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January 2013

Things to Revisit and Rethink

  • Robin Greenwood and David Scharfstein: The Growth of Modern Finance: "The U.S. financial services industry grew from 4.9% of GDP in 1980 to 7.9% of GDP in 2007. A sizeable portion of the growth can be explained by rising asset management fees, which in turn were driven by increases in the valuation of tradable assets, particularly equity. Another important factor was growth in fees associated with an expansion in household credit, particularly fees associated with residential mortgages. This expansion was itself fueled by the development of non-bank credit intermediation (or “shadow banking”). We offer a preliminary assessment of whether the growth of active asset management, household credit, and shadow banking – the main areas of growth in the financial sector – has been socially beneficial."

  • Brad DeLong: Japanese Convergence and Non-Convergence and the Financial Crisis of the Early 1990s

  • Liaquat Ahmed: Timothy Geithner On Populism, Paul Ryan, And His Legacy

Continue reading "Things to Revisit and Rethink" »

Noted for January 25, 2013


  • Nicholas Oulton and María Sebastiá-Barriel: Long and short-term effects of the financial crisis on labour productivity, capital and output

  • John Maynard Keynes: The General Theory of Employment, Interest and Money, chapter 24: "[My] theory is moderately conservative…. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments [i.e., the level of public plus private investment,] and the basic rate of reward to those who own them [i.e., the interest rate], it will have accomplished all that is necessary… then there is no objection to be raised against the classical [laissez-faire economic] analysis…. [T]e traditional advantages of individualism will still hold good… advantages of efficiency… decentralisation and of the play of self-interest… individual responsibility… greatly widens the field for the exercise of personal choice. It is also the best safeguard of the variety of life… variety preserves the traditions which embody the most secure and successful choices of former generations… being the handmaid of experiment as well as of tradition and of fancy, it is the most powerful instrument to better the future. Whilst… government,,, adjusting to one another the propensity to consume and the inducement to invest would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism. I defend it… as the condition of the successful functioning of individual initiative. For if effective demand is deficient, not only is the public scandal of wasted resources intolerable, but 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."

  • Lars E O Svensson: Monetary policy and employment – monetary policy is too tight in Sweden

  • Paul Krugman: Martin Wolf, Hippie: "Martin Wolf… making the case that (shock!) the deficit is not America’s biggest problem, or indeed a problem at all right now…. [U]nlike Larry Summers yesterday, his piece doesn’t blur its point by starting with an extended exercise in dutiful deficit-bashing. Wolf also puts this in the context of what has been happening to the private sector. As he says, the collapse of the housing bubble and a sharp rise in saving (due both to wealth destruction and to deleveraging) has led to a sharp movement from financial deficit to financial surplus in the private sector. Those who claim to be deeply upset about public sector deficits should be asked, what would have happened, given this attempt by the private sector to move into surplus, if the public sector had tried to stay in balance. Can you say Second Great Depression?…. [T]he narrative that says that spending has surged under Obama is just wrong – what we’ve actually seen is a slowdown at exactly the time when, for macroeconomic reasons, we should have been spending more."

Continue reading "Noted for January 25, 2013" »

Nicholas Oulton and María Sebastiá-Barriel Report That Hysteresis Effects of Financial Crises Are Large

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Since an average financial crisis is associated with an increase in the output gap of about 5% points of GDP, the Oulton and Sebastia-Barriel finding that each year of ongoing financial crisis leads to a 1% point permanent fall in labor productivity gives us an η coefficient of 0.2 in the model of DeLong and Summers (2012).

Continue reading "Nicholas Oulton and María Sebastiá-Barriel Report That Hysteresis Effects of Financial Crises Are Large" »

The Theorists of the Moocher Class: Veronique de Rugy and Paul Ryan

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Now politicians like Paul Ryan who used to say things like:

Right now about 60 percent of the American people get more benefits in dollar value from the federal government than they pay back in taxes. So we're going to a majority of takers versus makers...

are saying, instead:

No one is suggesting that what we call our earned entitlements--entitlements you pay for, like payroll taxes for Medicare and Social Security--are putting you in a 'taker' category. No one would suggest that whatsoever."

How long will it be before the likes of Veronique de Rugy stop denouncing Social Security, Medicare, Unemployment Insurance, etc. as programs that have turned us into "a nation of takers", and stop denouncing these programs beneficiaries as "moochers"?

It is in some ways very odd. It used to be that critics of the welfare state pointed to high net marginal tax rates and argued that they had high deadweight losses. Sometimes they had a point. Then, after bipartisan reforms, we got to a point where there were few high net marginal tax rates large enough to induce large deadweight losses.

And then, in the blink of an eye, the problem became not public-finance deadweight losses but, rather, the moocher class, the nation of takers, etc.

Continue reading "The Theorists of the Moocher Class: Veronique de Rugy and Paul Ryan" »

The Curse of Richard Nixon: Republican Primary Electorate Edition

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Paul Krugman:

Seneca, Selma, and Stonewall: "What many people may not realize is how recent those changes are. Gay rights may be relatively obvious — it’s just 8 years since opposition to gay marriage arguably played a significant role in Bush’s victory. But the big changes on the racial front are also more recent than widely imagined…. Republicans pine for the glory days of Ronald Reagan — but that was a different country, a county with a lot more raw racism, a country in which only a minority of Americans found interracial marriage acceptable. And yes, that had a lot to do with GOP political strength. And I don’t think the right has a clue how to operate in the better nation we’ve become.

I suspect that some 6% disapprove of interracial marriage but won't tell the Gallup interviewer because they want to save their face--that 20% of Americans today disapprove of interracial marriage. That means that 40% of Republicans disapprove of interracial marriage, and thus that perhaps 60% of Republican primary voters really do not think as the rest of us Americans do.

That poses a huge problem for the Republican Party today. And we can see that problem reflected in--among other things--the tragedy of Mitt Romney.

