## Department of Complete 180 Degree Intellectual Reversals...

I haven't seen anything this big since John Yoo's pivot to his current position from his 2000 claim that Bill Clinton had exceeded his powers as commander-in-chief by placing U.S. forces under a British NATO general...

Niall Ferguson, New York Times December 12, 2003:

President Both: Bush Can Have Both Guns and Butter, At Least for Now SECTION: Section 4; Column 1; Week in Review Desk; Pg. 1 LENGTH: 1640 words: GUNS or butter: this is the choice historians conventionally say that governments face. Either they can build up their military capabilities to wield power abroad, or they can aim to increase their citizens' living standards.... The Bush administration is currently engaged in an audacious -- some would say reckless -- experiment to disprove this theory. To judge by his actions, President Bush's response to the question "Guns or butter?" is: "Thanks, I'll take both." This, in short, is the guns and butter presidency.

## Chris Hayes Writes a Very Nice Piece on the Pain Caucus

Chris Hayes:

Are Depressions Necessary?: [T]he current crisis has also reawakened a long-obscured, but far more profound debate about the very nature of cyclical capitalism. That is: Are economic contractions, like the one we're currently experiencing, a good thing?... [S]cratch the surface a bit and you'll find a surprisingly vibrant school of thought, one that reaches back all the way back to the Great Depression, that holds precisely this view.

Famed economist Joseph Schumpeter said that "a depression is for capitalism like a good, cold douche," one that rinses off accumulated dysfunction. Robber baron Andrew Mellon (who served as Herbert Hoover's treasury secretary) welcomed the Great Depression with these infamous words: "It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people" It's not hard to find this same view among bankers, financiers and sundry Wall Streeters today. Recently a bond trader told me he hoped that the Fed would raise interest rates and plunge economy into a truly deep, painful (but he hoped, quick) depression. "I don't think that would be good for you," I said. "Oh, I'd be fine," he responded. ( I meant politically: as in, there'll be people with pitchforks at your door. We were talking past each other I suppose.)... The stakes for this argument are very high: if steep economic contractions are like forest fires, a necessary part of the system's self-calibration, we should more or less let them burn. If they are more like five-alarms raging through dense city neighborhoods, we should call in the fire department.

But surely Hayes could have found a more intelligent, more thoughtful, more honest liquidationist than Robert Samuelson to highlight?

Paul Krugman, to put it mildly, disagrees. In 1999 he published a book with the prescient title the The Return of Depression Economics. While folks like Samuelson and Robert Lucas were celebrating the fruits of neoliberalism, a strange thing was happening: Financial crises of larger and larger scale and scope were wreaking havoc on the global financial system. Mostly, as Krugman notes, we ignored the tremors.... Low inflation became a central obsession of the so called "Washington Consensus," the term given for the uniform prescription of stiff free-market medicine -- balanced budgets, privatization of government services, and tight monetary policy -- that dominated global economic policy in the 1980s and 1990s. What animated much of this advice was not just a rigid and dogmatic economic consensus, but also the puritanical normative assessment that a wicked economy must now pay its penance. (Of course said penance was never paid by those who caused the crisis: It was paid out of the pockets of the starving, the poor and working class.)

It's exactly this notion that Krugman seeks, above all, to dispel. To do so he repeatedly returns to the true story of a baby-sitting co-op in Washington, D.C.'s Capitol Hill neighborhood. The co-op allowed couples with young children to have babysitters for nights out in return. In order to track people's credits, the co-op issued scrip: a coupon good for one night out. But a funny thing started to happen. People wanted maximal flexibility and so started hoarding their coupons, meaning there were too many people wanting to supply baby-sitting, and not enough who wanted to use the service. The co-op ground to a halt.

Why, Krugman, asks did this happen?

