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March 2012

Quote of the Day: March 31, 2012

"In our new age of terrifying, lethal gadgets, which supplanted so swiftly the old one, the first great aggressive war, if it should come, will be launched by suicidal little madmen pressing an electronic button. Such a war will not last long and none will ever follow it. There will be no conquerors and no conquests, but only the charred bones of the dead on an uninhabited planet."

--William L. Shirer, The Rise and Fall of the Third Reich

Daniel Kuehn on John Maynard Keynes on Banks in a Financial Crisis

Daniel Kuehn:

Facts & other stubborn things: Keynes on the incentives of banks in a depression: [A]s Brad DeLong often points out, any insightful points you make about economics have more often than not already been made (and made more eloquently) by John Maynard Keynes. This is from the beginning of "The Consequences to the Banks of a Collapse in Money Values" (1931), a piece that I've actually been wanting to have a reason to share on here (he talks about 1921 in here, which is another reason why I like it). I think it speaks to the points about the incentives of banks under free banking that I made in the prior post.

John Maynard Keynes:

A year ago it was the failure of agriculture, mining, manufactures, and transport to make normal profits, and the unemployment and waste of productive resources ensuing on this, which was the leading feature of the economic situation. To-day, in many parts of the world, it is the serious embarrassment of the banks which is the cause of our gravest concern. The shattering German crisis of July 1931, which took the world more by surprise than it should, was in its essence a banking crisis, though precipitated, no doubt, by political events and political fears.

That the top-heavy position, which ultimately crumbled to the ground, should have been built up at all, was, in my judgement, a sin against the principles of sound banking. One watched its erection with amazement and terror. But the fact which was primarily responsible for bringing it down was a factor for which the individual bankers were not responsible and which very few people foresaw—namely, the enormous change in the value of gold money and consequently in the burden of indebtedness which debtors, in all countries adhering to the gold standard, had contracted to pay in terms of gold.

Let us begin at the beginning of the argument. There is a multitude of real assets in the world which constitute our capital wealth—buildings, stocks of commodities, goods in course of manufacture and of transport, and so forth. The nominal owners of these assets, however, have not infrequently borrowed money in order to become possessed of them. To a corresponding extent the actual owners of wealth have claims, not on real assets, but on money. A considerable part of this "financing" takes place through the banking system, which interposes its guarantee between its depositors who lend it money, and its borrowing customers to whom it loans money wherewith to finance the purchase of real assets.

The interposition of this veil of money between the real asset and the wealth owner is a specially marked characteristic of the modern world. Partly as a result of the increasing confidence felt in recent years in the leading banking systems, the practice has grown to formidable dimensions. The bank-deposits of all kinds in the United States, for example, stand in round figures at $50,000,000,000; those of Great Britain at £2,000,000,000. In addition to this there is the great mass of bonded and mortgage indebtedness held by individuals.

All this is familiar enough in general terms. We are also familiar with the idea that a change in the value of money can gravely upset the relative positions of those who possess claims to money and those who owe money. For, of course, a fall in prices, which is the same thing as a rise in the value of claims on money, means that real wealth is transferred from the debtor in favour of the creditor, so that a larger proportion of the real asset is represented by the claims of the depositor, and a smaller proportion belongs to the nominal owner of the asset who has borrowed in order to buy it. This, we all know, is one of the reasons why changes in prices are upsetting.

But it is not to this familiar feature of falling prices that I wish to invite attention. It is to a further development which we can ordinarily afford to neglect but which leaps to importance when the change in the value of money is very large—when it exceeds a more or less determinate amount.

Modest fluctuations in the value of money, such as those which we have frequently experienced in the past, do not vitally concern the banks which have interposed their guarantee between the depositor and the debtor. For the banks allow beforehand for some measure of fluctuation in the value both of particular assets and of real assets in general, by requiring from the borrower what is conveniently called a "margin." That is to say, they will only lend him money up to a certain proportion of the value of the asset which is the "security" offered by the borrower to the lender. Experience has led to the fixing of conventional percentages for the "margin" as being reasonably safe in all ordinary circumstances. The amount will, of course, vary in different cases within wide limits. But for marketable assets a "margin" of 20 per cent to 30 per cent is conventionally considered as adequate, and a "margin" of as much as 50 per cent as highly conservative.

Thus, provided the amount of the downward change in the money value of assets is well within these conventional figures, the direct interest of the banks is not excessive;—they owe money to their depositors on one side of their balance-sheet and are owed it on the other, and it is no vital concern of theirs just what the money is worth.

But consider what happens when the downward change in the money value of assets within a brief period of time exceeds the amount of the conventional "margin" over a large part of the assets against which money has been borrowed. The horrible possibilities to the banks are immediately obvious. Fortunately, this is a very rare, indeed a unique event. For it had never occurred in the modern history of the world prior to the year 1931. There have been large upward movements in the money value of assets in those countries where inflation has proceeded to great lengths. But this, however disastrous in other ways, did nothing to jeopardise the position of the banks; for it increased the amount of their "margins." There was a large downward movement in the slump of 1921, but that was from an exceptionally high level of values which had ruled for only a few months or weeks, so that only a small proportion of the banks' loans had been based on such values and these values had not lasted long enough to be trusted.

Never before has there been such a world-wide collapse over almost the whole field of the money values of real assets as we have experienced in the last two years. And, finally, during the last few months—so recently that the bankers themselves have, as yet, scarcely appreciated it—it has come to exceed in very many cases the amount of the conventional "margins." In the language of the market the "margins" have run off.

The exact details of this are not likely to come to the notice of the outsider until some special event—perhaps some almost accidental event—occurs which brings the situation to a dangerous head. For, so long as a bank is in a position to wait quietly for better times and to ignore meanwhile the fact that the security against many of its loans is no longer as good as it was when the loans were first made, nothing appears on the surface and there is no cause for panic.

Nevertheless, even at this stage the underlying position is likely to have a very adverse effect on new business. For the banks, being aware that many of their advances are in fact "frozen" and involve a larger latent risk than they would voluntarily carry, become particularly anxious that the remainder of their assets should be as liquid and as free from risk as it is possible to make them. This reacts in all sorts of silent and unobserved ways on new enterprise. For it means that the banks are less willing than they would normally be to finance any project which may involve a lock-up of their resources.

And Daniel comments:

To say that banks are less willing to lock up their resources is equivalent to saying that banks have liquidity preference too.

An advantage of central bankers - maybe even their one saving grace - is that central bankers do not have any liquidity preference to speak of.

DeLong (Polite) Smackdown Watch: Gavyn Davies Make-Me-Fiscally-Chaste-But-Not-Yet Blogging

Gavyn Davies:

The optimal speed of fiscal adjustment: How rapidly should governments correct their fiscal deficits, which in the long run are unsustainable in the US, UK, Japan and many countries in the eurozone?… [O]ccasionally a piece of research comes along which changes the “dial” on the debate, and I believe that applies to the important Brookings Paper published last week by Brad DeLong and Larry Summers. This paper… essentially implies that the trade-off between near-term GDP growth and the probability of fiscal crisis can be irrelevant, because temporary fiscal expansions, at a time when interest rates are at the zero bound, are eventually self-financing…. [A] fiscal expansion today raises GDP today; higher GDP today permanently raises the path for GDP; and a permanently higher path for GDP results in permanently higher tax receipts. Eventually, these higher tax receipts might fully finance the original cost of today’s budgetary injection.

All of this has been in the public debate for quite a while (see Paul Krugman for example), but the important additional contribution of DeLong and Summers is that we can now quantify the parameters involved…. The authors, for example, suggest a case in which the multiplier is 1, and the hysteresis parameter is 0.05. Their equation then suggests that a temporary fiscal expansion will be self-financing unless the real yield on treasuries exceeds the long-term growth of GDP by more than 2.5 per cent per annum, which has hardly ever happened in recent US history.

How robust should we take this result to be?

A fiscal multiplier of around 1 in present circumstances seems reasonable…. Much less is known about the hysteresis coefficient….

But I would pose one more question to Brad and Larry, concerning policy credibility. They take this seriously, but make the assumption that a temporary easing in fiscal policy would have no effect on the risk premium which the market expects on US treasuries…. [T]hey would argue that it is not rational for investors to expect a higher risk premium if a temporary fiscal injection is actually likely to be self-financing.

These are valid points, but investors are not always rational, and they would be sceptical about any government which takes the “make me chaste, but not yet” approach to policy. Easier fiscal policy today might well be taken as a signal that the political will to tighten policy tomorrow simply will never exist. Rational or not, that remains a serious problem.

I would agree that in a world in which the Republican presidential candidate-presumptive attacks President Obama for (a) running large deficits, (b) raising your taxes, and (c ) cutting social-insurance benefits, that a rational investor would conclude that the Republican Party at least has absolutely no political will to tighten policy, ever. Thus whether the political will to tighten policy tomorrow exists rests on whether the current Republican Party becomes the natural party of government--or whether it loses persistently and repeatedly to the Democrats, or else undergoes a 180-degree change in its policy preferences.

But, from my perspective, whether the U.S. political system is capable of providing even semi-competent governance is a question that has very little to do with what policies we adopt to speed recovery over the next three years.