Continue reading "The Curse of Richard Nixon: Republican Primary Electorate Edition" »

Liveblogging World War II: January 24, 1943


Winston Churchill, from The Hinge of Fate:

It was with some feeling of surprise that I heard the President say at the Press Conference on January 24 that we would enforce “unconditional surrender” upon all our enemies. It was natural to suppose that the agreed communiqué had superseded anything said in conversation. General Ismay, who knew exactly how my mind was working from day to day, and was also present at all the discussions of the Chiefs of Staff when the Communiqué was prepared, was also surprised.

In my speech which followed the President’s I of course supported him and concurred in what he had said. Any divergence between us, even by omission, would on such an occasion and at such a time have been damaging or even dangerous to our war effort. I certainly take my share of the responsibility, together with the British War Cabinet.

The President’s account to Hopkins seems however conclusive.

We had so much trouble getting those two French generals together that I thought to myself that this was as difficult as arranging the meeting of Grant and Lee – and then suddenly the Press Conference was on, and Winston and I had had no time to prepare for it, and the thought popped into my mind that they had called Grant “Old Unconditional Surrender”, and the next thing I knew I had said it.

I do not feel that this frank statement is in any way weakened by the fact that the phrase occurs in the notes from which he spoke.

Noted for January 24, 2013

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  • FT Alphaville » Long Room » A Nominal GDP Level Target in All but Name - Goldman: "Fed officials may be contemplating an even more aggressive approach than we have assumed in our baseline forecast.  This is evident from simulations by Vice Chair Janet Yellen that use the Fed staff’s large-scale econometric model, FRB/US, to generate an “optimal control” path for monetary policy.  We believe that market participants have so far failed to grasp the full implications of Yellen’s approach."

  • Jonathan Chait: Boehner: Let’s Destroy Math Instead of Economy\: "John Boehner announced on Tuesday that he will proceed with a plan to… avoid crashing the world economy without voting for something that sounds like it increases the national debt. But, as part of his concessions to the looniest wing of the Republican party, he has also committed himself to passing a budget that would reach full balance within a decade. Paul Ryan's budget, even while employing all sorts of fanciful projections, didn't balance the budget until 2040.Why? Because the parameters Republicans have picked for the budget make balancing the budget utterly impossible. Moving that timetable up by seventeen years changes the plausibility level from Level: Unicorn to Level: Unicorn Being Ridden By Santa Claus Who Has Lost 50 Pounds Through One Weird Trick."

  • Innovation pessimism: Has the ideas machine broken down?: "Roughly a century lapsed between the first commercial deployments of James Watt’s steam engine and steam’s peak contribution to British growth. Some four decades separated the critical innovations in electrical engineering of the 1880s and the broad influence of electrification on economic growth. Mr Gordon himself notes that the innovations of the late 19th century drove productivity growth until the early 1970s…. And information innovation is still in its infancy…. As an example of this acceleration-of-effect they offer autonomous vehicles…. Across the board, innovations fuelled by cheap processing power are taking off…. Brynjolfsson and McAfee fear that the technological advances of the second half of the chessboard could be disturbingly rapid, leaving a scourge of technological unemployment in their wake. They argue that new technologies and the globalisation that they allow have already contributed to stagnant incomes and a decline in jobs that require moderate levels of skill…. Pattern-recognition software is increasingly good at performing the tasks of entry-level lawyers…. Algorithms are used to write basic newspaper articles…. Manual tasks are also vulnerable. In Japan, where labour to care for an ageing population is scarce, innovation in robotics is proceeding by leaps and bounds…. Such productivity advances should generate enormous welfare gains. Yet the adjustment period could be difficult."

  • David Glasner: The Social Cost of Finance « Uneasy Money

Continue reading "Noted for January 24, 2013" »

Ann Marie Marciarille: The Pediatric Dentistry Market Is About to Get a Big Shock

Ann Marie Marciarille:

PrawfsBlawg: Just Open Your Mouth Wide and Say: "Dental Therapist": Pediatric dental services are included in the essential health benefits standard of the Affordable Care Act… individual and small-group plans sold in the exchanges and outside the exchanges [must] offer pediatric dental services, as of January of 2014…. And dental services already are part of the benefit package for children who are enrolled in Medicaid. 

Demand for pediatric dental services is about to increase. But no one knows by how much….

Continue reading "Ann Marie Marciarille: The Pediatric Dentistry Market Is About to Get a Big Shock" »

The Genealogy of "A Nation of Takers": Tuesday Morning Wingnut Watch Weblogging


Hoisted from Comments: Origins of the Right's "47%" Theory in 1970s Science Fiction

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Graydon writes:

Pournelle's Codominium stories from the early seventies used this idea as an explanation for social breakdown -- economically parasitic non-working citizens, paid for by ever-shrinking numbers of taxpayers.

It's been around a long time as a just-so story.

Totally impervious to facts, too; neither pointing out that money is the creation of the state nor demonstrating just how brutally hard poor people tend to work will put a dent in it.

My take is that it's not really economic at all; it's an attempt to de-legitimize democracy as a political process, because democracy keeps getting the wrong answers.

From the point of view of people who believe the whole 47% nonsense, the wrong answers; things like "women are people" and "blacks are people, with the vote" and so on. "Being a real American is about how you act, not what you look like" would seem to be the chief wrong answer and thus frothing insecurity just at the moment, but it's all the things that take away their expectation of the cringing, servile deference of true helplessness from the people around them.

Insisting on total cultural destruction in preference to adaptation is really terrible insecurity management, all the same.


There is something to be written about the contrast between Max Jones in Heinlein's Starman Jones in the 1950s--who maneuvers in a society where the sociological barriers to unfreedom are an oppressive guild system that denies opportunity--and John Christian Falkenberg in Pournelle's CoDominium in the 1970s--who maneuvers in a society where the sociological barrier to unfreedom are the shiftless Negroes takers and the politicians who use them as mobs.