It was not because the members of the co-op were doing a bad job of baby-sitting.... It wasn't because the co-op suffered from "Capitol Hill values" or engaged in "crony baby-sittingism" or had failed to adjust to changing baby-sitting technology as well as its competitors. The problem was not with the co-op's ability to produce, but simply a lack of "effective demand.... The lesson for the real world is that your vulnerability to the business cycle may have little or nothing to do with your more fundamental economic strengths and weaknesses. "[B]ad things," Krugman concludes, "can happen to good economies."... [R]ecessions, and depressions and assorted downturns are not useful, cleansing opportunities to "purge the rottenness out of the system," but more often vicious cycles, auto-catalytic processes that result in massive amounts of human suffering, and waste human capital and an economy's productive capacity. More like the forest fire caused by a careless camper than the natural cleansings produced by mother nature....

As Krugman persuasively argues, economies need management and policy to maintain some kind of equilibrium. If we agree they need to be saved from their own tendency to spiral into disaster, to cycle through booms and busts, then it will be politics, not technical expertise, which provides the principles and rules that regulate. Samuelson and those of the Mellonist school have an innate distrust of politics; meddlesome and vulgar and prone to demagoguery. Lately the political system as seemed to be working over-time to confirm their worst fears. But ultimately there is not economics without politics, and as terrifying as this may be, economists can't save us from this crisis. Only politicians can.

## Why Isn't the Federal Reserve Boosting Aggregate Demand Further?

Joe Gagnon:

Joseph E. Gagnon: Time for a Monetary Boost: In his testimony to the Congress this week, Fed Chairman Ben Bernanke left the door open to further monetary stimulus but made it clear that such action is not imminent. This reluctance to act may seem puzzling given the widespread view that the economic recovery is too weak.... The Federal Reserve's own forecast shows that it will take at least three or four years for employment to return to its long-run sustainable level. This extended period of high unemployment represents a massive waste of productive labor and untold personal suffering of unemployed workers. The Fed should be aiming to get us back on track within two years. And the urgency of Fed action is all the more important because Congress has refused to provide more stimulus....

Clearly, the case for monetary stimulus is strong. But what form should it take?... [T]he Fed... should return to its traditional roles of lending to the banking system and buying Treasury securities.... [T]he Fed should lower the interest rate it pays on bank reserves to zero.... [T]he Fed should bring down the rates on longer-term Treasury securities by targeting the interest rate on 3-year Treasury notes at 0.25 percent and aggressively purchasing such securities whenever their yield exceeds the target.... Finally, the Fed could bolster the stimulative effects of these actions by establishing a full-allotment lending facility to enable banks to borrow (with high-quality collateral) at terms of up to 24 months at a fixed interest rate of 0.25 percent.