On Himmler and Heydrich

Max Hastings:

The Most Terrible of Hitler’s Creatures: John Lukacs has made the interesting and important assertion that Himmler spent much more time thinking about Jews than Hitler did. Once the war began, while Germany’s leader remained committed to ethnic cleansing and often bored his subordinates with monologues about his fantasy vision of a postwar world, he was chiefly preoccupied with defeating his enemies. But Himmler, Heydrich, and their formidable enforcement arm, the SS, were amazingly careless of the rational priorities of total war. They devoted themselves with demented single-mindedness to pursuing, herding, and eventually killing Europe’s Jews. Neither of these books discusses an issue that seems to me significant: the economic and strategic cost to the Nazis of undertaking a program for reorganizing Eastern Europe and its peoples, liquidating those who were unwanted, while the outcome of the war still hung in the balance….

It seems mistaken to view Himmler, Heydrich, and their colleagues in historical isolation, and more profitable to assess them alongside—for instance—Stalin’s chief enforcer, Beria, and the Soviet Union’s corps of killers, quite as dedicated to their work as was the SS. The conclusion is obvious: there was nothing uniquely German about such people. It is not difficult to persuade a substantial minority of mankind, and even of its educated elements, to commit mass murder, as long as such a course is legitimized and successfully put into practice by the authority of somebody at the top. Many of the Serbs and Croats who killed tens of thousands of their fellow countrymen in the former Yugoslavia in the 1990s would have been taught in school about the iniquity of the Holocaust. But this did not inhibit them from following the same path, albeit on a lesser scale, pursuing the wholesale elimination of unwanted citizens of their own community of all ages and both sexes….

Peter Longerich, already the author of a distinguished history of the Holocaust, has written a biography that tells us everything that the world could ever need to know about this most terrible, yet dreary, of Hitler’s creatures. Like Robert Gerwath’s book [on Heydrich], Longerich’s work [on Himmler] contains nothing significantly new, but establishes an authoritative record. Himmler, a wretched and inadequate human being, made himself Hitler’s indispensable enforcer, and successfully reinvented the SS again and again through the years of Nazi mastery.

If the two authors’ explanations of Himmler and Heydrich remain somehow unsatisfactory, this is surely because it is impossible to explain how two such contemptibly small people could encompass such vast horrors. The response of the German people not so much to National Socialism, as to its risibly unimpressive human representatives, seems much more interesting than the men themselves. The manner in which one of the most educated and civilized societies in the world acquiesced in the dominance of gangsters, thugs, and inadequates, possessed of negligible gifts for anything beyond mass murder, will baffle and terrify humanity until the end of time.

A Geometry Puzzle

Is it possible to move from an all-hardwood floor fully-furnished 3500 sq. ft. house to a 2400 sq. ft. house and find that you need to buy another rug?

Charles Stross: Little Brother Is Watching You

Charles Stross:

Not an April Fool: There is an app…. [C]omputer journalist John Brownlee wrote an essay…. First, a quote from John's essay….

"Girls Around Me" is a standard geolocation based maps app, similar to any other app that attempts to alert you to things of interest in your immediate vicinity…. [O]n the bottom left is a button that allows you to specify between whether you're interested in women, men or both. It's when you push the radar button… Girls Around Me went into radar mode, and after just a few seconds, the map around us was filled with pictures of girls who were in the neighborhood. Since I was showing off the app on a Saturday night, there were dozens of girls out on the town in our local area…

Now, here's the point. What "Girls Around Me" does is simple: it looks up your GPS location, then queries Facebook and FourSquare for people matching a simple search criterion (are they female?) who have checked in (or been checked in by their friends) in your vicinity. It then makes it really easy to pull up their publicly visible information--stuff such as age, occupation, favourite sports, what school they attended, and so on…. [Y]ou don't need a special purpose tool like "Girls Around Me" to do this, if you have a reasonably powerful Facebook query tool and know how to use it. I can't stress this strongly enough: the problem was not invented by SMS Services O.o.o. of Russia, who wrote the app. And banning the app will not make the problem go away.

What "Girls Around Me" does is make clear just how useless Facebook's security settings are…. [O]rdinary people are not all Bruce Schneier. Ordinary people with Facebook accounts tend to over-share… our social instincts encourage us to share information with everyone we can see, and to discount abstractions (such as the possibility that software bots thousands of miles away might be harvesting the photographs and information we put online in order to better target advertisements at us—or worse).

The problem is this: all social networks run on the principle that if you're not paying for the product, you are the product…. There's no point marketing bacon to Jews or Muslims, so religion is relevant. There's no point marketing turkey to vegans or wheat products to coeliacs, so dietary preferences and medical conditions are relevant. If a user is a member of a subculture associated with a distinctive clothing fashion, that information is relevant to garment vendors. And so on. So Facebook, Orkut, G+ and so on all attempt to induce their users to maximize their self-disclosure and to tie their accounts to as many useful third-party information sources as possible.

You may have noticed that Facebook provides privacy controls…. [But] it is not in Facebook's commercial interest to promote the use of privacy controls…. Moreover we are actively discouraged from maintaining any separation of spheres of identity…. Real human beings live complex lives in which they occupy different roles which are exposed to different people….

Look at Iran and imagine an app written for the Basij to make it easy to identify dissidents and form ad-hoc goon squads to proactively hunt them down….

But as I said earlier, the app is not the problem. The problem is the deployment by profit-oriented corporations of behavioural psychology techniques to induce people to over-share information which can then be aggregated and disclosed to third parties for targeted marketing purposes.

Econ 1: Spring 2012: U.C. Berkeley: Answers for Sample Midterm 2

Economics 1: Spring 2012: U.C. Berkeley Sample Second Midterm DRAFT Answers:

Part 0—(1 point/0.5 minutes):

Your name, your GSI, your SID

Part 1—do all five (15 points/7.5 minutes): Write a sentence about the importance of each of the following five concepts in this course:

1) The Friedmans' “three equalities”:

Milton and Rose Director Friedman argued that equality of outcomes is impossible for any society, and attempts to attain it destroy freedom; that equality of opportunity is a worthy goal but one that can never be fully attained; and that equality of perception—equality before God, equality before the law—is necessary for any free society.

2) Monopolistic competition:

A monopolitically competitive market structure is one in which small firms find themselves facing downward-sloping demand curves and thus possess a degree of market power; such a market structure will tend to have more firms and higher average total costs than would be economically efficient, and thus less producer surplus in the long run than would be desirable.

3) Substitution effects:

A substitution effect is that when one price rises and another price falls so as to keep real income constant, then consumers tend to buy less of the first good and more of the second; distinguished from income effects in which either price declines make consumers richer and so they buy more of everything or price rises make consumers poorer and so they buy less of everything.

4) Cost minimization:

Profit-maximizing firms practice cost minimization: they try to make the amount they produce at the least possible cost, and often working out the consequences of cost minimization is the easiest way to solve quantitative problems involving firm behavior.

5) Quotas:

A quota is when the government refuses to allow the quantity of a good sold on the marketplace to exceed a certain level; almost always a bad idea because an inefficient amount of the commodity will be produced and consumed, and it will be produced or consumed or both by the wrong people—by people who are not the low-cost producers or the high-value demanders.

Part 2—do all three (69 points/34.5 minutes):

1) Suppose that Johnny D’s Pirate Emporium has daily fixed costs of $10000, and its marginal cost curve is given by Q = P/2. Suppose that it produces an undifferentiated product in a perfectly competitive industry. Suppose that it is the most efficient firm around. Suppose that its technology and organization is easily copied. At what scale of production—what level of daily quantity Q—is its average total cost minimized for this firm? What does the long-run supply curve look like for this perfectly-competitive industry? Explain your reasoning.

Its average total costs are 10000/Q + Q. At a Q of 10000, ATC=10001; at a Q of 1000, ATC=1010; at a Q of 100, ATC=200, at a Q of 10, ATC=1010. It looks like we should explore what ATC cost curve looks around Q=100. At a Q of 50, ATC=250; at a Q of 100, ATC=250; at a Q of 99, ATC=200.01; at a Q of 101, ATC=200.01. A Q of 100 is the cost-minimizing scale of production for this firm, with an average total cost of 200 per unit.

If the market price is greater than 200, new entrant firms will find it profitable to copy Johnny D’s technologies and organizations, enter the market, and make money. So new firms will enter until the price falls to 200. At a price of 200, only firms as efficient as Johnny D’s will survive--but because its technology and organization are easily copied, there will be lots of such firms. 
>The long-run supply curve will be flat, horizontal, at a price of $200 per unit.

2) Suppose that we consider the daily market for ice-cream sandwiches in the neighborhoods surrounding Crony Capitalism Junior University in the town of Old Stick...

Supply: Q = 3000(P - 2)

Demand: Q = 66000 - 6000 P

What is the equilibrium price? What is the equilibrium quantity? What is the equilibrium producer surplus? Consumer surplus?

Supply = Demand happens when 3000P - 6000 = 66000 - 6000P; 9000P = 72000; P = 8; Q = 18000

Since we have a linear demand curve and the maximum willingness to pay is 11, the average willingness to pay is (11+83)/2 = 9.5, and the average consumer surplus per unit is 1.5. That gives us $27,000 of total consumer surplus. Since we have a linear supply curve and supply = 0 at a price of 2, the average cost to producers is (8+2)/2=5. The average producer surplus per unit is 3. That gives us $54000 of producers surplus.

3) When, broadly, might it be a good thing for a government to impose per-unit taxes on production? For it to offer per-unit subsidies? For it to impose quotas? Price ceilings? Price floors?

Per-unit taxes on production might be a good thing if the government needs to raise revenue to pay for programs that promote the general welfare, or if economic activities cause negative externalities that harm others not directly concerned with production and sale and thus unable to require that production and sale be win-win as a condition of their participation.