In the end, IIRC, Max Jones bullies his way into the Astrogators' Guild on brainpower, guts, decisiveness, and an eidetic memory--and then regularizes his status by paying a whopping fine and promises himself to work for equality of opportunity in a generation or so, In the end, IIRC, John Christian Falkenberg traps the "takers" in a stadium and has his troops mow them all down in an unholy combination of the Nika Riots in Constantinople and some modern right-wing South American coup--after which the "makers" have a chance to rebuild civilization on the colony planet.

And Ci Devant Confederate Vice-President Alexander Stephens, Grasping at Straws

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Alexander Stephens, 1910:

What I Really Said in the Cornerstone Speech: The relation of the black to the white race, or the proper status of the coloured population amongst us, was a question now of vastly more importance than when the old Constitution was formed. The order of subordination was nature's great law; philosophy taught that order as the normal condition of the African amongst European races. Upon this recognized principle of a proper subordination, let it be called slavery or what not, our State institutions were formed and rested. The new Confederation was entered into with this distinct understanding.

This principle of the subordination of the inferior to the superior was the "corner-stone" on which it was formed.

I used this metaphor merely to illustrate the firm convictions of the framers of the new Constitution that this relation of the black to the white race, which existed in 1787, was not wrong in itself, either morally or politically; that it was in conformity to nature and best for both races. I alluded not to the principles of the new Government on this subject, but to public sentiment in regard to these principles. The status of the African race in the new Constitution was left just where it was in the old; I affirmed and meant to affirm nothing else in this Savannah speech.

My own opinion of slavery, as often expressed, was that if the institution was not the best, or could not be made the best, for both races, looking to the advancement and progress of both, physically and morally, it ought to be abolished. It was far from being what it might and ought to have been. Education was denied. This was wrong. I ever condemned the wrong. Marriage was not recognized. This was a wrong that I condemned. Many things connected with it did not meet my approval but excited my disgust, abhorrence, and detestation. The same I may say of things connected with the best institutions in the best communities in which my lot has been cast.

Great improvements were, however, going on in the condition of blacks in the South. Their general physical condition not only as to necessaries but as to comforts was better in my own neighbourhood in 1860, than was that of the whites when I can first recollect, say 1820. Much greater would have been made, I verily believe, but for outside agitation. I have but small doubt that education would have been allowed long ago in Georgia, except for outside pressure which stopped internal reform.

Damn those outside agitators who forced the slaveholders of Georgia to be such bad masters!!

Michael Gerson and Paul Ryan Lie About What Republicans Say to Each Other About the "Takers"

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Taegan Goddard juxtaposes:

Paul Ryan, Now and Then:

"No one is suggesting that what we call our earned entitlements -- entitlements you pay for, like payroll taxes for Medicare and Social Security -- are putting you in a 'taker' category. No one would suggest that whatsoever."

--Rep. Paul Ryan (R-WI), criticizing President Obama's inaugural speech on Laura Ingraham's radio show today.

"Right now about 60 percent of the American people get more benefits in dollar value from the federal government than they pay back in taxes. So we're going to a majority of takers versus makers."

--Ryan, on Washington Watch in June 2010.

Continue reading "Michael Gerson and Paul Ryan Lie About What Republicans Say to Each Other About the "Takers"" »

The Right's "47%" Theory Seems Stronger than Ever Among the Wingnuts...

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It's important to register that none of the "47%" talk makes sense--but it does seem remarkably powerful...

Last September Mike Konczal gave a good taxonomy:

Four histories of the right's 47 percent theory: The right is splitting over whether or not the 47 percent argument is worth defending…. [T]he distribution of the tax burden isn't what the 47 percent theory is about. The 47 percent theory is all about grand political battles…. [T]here are two distinct parts… first is who creates and sustains the 47 percent as a political agent… second… is that the consequences need to be terrible….

Continue reading "The Right's "47%" Theory Seems Stronger than Ever Among the Wingnuts..." »

Noted for January 23, 2013

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  • Maggie Koerth-Baker: Science proves that you should wear glittens

  • David Wessel: Red Ink: Inside the High-Stakes Politics of the Federal Budget

  • Dan Crawford: Suitpossum's top economic/finance blogs

  • Barry Eichengreen: The Politics of Global Recovery in 2013: "The consensus forecast for US growth in 2013 is lower than for 2012…. Similarly, it should not be hard for Europe to do better in 2013…. But here, too, policy blunders could torpedo hopes for improvement…. The IMF sees China’s GDP growth accelerating in 2013…. The danger is that the Chinese authorities will continue to do too little to rebalance their economy, allowing vulnerabilities to build up…. The problem is that growth based on low wages, supported by an artificially competitive exchange rate, cannot continue for much longer. Trophy investments threaten to produce low returns and bad debt. Yet, heedless of the dangers, powerful export interests and regional governments continue to fight for these policies."

Continue reading "Noted for January 23, 2013" »

2013 Fifth Annual Kauffman Foundation Economic Webloggers' Conference: Friday April 12, 2013

Xkcd Blagofaire

April 12, 2013: 9:00 AM: DeLong Introduction :: PROPOSED DRAFT: Thirty-five years ago my father bought my family’s first personal computer. Eighteen years ago my former roommate Paul Mende told me: “Hey, this World-Wide-Web thing is revolutionizing scholarly communication in Physics via the web server. You should check it out.” Fourteen years ago I noticed that both of my mentions in the then-most recent Foreign Affairs had come not from things I had published but from things I had thrown up on my website.

Twelve years ago I decided that somebody should go all-in and attempt to win the intellectual influence game via the strategy of always-putting-something-new-and-interesting-up-on-the-web. And as a guy with tenure at an institution that seemed to me to be the global optimum, I was one of the few people in the world who could do so with no significant possible downside risk.

And today here we all are.

Everybody here has shifted a great deal of their voice out of standard print and standard media into a form that bears at least a close cousinship to "weblogging". Everybody here has at least tried hard to significantly raise the level of the debate on matters economic. Everybody here has, I would argue, succeeded in significantly raising at least their corner of the debate above what it would otherwise have been. Everybody here has managed to do a great deal to disrupt and evade the dumbness filters that surround us and so much impede communication and education.

