of Rich Lowry and Ramesh Ponnuru, I was dismayed to read (in a piece that made some good points) their un-conservative and off-handed attack on mass transit: "The Left’s search for a foreign template to graft onto America grew more desperate. Why couldn’t we be more like them — like the French, like the Swedes, like the Danes? Like any people with a larger and busier government overawing the private sector and civil society? You can see it in Sicko, wherein Michael Moore extols the British national health-care system, the French way of life, and even the munificence of Cuba; you can hear it in all the admonitions from left-wing commentators that every other advanced society has government child care, or gun control, or mass transit, or whatever socialistic program or other infringement on our liberty we have had the wisdom to reject for decades..."
Can people please stop bringing forward Ramesh Ponnuru as a "reasonable conservative" now?
10) HOISTED FROM THE ARCHIVES: DeLong (2003): And They Say the FAA Has No Sense of Humor:
The following items must not be used on this aircraft:
- Portable radios
- Portable televisions
- Cellular telephones
- Remote radio-controlled toy cars
links for 2010-02-26
What Does the Great East Coast Snowstorm Mean for the March 5 Employment Report?
Now that's a very hard question to answer...
This Is So Depressing to See...
Jeffry Bartash:
Weekly jobless claims increase 22,000 to 496,000: WASHINGTON (MarketWatch) -- The number of people filing initial claims for state unemployment benefits jumped 22,000 to a seasonally adjusted 496,000 in the week ended Feb. 20, the Labor Department reported Thursday...
Health Care Plan B? - There's no plan B for health-care reform
Ezra Klein:
There's no plan B for health-care reform: The Wall Street Journal has a splashy piece this evening on the White House's plan B for health-care reform: a fallback approach that would cover 15 million people, do less to reform the system and cut costs, and carry a lower price tag. Call it health-care lite.
Plan B has been around for awhile.... At this point, I could quote some White House sources swearing up and down that that's all this is. A vestigial document that's being blown out of proportion by a conservative paper interested in an agenda-setting story. They're furious over this story.... There's no Plan B at this point in the game, and most everyone knows it. Think about what's entailed in restarting the process. The Senate Finance Committee and the Health, Education, Labor, and Pensions Committee would have to build new bills. The House Energy and Commerce Committee, Education and Labor Committee, and Ways and Means Committee would need to write new legislation. All of those proposals would need to be merged. There would need to be discussions in committees, and then weeks and weeks on the floor. Then there would need to be conference. Then they'd have to come back to the floor. There's no time for that. Congress has a few, final months before everyone scurries home to campaign for 2010. And they want to spend those months forcing Republicans to take difficult votes on jobs legislation, not arguing over whether Medicaid is solvent enough for a major expansion.
More importantly, there's no political upside in starting over. The right will still cry "death panels!" and let loose the dogs of tea, and the left will savage them for failing to pass health-care reform despite controlling the second-largest congressional majority since the 70s. There's a policy argument here in that a fallback plan will cover more people than no plan will cover, but if covering people is what the Democrats want to do, they'll pass the comprehensive plan, which both covers more people and actually gives them a major accomplishment.
At this point, health-care reform either passes or it dies. Democrats are all in on this one. They know it, Republicans know it, and maybe more importantly, they know the Republicans know it. Letting health-care reform fail is indistinguishable from conceding the 2010 election. There's no real fallback plan. If Democrats fall back, they fall.
Health Care Summit on Twitter
The word is that #hcrsummit is the hashtag of choice...
Ten Pieces Worth Reading, Mostly Economics: February 25, 2010
1) SPECIAL BONUS STUPIDEST MAN ALIVE EVER CONTEST: The Stupidest Man Alive contest is now closed for all time. The winner--who should make his apologies to the Emperor immediately--is Clark Hoyt of the New York Times for saying:
The story says O’Keefe dressed up as a pimp and trained his hidden camera on Acorn counselors. It does not say he did those two things at the same time.
Neddy Merrill comments:
The Edge of the American West: This nonsense from Clark Hoyt cracked me up.... Really brings me back. In grad school, I taught introductory logic courses, and one of the standard things we did was cover basic propositional logic and natural deduction. The idea is to teach formal logic by showing students how to work in an artificial language made of up of atomic propositions (symbolized with p, q, etc.) and truth-functional connectives (&, v, -, etc.). A connective is truth-functional just in case the truth value of a compound sentence made with this connective is determined entirely by the truth values of the component sentences and the way the connective works. For example, suppose we’re dealing with “&” in our artificial language. p&q is true just in case p is true and q is true: that is, all you need to know is the truth values of p and q, and you’ll know what the truth value of p&q is.
And here the Hoyt-type examples come in. I used to use examples where temporal relations mattered to suggest that the artificial language “&” is not really the same as the ordinary-language “and.” It’s kind of like a crude approximation. A classic:
(i) John and Mary got married and had a baby
is different from
(ii) John and Mary had a baby and got married
The natural language version either says or suggests that the events happened in that order, while our “&” doesn’t care about that--all that matters is the truth values of “John and Mary got married” and “John and Mary had a baby.” The lesson to take from this is that our artificial language is different from spoken English in just this way: only the artificial connectives are truth-functional. It’s great to see this old chestnut of a point in the news. Next: Clark Hoyt wonders about justified true belief!
(There are some debates about whether the ordering is just an implicature or part of the truth conditions of the ordinary language sentence. Some people will die in the last ditch arguing for the the truth-functionality of the English “and,” but, if the best the public editor can do is to say “we didn’t print something false; we printed something that was, strictly speaking, true, that we knew ordinary readers would misunderstand,” well, he’s still lousy.)
2) Larry Mishel and David Walker: Address jobs now and deficits later :
President Barack Obama is in a difficult position when it comes to deficits. Today's high deficits will have to go even higher to help address unemployment. At the same time, many Americans are increasingly concerned about escalating deficits and debt. What's a president to do? The answer, from a policy perspective, is not that hard: A focus on jobs now is consistent with addressing our deficit problems ahead. The difficulty is that many politicians and news organizations often cast deficit debates as a dichotomy: You either care about them or you don’t. But this is rarely accurate....
With more than a fifth of the work force expected to be unemployed or underemployed in 2010, there is an economic and a moral imperative to take action. Persistently high unemployment drives poverty up, makes it harder for families to find decent housing, increases family stress and, ultimately, harms children’s educational achievement. For young workers entering the workforce, the current jobs crisis reduces the amount they will earn over their lifetime. In deep recessions, businesses tend to make fewer critical investments in research and development that can improve our economy’s productive capacity over the long term. Entrepreneurs usually find credit hard to obtain if they want to start a new business. These factors hurt U.S. global competitiveness and growth potential. That’s why we agree that job creation must be a short-term priority. Job creation plans must be targeted so we can get the greatest return on investment. They must be timely, creating jobs this year and next. And they must be big enough to substantially fill the enormous jobs hole we’re in. They must also be temporary — affecting the deficit only in the next couple of years, without exacerbating our large and growing structural deficits in later years....
For all the disagreement in Washington, we both know that, like us, there are many who see the critical importance of addressing these challenges. We must accept higher deficits in the short-term in order to put people back to work.
At the same time, we must take immediate steps to agree on a path and a process for reducing the structural deficits that lie ahead.
2) Jennifer Couzin-Frankel: The Latest Buzz: Orszag Budgets for Caffeine Genetic Marker:
Peter Orszag, the high-energy director of the White House Office of Management and Budget, recently shared some good news with Politico. No, he hasn't solved the country's economic problems. But he's learned that his genetics won't be crimping a caffeine habit that fuels 80-hour work weeks spent trying to erase a trillion-dollar deficit. While attending a conference, Orszag learned from biologist Craig Venter that he could get screened for a genetic marker that can raise the risk of heart disease when lots of caffeine is consumed. Orszag, who drinks vast amounts of Diet Coke, went ahead with the test. Luckily for him he's in the clear. "If that test had come out the wrong way, you would not have wanted to be around me afterwards, because to give up caffeine would have been very painful," Orszag told Politico reporter Mike Allen. The Office of Managament and Budget said that Orszag was traveling today and couldn't provide additional details-including whether he'd learned anything about his genetic predisposition to other diseases. But ScienceInsider guesses that he was referring to a single nucleotide polymorphism (SNP) called rs762551 that modulates a caffeine metabolizing enzyme in the liver. Those with a "slow" metabolizing version who drink a few cups of coffee a day are at a higher risk of heart attacks.
3) Barbara Kiviat: The limits of the job-creation bill:
I am thrilled, as are many others, that Congress has found a way to actually move forward on an issue. I refer to the apparent progress of the $15-billion job-creation bill. Unfortunately, as I've explained before, I'm pretty sure the legislation won't have as much of an impact as we're hoping for.... Seems what businesses really want is more demand for their products and services. Duh, right? Government spending would drum up demand in plenty of industries, but I guess more government spending creates a political problem....
Here's another idea. What about funneling more money to state and local governments? A whole lot of police officers and teachers didn't lose their jobs this past year because of the stimulus bill of early 2009. Maybe those would be some good jobs to save...
In Kentucky, GOP establishment candidate and secretary of state Trey Grayson is running against insurgent challenger Rand Paul, the son of Rep. Ron Paul (R-TX), in a contentious GOP Senate primary. With the margin between the two closing, and some polls even showing Paul leading Grayson, the secretary of state issued a desperate attack ad this week, taking aim at Paul for a speech he made in 2008. Grayson’s complaint? Paul acknowledged to the assembled crowd that coal “is a very dirty form of energy,” and thus, “one of the least favorable types of energy.” Watch it: Of course, Paul is right. According to the American Lung Association, nearly 24,000 Americans die every year from illnesses directly related to pollution from coal-fired plants, and coal is the largest source of human-generated mercury pollution. By challenging the myth of “clean coal,” Paul joins Sen. Lamar Alexander (R-TN), who last year admitted that coal “is a dirty business.”
5) James Politi: Bernanke defends Fed’s actions:
Ben Bernanke, Federal Reserve chairman, on Wednesday told Congress that although the US was experiencing a “nascent economic recovery”, interest rates would remain at their extremely low current levels. “The Federal Open Market Committee continues to anticipate that economic conditions...are likely to warrant exceptionally low levels of the federal funds rate for an extended period,” Mr Bernanke told the House financial services committee. Mr Bernanke was testifying on Capitol Hill for the first time since his confirmation last month to a second term as Fed chairman. “A sustained recovery will depend on continued growth in private-sector final demand for goods and services,” Mr Bernanke said, highlighting a recent pick up in consumer spending and “tentative signs of stabilisation” in the US labour market, which is still suffering from an unemployment rate of 9.7 per cent.... Mr Bernanke’s insistence that rate hikes were still far away will dampen fears that last week’s increase in the discount rate - at which commercial banks can borrow emergency cash from the central bank - from 0.5 per cent to 0.75 per cent - is a precursor to a swifter tightening of monetary policy. “These adjustments [to liquidity policies put in place during the crisis] are not expected to lead to tighter financial conditions for households and businesses and should not be interpreted as signalling any change in the outlook for monetary policy, which remains about the same as it was at the time of the January meeting of the FOMC,” Mr Bernanke said.