Per-unit subsidies might be a good thing if the economic activity subsidized produces positive externalities—spillovers—through advances in knowledge or other channels.

Quotas seem a bad idea always: there are other, better tools for regulation available.

Price ceilings can be welfare enhancing as a way of regulating a monopoly to reduce its market power and so inducing it to produce more. Price floors can be welfare enhancing as a way of regulating a monopsony—a single buyer—and so inducing it to demand more. If the distribution of wealth is inefficient from a utilitarian standpoint, price ceilings and price floors can serve as indirect ways of redistributing wealth to make it more efficient from a utilitarian point of view, but directly redistributing wealth is a better way to achieve that goal.

Part 3—answer the question (15 points/7.5 minutes):

Of all the market structures we have considered—perfect competition, monopolistic competition, oligopoly, and monopoly—which is the best and which is the worst? What do you think the government should try to do to improve market structure in the economy?

A perfect essay would make seven points:

  1. Monopoly is the worst of all possible market structures except when there are very important economies of scale, in which case it may be the best or the only sustainable market structure.
  2. Even when monopoly is the only sustainable market structure, a properly-regulated monopoly with a price ceiling that enables production at the efficient level is far superior, and if regulation is perfect it is as good as perfect competition.
  3. Oligopoly is a mix of perfect competition and monopoly, and partakes of the advantages and disadvantages of both.
  4. Perfect competition is the best of all market structures when producers are making an undifferentiated product and there are no economies of scale.
  5. Monopolistic competition is inferior to perfect competition when firm market power arises from consumers’ lack of knowledge about the market and from the costliness of search.
  6. Monopolistic competition can be superior to perfect competition when different consumers have a genuine liking for different varieties of the good produced.
  7. Regulating markets is a delicate task. Antitrust policies that break up monopolies may destroy efficient economies of scale. Price ceilings that are set too low may produce low quality or low levels of output. More detailed regulations may wind up entrenching monopolies as the only organizations that understand how to work the system the government has set up—especially if regulators use the “revolving door” and come to the government from jobs in and then return from the government to jobs in the regulated industry. You have to balance the costs of market failure against the costs of government failure.

Thoughts on Causes of Rising Inequality

20120330 Sources of Rising Inequality:

Two maldistributions: We should be investing much more in education, and because we aren't the distribution is unequal. Finance is the top 0.1% in finance exploiting the 3% investing class. We should fix these.

Two features: winner take all economy that raises inequality. We all spend a lot of our leisure time watching TV and on the Internet, which is very egalitarian.

Is a Grand Bargain Worthwhile?

A question for Ezra Klein:

As a Clinton administration staffer, a question for Ezra. Suppose we do a bipartisan deficit-reduction deal over the next two years. Why don't you think that the next time the Republican Party gets back into power afterwards they won't do what they did the last time they had working majorities everywhere in 2001-3, and indeed the time before that they had working majorities in 1981-2: large tax cuts for the rich that destabilize America's public finances. It's hard for any veteran of the Clinton Administration to reach any conclusion other than that fixing America's long-run fiscal dilemmas requires first the complete destruction of today's Republican Party, and those of us who care about America's fiscal future need to turn all of our energies to that end. Can you give me reasons not to believe that?

Ah. John Goodman Tries to Claim that Changing Incentives Is Just Shifting Costs

Not impressive. My question:

I would agree with Donald's John Goodman's characterization of Ryan, Rivlin-Domenici, and Bowles-Simpson as just lines on a graph. (Donald says that he does not so characterize them: he is right. I pasted my notes on Goodman in the wrong place) But I am down the hall from Christy Romer, and I thought that the Affordable Care Act was different. The Independent Payment Authorization Board shows significant promise in reforming Medicare payments by pulling back some of the successful rent-seeking specialists have engaged in over the past generation during which our health care spending has diverged from the North Atlantic norm. The excise tax on Cadillac health plans is, over the next generation, a constructive repeal of a huge chunk of the tax preference for employer-sponsored insurance. You can dispute the wisdom of these policies. But I don't see how you can say they are just lines on a graph

Somebody Is Saying Something Wrong on the Internet! Blogging

Marcus Nunes:

A man for any season: Before it was about “expansionary austerity”. Now it´s convenient to call for “self-financing fiscal stimulus”: In a “Man for all seasons”, we get the story of Thomas More  who stood up to King Henry VIII when the King rejected the Roman Catholic Church to obtain a divorce and remarriage. Now we have a duo – Larry Summers and Brad Delong – that “adapt” to the season at hand. In their just released paper – Fiscal Policy in a Depressed Economy – they say that in the “liquity trap” situation America is in today temporary stimulus “may actually be self-financing”. Interestingly, when he was number two to Rubin (and later top Treasury honcho) during the Clinton Presidency (1993 – 2000), Larry Summers peddled “stimulative austerity”, the idea that to cut deficits would lower interest rates by enough to produce stronger growth…

Now this really isn't fair to Larry.

So I wrote, asking whether Nunes had actually read the paper.

It certainly did not sound like it.

I asked if I understood that we had explicitly argued in our paper that back in 1993 (when Alan Greenspan was very worried about long-term fiscal stability, and promised to make monetary policy easier in order to hold aggregate demand harmless if the Clinton administration undertook deficit reduction) the benefit-cost calculation was very different from what it is today (when Ben Bernanke is saying that he really would like some help from other branches from government).

What the benefit-cost calculation is depends on what the monetary-policy reaction function is, and different monetary-policy reaction functions lead to different appropriate fiscal policies.

Apparently the answer is no. Here's what I got back, via email:

Mr "DeLong"

Given the quality of your comment I have to assume YOU are the bullshit artist impersonating someone else.

You have been exclude

The whole point of weblogging--if it has a point--is to create a more informed public sphere than the journalistic filter allows, not a less informed one.

Dr. Jen Gunter: Cancer v. the Constitution


Twice as much money spent on health care as your typical North Atlantic country. Three years less in life expectancy. High-education 25-year old white women with a life expectancy 8.6 years longer than low-education 25-year old African-American women.

And this is why:

Jen Gunter:


Cancer v. the Constitution « Dr. Jen Gunter: he patient in the emergency department smelled of advanced cancer. It is the smell of rotting flesh, but even more pungent.

You only ever have to smell it once.

She had been bleeding irregularly, but chalked it up to “the change.” Peri-menopausal hormonal mayhem is the most common cause of irregular vaginal bleeding, but unfortunately not the only cause.

She hadn’t gone to the doctor because she had no health insurance. The only kind of work she could get in a struggling rural community was without benefits. Her coat and shoes beside the gurney were worn and her purse from another decade. She could never afford to buy it on her own. She didn’t qualify for Medicaid, the local doctor only took insurance, and there was no Planned Parenthood or County Clinic nearby.

So nothing was done about the bleeding until she passed out at work and someone called an ambulance. She required a couple of units of blood at the local hospital before they sent her by ambulance to our emergency department.

I looked at the fungating mass on her cervix. Later the Intern wondered why she hadn’t picked up on the smell. Probably a combination of it being so gradual and denial. It’s amazing what people learn to tolerate when their options are limited.

“I’m very sorry to tell you this looks like a cancer of the cervix,” I said

She looked surprised. “Oh.” She paused in silence as she adjusted to the news. And then quietly she added, “But the doctor back home said you could fix me up. He said you can offer free care because you have the university.”

But we didn’t have free care at the university hospital. While resident salaries come from Medicare dollars, there is very little, if any, money from the State for the medically indigent. We were in the same situation as her local OB/GYN. The cost of caring for those without insurance was born by the profits from those with insurance. But medical care was becoming more expensive and what insurance companies were willing to reimburse was decreasing. In addition, with more unemployment there were fewer insured patients and more uninsured. Not a sustainable model.

She needed a biopsy to confirm the type of cancer and a CT scan to see if the tumor had spread beyond the cervix. If she were lucky, she would have a some combination of a hysterectomy, chemotherapy, and radiation with a 50-65% chance of survival. If the cancer had spread, she would have radiation and chemotherapy with about a 25% chance of surviving.

But the cancer surgeons were not allowed to offer an uninsured woman a hysterectomy. Every now and then they snuck someone in, claiming to the administrators that the patient was more emergent than they really were. But one surgery doesn’t cure stage 2 or 3 cervical cancer, or even stave it off for long. It takes multiple admissions and week after week of expensive chemotherapy and/or radiation.

The radiation doctors were also not allowed to see uninsured patients. They could not even give a dying women a few weeks of radiation to ease her tumor’s stench while it caused her to bleed to death or killed her another way. They could give her one dose today. A very temporary measure for the bleeding, but only if her blood count was low enough. It wasn’t because she’s had the blood transfusion to get her here.

There was a charity program that paid providers and hospitals pennies on the dollar for cancer care. One hospital had signed up, resigned to the fact that they were seeing those patients anyway so better to get something for the cost of the care than nothing. Our hospital administrators had declined to participate. Better to get no money and keep seeing these uninsured patients over and over in the emergency room, each time providing the same stop-gap care that has no hope of cure or even palliation like a purgatory version of Groundhog Day, than to be inadequately reimbursed for the right care.

I had never encountered this clinical scenario during my training in Canada. I had never seen a woman suffer because she couldn’t afford something as simple as a Pap smear, never mind deal with the indignities of shopping around her sorrow and hard luck to try to patch together what would inevitably be inadequate medical therapy. It is this reality of medical care in America for which I was wholly unprepared. Many times I found the residents comforting me.