These measures are all within the Federal Reserve's established powers. They pose essentially no risk to the Fed's balance sheet. They would reduce unemployment roughly as much as a 2-year $600 billion fiscal package and yet they would actually reduce the federal budget deficit. And they can be reversed quickly should the balance of risks shift from deflation to inflation. Given the unsatisfactory outlook for unemployment and inflation and the lack of action by Congress, that is the right medicine for the US economy now. ## Our Jobless Recovery Continues Greg Robb of Marketwatch: The number of people applying for initial state unemployment insurance benefits rose 37,000 to 464,000 in the week ended July 17, the Labor Department reported Thursday. Economists surveyed by MarketWatch had expected an initial claims level of 450,000. ## Yes, It Is Warm From NOAA: State of the Climate | Global Analysis | June 2010: The combined global land and ocean average surface temperature for June 2010 was the warmest on record at 16.2°C (61.1°F), which is 0.68°C (1.22°F) above the 20th century average of 15.5°C (59.9°F). The previous record for June was set in 2005. June 2010 was the fourth consecutive warmest month on record (March, April, and May 2010 were also the warmest on record). This was the 304th consecutive month with a global temperature above the 20th century average. The last month with below-average temperature was February 1985. The June worldwide averaged land surface temperature was 1.07°C (1.93°F) above the 20th century average of 13.3°C (55.9°F)—the warmest on record. It was the warmest April–June (three-month period) on record for the global land and ocean temperature and the land-only temperature. The three-month period was the second warmest for the world's oceans, behind 1998. It was the warmest June and April–June on record for the Northern Hemisphere as a whole and all land areas of the Northern Hemisphere. It was the warmest January–June on record for the global land and ocean temperature. The worldwide land on average had its second warmest January–June, behind 2007. The worldwide averaged ocean temperature was the second warmest January–June, behind 1998... ## Liveblogging World War II: July 22, 1940 The story of Jan Zwartendijk: Lithuania Honours a Holocaust Rescuer: What was the role of Jan Zwartendijk (1896-1976) in the Kovno rescue episode? Why has Lithuania now recognized him for courage fifty-nine years after the event?... The Polish Jews who had fled to Lithuania precisely to escape Soviet rule felt especially vulnerable and desperate during the annexation process. By July virtually all consulates in Kovno, the Lithuanian capital, were in the process of closing. Panic set in among the Jewish refugees. At the point Jan Zwartendijk, voluntarily and at great personal risk, took on a role which quickly evolved into the rescue of the Jews. Since May 1939 Jan had represented Philips, the Dutch electronics manufacturer, in Lithuania. In May 1940 the Germans over-ran Holland and a Dutch Government-in-Exile, technically a resistance organization, was established in London. L.P.J. De Decker, the Dutch Ambassador to the Baltic states who was based in Riga, Latvia, suspected the then-Dutch consul in Kovno of pro-Nazi sympathies. In June 1940 he asked Zwartendijk to take over in Kovno as consul in Lithuania representing the Dutch Government-in-Exile. In spite of the fact that Zwartendijk had no diplomatic experience and a wife and three young children in Kovno, he readily accepted this potentially risky assignment. Zwartendijk's work almost immediately entailed the even more dangerous task of rescuing Jews. In July 1940 Pessla Lewin, a former Dutch citizen who was now a Polish refugee living in Lithuania with her husband Isaac and son Nathan, took the gamble of writing to De Decker, who was still the Dutch ambassador. She requested authorization to emigrate to the Dutch West Indies. She learned that no visa was required but that she would need a landing permit from the local governor. Such permits were only rarely issued. Nevertheless the ambassador tried to help by inscribing in her Polish passport, in French, the statement that "for the admission of aliens to Surinam, Curaao, and other Dutch possessions in the Americas, an entry visa is not required." This stipulation, dated July 11 1940, came to be known as a "Curaao visa." It gave the impression of being as good as a visa since it omitted the key phrase that a landing permit was required. On July 22, Isaac Lewin approached Zwartendijk