Mr Bernanke said that “at some point” the Fed would have to tighten monetary policy in order to avert a spike in inflation, which he described as “subdued”. The Fed has this month laid out its vision for the sequence of measures it expects to take in order to shrink the money supply. “We are confident that we have the tools we need to firm the stance of monetary policy at the appropriate time,” Mr Bernanke said...
6) DELONG SMACKDOWN OF THE DAY: wcw, on my claim that Cowgirl Creamery Red Hawk Is the Best Cheese in the World:
No, it isn't. It may not even be the best in Petaluma (try Bellwether Farms). It is, however, very good cheese, and it may well be the best triple-cream made in Petaluma. In the world. Sheesh. You have heard of this place called 'Europe', right?
7) GRAPH OF THE DAY: Via Paul Krugman, who got it somewhere else:
Note: I think O'Brien (1982) is more right than Maddison (1995).
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Matthew Yglesias: Coleman & Holtz-Eakin on the Need for the American Action Network:
With regard to my question of why existing right-wing think tanks aren’t good enough and there’s a need instead to create a new American Action Network, my colleague Victor Zapanta actually went to the launch event today and asked.... The main theme seems to be the idea that ANA will have a kind of rapid-response capability that existing outfits lack. But the Heritage Foundation does a lot of this stuff on its blog where you can find, e.g., lots of quick reactions to the White House health care bill. At any rate, Holtz-Eakin has historically taken some unorthodox policy positions. He thinks global warming is real and should be combatted with a cap-and-trade policy, for example, though he succeeded in making up some rationalization for opposing Waxman-Markey. Is he going to stick with those views, or will he follow his old boss into incoherent efforts to fall into line with the orthodoxy?
And some dude comments:
This is one of the least credible displays of disingenuousness ever seen on this blog, which is saying something. Do you seriously expect these people to answer, “AEI and Heritage are so discredited by their association with failed, unpopular ideas that we see a space for a new organization that can rebrand these the way CAP temporarily rebranded warmed over neoliberalism as something new and appealing”?
9) STUPIDEST THING I HAVE READ TODAY: Ron Fournier of the Washington Post, as observed by Digby: Lies And Damned Bloggers:
Ron Fournier wrote in yesterday's WaPo about the lying rightwingers at CPAC and the equally dishonest liberal activists who hate them. His theme is that Real Americans are sick of all this lying by the partisans of both sides and just want the truth. He then takes an example of each side's lies to illustrate this. The first is Mitt Romney... front runner for the Republican nomination, at CPAC. He points out that Romney lied about the Democrats' policies on taxes, jobs, deficits, tort reform, and the treatment of terrorist suspects....
For the Democrats he used as an example an anonymous diarist at DKos who wrote that Dick Cheney was a "self-confessed war criminal," insisting that's a lie because Cheney has not been charged with a war crime, nor has he confessed to one. Aside from the bizarre asymmetry of a top tier presidential candidate and an anonymous blogger being used as equal examples of bipartisan lying, he didn't even get it right. It's true that Cheney has never been formally charged with a war crime, but Dick Cheney did go on national television just a week ago and blithely admit, “I signed off on it; others did, as well, too,” when he was asked about waterboarding. Waterboarding is a war crime. Here's just one example out of many that have been prosecuted:
Chase J. Nielsen, one of the U.S. airmen who flew in the Doolittle raid following the attack on Pearl Harbor, was subjected to waterboarding by his Japanese captors. At their trial for war crimes following the war, he testified "Well, I was put on my back on the floor with my arms and legs stretched out, one guard holding each limb. The towel was wrapped around my face and put across my face and water poured on. They poured water on this towel until I was almost unconscious from strangulation, then they would let up until I'd get my breath, then they'd start over again... I felt more or less like I was drowning, just gasping between life and death." Cheney can say that he doesn't believe that waterboarding should be a war crime but that doesn't mean it isn't one.... But hey, by all means, let's pretend that Mitt Romney's lies and this anonymous blogger's truth are both to blame for the fact that the country has no faith in politicians. Luckily we have the village arbiters of reality to help us work our way through it.
10) HOISTED FROM THE ARCHIVES: DeLong (2006): The Indian Economy Blog » Nick Kristof on India Vs China:
English will remain the most widely spoken language of the world, not because of a larger American population, but because of rising numbers of Indians who use it.
links for 2010-02-25
The Past Is Another Country
Rufus F. on the Homecoming of Odysseus:
Homer “The Odyssey” | The League of Ordinary Gentlemen: I find his homecoming strange though. After winning a test of strength, Odysseus and Telemachus slaughter the suitors. The whole scene is excessive; he claims to kill them for their outrageous violence, but it amounts to boorish behavior and a failed plot to kill Telemachus. It would make more sense to run them off: “Scram, wimps!” Instead, Odysseus kills every last man for having dropped in for a visit and deciding to stay for several years...
It's considerably worse than that: consider the servant-women of Odysseus's palace who had consorted with the suitors:
"I will tell you the truth, my son," answered Euryclea. "There are fifty women in the house whom we teach to do things, such as carding wool, and all kinds of household work. Of these, twelve in all have misbehaved, and have been wanting in respect to me, and also to Penelope....
[T]he women came down in a body, weeping and wailing bitterly.... [T]hey took the women out and hemmed them in the narrow space between the wall of the domed room and that of the yard, so that they could not get away: and Telemachus said to the other two, "I shall not let these women die a clean death, for they were insolent to me and my mother, and used to sleep with the suitors."
So saying he made a ship's cable fast to one of the bearing-posts that supported the roof of the domed room, and secured it all around the building, at a good height, lest any of the women's feet should touch the ground; and as thrushes or doves beat against a net that has been set for them in a thicket just as they were getting to their nest, and a terrible fate awaits them, even so did the women have to put their heads in nooses one after the other and die most miserably. Their feet moved convulsively for a while, but not for very long...
Thank You, Democracy in America!
It's nice to see that there are honest journalists in the world who don't retreat to "he said, she said."
Thank you very much, M.S. It is enormously appreciated:
The stimulus and jobs bills: Tax cuts can in fact create jobs: SEE what you think of this argument: it's impossible for tax cuts to create jobs. When the government cuts taxes, it simply has to borrow more money to cover its spending. This sucks money out of capital markets, which means financial institutions have less money to lend to businesses. That means businesses can't start up or expand. Whatever jobs are created by tax cuts, an equal number will be destroyed by increased borrowing; all the government is doing when it cuts taxes is taking money from one place and giving it to another.
Most people would agree that this is a silly argument. But it is nearly the same argument that the Heritage Foundation's Brian Riedl and University of Chicago economist John Cochrane are currently making against the effectiveness of last year's American Recovery and Reinvestment Act (the stimulus). The CBO thinks the ARRA, which included $288 billion of tax cuts and $499 billion of spending, added between 1m and 2.1m jobs to the American economy by the end of 2009. Moody's, IHS Global Insight, and Macroeconomic Advisers think it added between 1.6m and 1.8m jobs. Mr Riedl and Mr Cochrane don't just argue that this figure is too high. They argue that the ARRA has created no jobs whatsoever, and that, moreover, it is theoretically impossible for the government to reduce unemployment. Deficit spending, they say, simply soaks up capital which would otherwise have been spent by the private sector....
No economists apart from Eugene Fama appear to agree with Messrs Riedl and Cochrane. Martin Feldstein obviously disagrees, though it has been mainly liberal economists like Paul Krugman and Brad DeLong who have objected vocally. Stan Collender has also done his bit. The conservative National Review's Reihan Salam went so far as to deny last week that any conservatives actually hold such views. It's simply a very strange stance. Taking money from one place and giving it to another, otherwise known as "borrowing" and "spending", is a well-established part of post-medieval economic activity. Whether or not increased government spending creates net jobs depends on underlying conditions in the capital markets and the real economy, and on whether government spends the money in ways that generate more employment than the private economy is generating at that time. The crucial question is whether the increased borrowing needed to finance deficit spending is crowding out private investment. This is an empirical question; the best way to resolve it is to look at what is happening to interest rates and bond yields, as Menzie Chinn does here.
You can make all kinds of potentially valid arguments against stimulus spending. You can argue that government is exceptionally unwise in its spending decisions. You can argue that private actors will spend the money in ways that generate more employment than government can. It's pretty hard to make this argument at a time when banks are not lending and are instead buying government bonds and securities because they see few promising opportunities due to drastically reduced overall demand for goods and services, but it's an argument that can be made. You can argue that government programmes generally take years to get underway, and by the time the spending gets going, the economy will already be in recovery, so the result will simply be a tight labour market and rising inflation. Again, this argument looks much weaker now than it did a year ago: the recession has been far deeper than expected, we seem to be having a jobless recovery, and unemployment looks set to stay above the 5% "full employment" level for many years into the future. But it's a valid argument, if you can back it up....
What you can't really do is make a serious, extended argument that it is theoretically impossible for the government to create jobs. Yet that is what Messrs Cochrane and Riedl have been doing. It sounds vaguely logical, in a common-sense sort of way, and it might be convincing to many voters who lack a solid background understanding of how the economy works. It is, in other words, a politically useful argument. But it's hard to see how it can be made sincerely by people who do have a solid background understanding of how the economy works.
The problem... such arguments... won't influence serious economists, because they don't make sense. But they can influence the political sphere, because they can gain currency among partisan voters. It's the responsibility of serious people to stay away from such arguments. If conservatives start running around saying that it's impossible for government spending to create jobs, liberals will find they have to start claiming that it's impossible for tax cuts to create jobs, and fairly soon, where once there was American democratic political discourse, you will have two mutually unintelligible camps of errant zealots flinging garbage at each other.
As it is, we have one camp of cynical and ethics-free zealots flinging garbage at all of us.
You know--back in 1979, Martin Feldstein assigned us pieces from Milton Friedman's Monetary Framework in which Friedman argued that the effects of expansionary fiscal policy were "certain to be temporary and likely to be minor" (except in those odd situations in which the interest elasticity of money demand is very high, like it is now)--but Friedman said that those effects were definitely there. Who are these guys who think that they are better right-wing economists than Milton Friedman, and why do they think so?