I gathered my thoughts before explaining the situation. To get her care through the charity program there was a catch. A set of hoops to jump through and we could jeopardize her eligibility with specific tests. I explained the ins and outs of accessing care through the program, where she needed to go, and what specifically she must say. The Intern printed out the sheet of community resources and advocacy groups that might also be able to help her patch together some kind of treatment.

It’s not health care, not by any stretch. But as long as the Supreme Court finds it constitutional I guess they’ll sleep better than I do.

Looking Forward, Many Zeroes and Double-Zeroes on the Global Roulette Wheel

Project Syndicate: Looking Forward, Many Zeroes and Double-Zeroes on the Global Roulette Wheel

Four times in the past century, a large chunk of the industrial world economy has fallen into a depression of high unemployment that was both deep and long: the United States in the 1930s, industrialized western Europe in the 1930s, western Europe in the 1980s, and Japan in the 1990s. Two of those times the economic downturn has cast a long and black shadow on the particular region’s economic future: western Europe in the 1980s and Japan in the 1990s. In both, if they ever got or will get back to something like the pre-downturn trend of economic growth, it took decades before they did or will do so. One of these times we do not know what would have happened: at the end of the 1930s Europe became the battlefield as Adolf Hitler launched World War II. And one time the long-run growth trend was undisturbed: it is difficult to see any significant macroecnomic impact of the Great Depression on U.S. production and employment after World War II. Of course, in the absence of U.S. mobilization for World War II it is possible and even likely that the Great Depression would have cast a shadow on post-1940 U.S. economic growth: certainly that is how things looked, with signs of high levels of structural unemployment and a capital stock below trend, at the end of the 1930s before mobilization for World War II began in earnest.

In the United States we can already see signs that the downturn that started in 2008 is casting its shadow on the future. Reputable forecasters--both private and public--have been marking-down their estimates of U.S. potential GDP in the long run. Labor force participation, which usually stops falling and starts rising after the business-cycle trough, has been steadily declining over the past two and a half years. At least some monetary policymakers are seeing reductions in the unemployment rate that come from falling labor force participation as equally good reasons for shifting to more austere monetary policies as reductions in the unemployment rate that come from increases in employment. And much the same processes are at work with even stronger force in Europe.

Most important, however, has been what from today’s perspective looks to be a permanent collapse in the risk-bearing capacity of the private marketplace, and a permanent and large increase in the perceived riskiness of financial assets and of the businesses whose cash flows underpin them worldwide. In a world of aging industrial-core populations, large commitments from governments to social-insurance systems, and no clear plans for balancing government budgets in the long run, we would expect to see perhaps not substantial but clearly visible inflation and risk premiums priced into the Treasury debt of even the largest and richest economies. Sometime over the past generation the price levels of the U.S., Japan, and Germany might go up substantially as some government short-sightedly finds it plausible to attempt to finance some of its social-welfare expenditures via seigniorage. The price levels are unlikely to go down. Yet the desire to hold assets that avoid the medium-term risks associated with the business cycle has overwhelmed this long-run fundamental risk factor.

But this risk that the globe’s investors are currently rushing into U.S., Japanese, and German Treasury debt to avoid is not a “fundamental” risk. There is nothing in our psychological preferences, in the natural resources we have available, or in our growing technologies that makes investing in private enterprises riskier than it was five years ago. Rather, it is the demonstration that governments will not when push comes to shove perform their task of matching aggregate demand to aggregate supply to avoid mass unemployment that is the driver. It is the job of governments to manage aggregate demand so that even though Say’s law that supply creates its own demand is false in theory, it is nevertheless true enough in practice that enterpreneurs and enterprises can bet and bank on it.

“If”, John Maynard Keynes wrote 76 years ago, the government falls down on the job and “demand is deficient… the individual enterpriser... is operating with the odds loaded against him. The game of hazard which he plays is furnished with many zeros.... the increment of the world’s wealth has fallen short of... savings... [because of] the losses of those whose courage and initiative have not been supplemented by exceptional skill or unusual good fortune. But if effective demand is adequate, average skill and average good fortune will be enough…”

For sixty-two years, from 1945-2007, with some sharp but temporary and regionalized interruptions, entrepreneurs and enterprisers could bet that the demand would be there if they created the supply. This played a significant role in setting the stage for the fastest two generations of global economic growth the world has ever seen. Now the stage is no longer set.

"Somehow, Toto…" Kansas City Blogging

Robert Litan writes:

Growthology: Economics Bloggers Forum 2012: [T]he Kauffman Foundation is hosting the fourth annual Economics Bloggers Forum in Kansas City, MO. Check back here at for a live stream of the event starting around 8:30 AM. There will be presentations from some of your favorite bloggers. An agenda follows below.

8:30 a.m.     Welcome

  • Robert E. Litan, Vice President, Research and Policy, Ewing Marion Kauffman Foundation   

8:45 a.m.     Panel discussion – Recovery and Long-Term Growth

  • Brad DeLong, Grasping Reality
  • Scott Sumner, TheMoneyIllusion
  • Tyler Cowen, Marginal Revolution
  • Karl Smith, Modeled Behavior

9:45 a.m.     Break

10:00 a.m.   Panel discussion – After the Election, How Do We Fix the Budget?

  • John Goodman, National Center for Policy Analysis
  • Ezra Klein, The Washington Post
  • Donald Marron,

11:00 a.m.   Panel discussion – After the Election, What is the Solution to Income Inequality?

  • Mark Thoma, Economist’s View
  • Arnold Kling, EconLog
  • Matt Yglesias, Moneybox

12:00 p.m.   Working Lunch – Open discussion

  • Participants are invited to share current/upcoming mind-blowing, hair-raising, tantalizing projects they have in the works.

1:30 p.m.   Panel discussion – Intellectual Property: Protecting Rights or Protectionism?

  • Michael Mandel, Mandel on Innovation and Growth
  • Tim Lee, Disruptive Economics
  • Alex Tabarrok, Marginal Revolution

2:30 p.m.   Closing remarks

  • Robert E. Litan, Vice President, Research and Policy, Ewing Marion Kauffman Foundation 

Daniel Larison: Universalism’s Great Flaw

Daniel Larison;

Eunomia » Universalism’s Great Flaw: One passage in George Kennan’s Russia Leaves the War stands out for what it tells us about the common mistake that universalists of all stripes make:

In both cases, the principals overrated the effects of their words. Wilson appealed to what he believed to be the democratic idealism of the Russian people–their yeaerning for civil liberties and self-determination within the framework of a parliamentary system. Lenin appealed to what he believed to be the Marxist-revolutionary enthusiasm of the German proletariat. Both miscalculated. In the case of the Russian people, war weariness, land hunger, ignorance, and bewilderment, plus the harsh reality of Bolshevik power, proved far more powerful than any attachment to democratic ideals. In the case of Germany, patriotism, the habit of obedience, and an attachment to he orderly processes of government were stronger than any revolutionary enthusiasm. Both Wilson and Lenin had made the mistake of attempting to project their respective ideological images onto the world at large and to bespeak an international validity for principles that were actually the product of their own specific environmental and educational backgrounds. (p.244)

Viewed one way, this is simply the mistake of privileging ideological assumptions.... However, universalist ideologues are much more likely to make this mistake because it is one of their basic assumptions not just that everyone desires the same goods but that they also desire them in much the same form and order....

When other nations do not embrace what the universalist is offering (or, just as often, imposing on) them, it is taken for granted that this is a failure on their part, but it is their reaction that is normal and the universalist’s expectations that are misguided.

Quotation of the Day: March 30, 2012

"The idea that there is a “realist” faction in the debate over the size of the Smurfs ought to chill you to your very core."

--Josh Fruhlinger and Conor Lastowka, [Citation Needed]: The Best of Wikipedia's Worst Writing

Liveblogging World War II: March 30, 1942

Flying Tigers In Burma  LIFE  March 30 1942

Life: Flying Tigers In Burma:

One shining hope has emerged from three catastrophic months of war. That is the American Volunteer Group of fighter pilots, the so-called "Flying Tigers" of Burma and southeast China who paint the jaws of a shark on their Curtiss P-40's (above). Outnumbered often ten to one, they have so far shot down about 300 Jap planes, killed perhaps 800 Jap airmen. They have violently wrenched from the Jap Air Force control of the skies over Burma and southeast China. They have conclusively proved what was once only a Yankee belief: that one American flier is equal to two or three Japs. "Give me," said U.S. Lieutenant General Brett in Australia last week, "100 fighters to 200 Japs and I'll lick them every time. I am not disparaging the Japs. They are good fighters." On the following pages LIFE presents the first full-length portrait of the Flying Tigers in action, taken by LIFE Photographer George Rodger before Jap ground forces seized the A.V.G. base at Rangoon.

The hundred or so young men of then Flying Tigers have several tremendous assets: 1) they have had up to six years of military flying and they have and instinctive feel for what their machines will do; 2) they have been blooded in the air and 3) they are always looking for a fight. The result was bound to be something extremely painful to anybody who ran into them. On their first meeting, they actually lost four planes to the Japs' six. On the second historic meeting, on Christmas Day, they mowed down 20 out of 78 Japs with a loss of zero. The holocaust was on.

The American Volunteer Group was recruited from U.S. Army, Navy and Marine fliers a year ago, under hush-hush circumstances to avoid offending the Japs. Its job was to help China fight. Pay was $600 a month with a $500 bonus for every Jap plane shot down. The men, who had been promised no loss of rank in the U.S. Armed Forces, began arriving in the Far East last summer, registered as tourists, acrobats, artists. They were trained and organized by China's crack American Air Chief, Colonel Claire Chennault. When war broke out Dec. 7, they were just about set...

