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, June 17, 2006

Why Oh Why Can't We Have a Better Press Corps? (Washington Post Strikes Again Edition)

Greg Sargent wonders just what Jonathan Weisman and Charles Babbington are thinking:

The Horse's Mouth: REPUBLICAN FALSEHOODS GO UNCORRECTED IN WASHINGTON POST. Today's Washington Post piece on yesterday's congressional debates about Iraq floated two key GOP falsehoods without debunking them. The first:

"I'm not surprised at John Kerry switching his position yet again," [Dick] Cheney said on Sean Hannity's radio talk show. Kerry is charging "that somehow he was misled," the vice president said. "He wasn't misled. He saw the same intelligence all the rest of us saw."

Lies, lies, lies. The falsehood that the President and Congress had access to the same intel in the runup to Iraq has been thoroughly debunked numerous times. Yet the administration has continued to peddle this line for years. And here it is again, quoted in the Post, with not a single word providing this crucial context or noting that it is simply false.

The second:

Central to the House Republicans' argument was the much-disputed link between the attacks of Sept. 11, 2001, and the war in Iraq.

Much-disputed? Not a single scrap of real evidence has ever emerged linking Sept. 11 to Iraq. No one with any credibility at all believes there were any such links. Hence, there are no meaningful connections between Sept. 11 and "the war in Iraq," only rhetorical ones conjured up by people who want to cloud the issue and retroactively justify our failing Iraq venture. To describe this as "much-disputed" creates the false impression that the jury's still out on the question of whether there's some sort of real, meaningful link between the two.... [L]ittle by little, such journalistic failures add up. The numbing repetition of uncorrected falsehoods creates a phony atmosphere of uncertainty around key questions which in fact have already been resolved. Eventually voters throw up their hands and accept the fact that they'll never know for sure what the truth is, and confusion ensues. If the media more aggressively debunked such lies -- every single time, and in every single context -- voters just might stand a chance.

In my view, it's simple: getting the story right is simply not on the list of things they care about. All else follows from that. Trust nothing in the Washington Post until it is independently verified.

Views of the Economy

Daniel Gross writes:

Daniel Gross: June 11, 2006 - June 17, 2006 Archives: MISLEADING AGGREGATES, CONT'D: From John Harwood's story in the Wall Street Journal on the latest WSJ/NBC poll.

"The economy--an issue Republicans, as the governing party, hoped to capitalize on--is providing little traction. Reminded of a host of posisitve statistics on job growth, overall growth and tax cuts, just one in four Americans say those reflect their personal view of the economy.

Even among Americans earning more than $75,000 a year, just one-third embrace the positive view. The top economic concerns cited by respondents: health-care and education costs, gas prices, the federal budget deficit and inflation."

Once again, beware the misleading aggregates.

Paul Krugman on the Fiscal Multipliers

Paul Krugman writes:

A couple of weeks ago I went out to Lincoln, Nebraska (the AP graders - an institution you don't learn about until you're hawking a principles book) and they asked me to give my views on crowding out. I think my formulation is close to yours.

Here's how I explained it. Think of a standard IS-LM picture. Does that match current reality? Obviously not: the Fed doesn't target the money supply, so holding M constant is not a useful thought experiment, and actually confuses students. In fact, since the Fed actually targets the Fed funds rate rather than the money supply, you might think that the LM curve should be replaced with a horizontal FF curve. This would seem to suggest no crowding out at all.

But except in the very short run the Fed doesn't set the interest rate passively; instead, it tries to stabilize output around potential. A reasonable way to represent a Taylor rule or something like that in a simple diagram is to draw a vertical line, the BB curve (for Ben Bernanke). This gives us 100% crowding out.

And I think that's right. Except in liquidity-trap conditions or in the very short run, before the Fed has a chance to catch up, fiscal policy doesn't change aggregate demand, only the mix. The exceptions are important: we had a near-liquidity trap experience in 2003, and it was a good thing that we had some fiscal stimulus (and a bad thing that the stimulus was so poorly designed). But the normal rule is that fiscal policy is fully crowded out.

I think this is important. Fiscal prudence--budget balance--is a politically unpopular but economically important cause. The last thing we need is people claiming that budget deficits have, in our current economy, virtues they do not possess.

Michael Barone Takes the Side of that Third-Rate Burglar, Richard Nixon

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

Outsourced to David Gross:

Daniel Gross: June 11, 2006 - June 17, 2006 Archives: DEFEAT FOR AMERICA?; It wouldn't be a complete week without at least a few lines of shockingly stupid analysis from the Wall Street Journal editorial page, the kind of sentence (or sentences) that make you spit your coffee onto the desk and then launch into a paroxysm of sustained laughter. Thank you, Michael Barone, for making my week complete. He writes, in a piece about Vietnam, Watergate and Karl Rove.

Vietnam and Watergate were... defeats for America -- and for millions of freedom-loving people in the world. They ushered in an era when the political opposition and much of the press have sought not just to defeat administrations but to delegitimize them...

Read it again. Barone apparently believes Watergate was a defeat for America -- and for millions of freedom-loving people in the world.

Let's let Michael Barone's hero speak for himself:

Nixon: Did they get the Brookings Institute raided last night? No? Get it done. I want it done. I want the Brookings Institute's safe cleaned out and have it cleaned out in a way that it makes somebody else responsible....

Stanley L. Kutler, ed. (1997), Abuse of Power: The New Nixon Tapes (New York: Free Press: 0684841274), pp. 7-8.

Mark Schmitt Is Displeased with the "Spectacularly Wrong" Peter Beinart

Mark Schmitt writes:

The Decembrist: The Completely Incorrect History of the Democratic Party: I know we're done with the Peter Beinart book club, and the poor guy is getting picked on a lot this week. But I can't resist, and as President Bush said after teasing a legally blind reporter for wearing sunglasses, "I needle you guys out of affection." (The bully's excuse, doubly vicious because so plainly untrue, and forces the victim to be courteous.) I wouldn't say that I needle Beinart out of affection -- I don't know him well, but I admire him for trying to produce something of substance out of the admission that he was wrong about Iraq -- but out of frustration with the fact that he so often seems to start off o.k. and then gets things so spectacularly wrong.

So here's his latest. In a defense of the Clinton Administration (which I'm totally comfortable with, by the way, having seen myself recently described as a "Clinton Democrat" and not flinching) Beinart gives the following thumbnail history of the Democratic Party in the 1970s:

In reality, the Democratic Party didn't lose the confidence of its convictions when Clinton became president; it lost them when he was in graduate school. From Harry Truman through Lyndon Johnson, Democrats stood for three basic things: enlightened anti-communism, an expanding welfare state, and racial integration.