How do I order a lifetime subscription to the Economist? All of John Micklethwaite's many sins are now washed white as snow...
Office Hours
Nobody is coming to Wednesday morning office hours. So I am hereby moving them to Thursday morning: 9-10 and 11-1 in the Qualcomm Cafe in Sutarjda Dai Hall...
Ten Pieces Worth Reading, Mostly Economics: February 24, 2010
1) Andy Sullivan: US stimulus added up to 2.1 mln jobs in Q4 2009:
WASHINGTON, Feb 23 (Reuters) - The massive stimulus package passed last year to blunt the impact of the worst U.S. recession in 70 years created up to 2.1 million jobs in the last three months of 2009, the non-partisan Congressional Budget Office said on Tuesday. The package boosted the economy by up to 3.5 percent and lowered the unemployment rate by up to 2.1 percent during that period, CBO said. The report comes as President Barack Obama and his fellow Democrats are pushing further measures to bring down the 9.7 percent unemployment rate before the November congressional elections.... CBO's new report closely resembles its initial estimates from March 2009, shortly after Obama signed the bill into law. Though the economy performed more poorly than predicted, that was not due to the ineffectiveness of the stimulus package, CBO said. "In CBO's judgment, that outcome reflects greater-than-projected weakness in the underlying economy rather than lower-than-expected effects" of the stimulus, the research office said.
The package is likely to have the greatest impact this year, according to CBO. It is expected to boost GDP by between 1.4 percent and 4 percent and bring down the unemployment rate by between 0.7 percent and 1.8 percent in 2010, higher figures than last year when many of its programs were being set up. The impact is expected to trail off over the next two years. Direct purchasing of goods and services by the federal government and states have been the most effective provision of the act, CBO said. Among the least effective: a tax credit for first-time homebuyers and a tax cut for the wealthy. Since the start of the recession in December 2007, 8.4 million jobs have been lost. Though the economy started growing again last year, CBO chief Doug Elmendorf said at a congressional hearing that any recovery was likely to be slow.
2) Ben Armbruster: Santorum to GOP: Stimulus hypocrisy ‘does undermine your credibility.’:
Last weekend on ABC’s This Week, Gov. Arnold Schwarzenegger (R-CA) called out Republicans in Congress who voted against the Recovery Act, but then promote the money that it delivered to their districts. “I find it interesting that you have a lot of the Republicans running around pushing back on the stimulus,” he said. “Then they go out and they do the photo ops and they’re posing with the big check and they say, ‘Isn’t this great?’” Last night on Fox News, former GOP senator Rick Santorum agreed with Schwarzenegger’s comment:
SANTORUM: I would be very cautious if I were a Republican to do that. … I think the facts of the matter of what has happened after the stimulus package passed proved it hasn’t created a whole lot of jobs. But then to take money from that package and go out and do photo-ops talking about how many jobs it creates does undermine your credibility. [...] Members of Congress having opposed this plan then running out and saying here’s money I brought home to the district — that’s not to say your district doesn’t get the money. They would whether you do the photo- op or not. But I wouldn’t be out promoting it.
3) Ben Frumin: Jobs Bill Passes Major Hurdle After 5 GOPers Join Dems:
Five Republicans joined Democrats in a key cloture vote moments ago, allowing debate on a jobs package to move forward. After overcoming this hurdle, debate on the bill can begin. Sen. Scott Brown (R-MA) broke with his party and voted with the Democrats. So did Sens. Olympia Snowe (R-ME), Susan Collins (R-ME), Kit Bond (R-MO) and George Voinovich (R-OH). Sen. Ben Nelson (D-NE) was the only Democrat to break with his party. The final vote tally was 62-30.
It had been uncertain earlier in the day whether any Republicans would help Democrats reach 60 votes and overcome the threat of a GOP filibuster. With Sen. Frank Lautenberg (D-NJ) out of the Senate after being diagnosed with stomach cancer, Democrats needed at least two Republican votes to overcome a GOP filibuster threat. "Work with us on this," Senate Majority Leader Harry Reid said moments before the vote. "Show us you're serious about legislating." Reid also warned Republicans: Fail to support this bill, and the minority would "confirm their reputation as the 'Party of No.'" And after the vote? "I hope this is the beginning of a new day here in the Senate," Reid said. The bill, which is much smaller than some original proposals, would exempt businesses from paying Social Security payroll taxes this year after hiring from the nation's pool of millions of unemployed. The Build-America Bonds Act of 2009 would be renewed by the jobs bill. The scaled-down bill would also extend some tax breaks for small businesses, renew highway programs through December, and put $20 billion in the highway trust fund.
Brown issued the following statement about his vote: "I came to Washington to be an independent voice, to put politics aside, and to do everything in my power to help create jobs for Massachusetts families. This Senate jobs bill is not perfect. I wish the tax cuts were deeper and broader, but I voted for it because it contains measures that will help put people back to work. I was disappointed with the continuation of politics-as-usual in the drafting of this bill, as it was crafted behind closed doors, without transparency and accountability. I hope for improvements in that process going forward. All of us, Republicans and Democrats, have to work together to get our economy back on track. I hope my vote today is a strong step toward restoring bipartisanship in Washington."
4) Bruce Bartlett: On Starving the Beast:
The idea of using budget deficits as cover to cut spending that couldn’t otherwise be cut—a concept known as starving the beast—seems to be resurfacing (see here and here). This is a view I once held back in the 1970s. Just cut taxes, I thought, and pressure to balance the budget will manifest itself in the form of spending cuts that will reduce the size of government and increase growth, which would further reduce the size of government as a share of GDP. The problem is that this idea presupposed that there was significant support in Congress to reduce the deficit. Unfortunately, there has been no serious concern about the deficit in either party since the end of the Clinton administration. While both parties share some blame in this regard, there’s no question that more of it belongs to Republicans.... [T]he whole premise of starve-the-beast theory has gone straight down the toilet. Yet, to my amazement, Republicans and Republican lackeys continue to talk about cutting taxes with no corresponding spending cuts as if it is the height of fiscal responsibility. (See this silly Larry Kudlow column and Diane Rogers’ evisceration of it here.) When pressed, they fall back on "starving the beast" even though there is not one iota of evidence giving it operational meaning since at least 1996.... It has become, in fact, nothing but a license for Republican fiscal irresponsibility...
5) MOST EXTRAORDINARY DISPLAY OF DISINGENUOUSNESS EVAR!!!!:
The Washington Post:
Editorial: The earth is warming. A chief cause is the increase in greenhouse gases accumulating in the atmosphere. Humans are at least in part responsible, because the oil, gas and coal that we burn releases these gases. If current trends persist, it’s likely that in coming decades the globe’s climate will change with potentially devastating effects for billions of people. Contrary to what you may have read lately, there are few reputable scientists who would disagree with anything in that first paragraph. Yet suddenly we’re hearing that climate change is in doubt and that action to combat it is unlikely. What’s going on?
Matthew Yglesias explains:
Shockingly, however, in their discussion of “what’s going on” they completely neglect to mention the fact that The Washington Post—home of one of the most influential op-ed pages in America—consistently publishes climate denialist tracts that seek to deliberately mislead the paper’s audience. Something the world certainly won’t miss when the Post and the vast majority of its fellow big city dailies are out of business is this kind of prissy evasion. If the rationale for publishing liars in the Post’s opinion section is that it’s important for the opinion section to represent the full range of the debate, then the Post needs to take into account the fact that this editorial stance is part of “what’s going on” in the climate debate. Alternatively, if they want to take the stance that accuracy matters to the owners and editors of the Washington Post, then they need to stand up to inaccurate and misleading writing in their own pages.
6) DELONG SMACKDOWN OF THE DAY: Paul Krugman: Brad DeLong’s Foolishness:
Brad looks at John Cochrane asserting that fiscal expansion does nothing but shift money around, and tries to figure out Cochrane’s model. It’s a hopeless quest. Ever since I got into this fight, I’ve been trying to explain that there isn’t any model there. Eugene Fama, at least, and perhaps Cochrane too, began this debate from a position of complete ignorance — not understanding at all the logic of Keynesian models (even for the purposes of debunking), and imagining that the savings-investment identity necessarily implies 100-percent crowding out. There was no deeper logic. And since then, what we’ve been witnessing is a simple matter of digging in, refusing to admit a mistake. I do not believe that Cochrane has, in his head or on the back of his envelope, a maximization-and-equilibrium model that justifies what he’s saying, or explains why, for example, Mike Woodford’s all i’s dotted and t’s crossed analysis is nonsense.
7) GRAPH OF THE DAY: We Don't Have an Excess of Home Builders Any More. We Haven't for Two Years:
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Arnold Schwarzenegger: GOP engaging in 'bogus talk' on health care:
While Republican leaders in Washington are urging President Barack Obama to start from scratch on a health care bill, California Gov. Arnold Schwarzenegger on Monday dismissed the idea as "bogus talk." It marked the second day in a row that Schwarzenegger strayed from his party's positions. On Sunday, he defended Obama's economic stimulus plan and chided elected officials, most of them Republicans, who oppose the overall stimulus but are quick to trumpet individual projects in their states that are paid for by the stimulus.
Standing outside the White House after meeting privately with Obama on Monday, Schwarzenegger touted the economic stimulus plan yet again. "I think the stimulus package has been very successful so far, and I think California has benefited tremendously," he said.
Schwarzenegger also said it's good that the president is reaching out to Republicans as he prepares for this week's health care summit with congressional leaders. "Since half of the people are Republicans, why would you exclude Republicans?" he asked. "Then half of the people hate you for having done health care reform." He sided with Obama on the question of the starting point for the talks, saying it would be wrong to begin all over in preparing health care legislation for Congress to consider. "I think any Republican that says you should start from scratch, I think that's bogus talk, and that's partisan talk," the governor told reporters.
9) STUPIDEST THING I HAVE READ TODAY: John McCain, as observed by Barney Frank:
Rep. Barney Frank (D-Mass.) completely unloaded on John McCain last night, blasting the Arizona Republican for making "pathetically untrue" and "cowardly" statements about TARP. McCain made a stir yesterday when he told the Arizona Republic that he voted for TARP because he had been misled by then-Treasury Secretary Hank Paulson and Fed Chairman Ben Bernanke. He also said that President Bush had asked him to suspend his campaign and come back to Washington for negotiations. Democrats ridiculed the move as a political stunt.