Will the Inflation "Floodgates" Open?

Mark Thoma sends us to Simon Wren-Lewis and Robert Waldmann on fear of inflation:


Before 2005 the Monetary Policy Committee (MPC) of the Bank of England had done pretty well : since getting independence inflation had been close to the target…. Since 2005 inflation has been consistently above target, and seriously so over the last two years, hitting a peak of 5.2%. What have been the consequences?…

[T]he Bank did expect to exceed its target (it opened the floodgates!), but the extent of the inflation overshoot was not foreseen. The second is that inflation expectations, as measured by surveys of households, did rise to somewhere between the Bank’s forecast and what actually happened…. Market measures based on swaps show a similar story for longer term inflation expectations…. This is despite the Bank’s forecast, backed up by most other forecasters, which sees inflation coming back to target during this year.

So in a sense this seems to confirm some of the hawks’ fears. Inflation expectations are now above target, and they are not coming down in line with forecaster’s projections. Has this started a wage-price spiral, with inflation out of control? In a word, no. From the peak of 5.2% in September, inflation has fallen rapidly, and was 3.6% in January…. What we have seen is a classic and temporary cost push or supply shock caused by a VAT increase and rising commodity prices…. The latest figure for January, released yesterday, gives a year on year increase in earnings of only 1.4%.

So, despite a significant inflation overshoot (part planned, part unplanned), a (modest) rise in inflation expectations, and a huge increase in the monetary base as a result of quantitative easing, there is absolutely no sign of a take-off in inflation.  This should not be a surprise. Sustained increases in inflation involve wage-price spirals, and given high and rising unemployment we are not seeing the wage part of this process. However, this does not prevent inflation hawks being inflation hawks, and others getting cold feet….

[T]he floodgates view makes it much more difficult to have a sensible public discussion about using promises of higher future inflation to mitigate the zero bound constraint. (This could involve temporarily raising the inflation target, or switching to a price level or nominal GDP target.) As I noted here, there is very little discussion of this option in the UK (although this is a notable exception)…. [I]f a significant proportion of the monetary policy making community view inflation above 2% as the equivalent of just one drink for an alcoholic, then using inflation as a tool rather than just a target will not happen…


[S]core one for the credibility of independent central banks. Yes inflation expectations rose above the target, but not enough to set off Stagflation…. [M]y favorite behavioral model of expectations… corresponds exactly to the floodgates hypothesis. Psychologists including Anreasson and Krause have found that people presented with a random walk make forecasts as if the data were generated by a broken trend. So generally they predict mean reversion, but a few increases in a row and they decide the variable is trending up, so they extrapolate. This behavior corresponds exactly to expectations which are currently anchored, but also to floodgates which can open…. [M]y favorite model of expectations failed this time.

Yes, Virginia, America's White Elites Are Republican

Andrew Gelman:

Voting patterns of America’s whites, from the masses to the elites: [R]icher [white] people vote more Republican. In contrast, the [white] pattern of education and voting is nonlinear. [White] high school graduates are more Republican than non-HS grads, but after that, the groups with more education tend to vote more Democratic…. [R]ich post-graduates… split 50-50….

What does this say about America’s [white] elites? If you define elites as [white] high-income non-Hispanic whites, the elites vote strongly Republican. If you define elites as [white] college-educated high-income whites, they vote moderately Republican.

There is no plausible way based on these data in which elites can be considered a Democratic voting bloc. To create a group of strongly Democratic-leaning elite whites… only postgraduates… [making] below-$75,000[/year] level of family income, which hardly seems like the American elites to me.

The Balance Sheet Recession


Isabella Kaminska sends us to Richard Koo:

FT Alphaville » The balance sheet recession, charted: :et us now look at the situation at US households with their damaged balance sheets. As Figure 4 shows, their behavior since 2008 has mirrored that of Japanese households and companies over the last decade and a half: they are both reducing financial liabilities (paying down debt) and increasing financial assets (savings) in spite of zero interest rates. Together, the household and corporate sectors are now net savers to the tune of 5.8% of GDP.

That this surplus of private savings is occurring at a time when interest rates are at zero is a clear indication the US is in a balance sheet recession triggered by the first crash in house prices in seven decades.

There Have Been No Republican Votes for a Budget Compromise since 1991...

…and when the Democrats do the heavy lifting and pass a budget compromise all by themselves, the next time the Republicans gain power they blow it up via lot of tax cuts for the rich.

That has been the basic logic of the U.S. Congress since I turned 30. That will continue to be the basic logic until the Republican Party as we know it vanishes from the page of time. People who want to see a budget compromise need to deal with that--and work to elect more Democrats and diselect today's group of Republicans.

Sorry, but that's the way it is.

Wake up to reality. Smell the coffee:

Ezra Klein:

Wonkbook: House reaches bipartisan deal to reject Simpson-Bowles: Peter Wallsten, Lori Montgomery and Scott Wilson… Matt Bai… share a similar premise: That with the right leadership from Boehner and Obama, there would have been sufficient votes for a big deal….

On Wednesday, Reps. Jim Cooper and Steve LaTourette managed to put Simpson-Bowles to a vote…. It didn't just fail. It got crushed…. This was, of course, what the White House always complained would happen if they had listened to the pundits and brought Simpson-Bowles to a vote. Republicans would reject it because it included $2 trillion in new taxes and $800 billion in defense cuts. Democrats would reject it because they weren't going to vote for a doomed proposal that included deep Medicare and Social Security cuts in addition to a large tax increase just to show how much they cared about deficits…. Wednesday's vote… is at least suggestive evidence that the White House was right….

Now think back to August. Consider all the forces pushing towards a big deal: The media, which loves bipartisan deficit-reduction packages. The Speaker of the House of Representatives. The President of the United States. The business community. Washington's deficit-reduction community. And still, the underlying reality of the tumultuous negotiations was that the two sides couldn't line up the votes for anything even approaching a reasonable package. That's why the negotiations were so tumultuous.

This was truer on Boehner's side than Obama's, of course. As Bai writes[:]

What’s undeniable, despite all the furious efforts to peddle a different story, is that Obama managed to persuade his closest allies to sign off on what he wanted them to do, and Boehner didn’t, or couldn’t. While Democratic leaders were willing to swallow either a deal with more revenue or a deal with less, Boehner’s theoretical counteroffer, which probably reflected what he would have done if empowered to act alone, never even got a hearing from his leadership team.

I wonder if Democrats would have been so accomodating if Obama had actually released the full details on what he was negotiating with Boehner. Once they got an actual look at what they were giving away, and what they were getting in return, they might have balked. But the bottom line is the votes, particularly on the Republican side of the aisle, just weren't there for a major compromise. And, as Wednesday’s vote on Simpson-Bowles showed, they're still not there. They're only there for a not-compromise. Preferably a hardcore not-compromise.

Ezra is largely right. Worth reading.

But I cannot help note that the Washington Post opinions-of-shape-of-earth-differ virus is infecting more and more of his brain. When you say "Republicans blocked the deal, but Democrats also behaved badly and in a non-bipartisan fashion because if things had happened differently they might have changed their minds and in the end not accepted a deal that was 95% of the way to the Republican position", something is wrong…

Kauffman Weblogger Forum

On Mar 29, 2012, at 6:55 AM, Jared Konczal wrote:

Dear all,

We wanted to let you know that Kauffman will be putting a live stream of the forum on Friday [March 30] from roughly 8:30 AM through 2:30 PM (down during lunch and breaks) on We’ve posted to let our readers know and wanted to pass the word on to you in case you wanted to post...

How Few Stimulus Skeptics There Are in Foxholes...

Hale Stewart:

The Bonddad Blog: We're All Keynesians Now: The New Yorker Magazine has a great piece on economic policy in the early years of the administration… by Ryan Lizza and is one terrific piece of journalism…. At this point, it's important to note a big difference in the economic world: there are those who believe that Keynes was correct in his economic analysis, and that Keynes basic ideas have been repeatedly born out by history and data. Then there is the Chicago school of economics who live in a fantasy world…. [H]istory and data clearly show that targeted government spending boosts economic growth. Hence, note the wide swath of people and organizations who supported the idea of stimulus:

  • Robert Reich believes it should be $1.2 trillion over two years, but also indicated it could be larger.
  • Joe Stiglitz believes it should be $1 trillion over two years.
  • Paul Krugman: at least $600 billion in one year
  • Jamie Galbraith: $900 billion in one year
  • Institute for America's future (signed by Dean Baker, Andy Stern, Leo Gerard, John Sweeney, and others): at least $900 billion

Republican Economists

  • Marty Feldstein was an early proponent of a spending-only package and currently believes it should be $400 billion in the first year.
  • Larry Lindsey, a former Federal Reserve Governor and NEC Director, estimates that $800 billion to $1 trillion is desirable.
  • Ken Rogoff (widely respected macroeconomist, former chief economist of the IMF, former McCain adviser): $1 trillion over two years
  • Mark Zandi (widely quoted economist, fom1er McCain adviser): at least $600 billion in one year


  • Senior Federal Reserve officials appear to be of the view that a plan that well exceeds $600 billion would be desirable.
  • Adam Posen (Deputy Director of the Peterson Institute): $500 to $700 billion in one year
  • Goldman Sachs: $600 billion in one year
  • Open Letter signed by 387 economists including Nobel Laureates Robert Solow, George Akerlof, and Joe Stiglitz on November 19th [note that most economists, including Stiglitz, support higher stimulus numbers today than they did a month ago]: $300 to $400 billion per year….