in Kovno. According to Lewin, Zwartendijk, "after seeing what De Decker had done, copied (the Curaao visa) into my Lithuanian safe-conduct pass." Armed with this documentation, Pessla and Isaac Lewin, plus her mother and brother who were still Dutch citizens, went to the Soviet and Japanese consuls in Kovno and were routinely issued seven-to-fifteen-day transit visas allowing them to pass through each of those countries. The Japanese consul was Sugihara Chiune, who has been featured in movies and is far better known than Zwartendijk. Without Zwartendijk's fictitious destination visas, however, neither Sugihara nor his Soviet counterpart would have been able to issue one single transit visa through their respective territories.... [W]ith Zwartendijk's help, the Lewins' single-family trip rapidly became a mass exodus of beleaguered Jews.... Zwartendijk originally had received De Decker's concurrence to issue phoney visas only for a few of Gutwirth's friends. But Zwartendijk went on to write approximately 1,300 visas by hand between July 24 and 27 and another 1,050 with the help of a rubber stamp between July 29 and August 3, when the Soviets took over Zwartendijk's office, obligating him and his family to return to Holland. The highest known visa number is 2,345, issued to Elisasz Kupinski and his family.... On June 4, 1999, on the grounds of the Jewish State Museum in Vilna (Vilnius), the present-day capital of Lithuania, three stone monuments were dedicated in his memory by Lithuania. ## Listserves in the Age of Google Archives James Fallows: On Today's Hot Media Stories: Virtues: at its best, it was a way of getting informed comment from people you wouldn't otherwise be in touch with. For me, this meant hearing from people: with experience in Afghanistan or Iraq; with expertise on financial regulation; with sharply diverging views about the importance of controlling the federal deficit; with informed views about what it would take to implement the new health care bill; with experience in reporting about intelligence agencies; with some knowledge of what is up with California state government; and so on. Faults: Flame wars... inbox-clogging IM-style replies... the inevitable reality was that most messages would not be of interest to any given member. And -- as with most of the other listservs I've been on over the years and am still on -- many people, especially the young ones, wrote with an innocent assumption that they were talking within a community, rather than for potential years-later out-of-context quotation. I am chagrined to note that virtually the only thing I ever contributed to this group was a sadder-but-wiser warning that nothing in digital form was ever "private," so people should write only what they were willing to stand behind in public. The "informed" parts of the discussion were useful; for the rest, I just pushed DEL. It's the same with all the other listservs I've been on over the years -- and there are half a dozen I'm on now.... Anthropologically they are all the same.... But all participants think they're operating within some kind of community -- rather than speaking, politician style, as if any half-sentence could be used against them in its most damaging construction at any later time. In the other listservs I know -- about China, software, aviation, defense, cybersecurity, etc -- some people's careers could be gravely damaged if their least judicious single sentences were used against them out of context years later. I really, really hate to see that done to young people now. "Have you no decency?" is the right question for Andrew Breitbart. It's also the right question for the Daily Caller, whose editor (Tucker Carlson) asked for membership in the dreaded Journolist -- and was turned down -- just before it began seriatim publishing of damaging quotes against young writers. ## Their Names Are Written in the Book of Life... Carl Hulse: Senate Gives Final Approval to Jobless Benefits: The Senate gave final approval Wednesday evening to legislation providing added unemployment benefits through November to millions of Americans who have been out of work for six months or more, ending a politically charged fight. From$300 billion down to $34 billion. But$34 billion > $0. Kudos to the Obama Economic Team, and to Pelosi, Reid, and company... No kudos to Carl "He Said, She Said" Hulse, however: practitioners of he said-she said journalism do not get their names written in the Book of Life... ## Effects of Extending the Under$250,000 Income Portion of the Bush Tax Cuts...