We all seem to have come remarkably close to maximizing the win, for some value of “maximize” and “win”--at least for ourselves if not for our institutions and our causes.

But the struggle is ongoing. There is still an enormous amount of headroom.

How do we keep maximizing our collective personal win? What are the tools, networks, and communities that we are going to use and deal with in the future? How will we deal with the other communities and modalities of communication on our borders. We, of course, seek total universal domination. Is that realistically attainable? If so, how? If not, for what should we settle and how should we settle for it? And how do we maximize the societal win?

So: Is this going to generate the kind of conversation on April 12 that it would be useful to see? What else should I say to open the conference?

Invitation only, alas: our budget and our space is limited...

Liveblogging World War II: January 22, 1943

Eleanor Roosevelt:

WASHINGTON, Thursday—I am back in Washington and today am flying down to christen the new "Yorktown." I christened the first one and she acquited herself well and I am proud that they have asked me to christen the second one. As she goes down the ways, I shall pray that she will see the end of the war and will be used in the future for peaceful patrol work. Whatever happens to her, I feel sure that ship and men will live up to the traditions of the Navy, which are becoming more glorious day by day.

Continue reading "Liveblogging World War II: January 22, 1943" »

Contra Raghu Rajan: Economic Stimulus Has Not Failed, It Has Not Been Tried (on a Large Enough Scale)

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Perhaps the most fundamental truth of monetary economics that the government can always boost (or reduce) the flow of spending, and in a sticky-price world thus drive the flow of production and employment wherever it wants. As Ben Bernanke said, as a last resort to increase production and employment the government can simply throw money out of helicopters--less picturesquely, cut taxes and print cash to fill the resulting deficit, or to get a little more umph buy extra stuff and thus put some extra unemployed people to work in the process of getting the money out into the economy. Expansionary fiscal and expansionary monetary policy together trigger a rise in the circular flow of nominal spending, and unless price expectations are unanchored and prices flexible enough that 100% of that rise shows up as higher inflation, the greater circular flow puts more people to work making more stuff.

Economists fight over what happens when you do one of the two--when you just do a monetary expansion buying government bonds for cash (because people might not spend their extra cash but hoard it as a savings vehicle), or when you just do a fiscal expansion buying stuff or cutting taxes and paying for it not by printing money but by selling bonds (because purchases of government bonds that crowd-out purchases of private bonds simply shift demand away from private investment). Economists fight over what share of the increase in the nominal circular flow will show up as higher prices as opposed to higher output--over what the natural rate of unemployment is, and how it was affected by the crisis.

But back in 2007 I would have said that every macroeconomist who has done any homework at all believes that coordinated monetary and fiscal expansion together increase at least the flow of nominal GDP.

Now comes the very smart Raghu Rajan to say, apparently, not so:

Continue reading "Contra Raghu Rajan: Economic Stimulus Has Not Failed, It Has Not Been Tried (on a Large Enough Scale)" »

Lionel Barber Tries to Steer the Finest Journalistic Institution in the--the Financial Times--World Around the Iceberg

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We wish him luck:

Dear Colleagues,

In my New Year message, I said 2013 would test our resolve to move further and faster to support top quality journalism in a rapidly changing media landscape.

I now want to set out in detail how we propose to reshape the FT for the digital age. We need to do less in certain areas and more in others, we need to be much more nimble, and we need to reshape our teams.

Today we have started consultations with the NUJ with the aim of opening up an initial voluntary redundancy scheme. The intention is is to reduce the cost of producing the newspaper and give us the flexibility to invest more online.

Our common cause is to secure the FT's future in an increasingly competitive market, where old titles are being routinely disrupted by new entrants such as Google and LinkedIn and Twitter. The FT's brand of accurate, authoritative journalism can thrive, but only if it adapts to the demands of our readers in digital and in print, still a vital source of advertising revenues.

My visit to Silicon Valley last September confirmed the speed of change. Our competitors are harnessing technology to revolutionise the news business through aggregation, personalisation and social media. Mobile alone, for example, now accounts for 25 per cent of all the FT's digital traffic. It would be reckless for us to stand still.

Continue reading "Lionel Barber Tries to Steer the Finest Journalistic Institution in the--the Financial Times--World Around the Iceberg" »

Noted for January 22, 2013

  • Irwin Stelzer quotes Charles Krauthammer calling Obama's dour assessment of Republicans' concern for the national interest "essentially a libel", but then Stelzer makes the same dour assessment on his own: "A plunge off still another fiscal cliff is… unlikely…. [I]mportant Republicans, and the party’s supporters in the business community, have launched an effort to persuade the Tea Partiers and other House Republicans…. [W]hy [House Republicans] don’t understand that the nation just might be better off if this battle were concluded sooner rather than later remains a puzzle, at least to those who believe that the national interest should have some place in Republicans’ ruminations…" Does Stelzer really think that by the time his readers reach the end of his ¶4 they will have forgotten what he told them in ¶3? Or is there an esoteric Straussian teaching here--that Krauthammer is a hack--careful readers are supposed to pick up?

  • Pedro Bordalo, Nicola Gennaioli, and Andrei Shleifer: Salience and Asset Prices: "We present a simple model of asset pricing in which payoff salience drives investors' demand for risky assets. The key implication is that extreme payoffs receive disproportionate weight in the market valuation of assets. The model accounts for several puzzles in finance in an intuitive way, including preference for assets with a chance of very high payoffs, an aggregate equity premium, and countercyclical variation in stock market returns."

  • Ian McLean: Why Australia Prospered: The Shifting Sources of Economic Growth

  • Johannes Trithemius: Steganographia and De laude scriptorum

Continue reading "Noted for January 22, 2013" »

Ramesh Ponnuru Denies Global Warming Thrice

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Ramesh Ponnuru:

Obama's Bogus Journey: The world will little note nor long remember anything President Barack Obama said in his second inaugural…. Obama said that developing “sustainable-energy sources” is “what will lend meaning to the creed our fathers once declared.” Does anyone believe that in a week anyone will find that an arresting and compelling thought? Or credit it for being a thought at all?