I should add, I would fully expect some Republicans to now argue that none of the Republicans quoted are in fact "real Republicans" but merely RINOs...

And, sure enough, right on time along comes Greg Mankiw:

Greg Mankiw's Blog: At least I am consistent: At least I am consistent Here is the memo that Larry Summers sent to President Obama when the 2009 stimulus package was being debated. It was originally confidential, but somehow it has recently been made public and is now going viral. I make a brief cameo appearance on page 11:

Greg Mankiw is the only economist we have consulted with who refused to name a number and was generally skeptical about stimulus.

I explained my skepticism here. Of course, the fact that I was "the only economist" expressing skepticism reflects the range of economists that Team Obama chose to consult.

Greg doesn't mention a single additional name. Who is he thinking of? Robert Lucas? Eugene Fama? John Cochrane? Ed Prescott? Caroline Hoxby? Ed Lazear?

Greg's arguments against use of fiscal policy have always seemed to me of the: "I assume the Federal Reserve has a can opener, and has the technocratic skill and the political will to use it". Which is fine. If you have a can opener--a monetary authority committed to offsetting shocks to nominal GDP and keeping it on a stable path. But what if you don't?

The others strike me as considerably worse.

Nobody Has Any Business Supporting Mitt Romney II

Peter Diamond and Peter Orszag:

No Revenue Means Steep Social Security Cuts Under Romney: The basic contours of Mitt Romney’s approach to Social Security reform are coming into focus, and the results aren’t pretty…. [H]is strategy is forced to rely on excessive benefit cuts that would undermine financial security for future retirees….

For about two-thirds of elderly Social Security beneficiaries, the payments amount to more than half their overall income. These benefits are protected against financial-market fluctuations and inflation, and they last until death. So they are a crucial form of insurance, almost impossible to purchase, and they are particularly useful during and after periods of severe economic stress, like the one we have lived through these past few years.

Furthermore, Social Security isn’t the core of our long-term fiscal problem… Medicare, Medicaid and other federal health expenditures….

Romney’s website identifies two steps he would take:

First, for future generations of seniors, Mitt believes that the retirement age should be slowly increased to account for increases in longevity. Second, for future generations of seniors, Mitt believes that benefits should continue to grow but that the growth rate should be lower for those with higher incomes….

[H]is approach appears to match the “Social Security Solvency and Sustainability Act” proposed last year by Republican Senators Lindsey Graham of South Carolina, Rand Paul of Kentucky and Mike Lee of Utah… raise the normal retirement age under Social Security from 67 to 70… reduce the future growth rate of benefits for the top 60 percent of earners…. Lower earners would be affected by the increase in the normal retirement age but not the progressive price- indexing component. Middle earners would be affected by both…. These two steps would eliminate the long-term deficit in Social Security… by substantially reducing benefits… a medium earner (someone bringing in about $45,000 a year today) retiring in 2050 at age 65 would receive 32 percent less in annual benefits…. A high earner (someone with income of about $70,000 currently) retiring in 2050 would get 40 percent less….

These benefit cuts are so large because the Romney strategy forgoes any additional revenue. Plenty of other Social Security reform plans take a more balanced approach…. We put forward one such plan in a 2005 book. Updating our plan for the intervening period, the medium earner retiring in 2050 would experience a reduction in benefits of less than 10 percent…. The medium earner’s annual benefit in 2050 is currently projected to amount to $25,000 a year in inflation-adjusted terms. The Romney-type approach would reduce that by about $7,500 a year….

We are not alone in recognizing the importance of limiting future benefit cuts by raising additional revenue for Social Security. As long ago as 1983, a commission appointed by President Ronald Reagan and led by Alan Greenspan designed Social Security reform that combined revenue increases with benefit cuts…

Nobody Has Any Business Supporting, Contributing to, or Working for Mitt Romney. Nobody

Daniel Larison:

Romney Digs a Deeper Hole on His Russian Blunder: Mitt Romney is clueless:

It is not an accident that Mr. Medvedev is now busy attacking me. The Russians clearly prefer to do business with the current incumbent of the White House.

No, it’s not an accident. It couldn’t have anything to do with Romney’s decision to describe Russia as “our number one geopolitical foe,” could it? Presidential candidates should expect to encounter some resistance from abroad when they choose to use a foreign country as their target for demagoguery. Any foreign leader would prefer the person who wants the U.S. to have a constructive relationship with their government when the alternative is to be loathed and vilified. If this is the sort of cunning foreign policy leadership we can expect from Romney, why would anyone in this country prefer him?

Paul Krugman Sends Us to Jonathan Portes on Macbeth and Fiscal Policy


Not the Treasury view...: It's not too late to change course: Macbeth and fiscal policy: I appeared before the Treasury Committee…. Two of my fellow witnesses, Jens Larsen and Roger Bootle, said that while they thought that there was a strong case that the government's fiscal consolidation programme was too aggressive - that is that we would be better off now had the scale of fiscal tightening in the first year or two been less - that the risks of changing course now outweighed the benefits…. I described this as the "Macbeth argument", from the following quote:

I am in blood stepped in so far that should I wade no more, Returning were as tedious as go o'er. [Act III, scene iv.]

In other words, since Macbeth has already killed Duncan and Banquo, it is better to carry on (and order the deaths of Macduff and his family) than to stop. So, although misguided policy has led to unnecessary economic damage, that damage is (returning to economist speak) a sunk cost; and the pain ahead is less then the pain that we would suffer if we changed course, as a consequence of the possible negative financial market reaction….

The Treasury also appears to subscribe to a variant of this argument. When the original fiscal consolidation plan was welcomed by the rating agencies, that was a vote of confidence:

Standard & Poor's, the ratings agency, revised its outlook on Britain from negative to stable..The Chancellor said: ""That is… a vote of confidence in the Coalition Government's economic policies… Telegraph, 26 October 2010

But when the same rating agencies realised the damage the plan was doing to growth, that made it even more necessary:

Fitch revised the outlook on the UK's rating to negative from stable….

A week from the Budget this is a reminder of why it is essential Britain sticks to its plans to deal with its debts… Telegraph, 14 March 2012

Even leaving aside the obvious inconsistency here, I remain of the view that this argument is incorrect…. I don't think it's plausible to argue that markets have more confidence in governments that never adjust policy…

This is an argument I have heard a number of times recently: if we change course, they say, who will have confidence that we will carry out our policy commitments in the future? I first heard it in the Vietnam context, where it went: this is awful, and we must follow this through to the end to convince people that we will do this again.

Never seemed to make any sense to me. It seemed to me to be essentially a declaration of intellectual, political and moral bankruptcy, and a desire to hold onto office and gamble for resurrection and hope something would turn up.

Greece Has Two Problems: (i) Who Is Going to Eat the Losses on Its Current Debt? (ii) How Is It Going to Balance Its Trade and Its Government Finances Going Forward?

The two are logically distinct--and practically distinct as well. The first is largely settled. The second is not. But the second must be done: nobody is going to lend Greece large amounts of money in the future, so if it does not balance its government finances and its current account, the market will balance them for us in ways we really will not like.

Olivier Blanchard:

The Logic and Fairness of Greece’s Program: To get back to health, Greece needs two things. First, a lower debt burden. Second, improved economic competitiveness. The new program addresses both….

Debt had to be restructured. The process was long and messy. After all, bargaining between creditors and debtors is rarely a love affair. In the process, foreign creditors were often vilified in Greece as bad guys—rich banks, who could and should be willing to take a hit…. [T]he PSI (private sector involvement) deal—the largest ever negotiated write-down of public debt—has reduced the debt burden of every man, woman, and child in Greece by close to €10,000 on average, a sizable contribution on the part of foreign savers.

That is the first.

Now for the second:

Greece now has to do its part―with sustained political commitment to implement the difficult but necessary set of fiscal, financial, and structural reforms that have been agreed as part of the program supported by Greece’s partners in the eurozone and the IMF…. [I]t has to bring down its fiscal deficit further. Otherwise, this will simply negate the progress which was just made on the debt. The fiscal effort which has been accomplished already is truly impressive, with the primary deficit coming down from 10 percent to less than 3 percent…. Equally, or perhaps more importantly, Greece has to reduce its current account deficit…. And Greece still has a very large current account deficit, at close to 10 percent of GDP, despite the depressed level of output…. [T]he country has to become more competitive, sell more abroad, and buy less from abroad. At the moment, Greece’s exports amount to only about 14 percent of the goods it produces…. There are two ways to become more competitive: become much more productive, or reduce wages and nonwage costs. The first way is much more appealing. But there is no magic wand…. This leaves decreases in relative wages, at least until higher productivity can kick in. In countries with flexible exchange rates, this can be achieved through currency depreciation. In a country which is part of a common currency area, it has to be achieved by decreasing nominal wages and prices….

The best way forward would have been a negotiation between social partners to reduce wages and prices, and avoid a long and painful process of adjustment. This did not happen. The program tries to accelerate the process, while protecting the most vulnerable. The harsh reality is that the adjustment has to take place one way or the other; otherwise competitiveness will not improve, demand will not increase, the current account deficit will continue, and unemployment will remain very high. The faster it does take place, the less pain there will be….