Appearing on MSNBC last night, Frank said both of those claims were dishonest. Addressing McCain's claim that Bush asked the nominee to come back to Washington, Frank was blunt: "This is such a pathetically, obviously untrue statement. Those of us who were there know it." Frank said it was clearly McCain's own decision to insert himself into the negotiations because he wanted to play the hero. "He reminded me of kind of Andy Kaufman as Mighty Mouse: 'Here I come to save the day,'" Frank quipped. Frank then took on McCain's claim that Paulson and Bernanke had misled him about the proposal. "For him to blame Paulson or Bernanke is cowardly," Frank said. "This was Bush. Paul and Bernanke were acting for George Bush." He added: "I've gone beyond being disappointed for John McCain to feeling sorry for him."
10) HOISTED FROM THE ARCHIVES: Brad DeLong (December 2007): Three Cures for Three Crises:
A full-scale financial crisis is triggered by a sharp fall in the prices of a large set of assets that banks and other financial institutions own, or that make up their borrowers' financial reserves. The cure depends on which of three modes define the fall in asset prices.
The first -- and "easiest" -- mode is when investors refuse to buy at normal prices not because they know that economic fundamentals are suspect, but because they fear that others will panic, forcing everybody to sell at fire-sale prices. The cure for this mode -- a liquidity crisis caused by declining confidence in the financial system -- is to ensure that banks and other financial institutions with cash liabilities can raise what they need by borrowing from others or from central banks. This is the rule set out by Walter Bagehot more than a century ago: Calming the markets requires central banks to lend at a penalty rate to every distressed institution that would be able to put up reasonable collateral in normal times....
In the second mode, asset prices fall because investors recognize that they should never have been as high as they were, or that future productivity growth is likely to be lower and interest rates higher. Either way, current asset prices are no longer warranted. This kind of crisis cannot be solved simply by ensuring that solvent borrowers can borrow, because the problem is that banks aren't solvent at prevailing interest rates... applying the Bagehot rule would be wrong. The problem is not illiquidity but insolvency at prevailing interest rates. But if the central bank reduces interest rates and credibly commits to keeping them low in the future, asset prices will rise. Thus, low interest rates make the problem go away, while the Bagehot rule -- with its high lending rate for banks -- would make matters worse....
The third mode is like the second: A bursting bubble or bad news about future productivity or interest rates drives the fall in asset prices. But the fall is larger. Easing monetary policy won't solve this kind of crisis, because even moderately lower interest rates cannot boost asset prices enough to restore the financial system to solvency. When this happens, governments have two options. First, they can simply nationalize the broken financial system and have the Treasury sort things out -- and reprivatize the functioning and solvent parts as rapidly as possible. Government is not the best form of organization of a financial system in the long term, and even in the short term it is not very good. It is merely the best organization available. The second option is simply inflation. Yes, the financial system is insolvent, but it has nominal liabilities and either it or its borrowers have some real assets. Print enough money and boost the price level enough, and the insolvency problem goes away without the risks entailed by putting the government in the investment and commercial banking business...
links for 2010-02-24
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David Henderson writes in his "Reply to DeLong": "In the 1981-82 recession, the fall in real wages helped end the recession."I don't see it in BLS series Nonfarm Business Sector: Real Compensation Per Hour.
Does Brian Riedl of National Review Finally Get It?
I think he does. I think he finally understands why expansionary fiscal policy can be effective. And so National Review, for the first time in the memory of living man, publishes an explanation of why expansionary fiscal policy is likely to be effective right now.
Riedl writes:
Answering DeLong, Yglesias, and Collender - Brian Riedl: Income... results from productive activity. When productivity increases (thus increasing employment and eventually wages), income increases and demand increases, all in tandem...
Game, set, and match.
When--in conditions in which there are masses of unemployed--the government spends money to hire people who were previously among the involuntarily unemployed, their productivity increases. It goes from zero to whatever the value of what the government hires them to do is. This increases income and demand, all in tandem.
Well done, Brian! I knew you would get it! Quite a change from the days when Whittaker Chambers used to rave about how John Maynard Keynes (and Knut Wicksell, and John Hicks, and Dwight D. Eisenhower) were as red as Karl Marx.
It is important to note that effective expansionary fiscal policy requires two things:
Lots of people need to be involuntarily unemployed--to have a productivity of zero--so that when the government hires people to do things, a substantial chunk of the people it hires do have their productivity go up by a lot. Otherwise--if there aren't a lot of involuntarily unemployed people--you are going to boost the flow of nominal spending but not production (or employment).
The bonds that the government sells to finance its hiring program need to have only a small effect on interest rates--if they have a large effect on interest rates, then private businesses that were hiring people to expand their productive capacity will lay them off, their productivity will drop to zero, and we won't have gotten anywhere.
That lots of people are involuntarily unemployed--would welcome a steady job at the prevailing wage but cannot right now find one--seems to be something that not even the cretins of National Review are denying right now.d
That the passage of the ARRA has not led to a substantial increase in interest rates crowding-out private investment spending--well, look at the Treasury yield curve right now:
DeLong Smackdown Watch: Paul Krugman Edition
Paul says that I am not quite the stupidest man aliveTM, but in any case a fool:
Brad DeLong’s Foolishness: Brad looks at John Cochrane asserting that fiscal expansion does nothing but shift money around, and tries to figure out Cochrane’s model. It’s a hopeless quest. Ever since I got into this fight, I’ve been trying to explain that there isn’t any model there. Eugene Fama, at least, and perhaps Cochrane too, began this debate from a position of complete ignorance — not understanding at all the logic of Keynesian models (even for the purposes of debunking), and imagining that the savings-investment identity necessarily implies 100-percent crowding out. There was no deeper logic. And since then, what we’ve been witnessing is a simple matter of digging in, refusing to admit a mistake. I do not believe that Cochrane has, in his head or on the back of his envelope, a maximization-and-equilibrium model that justifies what he’s saying, or explains why, for example, Mike Woodford’s all i’s dotted and t’s crossed analysis is nonsense.
Matter are different when we’re talking about, say, John Taylor’s anti-stimulus arguments; there is a model there, so we have to discuss the assumptions of that model and whether they look plausible. (I say no, but at least we’re having a real discussion). But when it comes to Cochrane, or Brian Riedl, there’s no there there, and Brad is wasting his time looking for it.
Michael Woodford:
Simple Analytics of the Government Expenditure Multiplier: This paper explains the key factors that determine the effectiveness of government purchases as a means of increasing output and employment in New Keynesian models, through a series of simple examples that can be solved analytically. Delays in the adjustment of prices or wages can allow for larger multipliers than exist in the case of fully flexible prices and wages; in a fairly broad class of simple models, the multiplier is 1 in the case that the monetary authority maintains a constant path for real interest rates. The multiplier can be considerably smaller, however, if the monetary authority raises real interest rates in response to increases in inflation or real activity resulting from the fiscal stimulus. A large multiplier is especially plausible when monetary policy is constrained by the zero lower bound on nominal interest rates; in such a case, expected utility is maximized by expanding government purchases to at least partially fill the output gap that would otherwise exist owing to the central bank's inability to cut interest rates. However, it is important in such a case that neither the increased government purchases nor the increased taxes required to finance them be expected to persist beyond the period over which monetary policy is constrained by the zero lower bound.
Stan Collender on Brian Riedl:
I Hate To Pile On To Brian Riedl, But He Deserves It: I hate to pile on to Brian Riedl after both Brad DeLong and Matthew Yglesias do a pretty good job debunking his latest in National Review Online. But...
There's much in Brian's piece that requires criticism, but here's the graph that is the most offensive:
The idea that government spending creates jobs makes sense only if you never ask where the government got the money. It didn’t fall from the sky. The only way Congress can inject spending into the economy is by first taxing or borrowing it out of the economy. No new demand is created; it’s a zero-sum transfer of existing demand.
Brian...The goal of economic stimulus is to create activity that wouldn't otherwise occur at that time. Your statement would have been correct if the economy had been operating at close to full employment and capacity. But it wasn't. Businesses weren't spending, consumers weren't spending, and monetary policy adjustments were not doing much to change that behavior...
A word about John Taylor. John Taylor could be right. I think he is right about Greece, for example--right now a Greek government program to boost the Greek government deficit would not be likely to boost output and employment in Greece because it would lead to an immediate spike in Greek interest rates and a fall in private investment. The problem with applying Taylor's argument to the U.S. and the ARRA is that the spike in interest rates simply did not happen.
Not Me at My Most Coherent...
Larissa MacFarquhar:
How Paul Krugman found politics: It was the 2000 election campaign that finally radicalized him. He’d begun writing his column the year before, and although his mandate at the outset was economic and business matters, he began paying more attention to the world in general. During the campaign, he perceived the Bush people telling outright lies, and this shocked him. Reagan’s people had at least tried to justify their policies with economic models and rationalizations. Krugman hadn’t believed the models would work, but at least they were there.
After the election, he began to attack Bush’s policies in his column, and, as his outrage escalated, his attacks grew more venomous. Krugman felt that liberals were unwilling to confront or even to acknowledge the anger on the right with some of their own, so he was going to have to do it. “He saw that it had been very, very painful during the nineties to get American fiscal policy in order, and he saw all of that being thrown away callously and with very little thought,” Brad DeLong, a professor of economics at Berkeley, says. “And it turned out to be true that Alan Greenspan was going to meetings at the White House saying we’re going to regret this. Paul was simply six years behind those of us who had worked in the Clinton Administration, who found the collapse of reality-based Republicanism coming much earlier”...
Not me at my most coherent. The point is that those of us who worked for Clinton in 1993-4 had no illusions about the honor of Republican legislators, and understood very well that this was no longer a normal American political party we were dealing with.
Paul stayed Mr. Bipartisanship--one thwack at Republican supply-siders balanced a week later by a thwack at Democratic protectionists or regulatorts--until George W. Bush began to do his thing.
It Is Worse than That...
Rickstersherpa writes:
Yep. Chicago's John Cochrane: Still Certifiable...: Apparently Cochrane is imagining the world has gone back to a rigid Gold Standard where the quanity of money is fixed and only gold coin circulates...
It's worse than that: to get to his conclusion in a Fisherian framework you need not just (a) that the quantity of circulating money be interest-inelastic but also that the velocity of money be interest inelastic: that raising interest rates has no effect on one's demand for money.
As John Hicks said 73 years ago, that would be an extraordinary violation of value theory--if demand for liquidity were to be independent of its opportunity cost.
The New York Times Needs a New Ombudsman...
It looks as though Clark Hoyt doesn't understand what his job as New York Times ombudsman is. He needs to leave--preferably voluntarily.