And this is a person who is held up as an example of the "decent", "intellectual" right whom one can talk to…


Abraham Lincoln's Second Inaugural Address


AT this second appearing to take the oath of the Presidential office there is less occasion for an extended address than there was at the first. Then a statement somewhat in detail of a course to be pursued seemed fitting and proper. Now, at the expiration of four years, during which public declarations have been constantly called forth on every point and phase of the great contest which still absorbs the attention and engrosses the energies of the nation, little that is new could be presented.

Continue reading "Abraham Lincoln's Second Inaugural Address" »

Evidence on the Success of the Federal Reserve's Adoption of the Evans Rule

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Matthew Yglesias writes:

January inflation expectations: The Evans Rule at work.: Here's the latest Cleveland Federal Reserve bank estimates of market inflation expectations…. [S]hort-term inflation expectations are way up. Market participants who are deciding right now what to do with money are pushed at the margin to avoid super-safe low-yield assets and to either make riskier (or less liquid) investments or to "invest" in the acquisition of durable goods. But over longer horizons, there's no shift whatsoever. People don't believe the Fed has lost control of the economy.

The higher short-term targets are consistent with longer-term expectations remaining "anchored" basically where the Fed wants them. Unconventional stimulus seems to work in shaping expectations, and doesn't have a downside in terms of longer-term destabilization.

Liveblogging World War II: January 21, 1943

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FDR Library:

From 1942 to 1944 one subject dominated Allied strategic debate—the creation of a Second Front in Europe. This thorny issue caused friction between America, Great Britain, and the Soviet Union. It topped the agenda of the January 1943 summit meeting between FDR and Winston Churchill at Casablanca, Morocco, held shortly after the Allied invasion of North Africa.

Though Soviet leader Stalin didn’t attend this meeting, his feelings were clear. For 18 months, the Soviets had single-handedly resisted a massive German invasion. Stalin demanded that his allies strike quickly at the heart of Hitler’s empire in northwest Europe, establishing a “second from” to draw off some German forces from the USSR.

FDR’s military advisers favored the earliest possible assault on northwest Europe. But Churchill argued that a large buildup of forces was necessary to ensure a successful invasion. Because this was unlikely in 1943, he pushed for a more limited, “peripheral” strategy of attack along the edges of the Axis empire, starting with an assault on Sicily. Meanwhile, a buildup of forces in Britain for an invasion of northwest Europe would begin. Roosevelt, eager to keep the American public focused on the fighting in Europe, agreed.

To ease Stalin’s disappointment, FDR offered a signal of Anglo-American resolve: he announced the Allies would only accept an “unconditional surrender” from the Axis Powers.

Noted for January 21, 2013

  • Alan Blinder: Financial Collapse - A 10-Step Recovery Plan: "1. Remember That People Forget…. 2. Do Not Rely on Self-Regulation…. 3. Honor Thy Shareholders…. 4. Elevate Risk Management…. 5. Use Less Leverage…. 6. Keep It Simple, Stupid…. 7. Standardize Derivatives and Trade Them on Exchanges…. 8. Keep Things on the Balance Sheet…. 9. Fix Perverse Compensation…. 10. Watch Out for Consumers…. Twain is said to have quipped that while history doesn’t repeat itself, it does rhyme. There will be financial crises in the future, and the next one won’t be a carbon copy of the last. Neither, however, will it be so different that these commandments won’t apply. Financial history does rhyme, but we’re already forgetting the meter."

  • The Up-Goer Five Text Editor

  • Doug Galt: Balloon Juice: Those American thighs: "Anne to the Lizay and reader P have already covered Bobo’s 'when will Obama make Republicans stop hitting themselves', but…. I often wonder show much conservative punditarama is stuff the pundit truly believes and how much is propaganda. Obama as evil genius makes for poor propaganda. So I think Bobo honestly thinks that Obama is employing a cynical Machiavellian divide-and-conquer strategy, possibly because some straight-arrow Republican Senator told him so. Well, good, it is better to be feared than respected. If these morons think that Obama is a gay Kenyan wizard whose magic cannot be resisted, they’ll surrender that much quicker."

  • Ed Kilgore: Political Animal - Spurning David Brooks’ Anguished Cry For Help

Continue reading "Noted for January 21, 2013" »

John Roberts Blows It Again!

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John Roberts: Please repeat after me: "I, Barack Hussein Obama, do solemnly swear"

Barack Obama: "I, Barack Hussein Obama, do solemnly swear"

John Roberts: "that I will faithfully execute

Barack Obama: "that I will faithfully execute"

John Roberts: "the Office of President of the United States,"

Barack Obama: "the Office of President of the United States,"

John Roberts: "and will, to the best of my Ability,"

Barack Obama: "and will, to the best of my Ability,"

John Roberts: "preserve, protect, and defend"

Barack Obama: "preserve, protect, and defend"

John Roberts: "the Constitution of the United States."

Barack Obama: "the Constitution of the United States."

John Roberts: "So help you God."

Barack Obama: "So help me God."

It is true that saying too much rather than too little does not invalidate the oath. But that last sentence is not in the Constitution.

And if Barack Obama had actually obeyed Roberts's instructions to "repeat after me" and said "So help you God", he would have sounded completely ridiculous.

Continue reading "John Roberts Blows It Again!" »

DEXIT: Jefferson Davis Leaves the Senate

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January 21, 1861: I rise, Mr. President, for the purpose of announcing to the Senate that I have satisfactory evidence that the State of Mississippi, by a solemn ordinance of her people, in convention assembled, has declared her separation from the United States. Under these circumstances, of course, my functions are terminated here. It has seemed to me proper, however, that I should appear in the Senate to announce that fact to my associates, and I will say but very little more. The occasion does not invite me to go into argument; and my physical condition would not permit me to do so, if it were otherwise; and yet it seems to become me to say something on the part of the State I here represent on an occasion as solemn as this.