[T]he notion which is sometimes floated that large infrastructure projects might boost growth… is fanciful…. What about leaving the Eurozone? Euro exit followed by a sharp depreciation could achieve the relative wage and price decline that Greece needs, and achieve it faster…. Indeed, if Greece had had its own currency to start with, this would surely have been part of the program. But Greece is part of the Eurozone. And, leaving aside the large costs of no longer belonging to the Eurozone, the dislocations from a disorderly exit—from the collapse of the monetary and financial system, to the legal fights over the proper conversion rates for contracts—would be very, very large…

But are the costs of staying in the eurozone even larger? I suspect they are. If northern Europe wants to keep Greece in the eurozone, it ought to pay more--staying in the eurozone delays Greece's adjustment and makes balanced trade and government finances much more painful, and those costs should not rest on the Greeks.

Love Your Street Sweeper!

The City of Berkeley says:

Street Sweeping: Residential street sweeping is a City service that not only beautifies our streets and community by removing litter and debris, but protects our environment and keeps the storm drain system from clogging.  Street sweeping reduces the pollutant load (leaves, pet/animal debris, heavy metals, oils, grease, sediment, etc.) to the Bay.  In addition, material removed by street sweeping will not be able to block lines reducing the amount of flooding during heavy rainfall…

Love your street-sweeping parking tickets!

Quote of the Day: March 28, 1942

"Once people commit to a belief, the smarter they are the better they are at rationalizing those beliefs. Thus: smart people believe weird things because they are skilled at defending beliefs they arrived at for nonsmart reasons."

--Michael Shermer, The Believing Brain: From Ghosts and Gods to Politics and Conspiracies---How We Construct Beliefs and Reinforce Them as Truths

Liveblogging World War II: March 28, 1942

Operation Chariot:

ST. NAZAIRE: The Germans needed dry-dock facilities on the Atlantic coast before the [Tirpitz] could be deployed effectively against allied convoys. The only port capable of handling it was St. Nazaire on the French coast. There were others… but none of operational value…. From within the Planning Division in the Admiralty the idea emerged to destroy the dock gate at St Nazaire…. Denying the Germans use of the dry-dock would effectively neutralize the threat the Tirpitz posed… but how?…

The outline plan was simple. The selected vessel, packed with high explosives in the bow, with troops and crew in protected areas, would ram the outer dock gate at speed and stick there. They would disembark and take cover behind a nearby air-raid shelter. The ship would then blow up destroying the gate. An MTB would then pass through and fire specially designed torpedoes at the inner gate which would collapse under pressure when the tide went out damaging the submarines berthed in their protected pens. The troops and crew would then destroy as many dockyard targets and withdraw in fast motor launches….

The planners themselves had doubts about the withdrawal phase….

The raid was to be led by HMS Campbeltown, an American lend-lease destroyer (USS Buchanan). It was especially refitted for the task. Her interior was stripped, the bridge armour-plated, and additional protection provided…. The accompanying motor launches (MLs) were to carry 150 Commandos… the ML fleet was firstly increased to ten and then to 14….

The fleet sailed from Falmouth at 3 pm on the 26th of March with MGB 314 at the head and two escort destroyers flanking the MLs and HMS Campbeltown….

Each boat flew the German flag to confuse the enemy and delay identification…. The Campbeltown crept through at 5 knots, touching bottom twice…. The German flags were replaced with the White Ensign when the fleet was still two miles from its target. The Germans opened fire during the final 15 minutes of the run in during which half the men aboard the MLs were either killed or wounded….

At 0134 hours Campbeltown was successfully driven at speed into the dock gates just 4 minutes behind schedule and was relieved of most of her crew by MGB 314 while MTB 74 deployed her delayed action torpedoes in the foundations of the old entrance dock gate. 

Captain Ryder, CO of the Naval forces, went ashore and satisfied himself that Campbeltown was both scuttled and embedded in the loch gate.  At 0230 hours Ryder decided to withdraw. By this time more than half of his craft had been destroyed and the remainder were riddled….

The delayed action fuses detonated the high explosives in the Campbeltown's hold at noon on the 28th. Forty German officers were aboard at the time and 400 other ranks were nearby on the quay. All were killed in the blast. The dock gates were destroyed and were not repaired until after the war. On the evening of the 29th the delayed torpedoes were activated causing further damage and German casualties. Regrettably many needless French casualties were caused by jittery German soldiers who believed that the raiders were still in their midst.

Of the 241 Commandos who took part 59 were posted as killed or missing and 109 captured. 85 Royal Navy personnel were killed or missing and a further 20+ captured. Many others were wounded. 5 other ranks returned to England via Spain…

Department of "Huh!?": I Don't Understand How David Glasner Is Decoding Milton Friedman Department

David Glasner:

Was Milton Friedman a Closet Keynesian? « Uneasy Money: WCommenting on a supremely silly and embarrassingly uninformed (no, Ms. Shlaes, A Monetary History of the United States was not Friedman’s first great work, Essays in Positive Economics, Studies in the Quantity Theory of Money, A Theory of the Consumption Function, A Program for Monetary Stability, and Capitalism and Freedom were all published before A Monetary History of the US was published) column by Amity Shlaes, accusing Ben Bernanke of betraying the teachings of Milton Friedman, teachings that Bernanke had once promised would guide the Fed for ever more, Paul Krugman turned the tables and accused Friedman of having been a crypto-Keynesian.

The truth, although nobody on the right will ever admit it, is that Friedman was basically a Keynesian — or, if you like, a Hicksian. His framework was just IS-LM coupled with an assertion that the LM curve was close enough to vertical — and money demand sufficiently stable — that steady growth in the money supply would do the job of economic stabilization. These were empirical propositions, not basic differences in analysis; and if they turn out to be wrong (as they have), monetarism dissolves back into Keynesianism.

Krugman is being unkind, but he is at least partly right…. Friedman somehow got it into his head that he could get away with repackaging the Cambridge theory of the demand for money — the basis on which Keynes built his theory of liquidity preference — and calling that theory the quantity theory of money, while ascribing it not to Cambridge, but to a largely imaginary oral tradition at the University of Chicago.  Friedman was eventually called on this bit of scholarly legerdemain by his old friend from graduate school at Chicago Don Patinkin, and, subsequently, in an increasingly vitriolic series of essays and lectures by his then Chicago colleague Harry Johnson.  Friedman never repeated his references to the Chicago oral tradition in his later writings about the quantity theory…. But the simple fact is that Friedman was never able to set down a monetary or a macroeconomic model that wasn’t grounded in the conventional macroeconomics of his time….

Friedman’s intellectual forbears were really W. C. Mitchell and Friedman’s teacher at Columbia Arthur Burns from whom Friedman was schooled in the atheoretical, empirical approach of the old NBER founded by Mitchell.

But Krugman is not totally right either.  Although Friedman obviously liked the idea that the LM-curve was vertical, and liked the idea that money demand is very stable even more, those ideas were not essential to his theoretical position.  (Whether the stability of the demand for money was essential to his position would depend on whether Friedman’s 3-percent growth rule for the money supply is central to his thought.  Although Friedman obviously loved the 3-percent rule, I don’t think that objectively it was really that important to his intellectual position, his sentimental attachment to it notwithstanding.)  What really mattered was the idea that, in the long run, money is neutral and the long-run Phillips Curve is vertical.  Given those assumptions, Friedman could argue that ensuring reasonable monetary stability would lead to better economic performance than discretionary monetary or fiscal policy.  But Friedman, as far as I know, never actually considered the possibility of a negative equilibrium real interest rate.  That’s why, when we look for guidance from Friedman about the current situation, we can’t be completely sure what he would have said.  His comments on Japan suggest that he would have indeed favored quantitative easing.  But inasmuch as he did not explicitly advocate inflation, supporters and opponents of QE can make a case that Friedman would have been on their side…

I don't understand. In what way is our situation different from the situation in Japan for which Friedman said that QE was the right policy? Friedman's core position was that when there was insufficient liquidity (on his definition) in the economy you printed high-powered money. Would he dispute that there is insufficient liquidity (on his definition)? Would he dispute that his core position was was that when there was insufficient in the economy you printed high-powered money? Or would he say that this time is different?

Seems to me that unless you make a case for one of those three, Krugman wins by the clear and convincing evidence standard. Failing to state a case and claiming reasonable doubt doesn't work here.

Joseph Goebbels Liveblogs World War II: March 27, 1942

Joseph Goebbels:

Joseph Goebbels' Diaries: Beginning with Lublin, the Jews in the General Government [of Poland] are now being evacuated eastward. The procedure is a pretty barbaric one and not to be described here more definitely. Not much will remain of the Jews. On the whole it can be said that about 60 per cent of them will have to be liquidated whereas only about 40 per cent can be used for forced labor.

The former Gauleiter of Vienna, who is to carry this measure through, is doing it with considerable circumspection and according to a method that does not attract too much attention. A judgment is being visited upon the Jews that, while barbaric, is fully deserved by them. The prophesy which the Fuehrer made about them for having brought on a new world war is beginning to come true in a most terrible manner.

One must not be sentimental in these matters. If we did not fight the Jews, they would destroy us. It's a life-and-death struggle between the Aryan race and the Jewish bacillus. No other government and no other regime would have the strength for such a global solution of this question. Here, too, the Fuehrer is the undismayed champion of a radical solution necessitated by conditions and therefore inexorable. Fortunately a whole series of possibilities presents itself for us in wartime that would be denied us in peacetime. We shall have to profit by this.

The ghettoes that will be emptied in the cities of the General Government now will be refilled with Jews thrown out of the Reich. This process is to be repeated from time to time. There is nothing funny in it for the Jews, and the fact that Jewry's representatives in England and America are today organizing and sponsoring the war against Germany must be paid for dearly by its representatives in Europe - and that's only right.