Brad Friedman:
TNYTimes Public Editor Declines to Recommend Retraction for Multiple Erroneous Reports on False ACORN 'Pimp' Story: The most recent article in dispute, a January 30th feature article by Jim Rutenberg and Campbell Robertson... described O'Keefe as having "made his biggest national splash last year when he dressed up as a pimp and trained his secret camera on counselors with the liberal community group Acorn."
Hoyt... [stands] behind it because, as he wrote [emphasis his]: "The story says O'Keefe dressed up as a pimp and trained his hidden camera on Acorn counselors. It does not say he did those two things at the same time."
Why oh why can't we have a better press corps?
Mirror of Wildernesses...
Steve Clemens has an interpretation of what is perhaps the least informative column I have seen this year, by Dana Milbank of the Washington Post:
Steve Clemons: Milbank Shows Rahm Lots of Love: This morning in the Washington Post, Dana Milbank challenges Edward Luce, Leslie Gelb, Jane Hamsher and me on our recent pieces explicating the management and policymaking mess among Barack Obama's core team.... The piece conveys a detailed knowledge of what exactly Rahm advised Obama to do -- and how exactly Obama allegedly rebuffed Emanuel. So, Rahm, or Milbank on his behalf, seems to be appealing to President Obama to just listen to Rahm more and all will be well. But then Milbank jumps on the bandwagon of those he starts his piece by rebuffing, and suggests that the White House dump Gibbs, Axelrod, and Jarrett. Not even my essay went that far.
This reminds me of a vignette at the tail end of Richard Wolffe's interesting profile of the Obama campaign titled Renegade: The Making of a President in which Emanuel tried to "export" Valerie Jarrett to the U.S. Senate to fill Obama's seat and to pry her away from such constant, intimate proximity to the President. Seems like via Dana Milbank, Rahm Emanuel is still trying to pry them away.
Today's column starts:
Let us now praise Rahm Emanuel. No, seriously.
I wondered if there was a foundation in their relationship for this kind of adoration. Well, maybe. I found this June 2009 profile of Rahm Emanuel by Milbank. Read the whole thing, but here's a bit slug that could explain why Emanuel would send some sizzle Milbank's direction:
< The column is uninformative because we don't know if any of it is true or, if some of it is true, what it means. The problem is that we don't know whether: We simply do not know: Milbank reports thuds and screams inside the Topkapi Palace--but we don't even know that there are thuds and screams, all we know is that Milbank reports thuds and screams and that we know from the past that he is an unreliable narrator. For what it's worth, I haven't heard complaints about Rahm Emmanuel from anybody: smart, energetic, highly effective, reality-based. If there is a flaw it is that he would rather choose a strategy that prouduces a 90% chance of a mediocre bill than a 70% chance of a really good bill, but that rests on his view of congress as a collection of herd animals--and may well be corret.
Ten Pieces Worth Reading, Mostly Economics: February 23, 2010
1) Paul Krugman: How Did Economists Get It So Wrong?:
[Y]ou might have thought that the differing worldviews of freshwater and saltwater economists would have put them constantly at loggerheads over economic policy. Somewhat surprisingly, however, between around 1985 and 2007 the disputes between freshwater and saltwater economists were mainly about theory, not action. The reason, I believe, is that New Keynesians... didn’t think fiscal policy... was needed.... They believed that monetary policy, administered by the technocrats at the Fed, could provide whatever remedies the economy needed... all you need to avoid depressions is a smarter Fed. And as long as macroeconomic policy was left in the hands of the maestro Greenspan, without Keynesian-type stimulus programs, freshwater economists found little to complain about. (They didn’t believe that monetary policy did any good, but they didn’t believe it did any harm, either.) It would take a crisis to reveal both how little common ground there was and how Panglossian even New Keynesian economics had become.
In recent, rueful economics discussions, an all-purpose punch line has become “nobody could have predicted. . . .” It’s what you say with regard to disasters that could have been predicted, should have been predicted and actually were predicted.... Take, for example, the precipitous rise and fall of housing prices. Some economists, notably Robert Shiller, did identify the bubble and warn of painful consequences if it were to burst. Yet key policy makers failed to see the obvious. In 2004, Alan Greenspan dismissed talk of a housing bubble: “a national severe price distortion,” he declared, was “most unlikely.” Home-price increases, Ben Bernanke said in 2005, “largely reflect strong economic fundamentals.” How did they miss the bubble? To be fair, interest rates were unusually low, possibly explaining part of the price rise. It may be that Greenspan and Bernanke also wanted to celebrate the Fed’s success in pulling the economy out of the 2001 recession; conceding that much of that success rested on the creation of a monstrous bubble would have placed a damper on the festivities. But there was something else going on: a general belief that bubbles just don’t happen. What’s striking, when you reread Greenspan’s assurances, is that they weren’t based on evidence — they were based on the a priori assertion that there simply can’t be a bubble in housing. And the finance theorists were even more adamant on this point. In a 2007 interview, Eugene Fama, the father of the efficient-market hypothesis, declared that “the word ‘bubble’ drives me nuts,” and went on to explain why we can trust the housing market: “Housing markets are less liquid, but people are very careful when they buy houses. It’s typically the biggest investment they’re going to make, so they look around very carefully and they compare prices. The bidding process is very detailed”... the belief in efficient financial markets blinded many if not most economists to the emergence of the biggest financial bubble in history. And efficient-market theory also played a significant role in inflating that bubble in the first place. Now that the undiagnosed bubble has burst, the true riskiness of supposedly safe assets has been revealed and the financial system has demonstrated its fragility. U.S. households have seen $13 trillion in wealth evaporate. More than six million jobs have been lost, and the unemployment rate appears headed for its highest level since 1940. So what guidance does modern economics have to offer in our current predicament? And should we trust it?
Between 1985 and 2007 a false peace settled over the field of macroeconomics.... But the crisis ended the phony peace. Suddenly the narrow, technocratic policies both sides were willing to accept were no longer sufficient — and the need for a broader policy response brought the old conflicts out into the open, fiercer than ever. Why weren’t those narrow, technocratic policies sufficient? The answer, in a word, is zero.... The Fed dealt with the recession that began in 1990 by driving short-term interest rates from 9 percent down to 3 percent. It dealt with the recession that began in 2001 by driving rates from 6.5 percent to 1 percent. And it tried to deal with the current recession by driving rates down from 5.25 percent to zero. But zero, it turned out, isn’t low enough.... Now what? This is the second time America has been up against the zero lower bound, the previous occasion being the Great Depression. And it was precisely the observation that there’s a lower bound to interest rates that led Keynes to advocate higher government spending.... Such Keynesian thinking underlies the Obama administration’s economic policies — and the freshwater economists are furious. For 25 or so years they tolerated the Fed’s efforts to manage the economy, but a full-blown Keynesian resurgence was something entirely different. Back in 1980, Lucas, of the University of Chicago, wrote that Keynesian economics was so ludicrous that “at research seminars, people don’t take Keynesian theorizing seriously anymore; the audience starts to whisper and giggle to one another.” Admitting that Keynes was largely right, after all, would be too humiliating a comedown. And so Chicago’s Cochrane, outraged at the idea that government spending could mitigate the latest recession, declared: “It’s not part of what anybody has taught graduate students since the 1960s. They [Keynesian ideas] are fairy tales that have been proved false. It is very comforting in times of stress to go back to the fairy tales we heard as children, but it doesn’t make them less false.” (It’s a mark of how deep the division between saltwater and freshwater runs that Cochrane doesn’t believe that “anybody” teaches ideas that are, in fact, taught in places like Princeton, M.I.T. and Harvard.)
Meanwhile, saltwater economists, who had comforted themselves with the belief that the great divide in macroeconomics was narrowing, were shocked to realize that freshwater economists hadn’t been listening at all. Freshwater economists who inveighed against the stimulus didn’t sound like scholars who had weighed Keynesian arguments and found them wanting. Rather, they sounded like people who had no idea what Keynesian economics was about, who were resurrecting pre-1930 fallacies in the belief that they were saying something new and profound.... [T]he Chicago school’s... current stance amounts to a wholesale rejection of Milton Friedman’s ideas, as well. Friedman believed that Fed policy rather than changes in government spending should be used to stabilize the economy, but he never asserted that an increase in government spending cannot... increase employment.... And Friedman certainly never bought into the idea that mass unemployment represents a voluntary reduction in work effort or the idea that recessions are actually good for the economy.... Personally, I think this is crazy. Why should it take mass unemployment across the whole nation to get carpenters to move out of Nevada? Can anyone seriously claim that we’ve lost 6.7 million jobs because fewer Americans want to work? But it was inevitable that freshwater economists would find themselves trapped in this cul-de-sac: if you start from the assumption that people are perfectly rational and markets are perfectly efficient, you have to conclude that unemployment is voluntary and recessions are desirable.
Yet... the crisis... has also created a lot of soul-searching among saltwater economists. Their framework, unlike that of the Chicago School, both allows for the possibility of involuntary unemployment and considers it a bad thing. But the New Keynesian models... get anything like the current slump... [only by] some kind of fudge factor.... And if the analysis of where we are now rests on this fudge factor, how much confidence can we have in the models’ predictions about where we are going?... Economics, as a field, got in trouble because economists were seduced by the vision of a perfect, frictionless market system. If the profession is to redeem itself, it will have to reconcile itself to a less alluring vision — that of a market economy that has many virtues but that is also shot through with flaws and frictions. The good news is that we don’t have to start from scratch....
Probably the most influential paper in this vein was a 1997 publication by Andrei Shleifer of Harvard and Robert Vishny of Chicago, which amounted to a formalization of the old line that “the market can stay irrational longer than you can stay solvent.” As they pointed out, arbitrageurs — the people who are supposed to buy low and sell high — need capital to do their jobs. And a severe plunge in asset prices, even if it makes no sense in terms of fundamentals, tends to deplete that capital. As a result, the smart money is forced out of the market, and prices may go into a downward spiral. The spread of the current financial crisis seemed almost like an object lesson in the perils of financial instability. And the general ideas underlying models of financial instability have proved highly relevant to economic policy: a focus on the depleted capital of financial institutions helped guide policy actions taken after the fall of Lehman, and it looks (cross your fingers) as if these actions successfully headed off an even bigger financial collapse.
Meanwhile, what about macroeconomics? Recent events have pretty decisively refuted the idea that recessions are an optimal response to fluctuations in the rate of technological progress; a more or less Keynesian view is the only plausible game in town. Yet standard New Keynesian models left no room for a crisis like the one we’re having, because those models generally accepted the efficient-market view of the financial sector. There were some exceptions. One line of work, pioneered by none other than Ben Bernanke working with Mark Gertler of New York University, emphasized the way the lack of sufficient collateral can hinder the ability of businesses to raise funds and pursue investment opportunities. A related line of work, largely established by my Princeton colleague Nobuhiro Kiyotaki and John Moore of the London School of Economics, argued that prices of assets such as real estate can suffer self-reinforcing plunges that in turn depress the economy as a whole. But until now the impact of dysfunctional finance hasn’t been at the core even of Keynesian economics. Clearly, that has to change...