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Other Predictions the Total Failure of Which Should Have Caused Certain Economists to Take Vows of Perpetual Silence...

Menzie Chinn reminds us of Casey Mulligan in October 2008:

My basic approach looks at the marginal product of capital… and at the wealth and substitution effects of the housing price crash…. I have plenty to say about how the economy will look a couple of years after the housing crash (in 2009 and 2010) but not much to say about the month-to-month or quarter-to-quarter path…. Because of the high non-residential marginal product of capital before and after the housing price crash, the incentive to save is strong, so the real U.S. non-residential capital stock should be significantly higher in 2009 and 2010 than it was in 2006 or 2007. Normally, three years would bring about 6% more real consumption -- and more with a high marginal product of capital -- but the housing crash had an adverse wealth on the order of -3%. So real consumption will be higher in 2009 and 2010 than in 2006 or 2007, but probably not 6% higher. Real GDP and employment will be significantly higher in 2009 and 2010, and so will unemployment, because of the shift in labor supply….

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Hoisted from the Archives from October 2010: Can I Please Go Back to My Home Timeline Now? Output-Gap Weblogging

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Brad DeLong (October 2010): Can I Please Go Back to My Home Timeline Now?:

If you had told me four years ago that come October 2010 I would be forecasting that highly-efficient American steel companies would be operating at only 70% of normal capacity in 2011, that the U.S. Treasury would be able to borrow for 30 years at 1.61%/year real and at 3.71% per year nominal placing all inflation risk on the creditor, and that the last six months' CPI inflation would be 0.1% at an annual rate...

...I would simply not have believed you. I would have said that that could happen in some strange alternate universe in which Spock was evil and had a beard, but not in any real world that could plausibly exist.

...I would have said that, in the real world, with that much excess capacity and those low borrowing rates, 90% of both the Senate and the House would get behind big programs to push taxes off into the future and pull infrastructure and other spending into the present.

How the &^#%^*@! did we get here? And why can't we get out?

Christina Romer Tries to Understand the Right Wing of the Federal Reserve

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Mark Thoma sends us to:

Christina Romer: 'The Fed Drives Best at Higher Speeds': The central bank has adopted a more aggressive monetary policy that could be very helpful to the recovering economy. But... the Fed’s commitment to its new policies appears shaky. Soon after the December meeting, some members of the policy-making committee spoke out against the action….

[P]essimistic views about ... expansionary actions have played a major role in limiting Fed moves over the last few years. Policy makers worry that such actions will do little good and that they could cause inflation, distortions in financial markets, and losses on the Fed’s portfolio. I can’t say for sure that those views are wrong today… But… in two periods when the Fed made terrible errors… the Great Depression of the early 1930s and the high inflation of the early and late 1970s, monetary policy makers did little because they were convinced that action would be ineffective. Subsequent events proved both decisions wrong....

[H]ypothetical fears shouldn’t stop the Fed’s evolution. History is on the side of doing more, not standing on the sidelines.

Noted for January 20, 2013

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  • Kansas House Speaker Mike O'Neal prays for the assassination of Barack Obama

  • The Implausibility of the History Channel's "World War II" Miniseries

  • Jonathan Chait: David Brooks Now Totally Pathological: "Moderate Republicanism is a tendency that increasingly defies ideological analysis and instead requires psychological analysis…. The radicalization of the GOP has placed unbearable strain on those few moderates torn between their positions and their attachment to party…. The prevalent expression of this psychological pain is the belief that President Obama is largely or entirely responsible for Republican extremism. It’s a bizarre but understandable way to reconcile conflicting emotions — somewhat akin to blaming your husband’s infidelity entirely on his mistress. In this case, moderate Republicans believe that Obama’s tactic of taking sensible positions that moderate Republicans agree with is cruel and unfair, because it exposes the extremism that dominates the party…. Brooks concedes that Obama’s proposals here are moderate, but believes that the moderation is what makes them so nasty. By appealing to mainstream Republicans, he is splitting them from the most extreme Republicans! You would think proposing policies that large numbers of Republicans agree with would qualify as the kind of centrism and bipartisanship Brooks has spent the entire Obama presidency calling for, but now that it’s here, it turns out to prove just the opposite to him."

  • Ben: Unfogged: Tom Slee: "X. Trapnel pointed out this post of [Slee's] about Uber and AirBnB recently, and then today at CT Henry posted a link to this self-assessment which also includes a selection of particularly favored posts. They're good! Maybe you should read them if, like me, you hadn't been following him. I found this [positive] comment from Clay Shirky interesting in that if you read the "Wikibollocks" post linked in the assessment post linked above, you may well come away thinking that, in Slee's opinion, "Clay" from this review has definitively triumphed over "Shirky" and all that's left is Another Damn Triumphalist from TED who isn't really worth serious attention. Or, perhaps less tendentiously, you might just come away thinking that about Shirky on your own behalf and not bother speculating about Slee's opinion. | | | |

  • Daniel Kuehn: The Significance of James Buchanan: "Tyler Cowen has a list…. I think Cowen does the legacy a disservice by not talking about constitutions explicitly…. Cowen mentions 'He provided a public choice analysis of why Keynesian economics would not lead to the appropriate budget surpluses during good times and thus would contain dangerous ratchet effects toward excess deficits.' This of course is what I have some problems with…. Buchanan makes two mistakes… (1.) a history of thought mistake, in diagnosing exactly what Keynesians and their models say or assume, and (2.) an analytic mistake, in addressing how we should expect this to play out…. [T]he empirical evidence makes it pretty clear that he was wrong, I think. Think of every argument we've had about fiscal policy and the debt in the last several years. This is clearly not a world where Keynesian economics is driving policy in an over-indebted direction."