Between 1968 and 1972, under pressure from Vietnam and racial conflict, two of those three collapsed. By 1972, George McGovern was urging the virtual abandonment of anticommunism and advocating racial quotas. Then, in 1976, Democrats nominated a relative economic conservative, Jimmy Carter, who showed little interest in extending Johnson's Great Society largesse. And, poof--there went principle number three.

In The Good Fight, it's not quite so clear that this is how he would sum up the history, but Wow! Let's take that second paragraph one point at a time:

By 1972, George McGovern was urging the virtual abandonment of anticommunism,

Um, don't know what you're talking about here. McGovern was opposed to the Vietnam War, which was a war against communism. But the "enlightened" anti-communist liberals also opposed that war. To say that opposing the Vietnam is tantamount to "virtual abandonment of anticommunism" is the same as arguing that opposing the Iraq war is a virtual abandonment of opposition to terrorism. Since Beinart is not now willing to make either argument, he cannot keep baiting McGovern as insufficiently anti-communist, in the same way that he cannot continue to bait Iraq war opponents (among whom he now counts himself) for being insufficiently anti-terrorist. Although he makes a good rhetorical effort to do so.

and advocating racial quotas

o.k., the point here seems to be that the Truman-through-Johnson Democrats stood for "racial integration," whereas McGovern abandoned that principle by "advocating racial quotas." That assumes that affirmative action is somehow antithetical to integration, rather than a means to achieve it....

I have no gripe with Beinart's rehabiliation of Clinton. I was never very critical of Clinton, and now that we really understand just how vicious the right-wing machine is, we have to appreciate that he did not have the freedom of movement that LBJ had, and that he made almost as much as could be made of his severely constrained political circumstances. It should be possible to make that case without trashing a couple decades of well-meaning, serious liberals -- as committed to anti-communism, racial fairness and broadly shared economic security as their elders -- who just happened to lack the policial skills of an LBJ or Clinton.

Economist's View: Paul Krugman: The Phantom Menace

Paul Krugman says that we should fear the fear of inflation. Via Mark Thoma:

Economist's View: Paul Krugman: The Phantom Menace: Paul Krugman wonders why the Fed is so concerned with inflation when wage growth isn't keeping up with productivity:

The Phantom Menace, by Paul Krugman, Commentary, NY Times: Over the last few weeks monetary officials have sounded increasingly worried about rising prices. On Wednesday, Richard Fisher, the president of the Federal Reserve Bank of Dallas, declared that inflation "is running at a rate that is just too corrosive to be accepted by a virtuous central banker."

I'm worried too... but not about recent price increases. What worries me, instead, is the Fed's overreaction to those increases.... Fed officials now seem worried that we may be seeing the start of another round of self-sustaining inflation. But is that a realistic fear? Only if you think we can have a wage-price spiral without, you know, the wages part.

The point is that wage increases can be a major driver of inflation only if workers consistently receive raises that substantially exceed productivity growth. And that just hasn't been happening....

It would be an exaggeration to say that there's no inflation threat at all. I can think of ways in which inflation could become a problem. But it's much easier to think of ways in which the Federal Reserve, wrongly focused on the phantom menace of a new wage-price spiral, could be slow to respond to bigger threats, like a rapidly deflating housing bubble. So I don't fear inflation nearly as much as I fear the fear of inflation...

Bad News on the International Finance Numbers

Daniel Gros writes in the FT:

FT.com / Comment & analysis / Comment - Discrepancies in US accounts hide black hole: By Daniel Gros: The global financial system seems to have a black hole at its centre. Over the last two decades, US residents have sold a total of about $5,500bn worth of IOUs to foreigners, yet the officially recorded net investment position of the US has deteriorated only by a little more than half of this amount ($2,800bn). The US capital market seems to have acted like a black hole for investors from the rest of world in which $2,700bn vanished from sight -- or at least from the official statistics.

How can $2,700bn disappear?

It is often argued that the US can simply make large capital gains on its gross positions because its assets are denominated in foreign currency and its liabilities in dollars. However, the available data indicate that over the last two decades this factor has netted the US at most $300bn-$400bn. This still leaves a loss of well over $2,000bn to be explained.

The explanation comes in two tranches of about $1,000bn each.

The first source of accounting revenues for the US derives from an anomaly in the item "reinvested earnings" on foreign direct investment in the US balance of payments... foreign companies systematically report abnormally low profits for their US operations to avoid US corporate income taxes.... [T]he country's current account deficit would thus be about 1 per cent of gross domestic product larger than officially reported.

The underreporting of the current account deficit implies that US indebtedness is also underestimated... about $1,000bn.

A second source of gains comes from very large residuals... in... statistics on the evolution of the net US international investment position... also... about $1,000bn over the past two decades....

The discrepancy arises for a simple reason: the current account data are based on actual flows of payments recorded in the balance of payments. By contrast, the data on the US international investment position are based on surveys of depository institutions, which year after year tend to lose sight of US assets held by foreigners, especially portfolio investment and real estate....

[I]t is likely that the true US net external debtor position is around $4,000bn (about 40 per cent of GDP) rather than the $2,500bn reported officially for end-2004... both the current account deficit and the net debtor position of the US are even worse than officially reported. This can only mean that the need for a substantial depreciation of the dollar and/or a period of sub-par growth is even bigger than generally accepted...

Thursday, June 15, 2006

Global Imbalances: Capital and Its Complements

My powerpoint slides for my talk Friday morning at the Federal Reserve Bank of Boston's conference: Global Imbalances: As Giants Evolve

Alas! There is no paper to distribute. It hasn't jelled, and I am too embarrassed at its present state.

Wednesday, June 14, 2006

The Car Seat and the Volonte Generale

Glenn Reynolds whines about having to put his children in car seats, whines about having to drive them to soccer practice, whines about being asked to help out on field trips, and whines about being expected to be a presence in his children's education:

OpinionJournal - Federation: We've taken a lot of the fun out of parenting.... [A]side from the economic payoffs, parents used to get a lot of social benefits, too. Yet in recent decades, a collection of parenting "experts" and safety-fascist types have extinguished some of the benefits while raising the costs, to the point where what's amazing isn't that people are having fewer kids, but that people are having kids at all....

[Today] the burden on parents is much, much higher. And it's exacted in a million tiny yet irritating other ways. Some are worthwhile--car seats, for example, are probably a net gain in safety--but even there the cost is high. I heard a radio host in Knoxville, Tenn., making fun of SUVs and minivans: When he was a kid, he boasted, his parents took their five children cross-country in an Impala sedan. Nowadays, you'd never make it without being cited for neglect. And you can't get five kids in a sedan if they all have to have car seats, which these days they seem to require until they're 18....

[T]he pressure to take children for a seemingly endless array of after-school activities, most of which require parental chauffering. Add to this the increasing amount of parental responsibility for things their children do wrong, coupled with steady legal diminution of parental authority (Ms. Flanagan mentions an incident in which Caroline Kennedy was spanked for running off and notes that today it might result in jail time--an exaggeration, perhaps, but not by much.) You're responsible for your kids in ways previous generations weren't, but your ability to discipline them is much reduced; and as my wife, a forensic psychologist, notes, the bad kids know that they can cow most adults by threatening to call 911 and make a bogus abuse charge.