2) James Politi: Stripped-down US jobs bill limps to vote:
When senators return to Washington on Monday after a short recess, they will be facing their first vote on a jobs bill worth $15bn, proposed by Harry Reid, leader of the Democratic majority in the Senate. But even aides on Capitol Hill working for lawmakers supporting the measure privately concede that it is a modest package in terms of its economic impact – in stark contrast to the pledge only a few weeks ago by Barack Obama, US president, to make job creation his top domestic priority this year...
3) Dean Baker: Thomas Friedman Competes for the Nobel in Ignorance:
Thomas Friedman told readers that: "But now it feels as if we are entering a new era, 'where the great task of government and of leadership is going to be about taking things away from people,' said the Johns Hopkins University foreign policy expert Michael Mandelbaum." Unfortunately, Mr. Friedman apparently doesn't talk to anyone who has ever taken any economics. There are no serious forecasts that do not project that productivity will continue to grow for the indefinite future, and many project that productivity will grow at a more rapid pace than it did in the years from 1973-1995. This means that there is no reason, except incompetent economic management and/or the continuing upward redistribution of income, why the vast majority of the population should not experience improvements in living standards. This would mean an increase in both public and private services.
4) Sebastian Edwards: Defining Neoliberalism Down:
Left Behind: Latin America and the False Promise of Populism: The political and economic history of Latin America has been marked by great hopes and even greater disappointments. Despite abundant resources—and a history of productivity and wealth—in recent decades the region has fallen further and further behind developed nations, surpassed even by other developing economies in Southeast Asia and elsewhere.... Sebastian Edwards explains why the nations of Latin America have failed to share in the fruits of globalization and forcefully highlights the dangers of the recent turn to economic populism.... He begins by detailing the many ways Latin American governments have stifled economic development over the years through excessive regulation, currency manipulation, and thoroughgoing corruption. He then turns to the neoliberal reforms of the early 1990s, which called for the elimination of deficits, lowering of trade barriers, and privatization of inefficient public enterprises—and which, Edwards argues, held the promise of freeing Latin America from the burdens of the past. Flawed implementation, however, meant the promised gains of globalization were never felt by the mass of citizens.... [H]e argues, the way forward for Latin America lies in further market reforms, more honestly pursued and fairly implemented. As an example of the promise of that approach, Edwards points to Latin America's giant, Brazil, which under the successful administration of President Luis Inácio da Silva (Lula) has finally begun to show signs of reaching its true economic potential.
5) Jeff Ely: Jeff’s Intermediate Micro Course « Cheap Talk:
Week 1.5: Utilitarianism: After the showstopper that is Arrow’s Theorem, we could just throw in the towel. The motivation for studying social welfare functions was to find a coherent standard by which to judge institutions and to propose policies. Now we see that there is no coherent standard. Well, sorry students we are not getting away so easily here in the second week of the class. We will accept that we must violate one of the axioms. Which one do we choose? A lot of normative economic theory is implicitly built upon one of two welfare criteria, either Pareto efficiency or utilitarianism. While it is standard to formally define Pareto efficiency in an undergraduate micro class, utilitarianism is often invoked without explicit mention. For example, we are implicitly using some form of utilitarianism when we talk about consumer and producer surplus. And to argue that a monopoly is inefficient in a partial equilibrium framework is a utilitarian judgment (absent compensating transfers.) So I make it explicit. And I take the time to formally define utilitarianism, explain where it applies and what justifies it and I point out its limitations. In terms of Arrow’s theorem I tell the students that we are dropping the axiom of universal domain (UD.) That is, we are not requiring our social welfare function to apply in all situations, only in those situations in which there is a valid measure of welfare that can be transferred and/or compared inter-personally. In this class, that measure of welfare is willingness to pay, and it applies when there are monetary transfers available and all agents value money in equal terms, i.e. quasi-linear utility.
These lectures contain one important formal result. In the quasi-linear world with monetary transfers utilitarianism coincides with Pareto efficiency. So these two common welfare standards are the same. (Any utilitarian improvement can be made into a Pareto improvement with judiciously chosen transfers and any Pareto improvement is a utilitarian improvement.)
6) DELONG SMACKDOWN OF THE DAY: John Emerson: DeLong / Krugman smackdown:
How flawed is economics? How deep does the problem go? I can’t prove anything, but we need to consider the possibility that the problem goes all the way down. Everyone except Eugene Fama knows that there’s a serious problem, but they’re mostly trying small tweaks and trying to make sure that their faction comes out on top. I’m suggesting that the larger claims of the science of economics are fundamentally unjustified. One comparison is with alchemy and astrology. There was a great deal of truth in those sciences and they provided the foundations for chemistry and astronomy, but their largest claims were flatly wrong.... The second problem with economics is related to the first. Even within the orthodox schools (after excluding Austrians, Marxists, and other alleged fossils) there’s incredibly wide disagreement about critically important questions. You can always get an economist to say what you want them to say. (No, this is not true of climatologists). They don’t have to be fake economists, and no one is ever disbarred, defrocked, or expelled. When economics is being taught in the schools there are definite right and wrong answers, and economics is made to seem like a coherent system. But the minute that something important and real is discussed, economists start mumbling around and arguing. In a science you have a large area of agreement and small areas in dispute, mostly at the frontiers of the discipline. But in economics almost everything is up for grabs. It’s like the days when naturopaths, homeopaths, osteopaths, chiropractors, herbalists, allopaths, and Christian Scientists all contended on equal terms.
What economics really is is a form of expert advocacy.... No one says lawyers don’t know anything. They’re very bright and knowledgeable and, in the context of our society, necessary and powerful. They do know a lot, but no one calls them scientists..... Economists are highly skilled mercenary advocates within an sloppy, open system which is always in the process of redefining itself. And like most mercenaries, economists are most sympathetic to those who can afford them. (“The Magnificent Seven” was a myth. The samurai never protected the peasants, any more than economists or lawyers work for you and me).
7) GRAPH OF THE DAY: Convergence in the OECD Over the Thirty Glorious Years:
8) BEST NON-ECONOMICS THING I HAVE READ TODAY: Zbigniew Brzezinski: How Jimmy Carter and I Started the Mujahideen: Interview of Zbigniew Brzezinski, Le Nouvel Observateur (France), Jan 15-21, 1998, p. 76:
Q: The former director of the CIA, Robert Gates, stated in his memoirs ["From the Shadows"], that American intelligence services began to aid the Mujahadeen in Afghanistan 6 months before the Soviet intervention. In this period you were the national security adviser to President Carter. You therefore played a role in this affair. Is that correct?
Brzezinski: Yes. According to the official version of history, CIA aid to the Mujahadeen began during 1980, that is to say, after the Soviet army invaded Afghanistan, 24 Dec 1979. But the reality, secretly guarded until now, is completely otherwise: Indeed, it was July 3, 1979 that President Carter signed the first directive for secret aid to the opponents of the pro-Soviet regime in Kabul. And that very day, I wrote a note to the president in which I explained to him that in my opinion this aid was going to induce a Soviet military intervention.
Q: Despite this risk, you were an advocate of this covert action. But perhaps you yourself desired this Soviet entry into war and looked to provoke it?
Brzezinski: It isn't quite that. We didn't push the Russians to intervene, but we knowingly increased the probability that they would.
Q: When the Soviets justified their intervention by asserting that they intended to fight against a secret involvement of the United States in Afghanistan, people didn't believe them. However, there was a basis of truth. You don't regret anything today?
Brzezinski: Regret what? That secret operation was an excellent idea. It had the effect of drawing the Russians into the Afghan trap and you want me to regret it? The day that the Soviets officially crossed the border, I wrote to President Carter: We now have the opportunity of giving to the USSR its Vietnam war. Indeed, for almost 10 years, Moscow had to carry on a war unsupportable by the government, a conflict that brought about the demoralization and finally the breakup of the Soviet empire.
Q: And neither do you regret having supported the Islamic [integrisme], having given arms and advice to future terrorists?
Brzezinski: What is most important to the history of the world? The Taliban or the collapse of the Soviet empire? Some stirred-up Moslems or the liberation of Central Europe and the end of the cold war?
Q: Some stirred-up Moslems? But it has been said and repeated: Islamic fundamentalism represents a world menace today.
Brzezinski: Nonsense! It is said that the West had a global policy in regard to Islam. That is stupid. There isn't a global Islam. Look at Islam in a rational manner and without demagoguery or emotion. It is the leading religion of the world with 1.5 billion followers. But what is there in common among Saudi Arabian fundamentalism, moderate Morocco, Pakistan militarism, Egyptian pro-Western or Central Asian secularism? Nothing more than what unites the Christian countries.
9) STUPIDEST THING I HAVE READ TODAY: Jackson Diehl of the Washington Post, as observed by Brad of "Sadly, No!":
The Washington Post has many, many bad columnists. Jackson Diehl often gets overlooked among the Krauthammers, Samuelsons, Gersons, Wills and Kagans, but he’s still very, very bad....
Two Americans who understand how big the stakes are — U.S. Ambassador Christopher Hill and top commander Gen. Raymond Odierno — were in Washington last week to explain. Iraq’s March 7 election and what follows it, Hill said, will “determine the future of Iraq... and also the future of the U.S. relationship with Iraq.”... The survival of Iraq’s democratic system, Odierno said, could have a far-reaching impact on regimes across the Middle East. “Some of them,” he added, “don’t really want the democratic process to succeed because of the pressure it might put on their own government.”... First among these is Iran, which has a simple strategy for the coming months: Turn the elections into a bitter sectarian battle — and thereby ensure that the next government will be led by its hard-line Shiite allies. To an alarming extent, the campaign is succeeding. Tehran’s leading agent, as both Hill and Odierno noted, is Ahmed Chalabi...
So wait. Wuh-wuh-wait.
We now have to stay indefinitely in Iraq in order to thwart the guy who convinced us to occupy Iraq in the first place? This brings new meaning to “clusterf---,” people. We might as well rename everyone in the United States military “K” and send them on a serious of vague, ill-defined missions in Eastern European villages where their objectives are wholly revised by soulless bureaucrats on a daily basis and where they are constantly thwarted by their failures to properly fill out confusing paperwork. I don’t think it could be any crazier than asking them to put their lives on the line just to stop Ahmed Chalabi.
Chalabi aims to become prime minister of the next government, which would be a disaster for Iraq and for Washington.
The kicker will be if Chalabi does get elected prime minister and Diehl then says we have to remain in the country to prevent him from getting weapons of mass destruction. Only then will the circle be complete!...
10) HOISTED FROM THE ARCHIVES: DeLong (August 2002) Fog of Wargames: A Cautionary Tale:
British Admiral Sandy Woodward -- commander of the Falklands naval battle group during Britain's war with Argentina in the 1980s -- tells the story of a pre-Falklands naval exercise in which he, with one British destroyer, three frigates, and four Exocet missiles, 'sank' the US fleet carrier Coral Sea. A cautionary tale:
I was clear in my mind what I wanted to practise: the US battle group, with all its escorts and aircraft, was to take up positions well out to sea. Their job was to stop my force from getting through their guard to 'sink' their carrier before they 'sank' us. Admiral Brown was happy enough with that -- if you had been in his position, you would have been too. He could spot an enemy surface ship more than two hundred miles away, track it at his leisure, and strike it at a comfortable range with any six of his missile-launching attack aircraft. And that was only the first layer of his defence. By any modern military standard, he was well-nigh impregnable. I had Glamorgan and three frigates, plus three Royal Fleet Auxiliary ships, two of which were tankers and the third, a stores ship. The frigates were all anti-submarine ships and not capable of doing serious harm to an aircraft carrier, short of ramming it. Only Glamorgan, with her four Exocets and effetive range of twenty miles, could inflict real damage on the Coral Sea, and Admiral Brown knew this.... We were due to start not a moment before twelve noon and not a mile less than 200 from the American carrier. She sat in the middle of this vast stretch of clear blue water, under clear blue skies -- effective visibility: two hundred and fifty miles. Admiral Brown was, so to speak, at the centre of a well-defended exclusion zone and I did not even have the benefit of a cloud bank, let alone fog or rain or heavy seas. No cover. No hiding place. No air support of my own either.
I ordered my ships to split up and take positions all around the two-hundred-mile perimeter by 1200 and then to hurry in as best they could -- a sort of maritime Charge of the Light Brigade from all directions. Three-quarters of an hour before we were due to start, bless my soul if a US fighter didn't appear, spot us, identify us and hurry home to tell the boss what he had found, where it was and where it was going. We couldn't 'shoot it down' -- the exercise had not yet begun! But we may just have lost this one before the starting gates were open. Stand by for a decisive American airstrike against Glamorgan, just as soon as they can lay it on. However, you have to keep on trying.... This basically involved reversing course.... Three hours later, we heard the US strike aircraft go in 100 miles west of us. They found nothing and went home....
[T]he sun set over the Arabian Sea and night began to stream in, Glamorgan turned into the two-hundred-mile zone. The dusk faded to darkness and I ordered every light in the ship to be switched on, plus as many extras as we could find. I intended that from any distance we should look like a cruise liner.... We barrelled on through the tense night, in toward the USS Coral Sea, listening all the time to the International Voice radio frequencies. Sure enough, eventually one of the American destroyer captains came on line, asking us to identify ourselves. My in-house Peter Sellers imitator, already primed for the job, replied in his best Anglo-Indian: 'This is the liner Rawalpindi, bound from Bombay to the port of Dubai. Good night, and jolly good luck!' He sounded like the head waiter at the Surbiton Tandoori. But it was good enough. The Americans, who were conducting a 'limited war', were rather obliged to believe us and let us through while they thought about it. Vital minutes slipped by until we were eleven miles from their carrier, with our Exocet system locked on to her. They still thought are splendid display of lights was the Rawalpindi on her innocent business.
Doubt, however, began to enter their minds... two of their big destroyers managed to 'open fire' on each other.... Then one of my officers calmly called the carrier to break the appalling news to Tom Brown that we were now in a position to put his ship on the bottom of the Indian Ocean and there was nothing he could do about it. 'We fired four Exocets twenty seconds ago,' he added for good measure, knowing this gave them about forty-five seconds to hit the deck... the American knew as well as we did that he was effectively non-operational. He has lost his 'mission critical' unit and with it his air force.
Understandably, we were all elated, but also a little embarrassed.... Tom Brown had a serious and proper preoccupation with the real world, and that our own particular brand of carefree 'cheekiness' was undoubtedly born of the unarguable fact that we knew that we weren't really going to be sunk no matter what happened, were we? A debriefing along these lines very soon restored our sense of proportion....
It was nonetheless an important exercise for me because it taught me two vital lessons. The first was to beware of becoming over-engrossed in one area of operations at the risk of ignoring another. The second was that, in a limited war, in perfect weather, under the cover of darkness, one fairly old destroyer or crusier, or whatever, is capable of getting right up to within eleven miles of a modern strike carrier in a full battle group.... Six months on, I was to face a very similar sort of situation, this time for real. And thanks to those few hours with the Coral Sea, I would have a clearer idea of how to proceed...
From Sandy Woodward (with Patrick Robinson) (1992), One Hundred Days: The Memoirs of the Falklands Battle Group Commander (Annapolis: Naval Institute Press), pp. 64-66.
Addenda: Two things come to mind. The first is that this passage has one of those 'there will always be an England' qualities. I mean, embarrassment as your emotional reaction... 'Frightfully sorry, chap. I don't know what to say. I'm so embarrassed. I didn't mean to sink your carrier in the midst of its sea and air escorts with one destroyer and three frigates...'
The second is something that my brother knew (and I did not) and that he pointed out to me: the name Rawalpindi has significance: the British auxiliary merchant cruiser Rawalpindi took on and was destroyed by the Nazi battlecruiser Scharnhorst southeast of Iceland in November 1939. Anyone in the Coral Sea's Combat Information Center who had been marinated in naval history (more than I have been) would have heard alarm bells ringing in his head at the name 'Rawalpindi'. Woodward and his people gave the Coral Sea and its battle group extra clues as to what was going on.
links for 2010-02-23
Menzie Chinn Joins Me in Our Failed Search for Crowding Out
He doesn't even find portfolio crowding-out:
Econbrowser: In Search of...Crowding Out: There are various definitions of crowding out. There's crowding out in the financial markets, and crowding out of actual economic activity. In order for crowding out in the financial markets to translate into a reduction of the interest sensitive components of aggregate demand, one needs to see an impact on interest rates. So, what is happening to real (inflation adjusted) interest rates?... Real interest rates appear to be relatively low, lower than in the previous recession. Since these estimates of the ex ante real interest rate rely upon survey based measures of inflationary expectations, one could criticize them as being mismeasured.... However, the Treasury inflation protected securities (TIPS) yields suggest a similar pattern for real rates, excepting the period right after the Lehman bankruptcy, during which time TIPS and other yields behaved erratically).
So, what is one to make of these data? In a standard model of portfolio crowding out... budget deficits should induce higher interest rates, and hence lower investment.... Chapter 5 of the Economic Report of the President, 2010, notes:
...In the current situation, as discussed in Chapter 2, monetary policymakers are constrained because nominal interest rates cannot be lowered below zero, and so they are unlikely to raise interest rates quickly in response to fiscal expansion. As a result, the fiscal expansion attributable to the Recovery Act is likely to increase private investment as well as private consumption and government purchases....
A relevant question, is what happens when the Fed exits from quantitative easing (and relatedly, as slack in the economy declines). That being said, extreme upward pressure on interest rates, and reduction in investment expenditures, is not a foregone conclusion.
Crowding out has a strong hold on many people's imagination. Some equate crowding out in the financial market with crowding out in the real side of the economy. Let me make a couple observations on why this simplistic equation need not hold. First, the empirical magnitude of investment crowding out depends critically on the interest sensitivity of investment expenditures. Second, if investment depends upon the change in GDP, as in a simple accelerator model (see a discussion of competing investment models here), then government spending that induces an increase in GDP can result in higher investment, despite an increase in interest rates.
Berkeley Needs to Dismiss John Yoo
For his appearance on KQED this morning, and for many other reasons.
Ian Millhiser:
Think Progress: Yoo: Congress Cannot Stop the President From Using Nukes: Today, Yoo doubled-down... in an interview with San Francisco radio station KQED. After the host asked him if he stands by his prior support of Presidential massacres, Yoo raised the stakes to endorse the President’s unilateral authority to use nuclear weapons:
Look at the bombing of Hiroshima and Nagasaki. … Could Congress tell President Truman that he couldn’t use a nuclear bomb in Japan, even though Truman thought in good faith he was saving millions of Americans and Japanese lives? … My only point is that the government places those decisions in the President, and if the Congress doesn’t like it they can cut off funds for it or they can impeach him....
Yoo misrepresents.... As far back as 1804, a unanimous Supreme Court held in Little v. Barreme that Congress has sweeping authority to limit the President’s actions in wartime. That case involved an Act of Congress authorizing vessels to seize cargo ships bound for French ports. After the President also authorized vessels to seize ships headed away from French ports, the Supreme Court held this authorization unconstitutional on the grounds that Congress’ decision to allow one kind of seizure implicitly forbade other kinds of seizure. More recently, in Hamdi v. Rumsfeld and Hamdan v. Rumsfeld, the Court held that the President does not have the power to unilaterally set military policy (in those cases with respect to detention); he must comply with statutory limits on his power.... Congress has the power to tell the President “no,” and the President must listen.
John Yoo is a moral vacuum, but he is also a constitutional law professor at one of the nation’s top law schools and a former Supreme Court clerk. It is simply impossible that Yoo is not aware of Little, Hamdi and Hamdan, or that he does not understand what they say. So when John Yoo claims that the President is not bound by Congressional limits, he... is lying.
Yep. Chicago's John Cochrane: Still Certifiable...
Couldn't PBS get a stimulus opponent who would make some sense?
The last real economist to make Cochrane's argument that fiscal policy must be ineffective because "the stimulus... is taking money from one place and giving it to another place" was R.G. Hawtrey in the mid-1920s. With respect to Hawtrey, there are two conflicting traditions. The first is that he relatively rapidly came to the realization that he had been in error. The second is that he had never believed the argument, but that he had made it as a dutiful civil servant because he needed to set forth an argument that both justified the policies of the Conservatve government and was simple enough that then-Chancellor of the Exchequer Winston S. Churchill could remember it.
One Year Later, Stimulus Appears to Yield Mixed Results: JOHN COCHRANE, professor of finance, University of Chicago Booth School of Business: Well, it may have been politically effective, but the idea that it was going to raise output or increase employment, I don't think has panned out. So, I would give it a net zero on -- on those questions.... I mean, the stimulus, in the end, is taking money from one place and giving it to another place. And it's too easy to forget that you had to take money from somewhere in order to do any stimulating....
LAWRENCE MISHEL, president, Economic Policy Institute: Professor Cochrane has a theory, but the evidence, I would offer, suggest that it did have an effect. If you go to the economic forecasters, who make their money doing this, they confirm that the -- you know, we have saved around two million jobs in the process. If you look at what actually happened in the economy, in the beginning of 2009, we were losing 750,000 jobs a month. In the last three months, we were losing about 35,000. This wasn't by accident that we went from a deep, you know, decline in the economy to an actual growing economy....
JOHN COCHRANE: Like any time the government spends money, it has to come from somewhere. So, you get to see the jobs that the stimulus -- I don't want to say created, but the jobs supported by the stimulus. What you don't see is every dollar of stimulus had to come from somewhere....
JEFFREY BROWN: What was the -- staying with you, what was the alternative? What did you want to see? What do you want to see?
JOHN COCHRANE: Primarily, get out of the way. Now, let me say, even if there wasn't an alternative, that doesn't rescue the stimulus. If you have a heart attack and the doctor wants to cut your arm off, you can say, cutting the arm off isn't going to work, even if you don't know how to fix a heart attack.... The economy can recover very quickly from a credit crunch, left on its own, with stable, low-taxes, pro-growth policies in place. It doesn't need trillions of dollars of government spending to get it going again. That leads to grease....
LAWRENCE MISHEL: The situation we were in is that monetary policy had already driven interest rates down to basically zero. That wasn't getting us much growth. There was no hiring going on. There was lots of people being laid off. You know, the idea that we should just sit there and do nothing, and we just have to tough it out, and the market will take care of us is exactly the thinking that got into this deep mess. All administrations, Republican and Democrat, tend to, in a deficit -- in recession, you're supposed to run a deficit. And the reason why you run a bigger deficit is to pump demand up, so that there's more good and services being bought and jobs being created. You know, that's -- that's what was done. That's what needs to be done. And we actually need to do much more of that, because we're going to see unemployment at 8 percent two years from now. And that's quite unacceptable. That's higher than it ever got to in the last two recessions...
Let me make two and only two brief comments.
First, Cochrane's claim that the "economy can recover very quickly from a credit crunch left on its own..." seems to me at least to be completely wrong, for reasons well laid out by Bernanke and Gertler. A credit crunch destroys a great deal of the intermediation capacity of the financial system--of its ability to match savers seeking returns with investing firms seeking funds in a way that assures savers that they are going to get a reasonable rate of return. The skin in the game provided by the invested capital and the reputations of financial intermediaries are key in this process. And both of those are gravely damaged by a credit crunch. It takes a long time to recover--as everyone who is sufficiently up to speed on the literature to have read Reinhart and Rogoff knows.
Second, we occasionally sit around and try to imagine what model of the economy John Cochrane is working in. He certainly isn't working in any of the models that people who make a living forecasting the economy use--those all suggest substantial effects from fiscal stimulus. He certainly isn't working in Milton Friedman's model--Friedman was a critic of fiscal policy not because he thought it was ineffective--not because "stimulus... is taking money from one place and giving it to another place"--but because he thought that it was weak in normal times: monetary policy was more powerful except under those rare conditions in which the interest elasticity of money demand was very high. He's not working with Irving Fisher's quantity theory of money--in Fisher's quantity theory the velocity of money and thus the flow of spending depends on the configuration of interest rates, and when the government issues debt it changes the configuration of interest rates. He's not working with Knut Wicksell's model of natural and market rates of interest--because in Wicksell's model in a depression fiscal stimulus raises the natural rate of interest and so reduces the gap between the natural and market rate. He's not working in a von Misen or Hayekian Austrian model, for in those models fiscal stimulus is effective (it boosts employment) but destructive (it boosts employment in the wrong places so that the fundamental disequalibrium of the economy becomes greater).
The closest we can come is that Cochrane is working in a pure cash-in-advance economy in which the velocity of money has not only a technological upper limit but also a technological lower limit--that spending is by assumption proportional to the quantity of money and to nothing else. But even in that model fiscal stimulus will almost always alter the quantity of money: the Federal Reserve would have to take active steps to raise interest rates as an offset in order to keep it from doing so. And the Federal Reserve right now is not--as a matter of empirical fact--not in the business of raising interest rates to offset the effects of fiscal stimulus on demand.
Thanks to Larry Mishel for exposing himself to the stupidity rays. It's appreciated.
I Feel for Orin Kerr...
Who writes:
The Volokh Conspiracy: The Banning of “DontAsk”: “DontAsk” has been one of the nastier commenters we’ve had here at the VC. He presents himself as a very conservative commenter who thinks liberals are idiots and liars, and he sees it as his job to point that out as directly and frequently as he can. Following an exchange this afternoon, I decided to ban him: His comments were almost all disgust and anger with very little identifiable substance. But I had a feeling he wouldn’t go easily. Indeed, he keeps coming back with a new screenname and posting nasty comments; I then delete them, and he comes back with a new screenname and posts another nasty comment; I delete them, he comes back, etc. We’ve gone about 10 rounds of this in the last few hours. Does anyone want to guess how long “Dontask” (or whatever he decides to call himself) will keep it up?
In Which We Conclude That the Editor of the Economist, John Micklethwait, Has No Contact with Reality Whatsoever...
Wow:
Politics in America: What's gone wrong in Washington? | The Economist: If, instead of handing over health care to his party’s left wing, he had lived up to his promise to be a bipartisan president and courted conservatives by offering, say, reform of the tort system, he might have got health care through...
Matthew Yglesias:
Matthew Yglesias: Economist: If Only Obama Had Done Things He’s Actually Done, Things Might Be Different: Man, if only Obama had offered tort reform in exchange for GOP votes! How come he didn’t think of that? The answer, of course, is that he did:
So, right there in the Cabinet Room, the President put a proposal on the table, according to two people who were present. Obama said he was willing to curb malpractice awards, a move long sought by the Republicans and certain to bring strong opposition from the trial lawyers who fund the Democratic Party. What, he wanted to know, did the Republicans have to offer in return? Nothing, it turned out. Republicans were unprepared to make any concessions, if they had any to make.
Given that Republicans weren’t willing to offer any concessions on any issues in exchange for concessions on tort reform, I don’t think it should be surprising that the final package contains only modest tort reforms.... Meanwhile, [John Micklethwaite's] view that Obama’s new pro-nuclear tilt is going to produce Republican support for a climate bill is almost laughable.... Last, if you want to say that in your view the Senate’s health care bill is too left-wing then of course that’s your prerogative. But the notion that it reflects the “left-wing” approach to health care couldn’t possibly withstand contact with a single person who holds actual left-wing views on health care. The left-wing view on health care is that we should take America’s successful single-payer health care program for senior citizens, Medicare, and open it up to all Americans. Most left-wing people are willing to accept a more modest reform than that and have coalesced around the idea of a level playing-field public option.... This same—brief!—article also contains a discussion of gerrymandering’s influence on political polarization that’s untouched by actual research into the question.
Paul Krugman:
Delusions of Bipartisanship: the commentariat seems to be full of people who know, just know, that Obama isn’t getting Republican cooperation because he’s in the thrall of left-wingers — and just make stuff up to bolster their case. The truth, which is obvious from every day’s news, is that there is nothing, nothing at all, that Obama could offer — other than switching parties — that would get him any GOP cooperation...
We have now seen this at least three times: on health care, on climate change, and most recently on financial regulation, the word has come down from the Republican Central Committee that moderate Republicans are allowed to "cooperate" with Obama as long as it leads to delay--but that once the time comes for action, then they must go into complete and total opposition. And so far every single one of them has toed the line.
Up-or-Down Vote on Health Care Reform
Greg Sargent watches Barack Obama do something he shouod have done ten months ago::
White House: If GOP Filibusters, We’ll Pass Health Reform Via Reconciliation: In the course of unveiling Obama’s new health reform proposal on a conference call with reporters this morning, White House advisers made it clearer than ever before: If the GOP filibusters health reform, Dems will move forward on their own and pass it via reconciliation.... “The President expects and believes the American people deserve an up or down vote on health reform,” White House communications director Dan Pfeiffer said on the call.... [H]e added that Obama’s proposal is designed to have “maximum flexibility to ensure that we can get an up or down vote if the opposition decides to take the extraordinary step of filibustering health reform.” Translation: If the GOP doesn’t cooperate with us in any meaningful sense, we’re moving forward on our own.
Also on the call, White House advisers detailed Obama’s new proposal, which was just posted on the White House web site, and discussed the ways it seeks a compromise between the Senate and House proposals. Among the details:
As expected, the plan has no public option — but this does not preclude a reconciliation vote on the public option later.
The proposal boosts the threshold for the “Cadillac” tax on the most expensive health plans from $23,000 for a family plan to $27,500. That’s actually a better deal than some labor officials were expecting, though some House Dems will still be angry that the tax is being included at all.
The proposal also preserves the Senate bill’s state-based exchanges, and does not have a national exchange, as the House bill did.
However, House Dems will be cheered by the fact that Obama’s compromise closes the Medicare prescription drug “donut hole” coverage gap.
Also, the bill nixes Ben Nelson’s Nebraska deal and boosts Federal financing for Medicaid expansion in all states.
And finally, as expected, Obama’s proposal creates a Federal panel to monitor and block exorbitant rate hikes and other unfair practices by the insurance industry...
Department of "Huh?"
[T]he US healthcare system is a shameful failure and must be repaired. The reform bill passed by the Senate, or something close to it, would be a big step in the right direction.... Republican opposition to the Senate bill has been cynical and unprincipled. It is a scandal that not one Republican has been willing to speak up for a [health care] reform that, in the end, was a centrist proposal -- much like the one that Mitt Romney, the party’s front-runner for the presidential nomination in 2012, signed as governor of Massachusetts...
Clive Crook:
It is surely too late for the administration to bring Republicans on board. The Democrats’ thinking is now too fixed...
Of course the problem is those stubborn Democrats! Fixing their thinking on a Republican Bill!! Of course Republicans could never support that!!!
The scary thing is that barely 100 words separate the end of the first quote from the beginning of the second...
links for 2010-02-22
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Will's lie about what Phil Jones said to the BBC is really jaw-dropping and horrible, even by Will's standards, such as they are on this issue. In all honesty Will deserves to be fired. He won't be, but he deserves to be. Which I suppose says all you need to know about how the Washington Post editorial page wants to be perceived -- as a cesspit filled with liars. Not sure how this constitutes an Exciting New Business Plan for Happy Fun Future Success for a Troubled Industry, but fuck them anyhow...
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