Quotation of the Day: March 27, 2012

"Every week Stalin’s armed forces accumulated a football stadium’s worth of dead, and every three months mourned as many lives as the United States did in the entire war. Seventeen million civilians also perished as a direct result of the fighting between 22 June 1941 and 8 May 1945."

--Lloyd Clark, The Battle of the Tanks: Kursk, 1943

Why American Finance Is Likely to Be a Value-Subtracting Industry

Harold Pollack on Sendhil Mullainathan, Marcus North, and Antionette Schoar:

Think twice about that financial advisor: The correct advice pretty much fits on a single sheet of paper that is available for free at the public library. Moreover, the products one should recommend buying are inexpensive, and are widely-available at leading websites. Thus the predicament of the modern financial advisor. Thus also the predicament of her unsophisticated customers. If the right advice is simple and free, at-best the expensive and complicated advice she will sell you will be overpriced, and probably more than a little wrong. Moreover, if the correct products to buy are cheap, no-load index funds that generate little sales commission, your advisor has obvious incentives to offer you something riskier or fundamentally more costly.

Thus, we have the results of an important, if cosmically unsurprising experiment: “The Market for Financial Advice: An Audit Study,” by Sendhil Mullainathan, Marcus North, and Antionette Schoar. These respected authors used an audit methodology in which trained auditors met with different Boston-area financial advisors and claimed to have different existing investment portfolios and different personal strategies for retirement savings…. [O]ne might hope that the financial advice industry would “de-bias” its customers in a more sensible direction, encourage people to diversify their portfolios through low-cost index funds. Instead, the advisors audited in this study pushed their customers towards costly, actively-managed funds that happen to generate lucrative fees…. These disgraceful findings are not the result of a few bad apples blighting the name of their industry.  Rather, the majority of audited advisors are following a predatory business model that harms many of their customers…

Ed Luce: Obama Made the Wrong World Bank Call

I find it impossible to disagree with Ed Luce:

Obama made the wrong World Bank call: Every now and then something crystallises how rapidly the world is changing. Last week’s nomination by President Barack Obama of Jim Yong Kim as the next president of the World Bank presents one such moment. The story ought to proceed by tradition – a US president chooses an American for the top job and the other big shareholders fall into line. The chances are that the gentleman’s agreement will be upheld: the Europeans have even more to lose than the US by ending their duopoly over Bretton Woods (France – oops, Europe – gets to appoint the head of the IMF)….

Were the process genuinely meritocratic – if the World Bank board was required to find the best-qualified candidate for the job – Dr Kim would be unlikely to find himself on a shortlist of three. In contrast, Ngozi Okonjo-Iweala, the only African in the running, would be among anyone’s top picks. But the process doesn’t work like that. In spite of Mr Obama’s internationalist aspirations, fear of a domestic backlash clearly weighed even heavier on his mind. Here are three reasons why he should open up the process and release Europe from its pledge.

First, it is in America’s national interest to do so. Not only should the US support meritocracy, as its national creed demands, it should be conspicuously seen to support that principle….

Second, by America’s own criteria, it should cast its vote for Ms Okonjo-Iweala. According to the guidelines, which were updated by the US and its partners last year, the ideal candidate should have run a big organisation and possess extensive diplomatic and multilateral experience. As Nigeria’s finance minister for the second time, having once been its foreign minister, Ms Okonjo-Iweala’s résumé is strong. She has also been a World Bank managing director – in effect a deputy to Bob Zoellick, the outgoing president – and knows the institution inside out….

Third, the World Bank needs a leader who can stop it from slipping into irrelevance. Dr Kim’s nomination was heavily influenced by Hillary Clinton, who rightly admires his grassroots work on Aids and other diseases. Of course it is critically important to fight them. But disease does not spread in a vacuum…. Putting a healthcare specialist in charge of the World Bank would reinforce America’s focus on what some in the developing world dismiss as “the fashionable diseases”. It is the unfashionable ones, such as diarrhoea, that claim the most lives.

Much has changed since Mr Zoellick was appointed to the job in 2007. While the west has talked about a world recession, China’s per capita income has risen by 43 per cent… African incomes have grown by almost double digits…. The relative weight of the global economy is shifting. But its economic institutions remain frozen in time…. There is still time in this – and future – moments for Mr Obama to take a more expansive view of what would best serve America’s interests.

Yes, the Washington Post Owes a Very Big and Very Public Apology to the Teachers at Montgomery College...

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

Paul Krugman:

They Work Hard For The Money: OK, I wasn’t going to post anything else, but as Robert Farley says, this WaPo piece on underworked college teachers is outrageous. Yes, people like me have a very nice life — and if you want to condemn the luxurious lives of faculty at elite research universities, fine.

But the idea that faculty at big state schools, let alone community colleges, have it easy is just mind-boggling…. I like the people — smart, highly educated people without the ego things all too common at more prestigious schools — very much. And I always come away awed by just how hard they work — how many class preps they have to do, how much time they spend with students, all for salaries that are a fraction of what people with similar qualifications earn in the private sector.

Of all the people to pick on…

Ben Bernanke Prepares to Declare Victory...

Ben Bernanke:

Recent Developments in the Labor Market: Another logical possibility is that the decline in the unemployment rate could be overstating the improvement in the job market.  For example, potential workers could be giving up on looking for work to an unusual extent.  Because a person has to be either working or looking for work to be counted as part of the labor force, an increase in the number of people too discouraged to continue their search for work would reduce the unemployment rate, all else being equal--but not for a positive reason.  A story centered on potential workers dropping out of the labor force might seem in line with the low level of the labor force participation rate.  But other data cast doubt on that idea.  For example, a broad measure of labor underutilization that includes people only marginally attached to the labor force has declined about in line with the unemployment rate since late 2010.  On balance, an assessment of a broad range of indicators suggests that a substantial portion of the decline in the unemployment rate does reflect genuine improvement in labor market conditions…

FRED Graph  St Louis Fed 1

To claim that reductions in the unemployment rate that come about through reductions in labor-force participation with no change in the employment-to-population ratio are "substantially" a "genuine improvement" like reductions in the unemployment rate that come about through increases in the employment-to-population ratio accompanied by increases in labor-force participation…

To transform cyclical into structural unemployment is not a victory for policy.

Quotation of the Day: March 26, 2012

"Europe is solid with herself. France, Germany, Italy, Austria and Holland, Russia and Roumania and Poland, throb together, and their structure and civilization are essentially one. They flourished together, they have rocked together in a war, which we, in spite of our enormous contributions and sacrifices (like though in a less degree than America), economically stood outside, and they may fall together. In this lies the destructive significance of the Peace of Paris. If the European Civil War is to end with France and Italy abusing their momentary victorious power to destroy Germany and Austria-Hungary now prostrate, they invite their own destruction also, being so deeply and inextricably intertwined with their victims by hidden psychic and economic bonds….

"[The] Paris [Peace Conference of 1919] was a nightmare, and every one there was morbid. A sense of impending catastrophe overhung the frivolous scene; the futility and smallness of man before the great events confronting him; the mingled significance and unreality of the decisions; levity, blindness, insolence, confused cries from without,—all the elements of ancient tragedy were there. Seated indeed amid the theatrical trappings of the French Saloons of State, one could wonder if the extraordinary visages of Wilson and of Clemenceau, with their fixed hue and unchanging characterization, were really faces at all and not the tragi-comic masks of some strange drama or puppet-show.

"The proceedings of Paris all had this air of extraordinary importance and unimportance at the same time. The decisions seemed charged with consequences to the future of human society; yet the air whispered that the word was not flesh, that it was futile, insignificant, of no effect, dissociated from events; and one felt most strongly the impression, described by Tolstoy in War and Peace or by Hardy in The Dynasts, of events marching on to their fated conclusion uninfluenced and unaffected by the cerebrations of Statesmen in Council…"

--John Maynard Keynes, The Economic Consequences of the Peace

John Maynard Keynes (1936): Full-Employment Policy Is Structural Growth Policy

How many of what I regard as my smartest insights are just things thrown up by the John Maynard Keynes emulator that I have running in background on my wetware?

John Maynard Keynes (1936):

[I]f effective demand is deficient… the individual enterpriser who seeks to bring these resources into action is operating with the odds loaded against him. The game of hazard which he plays is furnished with many zeros, so that the players as a whole will lose if they have the energy and hope to deal all the cards. Hitherto the increment of the world’s wealth has fallen short of the aggregate of positive individual savings; and the difference has been made up by the losses of those whose courage and initiative have not been supplemented by exceptional skill or unusual good fortune. But if effective demand is adequate, average skill and average good fortune will be enough…


[If we] succeed in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again…. [T]here is no objection to be raised against the modern classical theory as to the degree of consilience between private and public advantage in conditions of perfect and imperfect competition…. When 9,000,000 men are employed out of 10,000,000 willing and able to work, there is no evidence that the labour of these 9,000,000 men is misdirected. The complaint… [is] that tasks should be available for the remaining 1,000,000 men. It is in determining the volume, not the direction, of actual employment that the existing system has broken down….

[T]he traditional advantages of individualism will still hold good… efficiency — the advantages of decentralisation and of the play of self-interest… individualism… is the best safeguard of personal liberty… greatly widens the field for the exercise of personal choice… best safeguard of the variety of life… the loss of which is the greatest of all the losses of the homogeneous or totalitarian state… and, being the handmaid of experiment as well as of tradition and of fancy, it is the most powerful instrument to better the future.

Whilst… [the policies I recommend] would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism, I defend… [them] as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative…