Semi-Daily Journal Archive

The Blogspot archive of the weblog of J. Bradford DeLong, Professor of Economics and Chair of the PEIS major at U.C. Berkeley, a Research Associate of the National Bureau of Economic Research, and former Deputy Assistant Secretary of the U.S. Treasury.

Saturday, March 18, 2006

Trackbacks are Off

Let me join Alex Tabarrok in turning off trackbacks:

Marginal Revolution: Trackbacks are Off: Due to an onslaught of spam, we have stopped accepting trackbacks. If Typepad improves their spam filters we will turn trackbacks back on but at present the ratio of spam to real trackbacks is over 100 to 1. We like trackbacks and regret the inconvenience. Posted by Alex Tabarrok

It is just not possible to police them. I don't have time with comments to keep the spam and the trolls down in any but the most half-a**** fashion. I can't deal with trackback spamming and trolling as well.


MarsEdit: Easy weblog editing.

Tyler Cowen Rejects John Rawls

Tyler writes:

Marginal Revolution: John Rawls, anti-capitalist: John Rawls, anti-capitalist: This is from his correspondence:

The large open market including all of Europe is aim of the large banks and the capitalist business class whose main goal is simply larger profit. The idea of economic growth, with no specific end in sight, fits this class perfectly. If they speak about distribution, it is most always in terms of trickle down. The long-term result of this — which we already have in the United States — is a civil society awash in a meaningless consumerism of some kind. I can’t believe that is what you want.

So you see that I am not happy about globalization as the banks and business class are pushing it. I accept Mill’s idea of the stationary state as described by him in Bk. IV, Ch. 6 of his Principles of Political Economy (1848). (I am adding a footnote in §15 to say this, in case the reader hadn’t noticed it). I am under no illusion that its time will ever come – certainly not soon – but it is possible, and hence it has a place in what I call the idea of realistic utopia.

For more see CrookedTimber. The real question is how much this should cause us to downgrade his moral philosophy. I say "a lot." I used to think there was some deep argument of consilience behind "maximin," [Rawls's claim that deviations from material equality were unjustified unless they redounded to the benefit of the poor,] but now I am ready to classify it as a simple mistake, akin to a person who doesn't understand what drove the flow of traffic across the Berlin Wall in one direction and not the other.

I admit I always had problems with "maximin." In the context of social-contract theory, it seemed to make no sense at all: maximin simply doesn't follow from the thought experiment of choosing rules and institutions for an enterprise without knowing what your place in that enterprise is going to be. An alternative justification of "maximin" is that it creates a society in which the poor have no justified grip: that things are arranged to make them as well off as possible. But this falls to the objections that (a) different people and different kinds of people are the poor in different societies, and (b) by what right do this society's poor claim dictatorial power over rules and institutions?

But Tyler's picking-up of Chris Bertram's noting of Philippe Van Parijs's letters to and from Rawls certainly does get Rawls into trouble at a much deeper, elementary level. It may be time to drop Rawls from my notes for those rare occasions where I DO get to teach social choice.

Friday, March 17, 2006

Brad DeLong's Semi-Daily Journal: Memories... and Hard-Disk Space and Processor Speed

Robert Waldmann writes:

Brad DeLong's Semi-Daily Journal: Memories... and Hard-Disk Space and Processor Speed: Brad your conclusion shows that you are a Mac user. I agree that the decrease in the rate utilisation of computing power is as amazing as the increase in computing power, but it is not the only thing.

For us Window's users the worsening in software is as amazing as the improvement in hardware. We own a 2 month old Toshiba Satellite M70-144 with a 1.86 GHz Pentium M, 512 Mb RAM 92 GB Hard Drive running Windows XP and a 22 year old original IBM PC "portable" with an Intel 8086 processor, RAM expanded to 640 kb and a 100 Mb hard drive added running DOS 3.1 and each is equally infuriatingly slow.

The Toshiba is actually portable and has a nice desk top and screen saver, but it takes just as long to wake up, vastly longer to shut down, and bugs me more often because it is too busy doing God knows what to accept input.

If you tell me to shut up, stop whining and buy a Mac, I will send you an e-mail with the svelt slim modern 61.658 Mb file "" as an attachment. Disclaimer: I would of course do no such thing. I am not a cyber terrorist. NSA please take notice.

Yes! But all the wonderful spiffy new things your Toshiba can do! Like surf the web! And surf the web! And run STATA!

It's Time for a Contest! (Why Oh Why Can't We Have a Better Press Corps? Washington Post Edition)

This morning Jim VandeHei writes:

GOP Irritation At Bush Was Long Brewing: By Jim VandeHeiWashington Post Staff Writer Friday, March 17, 2006; A01: President Bush's troubles with congressional Republicans, which erupted during the backlash to the Dubai seaport deal, are rooted in policy frustrations and personal resentments that GOP lawmakers say stretch back to the opening days of the administration. For years, the Bush White House and its allies on Capitol Hill seemed like one of the most unified teams Washington had ever seen, passing most of Bush's agenda with little dissent. Privately, however, many lawmakers felt underappreciated, ignored and sometimes bullied by what they regarded as a White House intent on running government with little input from them. Often it was to pass items -- an expanded federal role in education under the No Child Left Behind law and an expensive prescription drug benefit under Medicare -- that left conservatives deeply uneasy. What Bush is facing now, beyond just election-year jitters by legislators eyeing his depressed approval ratings, is a rebellion that has been brewing since the days when he looked invincible, say many lawmakers and strategists...

Jim VandeHei is correct. Since the earliest days of this administration--in fact, even before this administration first took office--there has been an extraordinarily high degree of resentment and frustration with the substantive policies of the George W. Bush administration. Current and former Bush appointees and allies have discussed their frustrations with me; they have occasionarlly discussed their frustrations with the press (think of John DiIulio and Paul O'Neill); and they have often discussed their frustrations around the VandeHei household kitchen table.

But those frustrations have not--until now--shown up in the coverage of the White House by Jim VandeHei, have they? "Irritation" (a very, very mild word to describe the views of congressional Republicans, which cannot be printed in this family weblog) has "long been brewing," but you would not know it by reading Jim VandeHei over the past several years, would you?

I could be wrong. So: a contest: a free copy of David Frum's The Right Man to the commenter who can find, in the past writings of Jim VandeHei, the closest foreshadowing of his current (true) claim that congressional Republicans' "policy frustrations and personal resentments... [with him] stretch back to the opening days of the administration... [since which] lawmakers [have] felt underappreciated, ignored and sometimes bullied... [legislation] that left conservatives deeply uneasy... a rebellion that has been brewing since the days when he looked invincible, say many lawmakers and strategists..."

Thursday, March 16, 2006

Mark Schmitt on Budget Coverage...

Let me elevate a comment by Mark Schmitt:

Brad DeLong's Semi-Daily Journal: Stan Collender and Budget Coverage (Why Oh Why Can't We Have a Better Press Corps?): What a perfect example. If you have access to any other source of information -- Collender's column, or the Center on Budget & Policy Priorities website, for example, you never need to read the Post budget coverage unless you need a reminder of how few reporters really understand it.

This side-by-side shows one reason why: Post reporters, like most people think budget=numbers. Therefore, reporting about the budget means reporting the numbers that are in a given budget document. So Weisman has ten figures before Collender has even one. What Collender knows is that what are called "budgets" are simply moves in a process. That the House Budget Resolution assumes a 20% cut in env/natural resources discretionary spending is not the story, because that cut will never happen and its trivial on the scale of the budget anyway.

I think what sometimes happens is that reporters are intimidated by numbers, and feel they have to fully master the numbers in the budget -- or whatever budget document is at hand -- and so become transfixed by them.

Collender understands that all these actions are just moves in a game, and it's all about the process. He's not intimidated by the numbers in the budget documents, so he can move on to the bigger picture.

And then there's also the factor that American journalists just aren't allowed to write sentences like, "you can't help but get the distinct feeling that more than one person in Washington is fiddling while the budget fire spreads." They might know it, but they need to quote someone to say it.

I would say it's even worse than that. The Post has thirteen numbers, NONE OF WHICH ARE PLACED IN ANY MEANINGFUL INTERPRETIVE CONTEXT!! NONE!!

Excuse me. I'm better now. I think.