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Atlantic Monthly President Scott Havens Asks His Reporters to Please Shut Up and Stop Criticizing His Scientology "Sponsored Content" Campaign

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

Atlantic Monthly President Scott Havens Asks His Reporters to Please Shut Up and Stop Criticizing Scientology:

[W]e did not adequately work with the advertiser to create a content program that was in line with our brand… we made some mistakes trying to moderate the commenting thread. The general media climate also played a role…. I made the decision to suspend it pending further review. To be clear, our decision to pull the campaign should not be interpreted as passing judgment on the advertiser as an organization….

One important note for everyone: casting blame on any group or any individual is both unfair and simply not what we do at The Atlantic. And we most certainly should not speak to the press or use social media to attack our organization or our colleagues. We are a team that rises and falls together.

The full memo:

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Ezra Klein Says David Brooks and Michael Gerson Are Producing "the Craziest Strain of Commentary I Can Remember"

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

Ezra Klein:

Is the Republican Party Obama’s fault?: recent weeks have birthed the strangest strain of commentary I can remember: The Republican Party’s crazy opinions are President Obama’s fault…. The Republican Party’s dilemma is that House Republicans keeps taking all kinds of unreasonable and unpopular positions. If Obama weren’t president, the House Republicans wouldn’t be taking so many unreasonable and unpopular positions. But since Obama is president, and since he does need to work with House Republicans, he is highlighting their unreasonable and unpopular opinions in a bid to make them change their minds, which is making House Republicans look even worse. And so it’s ultimately Obama’s fault that House Republicans are, say, threatening to breach the debt ceiling if they don’t get their way on spending cuts…. White House officials’ devious plan to destroy the Republican Party, in Brooks’s view, is that they will propose more moderate, popular policies than they did in their first term, thus making Republicans look terrible when they vote against everything.

There’s an Occam’s Razor problem…. Perhaps the White House is hewing to the popular, reasonable positions… because… those are its positions. If the Republican Party can’t either agree to them or come up with popular, reasonable positions of its own, the problem here might be located inside the Republican Party rather than at 1600 Pennsylvania Ave….

In the end, the Republican Party is going to need to fix itself, and that’s going to require a painful process in which more sensible voices stand up to the more extreme elements of the coalition. It is getting very far into cult-of-the-presidency thinking to say the solution instead lies in the relatively fixed policy proposals of a Democratic executive.

Liveblogging World War II: January 20, 1943

Screenshot 1 20 13 8 28 AM Michael Zylberberg in the Warsaw Ghetto:

World War II Today: Among the deported were the officials of the judenrat with whom I had spoken only the night before. They had been rounded up and sent to Treblinka. I felt completely bewildered, and was hardly able to concentrate when someone told me that the bakery of the same house would make a good hiding place.

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Liveblogging World War II: January 19, 1943

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Charlotte News:

General Montgomery's Eighth Army was pursuing Rommel to within 40 miles southeast of Tripoli, at Tarhuna. The day before, the closest British force was reported still 100 miles from the Libyan port. Another column had pushed along the coast road through Misurata to Zliten, 90 miles from Tripoli. The plan apparently was to drive both columns either headlong as pincers to capture Tripoli or to use the coastal column as the capturing vehicle while the other bypassed Tripoli to cut off Rommel's approach to Tunisia.

As the Eighth Army had swept, uncontested, through and beyond Misurata, a central narrows on the coast between the sea and marshes which would have provided Rommel the best position for a stand before Tripoli, it now appeared, accurately, that Rommel was simply conceding Tripoli and was instead concentrating on shifting as much manpower and equipment as he could into Tunisia to shore up the forces of General Walter Nehring….

From the northern Russian front, in the vicinity of Leningrad, news came for the first time in several weeks, indicating, significantly, that the Soviets had recaptured the fortress town of Schluesselburg, 22 miles east of Leningrad, a transportation depot, opening up a five-mile wide land corridor to Leningrad and ending the blockade of that key city endured since August, 1941. During the siege, the only means of supply to the city’s million inhabitants had been either by air transport or over the frozen winter ice of Lake Ladoga.

In the Ukraine, the Russian armies moved to within 118 miles of Russia’s primary steel city, Kharkov.

Finally, from New Guinea came word that MacArthur’s forces had captured Sanananda, the last toehold for the Japanese on the Papuan Peninsula…

Remember, the Dormouse Says Medicare Is the Best-Working Part of Our Health Care Financing System: Not the Jefferson Airplane Weblogging

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Ann Marie Marciarille:

Missouri State of Mind: Go Ask Alice: Alice… a friend… octogenarian… had fallen outside her home, broken her hip, had surgery, and was now in rehab for her Medicare-sanctioned 21 day stay… during Medicare’s open enrollment this past fall, financial exigencies had pressed her to abandon fee-for-service Medicare for a Medicare Managed Care plan. And, you guessed it, the Medicare Managed Care plan kicked in mid-treatment on January 1, 2013….

Disenrolled from fee for service Medicare – and unable to keep the surgical follow-up appointment from a surgeon who takes Medicare assignment but does not participate in Medicare Managed Care – and moved to a Medicare Managed Care rehab funded facility, Alice was advised that this was her problem to unravel. Her new Medicare Managed Care insurance plan vacillated between advising her she was not an enrollee in their plan and advising that, even were she an enrollee, no follow up post-surgical appointment was necessary….

Bear in mind that Medicare is that portion of our health care system that ranks highest in patient satisfaction data.

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Not Being Asleep at the Switch: DeLong Self-Smackdown Watch

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Paul Krugman:

What Did I Know, And When Did I Know It?: People have been poring over the just-released 2007 Fed transcripts, and the main surprise seems to be how complacent the institution was. Some members of the open market committee, including Janet Yellen and, let’s give credit where due, Tim Geithner, seem to have had a sense of dread; but the overall consensus was that nothing really bad would happen….