And forget disciplining your child, even with a harsh word, in a public place. At the very least, if you do you'll be looked on not as a virtuous parent helping to preserve the social fabric, but as that worst of all sinners in contemporary American culture: a meanie. And schools, anxious for parental "involvement," place far more demands on parents than they did when I was a kid...

I had forgotten he was such a whiner.

Let me assure him that here in glorious San Francisco, parents discipline their children with harsh words in public all the time: "Mandala! Have respect for different faiths! Mormons are people!" "Ezekiel! Stand up straight! Your body can't be in harmony with your Manipura Chakra that low!" Let me assure him that we have songs in our hearts and springs in our steps as we strap our children into their car seats and think, "Thank God! We've just greatly reduced the odds that an accident will be serious! All praise the wisdom of the NHTSA, part of the Federal Department of Transportation, and its role in the process by which we make the laws that we then ourselves obey!" And let me say that driving the Sixteen-Year-Old to track practice so that he can break 5:20 for the metric mile is a great delight.

Nieman Watchdog > Commentary > Twelve Things Economists Need to Remember to Be Helpful Journalistic Sources:

Nieman Watchdog > Commentary > Twelve Things Economists Need to Remember to Be Helpful Journalistic Sources:: COMMENTARY | June 13, 2006

In an accompanying piece to Twelve Things Journalists Need to Remember to Be Good Economic Reporters, Berkeley economics professor Brad DeLong teams up with journalism professor Susan Rasky on a quick guide for economists who talk to journalists and want to help, rather than hurt.

By Brad DeLong and Susan Rasky
jbdelong@berkeley.edu and rasky@berkeley.edu

  1. Know your customers. Is the journalist who has just contacted you for comment on taxing internet services looking for a broadcast soundbite, for two paragraphs of context, or help in understanding how taxes work? Is she on a tight deadline?

  2. Be especially kind to the uninformed journalist. He gets ten points for calling you in the first place, and with rare exceptions, is almost surely working for editors who know less than he does. Encourage him, help him figure out what he should be asking you, and you%u2019ll be surprised about how much smarter he seems the next time he calls.

  3. Get over your snobbery about local television news. This is a genuine opportunity to reach the public. Learn to use it. Remember that the local TV reporter%u2019s gasoline-price story this evening will be seen by 300,000 people. Your op-ed will be read by 20,000, if you are lucky. Your journal articles will be seriously read by 12.

  4. Never say, "on the one hand, on the other hand." Always say, "I think X because I believe Y is most important; other economists will tell you Z because they think Q is most important. They're probably wrong because of R."

  5. Keep your sentences short. This is particularly important on radio and television. But it is wise for print as well. Pith and wit are always desirable. They are especially desirable if you are making fun of how economists talk.

  6. Use examples. Every theoretical point you make needs to be illustrated by a concrete example. Don't say: "It's supply and demand--long-term interest rates are low because the supply of capital is high." Say, instead: "Because the central bank of China has bought up $500 billion of Treasury bonds, the American banks that would have otherwise bought those Treasury bonds need to put their money somewhere, and that's why they are so anxious to make you a home-equity loan." Examples based on typical workers, typical households or typical families are the easiest for journalists and their readers, listeners and viewers to understand.

  7. Remember that the plural of anecdote is data. Help journalists understand how to find and use anecdotes that are representative of genuine trends. See Number 5 in Twelve Things Journalists Need to Remember to Be Good Economic Reporters.

  8. Look for teaching moments. Journalists are trained to believe that the cost of knee surgery for pets is as interesting and as important as the long-run cost of the Medicare Drug Benefit. They are not trained to distinguish between issues that are of vital importance to everybody and issues that are important only to a few unrepresentative yuppies. Clearly mark out where the water is, and lead journalists to it--they won't find it without you.

  9. Take control of the narrative. For instance, the story is how the oil market works in a time of high demand, not how evil the oil companies are. The oil companies' degree of evilness has not risen since 1998. But industrializing China now wants to burn a bunch more oil, and two decades of low oil prices have turned the U.S. into a land where Honda civics have been replaced by SUVs.

  10. Bust myths. For instance, people shouldn't think that suspending the pumping of oil into the Strategic Petroleum Reserve materially changes the worldwide cost of a gallon of gasoline.

  11. Be generous to your peers. Reporters have fairly loose criteria for expert comment, especially when they are hunting for quotes on deadline. Answer questions, but tell reporters who would answer them better.

  12. Just Say No. The corollary to the admonition above. Beware of getting overexposed. If you are quoted too frequently on too many general economic subjects, reporters will lose respect for your academic expertise.

Nieman Watchdog > Commentary > Twelve Things Economists Need to Remember to Be Helpful Journalistic Sources:

Nieman Watchdog > Commentary > Twelve Things Economists Need to Remember to Be Helpful Journalistic Sources:: COMMENTARY | June 13, 2006

In an accompanying piece to Twelve Things Journalists Need to Remember to Be Good Economic Reporters, Berkeley economics professor Brad DeLong teams up with journalism professor Susan Rasky on a quick guide for economists who talk to journalists and want to help, rather than hurt.

By Brad DeLong and Susan Rasky
jbdelong@berkeley.edu and rasky@berkeley.edu

  1. Know your customers. Is the journalist who has just contacted you for comment on taxing internet services looking for a broadcast soundbite, for two paragraphs of context, or help in understanding how taxes work? Is she on a tight deadline?

  2. Be especially kind to the uninformed journalist. He gets ten points for calling you in the first place, and with rare exceptions, is almost surely working for editors who know less than he does. Encourage him, help him figure out what he should be asking you, and you%u2019ll be surprised about how much smarter he seems the next time he calls.

  3. Get over your snobbery about local television news. This is a genuine opportunity to reach the public. Learn to use it. Remember that the local TV reporter%u2019s gasoline-price story this evening will be seen by 300,000 people. Your op-ed will be read by 20,000, if you are lucky. Your journal articles will be seriously read by 12.

  4. Never say, "on the one hand, on the other hand." Always say, "I think X because I believe Y is most important; other economists will tell you Z because they think Q is most important. They're probably wrong because of R."

  5. Keep your sentences short. This is particularly important on radio and television. But it is wise for print as well. Pith and wit are always desirable. They are especially desirable if you are making fun of how economists talk.

  6. Use examples. Every theoretical point you make needs to be illustrated by a concrete example. Don't say: "It's supply and demand--long-term interest rates are low because the supply of capital is high." Say, instead: "Because the central bank of China has bought up $500 billion of Treasury bonds, the American banks that would have otherwise bought those Treasury bonds need to put their money somewhere, and that's why they are so anxious to make you a home-equity loan." Examples based on typical workers, typical households or typical families are the easiest for journalists and their readers, listeners and viewers to understand.