Memories... and Hard-Disk Space and Processor Speed

The first computer I ever programmed was like this one:

InfoDog, MB-F Newsletter, October 1992: a Digital Equipment Corporation PDP 1170. It came complete with 128K of memory, 100 megabytes of disk, [15 MHz].... All this great hardware cost a mere $200,000.

Due to the fact that my laptop hard disk started screaming like a Bain Sidhe last week, I now have a $2,000 MacBookPro:

2G of memory, 92GB of hard disk, running at 2 GHz.

How many more computrons? What's the proper formula? A guess: 100 x 30 x 130 = 400,000 times as many computrons in this laptop as in the PDP 1170.... 40,000,000 times as many computrons per dollar.

The only thing as mind-blowing as the increase in computer power and decrease in computer cost is the decrease in the rate of utilization of computer-power...

Stan Collender and Budget Coverage (Why Oh Why Can't We Have a Better Press Corps?)

Susan Rasky and I had Stan Collender--the one-stop shopping center for budget-process analysis--in to talk to our class this week. We took him to Chez Panisse. We both thought he did a truly excellent job, and that inviting him was one of our best ideas this year.

Why did we invite him? To understand why, take a look at the two stories in the two columns below, both published on March 14, 2006, the left one by Stan, the right one the Washington Post's budget story. Stan does his budget columns essentially as a hobby (and as a loss leader). The Post claims to own in-depth Washington reporting.

But take a look at the two stories. From the left--Stan's--you learn a lot about what's going on with the budget. From the right--the Post's--you learn much less, and some of what you learn is not true. GOP leaders don't "insist" they can "bring down the deficit without increasing taxes if lawmakers are willing to make tough decisions." They may say this to Washington Post reporters, but it's not what they think or say in private. The Senate Budget Resolution would not "cap [fiscal 2007] nondefense spending... at $420 billion": a bunch of spending bills are expected to be passed outside of the framework of the budget process--in fact, right now the House is considering a $91 billion "emergency" outside-the-budget-process spending bill. The Post says that Senator Specter denounces the budget resolution as "beyond cutting the fat and beyond the bone," but it doesn't offer a number or an explanation about what he proposes to do instead. The right article is useless--downright misleading--to everyone except budget experts, and they know almost everything in it already.

So here's the question that puzzles me: Why doesn't the Washington Post or the New York Times employ Stan Collender to write their budget articles? Why does he do his work--as a low-paid near-hobby--for a small rather than a large audience? What are the editors of the New York Times thinking?

Stan says that he is a frequent source for the Post and the Times--especially for the late David Rosenbaum. Googling for "collender budget" gets an estimated 34,900 hits. He has a big footprint in the budget analysis game. But his social value added would, I think, be much much greater if he were covering the budget for the Post or the Times. He's very smart. He knows the subject area inside and out. He can produce lots of good copy under tight deadline pressure. His writing is very lively and engaging.

Why isn't he doing so? Beats me.

BUDGET BATTLES: Do You Smell Something Burning? (03/14/2006): By Stan Collender, © National Journal Group Inc. Tuesday, March 14, 2006:

Last week's budget events seem relatively insignificant when you look at them individually. Put them together, however, and you can't help but get the distinct feeling that more than one person in Washington is fiddling while the budget fire spreads.

Start with the House Budget Committee, which postponed its consideration of the fiscal 2007 budget resolution because, according to a variety of reports, Republicans have been unable to come up with a plan that would be approved either in committee or on the floor.

The committee may try to hold the markup this week, but the overwhelming expectation is that the earliest it will happen is after the St. Patrick's Day congressional recess at the end of March. There seems to be a growing concern among budget participants and watchers on Capitol Hill that it won't happen at all.

Next, move to the Senate Budget Committee, which last week adopted a fiscal 2007 budget resolution that, in the words of Chairman Judd Gregg, R-N.H., was totally "vanilla."

The resolution does allow the committee to say it is doing something, or at least something more than its House counterpart. However, it makes almost no policy choices and seems to please no one. It rejects virtually all of the proposals in the Bush budget, transfers $5 billion in spending proposed by the White House for the Pentagon to domestic programs, and has a 2007 deficit that is $5 billion higher than what the president projected.

To make matters worse, the Senate Budget Committee's vanilla budget resolution was adopted on a straight party-line 11 to 10 vote that portends big problems when it is debated by the full Senate this week. In fact, immediately after the resolution agreement was reached, Gregg was telling reporters that the votes might not exist in the Senate to pass what his committee had just adopted. Don't be surprised if the committee-approved resolution is never approved.

Next, move to the Treasury, which late last week reported that the federal government had its highest one-month deficit -- $119.2 billion -- in February.

It is generally unfair to use monthly results as an indication of what will happen through the year. In fact, the total 2006 deficit through the end of February was actually about $5 billion less than last year's deficit through the same period.

In addition, February is typically a month when the government runs a large deficit because individual taxpayers expecting money back generally file their returns early and the IRS issues significant refund checks. Therefore, the fact that there was a large deficit in February is not by itself a cause for alarm.

What is of concern, however, is that the February results were more because of additional spending rather than tax refunds. This is especially the case because spending for Iraq, Afghanistan, Katrina and Medicare will likely accelerate through the rest of the year.

That should plant some doubt in everyone's mind about the administration's claim that the deficit outlook is getting better. Not only is federal spending increasing but, at least judging by what the administration and budget committees are proposing, there doesn't seem to be much interest or ability to do anything about it.

Finally, move to the White House and Congress, where interest in a line-item veto seemed to be gathering bipartisan momentum last week. This happened a week or so after interest in a two-year budget also picked up some steam.

Although I have serious doubts about it being the magic elixir many others in the federal budget world think it will be, I have no problem with a line-item veto.

What is troubling, however, is the sudden interest in budget process changes. That typically happens when policymakers find it impossible to do anything about the budget itself and it's often used as an alternative to making progress. Representatives and senators tell constituents that things may look bad now, but they have taken steps to make sure it will get better in the future.

For the record, neither a line-item veto, a two-year budget, or any other process change that is likely to be enacted anytime soon will have much of an impact on the budget. If a consensus existed in Washington about what to do about the deficit, Congress and the White House wouldn't need a procedural fix to make it happen.

Budget process changes only work when there is a general agreement in advance about what to do, and that simply doesn't currently exist. If it did, the House and Senate Budget Committees this week would have been able to come up with a budget resolution that moved toward that goal.

The same thing can be said about the ongoing discussion about procedural changes that would make earmarks more difficult. Congress doesn't need a procedural fix for earmarks; it has the ability to stop them now just by deciding it wants to do so. The fact that it is considering a process change is a strong indication that it doesn't really want it to happen.

Put all of this together and you get the sound of more than one person in Washington fiddling while the budget is burning. Indeed, you almost start to hear a whole orchestra playing.

Republicans on Hill Resist Party Leaders' Spending Cuts: By Jonathan Weisman Washington Post Staff Writer Tuesday, March 14, 2006; A08:

House and Senate Republicans will seek this week to increase spending on port security, homeland defense, health care and education in a clash with GOP leaders struggling to regain the mantle of fiscal discipline for their party. With the Senate taking up a budget blueprint for 2007 and the House voting on a $91 billion emergency spending bill, lawmakers on both sides of the Capitol will face key tests of their budget-cutting mettle in the coming days.

The federal budget deficit is expected to reach $371 billion this year, despite robust economic growth. But GOP leaders insist they can bring down the deficit without increasing taxes if lawmakers are willing to make tough decisions on federal spending.

To that end, the Senate yesterday began debating a plan that would cap nondefense spending at Congress's discretion at $420 billion for the fiscal year that will begin on Oct. 1, $15 billion lower than the fiscal 2006 level.

Under the budget plan, discretionary spending on environmental and natural resource programs would fall 20 percent. Spending on community and regional development programs would be slashed by 32 percent, and politically sensitive transportation spending would be cut by 17 percent.

In the House, conservatives will push tonight to offset at least part of the emergency spending bill's cost with cuts elsewhere in the budget. Of the $91 billion in emergency spending, $19 billion is for additional hurricane relief for the Gulf Coast, a sum that some Republicans believe should be offset by cuts in other programs.

Those moves correspond with political statements from Republican leaders that the party is getting serious about containing government spending. A gathering of GOP presidential hopefuls in Memphis last weekend featured a stream of prominent Republicans lamenting the growth of government since President Bush took office and vowing to reverse the trend.