It seems to me that the really big determinant of whether you were intellectually ready for this crisis was how much attention you paid to events in the late 1990s — the crisis in emerging Asia, LTCM here, and the Japanese liquidity trap. I paid a lot of attention back then (as did Nouriel Roubini)…. And the result is that I’ve had a pretty good stretch; the only big thing I got wrong, I think, was in underestimating the stickiness of wages, and hence inflation, and therefore overestimating the risks of actual deflation…

I, by contrast, got it more-or-less completely wrong in that I drew the wrong lessons from the 1990s and before:

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Orin Kerr Picks the Wrong Moment to Set Up a Straw Man, and Gets Properly Smacked Down by James Boyle

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James Boyle:

The Prosecution of Aaron: A Response to Orin Kerr: Orin… expresses both explicit and implicit criticism of the people who are protesting Aaron’s treatment for being overly personalistic, focused on his particular qualities, his famous friends etc — there are repeated mentions of his friendship with Larry Lessig, for example.  The implication, it seems clear, is that we should not focus on this one case…. This seems to be a straw man.  I see no one saying “let’s only be angry about Aaron Swartz.”  Indeed, almost all of the commentaries on Aaron’s death have sought to find in it hints about what we should do better in the future…. It is true, of course, that Aaron’s friends, and there are a lot of them, have also written about Aaron.  But one can hardly accuse them of agitating only for their friend. Take Larry Lessig for example.  One can agree or disagree with him.  But one could hardly accuse him of failing to try to change the world in general, not just for his friends…

Noted for January 19, 2013

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Neil Irwin: Federal Reserve Largely Asleep at the Switch in 2007

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Neil Irwin:

The real surprise in the Fed’s 2007 transcripts: How much they knew, how little they understood: [T]here were hints of clear-headedness. Timothy Geithner… had a consistent view that fall that the financial system was unraveling and that it was no time for policy gradualism. Eric Rosengren of the Boston Fed, Janet Yellen of the San Francisco Fed, and governor Frederic Mishkin were, by the end of the year, arguing for more interest rate cuts and seemingly pulling his hair out over their colleagues’ sanguine views of the outlook….

But I expected to see much more evidence… of understanding the possibility that the entire financial system had become a house of straws built on mortgage securities that were anything but secure, with all sorts of financial institutions over-levered and overly dependent on assets that were near-impossible to value. And I expected them to understand that once a problem that deep begins correcting itself, it can spiral into all sorts of dangerous directions. Which this one did.

Joint Speaker John Boehner-Jake Sherman of Politico #FAIL

Jake Sherman:

House Republicans plan debt ceiling vote: House Republicans will vote next week on a bill that would raise the nation’s debt ceiling for three months and stop pay for members of Congress if the Senate doesn’t pass a budget, GOP officials said Friday…. It’s also a shift from House Speaker John Boehner…. But Boehner isn’t retreating on the debt ceiling without conditions; He’s framing this as a way to force Senate Democrats to lay out a budget…

Twenty-seventh Amendment to the United States Constitution:

No law, varying the compensation for the services of the Senators and Representatives, shall take effect, until an election of Representatives shall have intervened.

Everybody in the House and Senate now knows that this Charles Krauthammer-John Boehner "no pay for the Senate unless it passes a Budget Resolution" condition is unconstitutional.

But Jake Sherman does not tell the readers of Politico. Why not?

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

The Future of American Political Economy: Deficits-and-Debts the Very Thoughtful Ezra Klein Gets One Wrong, I Think, Weblogging

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Ezra Klein writes:

After ‘the end of big government liberalism’: "Republicans swear to protect Medicare and Social Security, and most recognize they can no longer hope to repeal Barack Obama’s Affordable Care Act. Democrats voted to make the George W. Bush tax rates permanent for almost all Americans. This is not a stable peace. The Democrats have mostly won the debate over what the government should do, while the Republicans have mostly won the debate over how much the government should tax. Sadly, the two sides of that equation don’t come anywhere near to adding up. The war currently raging from cliff to cliff is about bringing taxation and commitments closer to alignment. Still, it seems probable that the conflict will, eventually, resolve largely in the Democrats’ favor. Paul Ryan’s budget and Mitt Romney’s presidential campaign both proved the difficulty Republicans have in advocating fewer government benefits. For all the sound, fury and impassioned promises of huge deficit reduction, in the end both Republican leaders swore that everyone would get their benefits. The savings, we were told, would come from painless mechanisms such as competition or more flexibility for the states. It is difficult to imagine such rhetoric uprooting treasured programs — all the more so after the Republicans lost the election. Democrats aren’t much better on taxes, but they don’t need to be. Historically, it is much easier to raise taxes by a half percentage point of gross domestic product than to kick tens of millions off public health insurance.

This seems to me to get the future dynamic wrong.

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And Nick Rowe Is the Latest Economist to Join the Inarticulate Dorks...

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As he himself says: "One more for the 'inarticulate dork' pile. We all keep trying. One day we will all think it and write it clearly."

He's wrong. It is worth reading:

Worthwhile Canadian Initiative: Two extreme fiscal/monetary worlds: I want to imagine two extreme worlds…. In the first world (the "fiscal" world), all financial liabilities of the government are non-monetary liabilities, "bonds", that cannot be used as media of exchange. People use something else for money…. In the second world (the "monetary" world), all financial liabilities of the government are monetary liabilities, "money", that are used as media of exchange…. Government money may or may not pay interest…. Let's start with both worlds in equilibrium, and with balanced budgets. Now let's suppose the government wants to increase spending without increasing taxes. What happens to interest rates on government liabilities?

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Taegan Goddard: Republican retreat kicks off with a rocky start

Taegan Goddard:

Republican retreat kicks off with a rocky start: Republicans are regrouping at an image makeover retreat in Williamsburg, Va. this week. But it's not looking so good. Reporters quickly noted that a session for lawmakers called "Discussion on Successful Communication with Minorities and Women" will actually take place in the "Burwell Plantation" room… "named after the Burwell Family, a wealthy family that owned many slaves in 18th century Southern Virginia." The irony of learning how to woo minorities in a room named after slaveholders was not lost on Rep. Greg Walden (R-Ore.): "I don't pick the rooms we meet in."