  7. Remember that the plural of anecdote is data. Help journalists understand how to find and use anecdotes that are representative of genuine trends. See Number 5 in Twelve Things Journalists Need to Remember to Be Good Economic Reporters.

  8. Look for teaching moments. Journalists are trained to believe that the cost of knee surgery for pets is as interesting and as important as the long-run cost of the Medicare Drug Benefit. They are not trained to distinguish between issues that are of vital importance to everybody and issues that are important only to a few unrepresentative yuppies. Clearly mark out where the water is, and lead journalists to it--they won't find it without you.

  9. Take control of the narrative. For instance, the story is how the oil market works in a time of high demand, not how evil the oil companies are. The oil companies' degree of evilness has not risen since 1998. But industrializing China now wants to burn a bunch more oil, and two decades of low oil prices have turned the U.S. into a land where Honda civics have been replaced by SUVs.

  10. Bust myths. For instance, people shouldn't think that suspending the pumping of oil into the Strategic Petroleum Reserve materially changes the worldwide cost of a gallon of gasoline.

  11. Be generous to your peers. Reporters have fairly loose criteria for expert comment, especially when they are hunting for quotes on deadline. Answer questions, but tell reporters who would answer them better.

  12. Just Say No. The corollary to the admonition above. Beware of getting overexposed. If you are quoted too frequently on too many general economic subjects, reporters will lose respect for your academic expertise.

The Structure of Republican Thought

John of Vegacura has a nice post on the Structure of Republican Thought:

Vegacura](http://vegacura.blogspot.com/): The evolution of Republican thought It would be amusing -- if not so devastating -- to note the parallels in the way Republicans have chosen to address two of the more significant issues facing us during their long, painful reign as the single party in power.

Climate change: "It's a hoax" becomes "the science is still in dispute" becomes "Crazy Al Gore wants to do away with the internal combustion engine" becomes "let's study it for another 10 years" becomes "ok, it's real, but it would be too expensive to do anything about it so learn to live with it."

Massive budget deficits: "Fuzzy math!" becomes "lower taxes on the rich will generate more taxes, really" becomes "deficits don't matter; we won" becomes "the deficit is so huge that doing small things, like maintaining the Estate Tax for the wealthiest inheritors, won't really help."

The Republican mantra, after six long years of holding all three branches of the federal government and finding that governing is "hard, real hard," seems to be, "aw, f--- it."

UPDATE: Well, at least Fafnir and Giblets are back to help us understand this mode of thinking.

Land of the Free

Fareed Zakaria on green cards:

To Become an American: By Fareed Zakaria: Seven years ago, when I was visiting Germany, I met with an official who explained to me that the country had a foolproof solution to its economic woes. Watching the U.S. economy soar during the 1990s, the Germans had decided that they, too, needed to go the high-technology route. But how? In the late '90s, the answer seemed obvious: Indians. After all, Indian entrepreneurs accounted for one of every three Silicon Valley start-ups. So the German government decided that it would lure Indians to Germany just as America does: by offering green cards. Officials created something called the German Green Card and announced that they would issue 20,000 in the first year. Naturally, they expected that tens of thousands more Indians would soon be begging to come, and perhaps the quotas would have to be increased. But the program was a flop. A year later barely half of the 20,000 cards had been issued. After a few extensions, the program was abolished.

I told the German official at the time that I was sure the initiative would fail. It's not that I had any particular expertise in immigration policy, but I understood something about green cards, because I had one (the American version) myself. The German Green Card was misnamed, I argued, because it never, under any circumstances, translated into German citizenship. The U.S. green card, by contrast, is an almost automatic path to becoming American (after five years and a clean record).

The official dismissed my objection, saying that there was no way Germany was going to offer these people citizenship. "We need young tech workers," he said. "That's what this program is all about." So Germany was asking bright young professionals to leave their country, culture and families; move thousands of miles away; learn a new language; and work in a strange land -- but without any prospect of ever being part of their new home. Germany was sending a signal, one that was accurately received in India and other countries, and also by Germany's own immigrant community.

Many Americans have become enamored of the European approach to immigration -- perhaps without realizing it. Guest workers, penalties, sanctions and deportation are all a part of Europe's mode of dealing with immigrants. The results of this approach have been on display recently in France, where rioting migrant youths again burned cars last week. Across Europe one sees disaffected, alienated immigrants, ripe for radicalism. The immigrant communities deserve their fair share of blame for this, but there's a cycle at work. European societies exclude the immigrants, who become alienated and reject their societies.

One puzzle about post-Sept. 11 America is that it has not had a subsequent terror attack -- not even a small backpack bomb in a movie theater -- while there have been dozens in Europe. My own explanation is that American immigrant communities, even Arab and Muslim ones, are not very radicalized.... Compared with every other country in the world, America does immigration superbly. Do we really want to junk that for the French approach?

The United States has a real problem with flows of illegal immigrants, largely from Mexico (70 percent of illegal immigrants are from that one country). But let us understand the forces at work here. "The income gap between the United States and Mexico is the largest between any two contiguous countries in the world," writes Stanford historian David Kennedy. That huge disparity is producing massive demand in the United States and massive supply from Mexico and Central America. Whenever governments try to come between these two forces -- think of drugs -- simply increasing enforcement does not work. Tighter border control is an excellent idea, but to work, it will have to be coupled with some recognition of the laws of supply and demand -- that is, it will have to include expansion of the legal immigrant pool.

Beyond the purely economic issue, however, there is the much deeper one that defines America -- to itself, to its immigrants and to the world. How do we want to treat those who are already in this country, working and living with us? How do we want to treat those who come in on visas or guest permits? These people must have some hope, some reasonable path to becoming Americans. Otherwise we are sending a signal that there are groups of people who are somehow unfit to be Americans, that these newcomers are not really welcome and that what we want are workers, not potential citizens. And we will end up with immigrants who have similarly cold feelings about America.

Why Oh Why Can't We Have a Better Press Corps?

Duncan Black thinks that Mark Leibovich of the New York Times should eschew the passive voice:

Eschaton: Fresh from obsessing about Hillary Clinton's panties the New York Times has moved on to treating Nancy Pelosi, the longest-serving member of the House Intelligence Committee, as a 17 year old girl about to have her coming out party. My favorite was this paragraph:

As the prospect of a Democratic majority gains credibility and Ms. Pelosi is more visible, she is also subjected to the speculation and analysis about her hair, makeup and clothes that any woman positioned for such a big job often must endure.

Ah, the passive voice. Who is subjecting her to such speculation? Why, Mark Leibovich is! In the pages of the paper of record.

Strunk and White would agree.

Andrew Samwick Worries About Inflation and Real Earnings

He writes:

Vox Baby: Real Earnings, Not So Much: The BLS released the May CPI report and the associated Real Earnings report. The news is not pretty.

The former reports that the CPI (CPI-U) rose by 5.2 percent at a seasonally adjusted annual rate in the first 5 months of the year of the year. It is not all energy costs--the CPI excluding food (another volatile sector) and energy rose at a 3.1 percent rate during that period. Even the lower number, if it reflected the whole index, should be enough to incline the Fed toward continued rate increases (spoken by a novice Fed watcher). Over the twelve months ended in May, the two indexes are up 4.2 and 2.4 percent, respectively.

But I've never been one to spend a lot of time thinking about inflation per se. What matters to me is whether the price level has risen relative to other macro variables, like compensation. The second report tells us that:

Real average weekly earnings fell by 0.7 percent from April to May after seasonal adjustment, according to preliminary data released today by the Bureau of Labor Statistics of the U.S. Department of Labor. A 0.3 percent decline in average weekly hours and a 0.5 percent increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) were partially offset by a 0.1 percent rise in average hourly earnings.

And the failure for real earnings to advance is evident in every major sector, as shown in this table (focus on the bottom panel, so that the impact of declining hours is reflected). There isn't a single broad industry group where the real average weekly earnings have risen more than 0.8 percent over the past year, and all but two are actually negative.

This isn't the entire workforce--only the 80 percent or so who are production or non-supervisory workers on private, nonfarm payrolls. It isn't total income--just the (pre-tax) earnings component of it. It isn't the whole economy--just the returns to this segment of the labor market. But it isn't good.

Fafblog! Has Returned!

Fafblog is back.

BoingBoing sings the hosannas:

Boing Boing: Lampooning the American dismissal of Gitmo suicides: Fafblog today features a scathing, brilliant satirical look at the US characterization of the Guantanamo Bay suicides as an attack on America. Fafblog is consistently the best political satire/commentary on the net, the Web equivalent of Jon Stewart and Stephen Colbert, and they're finally back after a too-long hiatus. The characterization of the Gitmo suicides as an act of terrorism is so ugly and disingenuous that it begged to be punctured. I'm thankful that Fafblog is back to perform that service.

Run for your lives - America is under attack! Just days ago three prisoners at Guantanamo Bay committed suicide in a savage assault on America's freedom to not care about prisoner suicides! Oh sure, the "Blame Atrocities First" crowd will tell you these prisoners were "driven to despair," that they "had no rights," that they were "held and tortured without due process or judicial oversight in a nightmarish mockery of justice." But what they won't tell you is that they only committed suicide as part of a diabolical ruse to trick the world into thinking our secret torture camp is the kind of secret torture camp that drives its prisoners to commit suicide!...

A "Third Way" on Network Neutrality

The highly intelligent Lynne Keisling finds something interesting on net neutrality:

Knowledge Problem: A "Third Way" on Network Neutrality: Regular KP readers might have noticed my reticence to opine on the current net neutrality roilings (which is why I am grateful to Mike for picking up the slack). There's a good reason for that: I don't find either of the polemic, binary, extreme positions that are being argued and memorialized in legislative proposals compelling or fully correct. I find the arguments in favor of so-called net neutrality histrionic and likely to lead to stagnation of the Internet. I am (much) more compelled by the arguments in favor of not regulating net neutrality, but I still have concerns about owners of the fixed wires infrastructure being able to earn uneconomic rents during the process of Schumpeterian competition for the post-broadband platform. Given that position, I thought it better to keep my mouth shut.

But no longer! I have ammunition! This ammunition takes the form of Rob Atkinson's and Phil Weiser's paper, A "Third Way" on Network Neutrality. Phil is one of the most thoughtful and knowledgeable scholars on this question (and I'm sure I'd say the same about Rob if I knew him!), so I take his arguments seriously. And this argument deserves to be taken seriously. For example,

We believe that the current state of the network neutrality debate, like many polarized issues, denies the reasonable concerns articulated by each side and obscures the contours of a sensible solution. In this paper, we outline both the reasonable concerns of each side in the debate with respect to the future of the Internet, as well as the claims made by each side that we believe are not factually correct or economically supportable. We hope that by doing so, and by placing the issues into a proper context, we can shed light on the underlying issues as well as articulate the essential elements of a sensible and effective solution.

Their "sensible and effective solution" involves three basic concepts: open information (broadband providers should state their access terms and usage policies clearly) for consumer protection, an ex post antitrust-competition policy approach instead of an ex ante preventive regulation approach, and targeted tax policy to encourage broadband investment. They take seriously the issue of complementarity within networks; in other words, for example, the idea that access to Google and other applications increases the value of broadband access, so what economic incentive do they have to limit your access if it means you would be willing to pay less for their broadband service?

I heartily encourage you to read this short, concise, well-written, reasonable argument. I don't agree with all of it (not surprisingly, I'm not a big fan of social engineering through tax policy), but I think this approach strongly dominates all of the polemic legislative proposals that are being considered.

Tuesday, June 13, 2006

The Pile of Books to Read Shrinks...

Here we have a notable book of political philosophy, that would in a better world than this be called Really Existing Anarchy for Dummies:

George MacDonald Fraser (1971), The Steel Bonnets: The Story of the Anglo-Scottish Border Reivers (New York: Harper Collins: 0002727463).

Greg Mankiw Praises John McCain

Greg Mankiw praises John McCain and suggests everyone read his speech to the Economic Club of New York:

Greg Mankiw's Blog: McCain on the Economic Challenges: John McCain gave a speech to the Economic Club of New York yesterday.... (Full disclosure: I was among a handful of economists working for Senator McCain during the 2000 presidential primary, and I even rode the campaign bus with him for a couple days, but I have not talked with him since then.) The whole speech is worth reading....

[...]

McCain passes [the test] with flying colors. What the speech does not do, however, is propose specific policies consistent with these admirable generalities. But maybe that is too much to hope for at the beginning of a presidential campaign.

Here's what John McCain says about the fiscal policies of George W. Bush's administration and the Republican congressional leadership:

U.S. Senator John McCain: While booming entitlement spending threatens us in the long run, our short term fiscal situation is terrible as well. In the past six years, government spending has gone from irresponsible to utterly indefensible. The numbers should shock us, and government's indifference to them should shame us....

[...]

Legislators pass pork-filled bills without the fear of public retribution or presidential veto. Federal spending, and the special interest earmarks that destroy the budget process and waste taxpayer dollars by the billions continues at a breakneck pace. Sadly, we haven’t reformed the bankrupt “tax and spend” policies.... We have, it is now evident, merely replaced them with a new and even more insidious scheme of “borrow and spend.”...

Twenty Four Things

Susan Rasky and I are live at Nieman Watchdog with our twenty-four things:

Berkeley economics professor Brad DeLong teams up with journalism professor Susan Rasky on a quick guide for journalists who talk to economists and want to be in the information -- rather than disinformation -- business.

Twelve Things Journalists Need to Remember to Be Good Economic Reporters

Twelve Things Economists Need to Remember to Be Helpful Journalistic Sources:

Conspiracy of Fools

The pile shrinks further:

Kurt Eichenwald (2005), Conspiracy of Fools: A True Story (New York: Broadway: 0767911792).

It's interesting. Eichenwald writes a huge book--800 pages--and at the end of it a casual reader has no understanding of why Enron went bankrupt. Enron reported $11 billion of stockholders' equity as of the end of 2000. It made an additional $2 billion or so during the Great Raid on California in early 2001. Yet by September of 2001 it had $30 billion in debt, $10 billion of which was coming due in the next year, and no net cash flow.

Andy Fastow and his friends didn't take that much via their Raptor and LJM vehicles: $250 million tops. Andy Fastow and company didn't lose all that much by using Raptor, LJM, and other vehicles to place bets on Enron stock on behalf of Enron--$1.25 billion, max. There's still some $11.5 billion of reported stockholders' equity that went missing.

Enron used what it claimed was "mark to market" accounting. Each time a contract was completed, the contract was valued as if it were a liquid security, and the value imputed in that as if process was booked as revenue. This meant that a negotiator desperate to reach a deal could (a) give away the store to the counterparty, and still (b) make assumptions in his "mark to market" valuation that made the deal look really profitable.

Now at least the first generation of Enroners were not profoundly stupid fools: they had people in charge of reviewing and monitoring the contracts made--experts in figuring out what the contract would be worth if it were a liquid security. People like Vince Kaminski, who one day, Eichenwald reports, got a call from Enron President Jeff Skilling:

"There have been some complaints, Vince, that you're not helping people do transactions," Skilling said. "Instead, you are spending all your time acting like cops." A pause. "We don't need cops, Vince."

Skilling's predecessor as President of Enron, Richard Kinder, quit Enron in 1996 when the board of directors refused to anoint him as CEO-heir-apparent. He went out and founded Kinder Morgan, buying up Enron's pipeline operations in 1997 Today Kinder Morgan is a profitable energy transportation and distribution company with a current market value of roughly $25 billion--of which $2.4 billion is Kinder's. You can bet that Richard Kinder very much believes that his company needs "cops."

Nevertheless, $11.5 billion in reported stockholders' equity gone? That's a lot of money to lose because you are allowing your traders and executives to assign optimistic valuations to their own deals.

A Utilitarian Comments Policy

Marginal Revolution outlines its comments policy:

Marginal Revolution: Comments policy: In response to a few inquiries, here is a reminder about our comments policy. Having "comments on" is neither a default nor a right for the reader. Usually the quality of the comments is excellent; I read them with learning and real joy. But some topics attract, or have attracted, poorly thought out or overly emotional comments. Some topics fall into very predictable debates. In other cases previous comments already have attracted significant and noteworthy discussion. Paul Krugman, free will, religion, Iraq, and yes immigration are a few examples of these tendencies. Once low-quality comments get started, they tend to feed upon themselves, sometimes for days at a time. We know that good comments attract readers to this blog, so we wish to maximize the average quality of comments. Sometimes this means no comments, but that is in the interests of good debate, stochastically speaking and properly construed over time.

Don't overanalyze this. Other times comments are turned off simply because neither of us is available to monitor for spam. There is also something to be said for randomization per se. We also do not favor off-topic comments, which tend to be deleted. "Comments off" is not an attempt to stifle debate; there are thousands and indeed millions of other outlets for your views and that is debate too.

I would like to know the algorithm they have for predicting when the average quality of comments on a thread will be negative...

Neoclassical Finance

One of the nice things about the summer is that the pile of books to be read actually shrinks:

Stephen Ross (2006), Neoclassical Finance (Princeton: Princeton University Press: 0691121389)

is excellent, although in many places I find it ultimately unconvincing.

:-)

Monday, June 12, 2006

On the Maintenance of a Healthy Public Sphere...

In what may be, I think, my last link to The New Republic, Jonathan Chait has an excellent article on the shrill screeds of Bush hatred emanating from the right:

TNR Online | Binge and Purge (1 of 2) (print): by Jonathan Chait: In "The Man Who Would Be King," the late-nineteenth-century Rudyard Kipling story later turned into a movie, an English adventurer named Daniel Dravot becomes the regent of Kafiristan, a remote mountainous region north of India. Dravot leads the Kafiri people to a string of battlefield victories, and they receive him as a God, the son of Alexander the Great, and turn their treasure over to him. But then they see him bleed, and--discovering he is mortal after all--turn on him with unbridled rage. Mobs of tribesmen denounce him as a fraud, chase him out of the temple, and ultimately send him plummeting to his doom.

Something similar is happening now to George W. Bush. Not long ago, conservatives hailed him as a fearless leader in the war on terrorism, a great man of history, Reagan's son. Long after the patriotic upsurge following September 11 had crested, the conservative base held him in awe. "George W. Bush has been a resolute and even heroic president in a terrifying time," wrote David Frum. Bush is "not only a good and trusted war leader, but a cunning and bold political leader," editorialized The Washington Times.

Now his former acolytes are furiously denouncing him. The American Spectator recently published a special issue devoted mostly to detailing the litany of Bush sins. One recent book (Impostor, by conservative columnist Bruce Bartlett), a forthcoming book (Conservatives Betrayed, by right-wing activist Richard Viguerie), and innumerable op-eds (e.g., "how the gop lost its way," by Reagan biographer Craig Shirley) condemn the president as an ideological turncoat...

Why my last link? Because I also read in the New Republic tonight:

The Plank: [Juan Cole's] writing and speaking had a not inconsiderable anti-Semitic whiff.

Juan Cole writes a lot that I think is wrong, a lot that I think is ill-phrased, and has I believe many illusions about the Middle East. But his writing and speaking do not have "a considerable anti-Semitic whiff."

There do need to be sanctions against organizations that--like the New Republic--defecate into the stream of reasonable debate. What should they be?

"Lazy-Minded Evangelical Romanticism." That's Good. "Spared Major Embarrassment... by the Slightness of My Own Reputation." That's Better.

Crawling out of the pages of National Review is something I never thought I would see:

The lazy-minded evangelico-romanticism of George W. Bush, the bureaucratic will to power of Donald Rumsfeld, the avuncular condescension of Dick Cheney, and the reflexive military deference of Colin Powell combined to get us into a situation we never wanted to be in, a situation no self-respecting nation ought to be in.... The place we are at is surely not a place anyone in 2003 wanted us to be at--not even Vic Davis Hanson.... I am spared major embarrassment not only by the slightness of my own reputation, as by the fact that... I never thought much of the nation-building exercise that followed.... My fault was in not grasping the scale of the administration’s multiculturalist ambitions...

Brad Setser Unpacks the Good News on the Trade Deficig

Good news on the trade deficit:

Roubini Global Economics (RGE) Monitor: Not quite as bad as I expected (the April trade numbers) Brad Setser | Jun 09, 2006: A $63.4b trade deficit isn't small. But it is a bit smaller than the average $65b deficit of the fourth quarter. And, in all honesty, I expected a bit higher number.

The dog that didn't bark: oil

Oil imports (seasonally adjusted) rose to $23.85b in April, but I certainly expected a bit higher number. The average US oil import price was $56.8 a barrel. The import price is typically lower than the spot price. But it was well below the $70 average market price in April -- I don't think the US oil import bill has peaked.

As importantly, oil import volumes in April were quite weak....

The story on non-oil imports isn't as good. Non-oil goods imports have been around $127-128b all year -- with the exception of February. And non-oil goods exports have also been stalled around $80b. In July of 2005, non-oil imports were around $117b, and non-oil goods exports were around $73.5...

Why Oh Why Can't We Have a Better Press Corps? (The New York Times Lowers the Bar for Bush Yet Again)

Steve Benen watches the New York Times bring out the backhoe to dig a hole in the ground so that it can lower the bar for Bush to less than zero:

The Washington Monthly: BUSH TRIES DIPLOMACY -- WITH REPUBLICANS....Talk about your soft bigotry of low expectations; the New York Times ran a lengthy article today that offers the president credit for -- get this -- schmoozing with Republican lawmakers.

Sheryl Gay Stolberg: Senator John W. Warner and his wife were at the White House for a Memorial Day photo session with veterans.... What followed, said Mr. Warner, a Virginia Republican and chairman of the Senate Armed Services Committee, was a rare 15 minutes alone with the president, no aides or staff in sight.

Mr. Bush escorted the couple to a private garden that President Ronald Reagan had built -- "I never knew it was back there," said Mr. Warner, whose public service dates to the Eisenhower administration -- and, just as important, solicited Mr. Warner's views on Iraq. "It was a nice way of doing things," Mr. Warner said.

The Bush-Warner chat was noteworthy.... Now, with Bush's political capital gone and his agenda stalled, Chief of Staff Josh Bolten has convinced the president to try "a more personal touch." What does this include? Apparently, Bush is suddenly willing to talk to Republican members of Congress about issues that are on their minds. He's also willing to host "intimate cocktail parties" on the Truman Balcony and take lawmakers and their spouses for tours of the White House residence.

There's nothing wrong with this, of course, but it's odd that the paper of record seems to find it so remarkable... it's hardly a striking development for a Republican president to talk to Republicans in Congress about policy matters.

To put it another way, Sheryl Gay Stolberg misses the news. The real news is the fact that "Republican president talks to Republican senators" is news.

But it would take a different organization than today's New York Times to understand what the real news is, wouldn't it?

Bill Niskanen and Starve the Beast

Jonathan Chait writes about Bill Niskanen and "starve the beast":

Jonathan Chait: Your silence is deafening, conservatives - Los Angeles Times: A FEW WEEKS ago, I wrote a column about a paper that decimated the conservative worldview. The study, by William Niskanen of the Cato Institute, found that the conservative "starve the beast" strategy does not work. Indeed, since 1981, he found that tax cuts tend to produce more spending, while tax hikes produce less.

I wrote that it would be interesting to see how conservatives reacted to having the factual basis for their entire domestic strategy exposed as a fraud. And it is interesting because "starve the beast" is so central to the GOP approach to governing and because the reaction is a case study in how the conservative movement reacts when its views are disproved.

Out of the reams of conservative commentary published over the last month, I have found exactly two items reacting to Niskanen's research. Given his paper's devastating implications, the response is quantitatively--and qualitatively--pathetic.

The first is an Op-Ed column by Nick Schulz in National Review Online. Schulz found Niskanen's finding a big puzzle. "Why would tax cuts prompt more spending?" he asks. "The only explanation so far comes from Niskanen himself," who hypothesizes that tax cuts make government cheaper, so voters want more of it.

The only explanation? My column, which Schulz cites but apparently has not read, offered a different and (if I do say so myself) convincing explanation. I argued that Democrats are willing to inflict pain on constituents in the form of spending cuts in order to balance the budget but not in order to give tax cuts to the rich. So, when Republicans agree to raise taxes, large numbers of Democrats will join them to cut spending. This happened in 1982, '83 and '90. Democrats did it themselves in '93.

But when Republicans cut taxes, Democrats refuse to give them cover to make politically unpopular spending cuts. Republicans feel obliged to prove to voters that tax cuts aren't hurting their cherished programs. The latest case in point: the Bush tax cuts resulted in a Bush spending boom....

The only other response I could find comes in the form of a single-paragraph mini-editorial from National Review.

Niskanen's point--that since 1981 tax cuts go with spending increases, not spending restraint--is a fact. It is not a statistically significant fact, however--it may well be just our bad luck, where piece one of bad luck is named "Reagan" and piece two is named "Bush."

In my view, it's not that tax cuts provoke spending increases, it's that politicians--overwhelmingly Republican politicians these days--who seek to unbalance the budget unbalance it on both sides: tax cuts for the rich and Medicare spending that enriches PhRMA.

Over at his weblog, Greg Mankiw defends "starve the beast," protesting that:

Greg Mankiw's Blog: Starving the Beast: it is (as [Mark] Thoma suggests) premature for anyone (like [Jonathan] Chait) to conclude that Niskanen has the last, or even the most persuasive, word on the topic...

without recalling his stint in the White House in 2003, when the Bush administration's second round of tax cuts and Medicare drug benefit rolled forward without ever making any kind of contact with each other.s

Sense on Immigration from Cowen and Rothschild

Tyler Cowen and Dan Rothschild talk sense on immigration:

Blending In, Moving Up: By Tyler Cowen and Daniel M. Rothschild: Beneath the surface of the immigration debate is a debate about shared values. If we look at just three of those values -- the English language, family and hard work -- we see a higher level of Latino assimilation than is often presumed. Despite claims to the contrary, census data show that most Latino immigrants learn and speak English quite well. Only about 2.5 percent of American residents speak Spanish but not English. The majority of residents of Spanish-speaking households speak English "very well." Only 7 percent of the children of Latino immigrants speak Spanish as a primary language, and virtually none of their children do. Just as they did a century ago, immigrants largely come knowing little English. But they learn, and their children use it as a primary language. The United States is not becoming a bilingual nation.

We Welcome Our Cyclonic Storm Caribbean Overlords

The National Hurricane Center says that Tropical Storm ALBERTO is about to become the first hurricane of 2006.