Those political statements, however, have not been backed by legislative action. Senate Budget Committee Chairman Judd Gregg (R-N.H.) conceded yesterday that a coalition of moderate Republicans and Democrats may block the adoption of the spending limits in his budget plan. Facing an election-year revolt, Gregg has already dropped the centerpiece of Bush's budget-cutting efforts for 2007, a $37 billion reduction in the growth of Medicare. And he opted against using in the budget resolution parliamentary language that would have helped Bush extend his first-term tax cuts beyond their 2010 expiration date.

"For the great majority in my conference, they'd like to do some aggressive things on spending," he said. "But we need 51 votes. You might have 48 votes, but that's not 51, and it's as simple as that."

Indeed, by week's end, Congress is likely to approve measures that would increase spending rather than decrease it. Rank-and-file lawmakers from both parties are increasingly convinced that budget cutting has gone far enough.

"We're beyond cutting the fat and beyond the bone. We're down to the marrow," said Sen. Arlen Specter (R-Pa.), who plans to introduce an amendment today to raise spending on health care, education and worker safety by billions of dollars above the president's request for next year.

Specter's amendment, co-authored by Sen. Tom Harkin (D-Iowa), is only the beginning. Sen. Joseph I. Lieberman (Conn.), the ranking Democrat on the Senate Homeland Security Committee, said he and Chairman Susan Collins (R-Maine) will introduce an amendment this week to broadly raise spending on homeland defense. Senate Democrats on their own will move to increase spending for homeland security by nearly $3 billion more than Bush's wishes.

Reps. Daniel E. Lungren (R-Calif.) and Jane Harman (D-Calif.) plan to unveil legislation today that would raise spending on port security by $801 million a year. That bill nearly equals a bipartisan Senate legislation that would raise annual port security spending by $835 million. Both bills are scheduled for quick action in the House and Senate homeland security committees in the coming weeks.

Proponents of the measures say the government has avoided such spending for too long under the guise of fiscal restraint. Three times since the Sept. 11, 2001, terrorist attacks, the House has voted against Democratic efforts to raise spending on port security. But in the wake of a Dubai company's effort to take over management responsibilities at six major U.S. ports, such opposition appears to be collapsing.

"There simply is no cheap way to be better prepared," Lieberman said yesterday.

If some Republicans are ready to reverse spending cuts, they are not prepared to reverse their tax cuts. Specter said labor, health and education programs were cut last year by $2.1 billion and lost an additional $5 billion in buying power because of inflation. He hopes to reverse all or most of those cuts. But he said that proposing tax increases to pay for that additional spending would only complicate his spending effort.

Budget experts said that kind of thinking is a ticket to ever-increasing deficits.

"No one is willing to sit down and come to grips with the fundamental problem that you can't run a 21st-century government on a 1950s revenue base," said Urban Institute President Robert D. Reischauer, a former director of the nonpartisan Congressional Budget Office.

Censure Is a Start. But It Does Not Go Far Enough

Senator Feingold's motion to censure George W. Bush does not go far enough. For the sake of the country, for the sake of the constitution, for the sake of the rule of law, Congress needs to do more. Congress needs to impeach George W. Bush, for plain and egregious violations of his duty to faithfully execute the laws.

Hilzoy of Obsidian Wings has details:

Obsidian Wings: Cheat Sheet: The current debates over the Feingold resolution and the NSA surveillance program & the ongoing debate over the torture scandals involve a lot of convoluted legal arguments about executive power. It can get really difficult and frustrating for non-lawyers to sort them all out. (Actually it can be that way for lawyers too, but lawyers get three years of instruction in legalese & then get paid to read and write it for a living, It's a lot worse for everyone else.)

To make this a little easier, I've prepared a handy-dandy little guide for decoding the administration's arguments and reassurances on these topics:

Understanding the Bush Administration's Statements About Executive Power And Treatment of Prisoners in Nine Easy Steps

  1. Cross out the word "battlefield" wherever it occurs and replace it with the word "earth."
  2. Cross out the phrase "length of the war", "duration of the conflict", or similar, and replace it with the phrase "indefinite future."
  3. In front of the terms "enemy combatant", "terrorist", "member of Al Qaeda", "trained killer", "enemy of the United States," "illegal combatant," "member of the enemy" etc., insert the words "anyone the President claims, with or without evidence, is a[n]".
  4. After all reassurances that the President's conduct is "lawful" or "legal" or "complies with the law", add an asterisk. At the bottom of the page, insert this disclaimer: It is legal for the President to secretly violate any treaty, statute, or regulation that limits his commander-in-chief power in any way.
  5. Whenever the word "torture" appears, add two asterisks. At the bottom of the page, insert this disclaimer: Simulated drowning is not torture. Mock burial is not torture. Stripping a detainee naked, and chaining him to the floor of a fifty-degree-Fahrenheit cell, and pouring cold water on him for extended periods is not torture. Prisoners being "forced to stand, handcuffed and with their feet shackled to an eye bolt in the floor for more than 40 hours" is not torture. Threatening detainees with military dogs is not torture. Prolonged sleep deprivation is not torture. Prolonged isolation is not torture. Repeating these techniques again and again, and combining them in creative ways, is not torture.
  6. Whenever a promise to treat detainees "humanely" appears, add three asterisks. At the bottom of the page insert this disclaimer: It is fine to abuse and degrade prisoners as long as you do so humanely. Here are some specific examples of humane treatment.
  7. Whenever a claim that Congress has authorized a presidential action appears, insert four asterisks. At the bottom of the page insert this disclaimer: When Congress authorizes the use of military force, it authorizes the President to secretly violate any other law if he decides it interferes with the war effort. This is true even if Congress has no idea it's authorizing the President to do this, no desire to authorize the President to do this, and would vote down the use of force resolution if they understood that it meant giving the President this power.
  8. Whenever you read any reference to the "U.S. Constitution", remember that they are referring to this U.S. Constitution, not the quaint, outdated one you studied in seventh grade social studies.
  9. Read all restrictions on the President's power as narrowly as it's possible to read them. Read all grants of power to the President as broadly as it's possible to read them. That's "possible", not "plausible". An easier way to remember this one is to ask yourself "W.W.J.Y.D.?"--"What would John Yoo do?". (Or David Addington, but his initials don't work as well).

Anybody who ever has, or ever wishes, to make arguments for the "rule of law" or "limited government" or "checks and balances," be now on notice: get out in front calling for the impeachment of George W. Bush now, or forever hold your peace.

Peggy Noonan Realizes She Has Conned Herself--and Says That She Wouldn't Have Voted for Bush If She'd Known Who He Was

She looks at Bush fiscal policy and joins the Ancient, Occult, and Hermetic Order of the shrill, saying that if she'd known who George W. Bush really was she wouldn't have voted for him:

OpinionJournal - Peggy Noonan: Hey, Big Spender Should we have known that President Bush would bust the budget?: Thursday, March 16, 2006 12:01 a.m. EST: This week's column is a question, a brief one addressed with honest curiosity to Republicans. It is: When George W. Bush first came on the scene in 2000, did you understand him to be a liberal in terms of spending?

The question has been on my mind since the summer of 2005 when, at a gathering of conservatives, the question of Mr. Bush and big spending was raised.... Everyone murmured about... how the president "spends like a drunken sailor except the sailor spends his own money." And then someone, a smart young journalist, said, (I paraphrase), But we always knew what Bush was. He told us when he ran as a compassionate conservative. This left me rubbing my brow in confusion. Is that what Mr. Bush meant by compassionate conservatism?

That's not what I understood him to mean. If I'd thought he was a big-spending Rockefeller Republican.... I wouldn't have voted for him.... I didn't understand Mr. Bush's grand passion to be cutting spending.... But he did present himself as a conservative... conservatism is hostile, for reasons ranging from the abstract and philosophical to the concrete and practical, to high spending and high taxing....

How did this happen? In the years after 9/11 I looked at Mr. Bush's big budgets, and his expansion of entitlements, and assumed he was sacrificing fiscal prudence--interesting that that's the word people used to spoof his father--in order to build and maintain, however tenuously, a feeling of national unity. I assumed he wanted to lessen bipartisan tensions when America was wading into the new world of modern terrorism. I thought: This may be right and it may be wrong, but I understand it.... Mr. Bush will never have to run again, and he is in a position to come forward and make the case, even if only rhetorically, to slow and cut spending. He has not. And there's no sign he will....

Mr. President:

Did you ever hold conservative notions and assumptions on the issue of spending? If so, did you abandon them after the trauma of 9/11? For what reasons, exactly? Did you intend to revert to conservative thinking on spending at some point? Do you still? Were you always a liberal on spending? Were you, or are you, frankly baffled that conservatives assumed you were a conservative on spending? Did you feel they misunderstood you? Did you allow or encourage them to misunderstand you?

What are the implications for our country if spending levels continue to grow at their current pace?

What are the implications for the Republican party if it continues to cede one of the pillars on which it stood?

Did compassionate conservatism always mean big spending?

Now Peggy Noonan and the rest of the plastic Republican chattering teeth did not think back in 2000 that Bush's "compassionate conservatism" meant that he was a spender, they thought it meant that he was a liar--and that they were in on the con. The Bush budget strategy, they thought at the time, had four components:

  1. Highball estimates of future budget surpluses in order to make it look like there's more room for tax cuts than there was.
  2. Lowball the costs of the tax cuts by telling people that the AMT will be repealed when you calculate the magnitude of their tax cut and yet keeping the AMT in effect when calculating the revenue cost of the tax cut.
  3. Call yourself a "compassionate conservative" to convince voters you don't want to make elderly emphysema patients front the money for their oxygen cylinders.
  4. Then, when deficits reemerge, say: "Oh. What a surprise. We have to cut way back on federal services and programs after all."

That's the David Stockman quadrille. They thought Bush was lying to everybody else--that, as Andrew Sullivan liked to put it:

Some... get steamed because Bush has obscured this figure or claimed his tax cut will cost less than it actually will, or because he is using Medicare surplus money today that will be needed tomorrow and beyond.... [T]hey miss the deeper point... Bush has to obfuscate his real goals of reducing spending with the smoke screen of 'compassionate conservatism'.... B.S. is necessary for any vaguely successful retrenchment of government power in an insatiable entitlement state.... I just hope the smoke doesn't clear before the spenders get their hands on our wallets again.

Now they are surprised--and shrill--to learn that George W. Bush was lying to them too.

Larry Kudlow Joins the Ancient, Hermetic, and Occult Order of the Shrill

Yes. He calls for the Democrats to retake control of Congress this year:

The RCP Blog: A Pathetic State of Affairs - By Larry Kudlow: The Senate budget resolution now in play has dropped Bush's entitlement savings according to Budget Chairman Judd Gregg. Plus, Republican senators are trying to front-load new pork into the resolution even though Gregg wants to hold the line (at least on that).

After all the GOP Congressional talk about newfound budget-cutting religion, including earmark transparency and reform, so far they have produced nothing.

People like Arlen Specter, and many others, are still trying to get their pet projects funded. So, what else is new?

Gregg has thrown in the towel on mandatory spending cuts because he says he doesn't have the votes. Well then, I don't think that the American people should "have the votes" to keep the Republicans in charge of the Senate--or the House for that matter.

Larry: I'm sorry, but we've run out of space. You'll have to hot-bunk in with Shub-Ascalatl for a while, as you get used to your new state of shrill unholy madness.

Wednesday, March 15, 2006

Ben Bernanke Is a Grownup Republican

Deficits aren't the biggest problem facing America today. But they are a problem. And it would be nice--and good, and appropriate, and proper--to have a budget in surplus. It is very heartening that Ben Bernanke is taking the grown-up point of view: - Bernanke Wants Lower Deficits, Doesn't Rule Out Tax Increases: By GREG IP March 15, 2006; Page A2: WASHINGTON -- Federal Reserve Chairman Ben Bernanke told Congress he was "quite concerned" about federal budget deficits and urged lawmakers to act soon to bring them down.... Mr. Bernanke is taking on predecessor Alan Greenspan's role as a leading nag on fiscal matters. Although the new Fed chief declined to endorse any particular way to reduce the deficit, he did suggest that Congress can't ignore the tax side of the budget. "Over time either taxes will have to be raised or the spending increases embedded in current laws will need to be scaled back, or some combination of the two," he wrote.

Mr. Greenspan regularly said he preferred that the deficit be reduced through spending rather than tax increases. Mr. Bernanke expressed the same view when he was chairman of President Bush's Council of Economic Advisers. But in his latest remarks, he reiterated that the way the deficit is reduced represents "political judgments," on which he prefers not to comment.

Deficits Are Not Our Biggest Problem...

Matthew Yglesias sounds puzzled:

Matthew Yglesias | TPMCafe: Deficits Don't Matter: Not to the public, at least. Back in 1993, 17 percent of poll respondents said the deficit was the biggest problem facing the country, today that's way down to two percent. I'll leave it to my betters to hash out the extent to which deficits do, in fact, matter economically even if they don't matter politically.

But why? As long as foreign central banks keep buying what the U.S. Treasury keeps issuing, the deficit has no *immediate* catastrophic effects on America. The people who say that the deficit is not the biggest problem facing the country right now are correct: the biggest problem is what the clown show that is the Bush administration has done to the national security situation. The--few--people who say that the deficit is, currently, our biggest problem seem not to be well-anchored in reality.

Ice Caps

Eric Umansky is scared

Eric Umansky: The Ice Caps: This is scary, scary stuff:

Following two recent studies on changes to Antarctic and Greenland ice sheets, NASA is touting a survey that it says confirms “climate warming is changing how much water remains locked in Earth’s largest storehouses of ice and snow.”

In a press release for the survey, NASA directly tied the changes to warming and described the survey as “the most comprehensive” ever in both regions.That stand can in part be explained by lead author Jay Zwally’s warning....

“We’re seeing the early signs of changes in the ice sheets,” he added. “The climate warming from greenhouse gases has really just started.”

As much as I talk about Iraq and national security, those things are small beans compared with the administration's failure to acknowledge let alone confront global warming. (Not that the White House is alone in fiddle-faddling.) GW, after all, is going to affect the world far more than Iraq--and I suspect it will affect the world far quicker than most of us think. Why? Feedback loops, such as, say, the icesheets melting.

Daniel Gross...

Daniel Gross. Daniel Gross. Daniel Gross. Someday I'll distinguish Daniel Gross from David Gross:

Daniel Gross: March 12, 2006 - March 18, 2006 Archives: It's not quite dropping buckets of dollars out of helicopters, but Washington Mutual is doing its part to fight whatever vestiges of deflationary forces might be running loose in New York. On 23rd St., teams of promoters are handing out $2 bills--encased in a brochure flogging the bank's free checking. I'm sorry to report to all my economist friends that many seemingly rational human beings declined the offer of free money.

DeLong Smackdown Watch! ("Are My Methods Unsound?" Edition)

Matthew Yglesias demonstrates that he is Il Maestro di Color che Sanno as far as quotes from "Apocalypse Now" are concerned:

Health Care as Opportunity | TPMCafe: An interesting perspective from Brad DeLong:

"Even Medicare and Medicaid and the long-run fiscal crises of America's public health-care programs and the employer-funded health-care system... Let me put it this way: it's not a crisis, it's an opportunity. If technological progress in medicine were to stop tomorrow--if what doctors and nurses and druggists and researchers do and how they do it were to freeze--then we wouldn't be looking forward to a health-care funding crisis. We would have no difficulty funding Medicare and Medicaid, as underlying economic growth boosted tax revenue by more than a stagnant health care system could spend, even with the aging of America. It is only because we--rationally--expect that our doctors, nurses, druggists, and researchers will learn how to do new things, marvelous new things, incredibly expensive new things, that we project health-care spending into the future and blanch in terror. And I do blanch in terror. But it is important not to forget that this is an opportunity: how many wonderful, medical things will we as a society decide to purchase, in how egalitarian a fashion will we as a society distribute them--will only the rich be offered clone-eye transplants when macular degeneration sets in in our nineties--and how will we pay for them? We may fail to grasp this opportunity, or fail to grasp it well. And to miss this opportunity would be a catastrophe. But it is an opportunity, not a crisis."

That makes sense when you think about it. Later, Brad steals a page from my book, quoting "Apocalypse Now" to describe the Bush approach to public policy, but he mangles the lines. Willard says, "They told me that you had gone totally insane, and that your methods were unsound." Kurtz asks: "Are my methods unsound?" And Willard replies: "I don't see any method at all, sir." (They're surrounded by deep-jungle tribespeople, decapitated heads on sticks, all sorts of corpses, etc.) I think that about sums it up.

In comments, Robert Waldmann piles on as well. Clearly I need to buy a DVD of "Apocalypse Now" if I'm going to run with big dogs...

Paul Krugman Commands You to Surf to...

Paul Krugman tells you to surf to:

A Few Notes on Income Inequality - Krugman - NYT Web Journal: My Links

  •, Congressional Budget Office: It's not just about the federal budget. CBO is doing a terrific job these days, and its work covers everything from "Macroeconomic and budgetary impacts of Hurricane Katrina" (Sept. 6, 2005) to income distribution, where CBO's estimates are the most comprehensive. I check the CBO site every few days just to see what's new.
  •, Statistical Abstract of the United States: It's amazing how much you can learn from this source, and how many silly arguments it can help you put to rest. The supplements "Statistics in brief" and "Mini historical statistics," which come with downloadable spreadsheets, are especially useful. A related site I find very useful is the Census site on income statistics, where you can learn about trends in income, poverty, health insurance, and more.
  •, Center on Budget and Policy Priorities: CBPP is a progressive think tank, and its political stance dictates the choice of topics. But even conservatives should read the Center's work: the number-crunching is utterly scrupulous, and there's nothing else, on the left or the right, like CBPP for sophisticated, knowledgeable analysis of government programs. I check the center's site every few days to see what they're cooking.
  • Paul Krugman Smackdown Watch

    What Paul Krugman is reading:

    A Few Notes on Income Inequality - Krugman - NYT Web Journal: What I'm Reading

  • "The General Theory of Employment, Interest, and Money," by John Maynard Keynes: An economic classic that I'm rereading for the first time in, I think, 30 years. There's a reason: I've been asked to write the introduction to a new, 70th anniversary edition. And I have to say that this time around I'm finding depths I was too callow to appreciate when younger. This is truly a profound book, one that changed the world for the better.
  • "The Republican War on Science," by Chris Mooney: There's a man who doesn't hide his views. But Mr. Mooney needs to be listened to. Among other things, he wrote a piece for The American Prospect a few months ago titled "Thinking big about hurricanes: It's time to get serious about saving New Orleans." Alas, nobody listened.
  • "The Algebraist," by Iain M. Banks: Hey, it can't be all work and no play. Science fiction - specifically, Isaac Asimov's Foundation - is what got me into economics in the first place. Mr. Banks, a Scot who isn't that well known in the United States, is probably my favorite contemporary science-fiction writer. If you're interested, I'd suggest "Use of Weapons" as an introduction.

  • I have to smack Paul Krugman down. "Use of Weapons" is not a suitable introduction to the fiction of Iain M. Banks. No no no no no no no. "Use of Weapons," with its amazing protagonist--the man known as Cheradenine Zakalwe--and its interesting excursions into furniture design must only be read by trained professionals. I would recommend "The Player of Games" or "Inversions" or "Consider Phlebas" for a neophyte.

    But not "Use of Weapons." No no no no no no no.

    Tuesday, March 14, 2006

    Global Imbalances

    Agathon: Who look tired.

    Kapelikos: Freshly back from the other coast. Airline load factors are just too high.

    Agathon: Who were you talking to?

    Kapelikos: MegaBankCorp--their investors.

    Agathon: What were you talking about?

    Kapelikos: The usual--global imbalances.

    Agathon: And what did you say?

    Kapelikos: That the global economy is unbalanced--that current patterns of trade are unsustainable--that things that are unsustainable eventually, somehow, stop. What else can you say?

    Agathon: And the argument on the other side? I'm not sure I understand it.

    Kapelikos: I know I don't.

    Agathon: Is it roughly this? "U.S. real GDP is growing at about $400 billion a year. At a capital-output ratio of 3.5-to-1, that means $1.4 trillion of new America-located wealth each year. We can sell off $1 trillion of that every year to foreigners in order to finance our import bill. And still be richer than we were last year. What's unsustainable about that?" Is that the argument?

    Kapelikos: Could be. But that's incoherent--it misses the difference between the trade deficit and the current account. Ten years down the road the current-account deficit is not $1 but $1.4 trillion--$1 trillion of net imports and $0.4 trillion of interest, rent, and profits owed on foreign-owned property here. To hold the annual current-account deficit at $1 trillion requires that the trade deficit shrink, which requires that the dollar decline, which means that foreigners investing in America are making bad decisions.

    Agathon: And when do your models predict the dollar will fall?

    Kapelikos: 2003.

    Agathon: Three years ago?

    Kapelikos: Yep.

    Agathon: But as long as people believe the argument on the other side, the dollar doesn't decline, and the argument looks correct?

    Kapelikos: Yep--for one more year.

    Agathon: How many more yars are you going to be saying, "Wait just one more year"?

    Kapelikos: Until I can say, "I told you so."

    Agathon: Can't you be more specific than that?

    Kapelikos: Ok. How about this. International financial crises tend to come--currencies crash--when interest rates rise in the world economy's core. The Bank of Japan has just joined the ECB and the Federal Reserve in raising interest rates.

    Answering a Simpler but More Tractable Question

    Paul Krugman writes:

    [My] full [introduction to Keynes's General Theory] is up at Bobby Pelgrift's site; some readers might be interested:

    Fwiw, I thought my novel insight was the importance of [John Maynard] Keynes's decision NOT to worry much about the dynamics of the business cycle; it really is interesting to see how [Gottfried] Haberler got bogged down on the wrong question.

    Global Imbalances

    Agathon: Who look tired.

    Kapelikos: Freshly back from the other coast. Airline load factors are just too high.

    Agathon: Who were you talking to?

    Kapelikos: MegaBankCorp--their investors.

    Agathon: What were you talking about?

    Kapelikos: The usual--global imbalances.

    Agathon: And what did you say?

    Kapelikos: That the global economy is unbalanced--that current patterns of trade are unsustainable--that things that are unsustainable eventually, somehow, stop. What else can you say?

    Agathon: And the argument on the other side? I'm not sure I understand it.

    Kapelikos: I know I don't.

    Agathon: Is it roughly this? "U.S. real GDP is growing at about $400 billion a year. At a capital-output ratio of 3.5-to-1, that means $1.4 trillion of new America-located wealth each year. We can sell off $1 trillion of that every year to foreigners in order to finance our import bill. And still be richer than we were last year. What's unsustainable about that?" Is that the argument?

    Kapelikos: Could be. But that's incoherent--it misses the difference between the trade deficit and the current account. Ten years down the road the current-account deficit is not $1 but $1.4 trillion--$1 trillion of net imports and $0.4 trillion of interest, rent, and profits owed on foreign-owned property here. To hold the annual current-account deficit at $1 trillion requires that the trade deficit shrink, which requires that the dollar decline, which means that foreigners investing in America are making bad decisions.

    Agathon: And when do your models predict the dollar will fall?

    Kapelikos: 2003.

    Agathon: Three years ago?

    Kapelikos: Yep.

    Agathon: But as long as people believe the argument on the other side, the dollar doesn't decline, and the argument looks correct?

    Kapelikos: Yep--for one more year.

    Agathon: How many more yars are you going to be saying, "Wait just one more year"?

    Kapelikos: Until I can say, "I told you so."

    Agathon: Can't you be more specific than that?

    Kapelikos: Ok. How about this. International financial crises tend to come--currencies crash--when interest rates rise in the world economy's core. The Bank of Japan has just joined the ECB and the Federal Reserve in raising interest rates.

    Global Imbalances

    Agathon: Who look tired.

    Kapelikos: Freshly back from the other coast. Airline load factors are just too high.

    Agathon: Who were you talking to?

    Kapelikos: MegaBankCorp--their investors.

    Agathon: What were you talking about?

    Kapelikos: The usual--global imbalances.

    Agathon: And what did you say?

    Kapelikos: That the global economy is unbalanced--that current patterns of trade are unsustainable--that things that are unsustainable eventually, somehow, stop. What else can you say?

    Agathon: And the argument on the other side? I'm not sure I understand it.

    Kapelikos: I know I don't.

    Agathon: Is it roughly this? "U.S. real GDP is growing at about $400 billion a year. At a capital-output ratio of 3.5-to-1, that means $1.4 trillion of new America-located wealth each year. We can sell off $1 trillion of that every year to foreigners in order to finance our import bill. And still be richer than we were last year. What's unsustainable about that?" Is that the argument?

    Kapelikos: Could be. But that's incoherent--it misses the difference between the trade deficit and the current account. Ten years down the road the current-account deficit is not $1 but $1.4 trillion--$1 trillion of net imports and $0.4 trillion of interest, rent, and profits owed on foreign-owned property here. To hold the annual current-account deficit at $1 trillion requires that the trade deficit shrink, which requires that the dollar decline, which means that foreigners investing in America are making bad decisions.

    Agathon: And when do your models predict the dollar will fall?

    Kapelikos: 2003.

    Agathon: Three years ago?

    Kapelikos: Yep.

    Agathon: But as long as people believe the argument on the other side, the dollar doesn't decline, and the argument looks correct?

    Kapelikos: Yep--for one more year.

    Agathon: How many more yars are you going to be saying, "Wait just one more year"?

    Kapelikos: Until I can say, "I told you so."

    Agathon: Can't you be more specific than that?

    Kapelikos: Ok. How about this. International financial crises tend to come--currencies crash--when interest rates rise in the world economy's core. The Bank of Japan has just joined the ECB and the Federal Reserve in raising interest rates.

    Income Inequality and Information Filters

    Paul Krugman muses on calling a spade a spade:

    A Few Notes on Income Inequality - Krugman - NYT Web Journal: growing international trade plays some role in growing inequality, but it is, literally, a fraction of a fraction of the story. That's cold comfort for the factory worker whose plant has just been closed because it couldn't compete with imports from China, or the software engineer whose job has just been outsourced to India-- and unless we can do something to provide more economic security, protectionist forces will become unstoppable. But I still believe that we can increase economic security and reduce inequality without shutting down international trade.

    One of the truly strange features about discussions of inequality is the way people shy away from talking about the extent to which the gains from rising inequality have gone to a tiny, wealthy elite.

    Here's a mild example. A few days ago Steve Pearlstein of the Washington Post -- a good guy, and sensible -- wrote about income inequality. As I did in my column just a few days earlier, "Feeling No Pain," he emphasized the "retrospective income" distribution data released by the I.R.S. (Paper at Tables at

    As he pointed out, those data show that the share of income received by the top 10 percent of taxpayers rose from 33 percent in 1979 to 44 percent in 2003. And for his pains, he was smeared by someone at the Cato Institute who needs help -- technical help. Hint to Alan Reynolds: check which table you're looking at before claiming that Congressional Budget Office data refute a statement you don't like.

    But Pearlstein stops there, leaving the impression that everyone in the top 10 percent was a big winner. In fact, there was hardly any rise in the share of income going to people between the 90th and 95th percentiles: almost all the gain went to the top 5 percent. And most of the gain went to a very small elite. The income share of the top 1 percent went from 9.6 to 17.5 percent, accounting for more than 70 percent of the top decile's gain. The income share of the top 0.25 percent went from 4.9 to 10.5, accounting for a bit more than half the total gain.

    Why stop with data that convey the false impression that the winners from inequality are a fairly large group? Does talking about the reality that a very small elite has gotten the lion's share of the gains sound too, um, shrill?

    We're OK! We're Really OK! Well--Probably

    Tuesday lunchtime:

    2006 Washington Economic Policy Conference: Policies to Boost Economic Growth and Security--What's Needed?March 13-14, 2006. Marriott Crystal City at Reagan National Airport

    The current draft:

    Giving a luncheon talk is always an interesting task, a kind of verbal high-wire act. Normal conference sessions are set up for the speaker's convenience: to try to force you to pay attention: to make everything else in the room as boring as possible, so that you have little choice but to focus your attention on the podium.

    That's not true at meals. The people at your table who you're looking in the eye aren't boring. The coffee isn't boring. There's lots of motion as the waiters work back and forth. And I've tried all my life to convince myself that deserts are boring--and conspicuously failed.

    If this were fifteen or twenty years ago, I would be standing up here ready to give my "Age of Diminished Expectations" talk. I would have talked about the collapse of American productivity growth--that we were, collectively, getting rich at a much slower pace than anyone back in the 1960s would have believed possible. I would have talked about intractable short-run budget deficits, the combination of overoptimism on the part of Reagan administration policymakers and the collision of limited resources with expansive demands for government nurtured in the fast productivity growth first post-WWII generation. I would have talked about how Social Security as we knew it was unsalvageable: that the resources simply would not be there. I would have talked about how Medicare and Medicaid were in even greater long-run trouble. I would have talked about slow growth and rapidly-rising inequality were together political poison.

    I would have, fifteen to twenty years ago, talked about how very, very hard decisions needed to be made about resources and their uses--and how the American political system seemed to be incapable of making them, politicians being eager to tell Americans pleasing lies about how all kinds of benefits and goodies could be provided with "read my lips, no new taxes."

    But then things changed. We were fortunate enough to elect some politicians who understood enough macroeconomics to know that if the government does not set out to raise the revenue to meet its spending commitments, then the market will do it and do it in a way you don't like--witness Argentina in 2001. The government shifted from being a source discouraging investment and productivity growth through the crowding-out of productive investment to being a source encouraging investment through crowding-in. We caught the leading edge of the wave of technological revolution to give us the best macroeconomy seen in a generation--and caught the leading edge of the wave in a way that neither Japan nor western Europe has managed to do.

    Memo to Self

    The Crystal Gateway Marriott is not the Crystal City Marriott. The Crystal City Marriott is not the Crystal Gateway Marriott.

    That is all.

    Wage Variability and Corporate Churn

    One more via Mark Thoma. How much of wage turbulence is firms' success at laying risk off onto their workers?

    Economist's View: Did the Recent Increase in Creative Destruction also Increase Wage Volatility?: A Staff Report from the Federal Reserve Bank of New York establishes a connection between creative destruction and volatility in wages. One hypothesis is that firms are smoothing profit through increased flexibility in the use of inputs to production thereby shifting the risk of profit variation onto wages:

    "Turbulent Firms, Turbulent Wages?" by Diego Comin, Erica L. Groshen, and Bess Rabin, Federal Reserve Bank of New York Staff Reports, no. 238, February 2006: 1. Introduction: Has more creative destruction among firms raised wage volatility in the U.S.? Gottschalk and Moffitt [1994, 2002] called attention to the recent rise in the variation of transitory earnings for U.S. workers ... [T]hey estimated that this enhanced volatility accounts for one third to one half of the rise in wage inequality during the 1980s. What is the source of this new instability in pay? Despite its importance, little is known about its correlates or origins.

    Most of the... research on the remarkable and well-documented widening of wage inequality in the U.S. over the past three decades focuses on permanent components of workers' earnings, particularly the rising returns to education and ability associated with technological change, trade, and de-unionization. However, this emphasis ignores the less-studied contribution of larger transitory fluctuations.... We conjecture that the recently documented increase in... creative destruction may drive the rise in wage volatility... Ironically, as firm volatility has risen, the same shielding that once protected workers from large macro fluctuations may now work to allow firms to share their idiosyncratic risk. That is, firms may now rely on wage or job fluctuations to smooth profitability in a riskier marketplace...The bottom line? "We conclude that the rise in firm turbulence explains about 60 percent of the recent rise in ... wage volatility."

    Sunday, March 12, 2006

    Results from the Great Cinnamon Experiment

    Selective Globalization Syndrome

    David Gross tries to start a meme:

    David Gross: If the world is flat, capital, goods and services can go wherever they want. But last week, the process of cross-border economic integration suffered the same fate as foolish mortals who would defy Newtonian physics: it crashed to earth. The furious fight over whether several port terminals in the United States should be owned by a company based in Dubai was resolved uncharacteristically and abruptly on Thursday. DP World, owned by the government of the United Arab Emirates, announced it would transfer the American operations of Peninsular & Oriental Steam Navigation, the British company it is in the process of acquiring.

    During the port debate, opponents warned darkly of the perils of Arab control of vital industry in the United States, and advocates warned, equally darkly, of the perils of alienating foreign investors. But the maelstrom over maritime services is not the first heated exchange on the way globalization appears to pit national economic interests against national security.

    Last summer, anguished protests stopped the Chinese oil company Cnooc from acquiring United States-based Unocal, even though Unocal slakes only a tiny fraction of America's oil thirst. Indeed, the Dubai controversy is merely the latest manifestation of a new condition afflicting politicians, policymakers and ordinary citizens all over the globe. Call it Selective Globalization Syndrome.

    The main symptom: a desire to pick and choose the outcomes of globalization, as if from an à la carte menu. For instance, nobody squawked in 2004 when DP World, then British-owned, bought the port operation of Florida's CSX Corporation for $1.2 billion, or when a company based in Dubai bought the Essex House hotel in New York for $440 million last year....

    Selective Globalization Syndrome drives politicians and government officials to even more seemingly contradictory stances. For instance, a Dubai-based company controlling East Coast ports is an unacceptable security risk, but Chinese companies controlling West Coast ports is fine. The government body that approves such deals, the Committee on Foreign Investments in the United States, had no problem with China's Lenovo controlling I.B.M.'s personal computer business. But it is examining the proposal by Check Point Software Technologies, an Israel-based company, to acquire Sourcefire, a Maryland-based software company that makes security products used by the federal government.... The United States... is... eager to dictate investment terms to non-citizens.

    Buying debt? No problem. Foreign investors own more than half of United States government bonds. The biggest portfolios reside on the ledgers of China's central bank and of various Saudi Arabian and other Persian Gulf government-controlled entities. But equity, which connotes ownership and control, in the same people's hands sparks off Selective Globalization Syndrome.... Selective Globalization Syndrome causes politicians to lash out at symbolic issues they can influence, like the ports deal, because they cannot or don't want to confront the root cause: the propensity of American government and consumers to buy more than they produce, to export more than they import and to borrow more than they save.

    The United States runs a gigantic trade deficit, some $723 billion in 2005, which means it exports huge amounts of capital. But the foreigners who receive all those dollars in exchange for oil or manufactured goods are no longer content to park those greenbacks in government bonds. "Why hold Treasuries that give you a mediocre 4.5 percent return over 30 years when you can instead buy higher return capital such as U.S. corporations, factories, ports and real estate?" asks Nouriel Roubini, an economics professor at New York University's Stern School of Business....

    The International Monetary Fund has noted that the world's fuel-exporting nations will have a $533 billion current account surplus in 2006. That's a half-trillion dollars for foreign countries, specifically foreign countries from the Middle East, to put to work in government bonds, stocks, real estate and, yes, whole companies.

    Geithner: U.S. Monetary Policy in the Global Financial Environment

    Tim Geithner on making global monetary policy without a reliable compass:

    U.S. Monetary Policy in the Global Financial Environment - Federal Reserve Bank of New York: Timothy F. Geithner, President and Chief Executive Officer Remarks at the Japan Society Corporate Luncheon in New York City:

    I will focus on two features of what is happening in the world economy and financial markets today that are among the most interesting and consequential of the many questions we face today in thinking about the changes in the world economy and the task of central banking. These are, first, the behavior of forward interest rates in financial markets, and, second, the pattern of external imbalances....

    When Alan Greenspan first used the term “conundrum” to describe the surprising behavior of forward interest rates, he was reacting to the decline in forward nominal rates over a period in which the Federal Open Market Committee was raising its federal funds target rate. This behavior of forward rates, the counterpart of which is the behavior of the bond yield curve, looked anomalous both in comparison to observations from past tightening cycles and with what seemed to be strong evidence about the fundamental soundness of the outlook for the real economy.

    The source of the relatively low level of nominal rates is still a matter of considerable debate....

    The other surprising feature of the current economic environment is the pattern of global imbalances.... As Alan Greenspan has explained, the greater dispersion in external imbalances can be seen as the inevitable result of fundamentally healthy changes in the world economy. As the world progresses toward increasingly integrated financial and goods markets, other things being equal, one might expect to see an increase in the number of countries with surpluses or deficits, and potentially larger surpluses and deficits, as flows of both financial assets and goods work to equalize desired saving and investment around the world.

    If one were confident that observed imbalances simply reflected a more efficient allocation of the world’s stock of saving to its most productive uses, that relative prices adjust freely in response to changing fundamentals and that economies are flexible and agile in adapting to those changes, then we might also reasonably expect these imbalances to resolve themselves through smooth and gradual adjustments in relative prices and flows of goods and services. These conditions do not fully exist today....

    One feature of present conditions that is not captured by these explanations and that is likely to be playing a significant role in contributing to the combination of these large imbalances and relatively low forward interest rates is the pattern of exchange rate and monetary policy arrangements in the global economy today.... [A] substantial part of the world economy now run monetary policy regimes targeted at limiting the variability in their exchange rate against the dollar, or a basket in which the dollar plays a substantial role. Sustaining that objective in the past several years has required a large accumulation of dollar assets. The scale of this activity has been particularly dramatic in parts of Asia.... These flows add to other sources of private demand for U.S. assets. At the margin, they put downward pressure on U.S. interest rates and upward pressure on other asset prices. Through this effect, the monetary policy regimes that prevail in parts of the world help explain at least part of the persistence of these anomalies. Recognizing that we live in a world where major exchange rates do not move freely against the dollar, means that the dollar is not as flexible as we tend to think. And understanding that the effort to sustain these exchange rate regimes has required more expansionary monetary policy in those countries than would otherwise have been the case helps identify a substantial source of what market participants describe as very ample liquidity in world markets....

    What does this mean for policy?... To the extent that these forces act to put downward pressure on interest rates and upward pressure on other asset prices, they would contribute to more expansionary financial conditions than would otherwise be the case. And, if all else were equal, which of course is unlikely ever to be the case, monetary policy in the affected countries would have to adjust in response; policy would have to act to offset these effects in order to achieve the same impact on the future path of demand and inflation. To do otherwise would run the risk that monetary policy would be too accommodative, pulling resources from the future in a way that would alter the trajectory for the growth of the capital stock, perhaps amplifying the imbalances, and compromising the price stability....

    Let me conclude by observing that a constellation of factors has aligned to produce the current combination of low world interest rates, low risk premia and large global imbalances. Most of these factors are outside the control of U.S. monetary policy, and we do not fully understand their implications for our economy and for policy....


    Suppose there were a mutation that gave its possessor an extra 5% chance of surviving to reproduce (which is an enormous edge), and suppose that mutation were present in 1% of the gene sites 2000 years ago. Then today that mutation would be present in 33% of gene sites.

    Because we have long generations, human evolution happens slowly when compared to historical time. Yet neither Nicholas Wade nor Jonathan Pritchard nor Gregory Cochrane seem capable of doing even the simplest of math. Julius Caesar was only 40 generations ago. The only thing that seems likely to be true in this article is the story of lactose-tolerance:

    The Twists and Turns of History, and of DNA - New York Times: By NICHOLAS WADE: In a study of East Asians, Europeans and Africans, Dr. Pritchard and his colleagues found 700 regions of the genome where genes appear to have been reshaped by natural selection in recent times. In East Asians, the average date of these selection events is 6,600 years ago. Many of the reshaped genes are involved in taste, smell or digestion, suggesting that East Asians experienced some wrenching change in diet. Since the genetic changes occurred around the time that rice farming took hold, they may mark people's adaptation to a historical event, the beginning of the Neolithic revolution as societies switched from wild to cultivated foods.

    Some of the genes are active in the brain and, although their role is not known, may have affected behavior. So perhaps the brain gene changes seen by Dr. Pritchard in East Asians have some connection with the psychological traits described by Dr. Nisbett.

    Some geneticists believe the variations they are seeing in the human genome are so recent that they may help explain historical processes. "Since it looks like there has been significant evolutionary change over historical time, we're going to have to rewrite every history book ever written," said Gregory Cochran, a population geneticist at the University of Utah. "The distribution of genes influencing relevant psychological traits must have been different in Rome than it is today," he added. "The past is not just another country but an entirely different kind of people."

    John McNeill, a historian at Georgetown University, said that "it should be no surprise to anyone that human nature is not a constant" and that selective pressures have probably been stronger in the last 10,000 years than at any other epoch in human evolution. Genetic information could therefore have a lot to contribute, although only a minority of historians might make use of it, he said.

    The political scientist Francis Fukuyama has distinguished between high-trust and low-trust societies, arguing that trust is a basis for prosperity. Since his 1995 book on the subject, researchers have found that oxytocin, a chemical active in the brain, increases the level of trust, at least in psychological experiments. Oxytocin levels are known to be under genetic control in other mammals like voles.

    It is easy to imagine that in societies where trust pays off, generation after generation, the more trusting individuals would have more progeny and the oxytocin-promoting genes would become more common in the population. If conditions should then change, and the society be engulfed by strife and civil warfare for generations, oxytocin levels might fall as the paranoid produced more progeny....

    Since the agricultural revolution, humans have to a large extent created their own environment. But that does not mean the genome has ceased to evolve. The genome can respond to cultural practices as well as to any other kind of change. Northern Europeans, for instance, are known to have responded genetically to the drinking of cow's milk, a practice that began in the Funnel Beaker Culture which thrived 6,000 to 5,000 years ago. They developed lactose tolerance, the unusual ability to digest lactose in adulthood. The gene, which shows up in Dr. Pritchard's test, is almost universal among people of Holland and Sweden who live in the region of the former Funnel Beaker culture.

    The most recent example of a society's possible genetic response to its circumstances is one advanced by Dr. Cochran and Henry Harpending, an anthropologist at the University of Utah. In an article last year they argued that the unusual pattern of genetic diseases found among Ashkenazi Jews (those of Central and Eastern Europe) was a response to the demands for increased intelligence imposed when Jews were largely confined to the intellectually demanding professions of money lending and tax farming. Though this period lasted only from 900 A.D. to about 1700, it was long enough, the two scientists argue, for natural selection to favor any variant gene that enhanced cognitive ability....

    Mark Warner

    Matt Bai on Mark Warner, an unknown southern governor who is thus qualified to win a presidential election in America today:

    The Fallback - New York Times: By MATT BAI: A few weeks before we spoke, Korge had lunch at the Capital Grille in Miami with Mark Warner, who was then in his final weeks as Virginia's governor. Though little known nationally, Warner has emerged in recent months as the bright new star in the constellation of would-be candidates, a source of curiosity among Democrats searching for a charismatic outsider to lead the party. Pundits credit Warner's popularity in Republican-dominated Virginia -- his 80 percent approval rating when he left office made him one of the most adored governors in the state's history %u2014 with enabling his Democratic lieutenant governor, Tim Kaine, to win the election to succeed him last November. Suddenly, Warner is being mentioned near the top of every list of candidates vying for the nomination in 2008.

    Over lunch with Korge and his real-estate partner, Warner made what has become, more or less, his standard pitch. Much as he likes John Kerry and worked hard for him in Virginia, Warner said, the Democratic Party had once again, in 2004, nominated a candidate who could not appeal on a cultural level to white, small-town voters in wide swaths of the country. Warner argued that he was more likely than any of the other potential Democratic candidates to break that cycle. The candidate he was really talking about, of course, was Clinton. It wasn't that she wouldn't do a great job in the White House, necessarily; what Warner was saying, without actually saying it, was that she couldn't get there. Democrats, he liked to say, could not afford to keep trotting out nominees who could expect to win only 16 blue states and then hope, just maybe, for the "triple bank shot" that might deliver Ohio or Florida. They needed a candidate who could compete everywhere....

    Warner's meeting with Korge was an unqualified success. "In my opinion, he's the one to watch as an outsider in this race," Korge told me. "He seems presidential. He's a big guy." (By this he meant, literally, that Warner is well over six feet tall, with a well-coiffed head that requires extra-large baseball caps.) "I think he has a presence. He's very confident. He speaks very well, but he also can speak plainly to people."...

    The negative rap on Warner is a lack of relevant experience; he's a one-term governor (he would still be in office if Virginia allowed its governors to serve consecutive terms), and critics argue that a credible candidate needs to have foreign-policy experience to run in the new, terror-obsessed world. Nonetheless, Warner, on paper, fits the party's most conventional and tested idea of what constitutes an electable candidate. Though he doesn't speak with a drawl (he grew up in Indiana, Illinois and Connecticut and moved to Virginia when he was 32), Warner was the popular centrist governor of a Southern state -- just like the last two Democrats to actually win the White House, Jimmy Carter and Bill Clinton. He's also really, sickeningly wealthy. As a co-founder of the cellular-telephone company that ultimately became Nextel, Warner has access to a personal fortune that is said to approach $200 million, and he has already demonstrated, during an unsuccessful run for the Senate and then in his gubernatorial campaign, that he's willing to use it.

    Because of his previous life as a businessman, Warner is also expected to tap a network of donors in the high-tech and venture-capital fields who are outside the orbit of traditional Democratic fund-raising, just as Bill Bradley did when he ran against Al Gore in 2000.... When a lot of National Democrats first took note of Warner in 2001, they didn't love what they saw. Running for governor in a state where Democrats were in sharp retreat, Warner courted the National Rifle Association and let it be known he'd support parental notification for minors seeking abortions. His outreach to Nascar devotees and bluegrass fans in southern Virginia struck Democrats in the urban North -- as well as many of those across the Potomac River in Washington -- as unseemly pandering.

    Warner was determined, however, not to let Republicans portray him as a cultural elitist. He never made any pretense of being an avid hunter or Nascar fan himself; he's a Presbyterian who wears pressed khakis, and he spends weekends at his private farm and vineyard outside historic Fredericksburg. But Warner, who is 51, grew up mostly in small towns, in a middle-class family, and in the 2001 campaign he made it clear that he genuinely appreciated the cultural pastimes of his rural voters. The respect he showed was reciprocated. Five years ago, I watched voters at the annual fiddlers' festival in Galax, Va., clap Warner on the back and dance along to his campaign song, an impossibly catchy bluegrass tune, while his Republican opponent, the state's former attorney general, milled about uncomfortably. Even after the terrorist attacks that September, which froze the campaign and rallied the country around the president and the Republican Party, Warner won by five points, scoring more support in rural Virginia than any Democrat in recent memory.

    Considering that he has served only four years in government, Warner has plenty to brag about. Relentlessly wooing his Republican Legislature at a time when the two parties in Washington were growing ever more belligerent toward each other, Warner managed to erase a potentially catastrophic $6 billion budget shortfall by working out a bipartisan deal to raise some taxes (on sales and cigarettes) and lower others (on income and food). He passed the plan, in part, by selling it in frequent meetings with voters across the state, earning him a reputation as a nonpartisan deal maker who was willing to deliver unpopular news.

    Warner's constant theme, which a lot of Washington politicians talk about but few seem to actually understand, was the need to modernize for a global economy. The days when you could walk down the street and get a job at the mill were over, Warner would say, and new jobs -- the state gained more than 150,000 of them on his watch -- would require new skills and infrastructure. So Warner, working with Nascar, pushed through an accelerated program that enabled 35,000 more Virginians to get high-school equivalency degrees, and he introduced a program to deliver broadband capacity to 20 Southern counties. "In the 1800's, if the railroad didn't come through your small town, the town shriveled up and went away," he told me once, explaining his rural program. "And if the broadband Internet doesn't come through your town in the next few years, the same thing will happen."

    If he ultimately decides to run for president, Warner will try to build a national campaign around this same technology-driven approach. When I asked Warner to name the issues that would be most important to him, the four domestic issues he ticked off, before he got to terrorism and national security, were fairly standard for a Democratic candidate in the era after Bill Clinton: slashing the federal deficit, improving schools, working with business to reform the health-care system and devising a new energy strategy. What makes Warner, the former entrepreneur, sound more credible than your average Democrat is that he comes at these issues primarily from an economic, rather than a social, standpoint. On health care, for instance, most Washington Democrats will, as a matter of both habit and perspective, talk about the moral imperative of covering workers and the uninsured -- and only then might they add, as an afterthought, that the current morass is an impediment to business too. Warner, on the other hand, begins with the idea that if American businesses can't keep up with spiraling health-care costs, the nation will lose the competition with India and China for jobs. The same principle applies with education and the deficit. His fixation on the global economy brings a coherent framework to issues that otherwise seem disparate and abstract....

    Among the wealthy contributors and liberal activists who have met Warner recently, the most common observation is that he genuinely listens. "I think he will, over time, find a very strong following here," Mark Gorenberg, a San Francisco venture capitalist, told me. An important player in the politics of Silicon Valley and the Bay Area, which has supplanted Los Angeles as the epicenter of Democratic money on the West Coast, Gorenberg was Kerry's top bundler in the last election, and he told me he remains part of Kerry's national "leadership team." But Warner clearly impressed him: "He's a very interesting candidate, especially to the tech industry. He's garnered a lot of interest out here. What he's done differently is that he hasn't raised money. He's the only one who comes out here mostly to meet people."... ..