...would produce a fifty-year hit to the primary deficit of \$4,000,000,000,000--although the number is ambiguous because the interactions with other tax provisions, especially the AMT, is so large.

Just as it was a catastrophic mistake to pass the Bush tax cuts in 2001 and 2003 without triggers to reverse them if the structural deficit became a problem, so it would be a catastrophic mistake to permanently extend any portion of the Bush tax cuts without triggers to reverse the extensions if the structural deficit remains a problem.

## Federal Debt and U.S. Growth: I Think the Intelligent Simon van Norden Is Slightly Off...

Simon writes:

Worthwhile Canadian Initiative: Ninety percent worries: With this and other data, Rogoff and Reinhart document that, historically, there is not much of a relationship between government indebtedness and growth except for the over 90% of GDP group. For debt loads up there, growth seems quite a bit lower...

The problem is that the United States debt-to-GDP ratio got above 90% once and only once--at the end of World War II.

And then World War II ended, and we demobilized, and real GDP fell.

To say that American growth slows whenever the debt-to-GDP ratio rises above 90% is, really, to say that whenever the debt-to-GDP ratio rises above 90% a terribly destructive global war ends, we step down from our posture of total mobilization, and so economic growth is slow while we demobilize.

I don't think anybody really wants to make that argument...

## David Leonhardt on the Disfunctional U.S. Government and the Global Climate

David:

Economic Scene - Overcome by Heat and Inertia: This city just endured its hottest June since records began in 1872, according to the National Oceanic and Atmospheric Administration. So did Miami. Atlanta suffered its second-hottest June, and Dallas had its third hottest. In New York, the weather was relatively pleasant: only the fourth-hottest June since 1872. Then again, New York is on pace for its hottest July on record. Yet when United States senators and their aides file into work on Wednesday, on yet another 90-degree day, they may be on the verge of deciding to do approximately nothing about global warming. The needed 60 votes don’t seem to be there, at least not at the moment.... [T]he odds of a major climate bill are not great. And if this White House and this Democratic Congress can’t pass one, you have to wonder what the future of climate policy looks like. All the while, the risks and costs of climate change grow. Sea levels are rising faster than scientists predicted just a few years ago. Himalayan glaciers are melting. In the American West, pine beetles (which struggle to survive the cold) are multiplying and killing trees.

According to NASA, 2010 is on course to be the planet’s hottest year since records started in 1880. The current top 10, in descending order, are: 2005, 2007, 2009, 1998, 2002, 2003, 2006, 2004, 2001 and 2008.

Hot is the new normal.

The most efficient way to begin attacking the global swelter is no mystery. It involves raising the price of carbon emissions, which are warming the planet, and then letting the private sector find innovative ways to use less dirty energy. Conservative economists, like Gregory Mankiw, support this approach. So do liberals, like Joseph Stiglitz. But taxing carbon has never had much of a political chance. It’s too honest. It acknowledges that the best way to reduce the use of a product is to increase its price. We would all prefer a free lunch. So Congress has been laboring to disguise a price increase in a more palatable package.... Republican leaders, though, were only too happy to cast cap and trade as “cap and tax.”... The sad paradox is that cap and trade — which trusts in the efficiency of markets — was originally a Republican policy, signed by the first President Bush to reduce acid rain....

[T]he fuel economy rules from the 1970s that required car companies to make fewer gas guzzlers. The newly imposed scarcity of guzzlers, in turn, increased their price. But the relationship wasn’t obvious. Americans do not think of fuel economy rules as a tax on large vehicles. This explains why the rule-based approach seems to be the best bet for winning Republican votes. Senator Richard Lugar, Republican of Indiana, has proposed new rules not just for vehicles but also for appliances, building codes and power plants. If these regulations were tough enough, they could make a difference, as the fuel economy rules have. So some Democrats and environmentalists see this approach as their best remaining chance.... On the other hand, such rules would require government regulators to make all kinds of decisions — about which dishwashers qualified as efficient, about which alternative energies power plants had to use and the like.... The result would almost certainly be higher, albeit better disguised, costs than with a carbon cap or tax.... Thus the opposition among other Democrats and environmentalists to accepting the Lugar approach as a compromise — and Mr. Reid’s difficulty in finding 60 votes for it....

Robert Stavins, the Harvard economist, told me he would actually prefer a bill that cut emissions less in the short term but created a template for much bigger cuts in the future. “Success, to me, would be the beginning of political acceptance of carbon pricing,” he said. I’ll confess to being torn about these arguments. A utility-only cap, even a flawed one, really would represent a whole different kind of progress than a souped-up version of fuel economy rules. A cap — any decent cap — remains the best benchmark of success. Yet if the Lugar approach were the only one that could pass, should we be so confident that it would put off further action? It’s not clear to me how another failure on energy policy will somehow make success more likely in the future.

All of this will be decided in the next few weeks, before the Senate breaks for its August recess, or in September, before the midterm election campaign takes over. Meanwhile, the temperature in Washington this week is supposed to hit 99.

## Kudos to National Review Online

Daniel Foster emails:

Here's me saying NRO should get some credit for circling the wagons around Shirley Sherrod after watching the full, unedited tape. Is it convenient that Sherrod's forced resignation makes the White House, or at least Vilsack, look bad? Sure. But there is a lot of genuine feeling for Sherrod, and not a little regret over having overreacted to the initial story.

Very true. Kudos to National Review Online...

## DeLong Smackdown Watch: Niall Ferguson

Niall Ferguson writes, over at the FT:

FT.com / Comment / Opinion - 1939 and all that ...: Economists really do seem to struggle with history – and sometimes geography, too. Brad DeLong needs to remember that the Financial Times is published in London. As far as most combatants were concerned, the second world war broke out in September 1939...

Touché...

I would point out that China and Japan by themselves are "most" combattants, and that they think WWII began in 1937, but that is too weak a parry to even attempt...

## Liveblogging World War II: July 21, 1940

Puppet Quisling legislatures of Lithuania, Latvia and Estonia declare their countries annexed to the Soviet Union.

## Are Libertarians Serious About Liberty?

Timothy Lee on how the conservatives snookered the libertarians:

How to Talk Liberaltarian: Nick Schulz weighs in on the liberaltarianism debate:

The original fusionist project of Frank Meyer and others was predicated on a belief that libertarians and conservatives (social/religious/paleo) actually agreed on some basic philosophical principles, not just shared goals such as opposing Soviet communism (as important as that was). Two of these have always been paramount: The importance of protecting individual liberty, and an appreciation for the vital role played by civil society and traditional mediating institutions that made American culture and ordered liberty possible...

This seems completely wrong to me. Conservatives care about “protecting individual liberty” for some people, but the conservative movement includes many people who are indifferent, if not hostile, to the liberty of foreigners, immigrants, drug users, gays and lesbians, women who want abortions, broadcasters, sex workers, criminal defendants, Muslims, publishers of pornography, atheists, and so forth.... What libertarians and conservatives share isn’t a shared commitment to freedom so much as a common way of talking about freedom... the Founding Fathers... free markets... limited government... Hayek.... But... fusionist slogans... often combined with calls to “keep your government hands off my Medicare”, promote “energy independence”, and build a police state along our Southern border suggests that these slogans are little more than empty rhetoric.... Because libertarians and conservatives share a political vocabulary we find it relatively easy to communicate with each other. Liberals and libertarians obviously “agree on some basic philosophical principles.”... But many libertarians talk about liberty in a right-wing way... liberals... talk about liberty in a way that’s alien to most libertarians. This “language barrier” exaggerates the degree of disagreement....

This is why I think it’s important for this kind of debate to move beyond manifestos to actually discovering and working on areas of shared agreement. Conservatives and libertarians feel an emotional bond because libertarians spend most of their time working on “conservative” issues.... To develop a similar rapport with liberals, libertarians need to focus more on issues where they can count liberals as allies. As they do, they’ll find that there are actually lots of liberals who care about freedom...

## Prometheus 6: An Open Letter To Agriculture Secretary Tom Vilsack

Can I sign on to this somewhere?

Prometheus 6:

An Open Letter To Agriculture Secretary Tom Vilsack | Prometheus 6: I am sure you know by now that your department has been had. You are not alone; the ACORN debacle was a more significant failure, in the number of people who lost their jobs as well as the far greater number of people who lost access to the services ACORN provided. This time the libel was caught immediately.

Hopefully you will rescind your acceptance of Shirley Sherrod's forced resignation. That would be the first step. This should be done publicly. Read the NAACP's statement for guidance if you need it.

Having reviewed the full tape, spoken to Ms. Sherrod, and most importantly heard the testimony of the white farmers mentioned in this story, we now believe the organization that edited the documents did so with the intention of deceiving millions of Americans.

You should be that direct.

## Fiscal Drag...

Paul Krugman:

Fiscal Drag: From Alec Phillips at Goldman Sachs (no link):

Congress looks increasingly unlikely to extend ay more fiscal aid to state governments, despite ongoing shortfalls in state revenues, and they have already let several other items lapse. We are therefore removing from our estimates an assumption of further fiscal stimulus beyond the policies in law (including this week’s unemployment extension), though we continue to expect extension of most of the expiring 2001/2003 tax cuts. This adds almost a full percentage point to the drag on growth from Q4 2010 to Q4 2011 to what we had already estimated.