2006 Commencement Address

Larry Summers's views on Harvard University:

2006 Commencement Address: The world that today's Harvard's graduates are entering is a profoundly different one than the world administrators like me, the faculty, and all but the most recent alumni of Harvard entered.

It is a world where opportunities have never been greater for those who know how to teach children to read, or those who know how to distribute financial risk; never greater for those who understand the cell and the pixel; never greater for those who can master, and navigate between, legal codes, faith traditions, computer platforms, political viewpoints.

It is also a world where some are left further and further behind - those who are not educated, those trapped in poverty and violence, those for whom equal opportunity is just a hollow phrase.... At the same time, today, the actions, and inaction, of human beings imperil not only life on the planet, but the very life of the planet.

Globalization is making the world smaller, faster and richer. One-third of human beings now live in places where the standards of living may increase 30 fold in a single human lifespan - a transformation that dwarfs what we call the Industrial Revolution. Still, 9/11, avian flu, Darfur, and Iran remind us that a smaller, faster world is not necessarily a safer world.

Our world is bursting with knowledge - but desperately in need of wisdom.... For all these reasons I believed - and I believe even more strongly today - in the unique and irreplaceable mission of universities.... And among universities, Harvard stands out....

America today misunderstands the world and is misunderstood in the world in ways without precedent since World War II. A great university like ours has a profoundly important role to play in promoting international understanding.... I look forward to the day when Harvard sets a standard for future leaders of our country by assuring that all students have meaningful international experiences before they graduate.

There is much more to be done, too, in truly integrating Harvard with the world. Students from abroad coming here to study return home changed people, and those they meet here are changed by them. Remember a few years ago the rescue of a doomed Russian submarine crew? This rescue was only made possible by a contact between a Russian admiral and an American admiral - two who never would have communicated if they had not met in a Kennedy School joint military program....

I believe that... the Faculty of the College will need to put individual prerogatives behind larger priorities and to embrace new structures and norms of teaching and learning. To provide the closer student-faculty contact our students deserve, faculty will need to take a greater role in leading discussions, in responding to student writing, in advising student concentrators. They will need to provide the broad introductions to large bodies of knowledge the students are right to demand.... I look forward to the day when Harvard is... the best undergraduate education in the world--the day when once again what we do here in this Yard defines the ideal of liberal education.

Yes, I have these last years been a man in hurry. My urgency boils down to this: For an institution like ours to make the great contributions the world rightly expects of us, we cannot rest complacent on this, the more comfortable side of innovation; on this, the more familiar side of the lectern; or, even, on this, the reassuringly red brick side of the river....

I am honored to have served as your president during the early days of what I hope - and believe - will be Harvard's greatest epoch. I have loved my work here, and I am sad to leave it. There was much more I wanted, felt inspired, to do. I know, as you do, that there are many within this community who have the wisdom, the love of Harvard, the spirit of service, and the energy that will be necessary to mount the collective efforts that this moment in history demands.

I bid you farewell with faith that even after 370 years, with the courage to change, Harvard's greatest contributions lie in its future.

2006 Commencement Address

Larry Summers's views on Harvard University:

2006 Commencement Address: The world that today's Harvard's graduates are entering is a profoundly different one than the world administrators like me, the faculty, and all but the most recent alumni of Harvard entered.

It is a world where opportunities have never been greater for those who know how to teach children to read, or those who know how to distribute financial risk; never greater for those who understand the cell and the pixel; never greater for those who can master, and navigate between, legal codes, faith traditions, computer platforms, political viewpoints.

It is also a world where some are left further and further behind - those who are not educated, those trapped in poverty and violence, those for whom equal opportunity is just a hollow phrase.... At the same time, today, the actions, and inaction, of human beings imperil not only life on the planet, but the very life of the planet.

Globalization is making the world smaller, faster and richer. One-third of human beings now live in places where the standards of living may increase 30 fold in a single human lifespan - a transformation that dwarfs what we call the Industrial Revolution. Still, 9/11, avian flu, Darfur, and Iran remind us that a smaller, faster world is not necessarily a safer world.

Our world is bursting with knowledge - but desperately in need of wisdom.... For all these reasons I believed - and I believe even more strongly today - in the unique and irreplaceable mission of universities.... And among universities, Harvard stands out....

America today misunderstands the world and is misunderstood in the world in ways without precedent since World War II. A great university like ours has a profoundly important role to play in promoting international understanding.... I look forward to the day when Harvard sets a standard for future leaders of our country by assuring that all students have meaningful international experiences before they graduate.

There is much more to be done, too, in truly integrating Harvard with the world. Students from abroad coming here to study return home changed people, and those they meet here are changed by them. Remember a few years ago the rescue of a doomed Russian submarine crew? This rescue was only made possible by a contact between a Russian admiral and an American admiral - two who never would have communicated if they had not met in a Kennedy School joint military program....

I believe that... the Faculty of the College will need to put individual prerogatives behind larger priorities and to embrace new structures and norms of teaching and learning. To provide the closer student-faculty contact our students deserve, faculty will need to take a greater role in leading discussions, in responding to student writing, in advising student concentrators. They will need to provide the broad introductions to large bodies of knowledge the students are right to demand.... I look forward to the day when Harvard is... the best undergraduate education in the world--the day when once again what we do here in this Yard defines the ideal of liberal education.

Yes, I have these last years been a man in hurry. My urgency boils down to this: For an institution like ours to make the great contributions the world rightly expects of us, we cannot rest complacent on this, the more comfortable side of innovation; on this, the more familiar side of the lectern; or, even, on this, the reassuringly red brick side of the river....

I am honored to have served as your president during the early days of what I hope - and believe - will be Harvard's greatest epoch. I have loved my work here, and I am sad to leave it. There was much more I wanted, felt inspired, to do. I know, as you do, that there are many within this community who have the wisdom, the love of Harvard, the spirit of service, and the energy that will be necessary to mount the collective efforts that this moment in history demands.

I bid you farewell with faith that even after 370 years, with the courage to change, Harvard's greatest contributions lie in its future.

On Tom DeLay

Ruth Marcus provides the coverage of Tom DeLay that you rarely, rarely got in the Washington Post's news pages--or on the editorial pages, for that matter. Kevin Drum says that he "will always remember [DeLay] best for his reaction to the Columbine shootings in 1999: 'Guns have little or nothing to do with juvenile violence. The causes of youth violence are working parents who put their kids into daycare, the teaching of evolution in the schools, and working mothers who take birth control pills.'"

As Kevin says, the big lesson is that "the man who said this has been one of the most powerful leaders of the Republican Party for over a decade and was treated seriously by the DC press corps the entire time. Never forget that--about either the Republican Party or the press. All the rest is trivia."

Here's Ruth Marcus:

DeLay Exits, Stage (Hard) Right: No one who's seen Tom DeLay operate over the years could have expected the Texas Republican to go gently: The Hammer always comes down hard. But DeLay's farewell address on the House floor last week was nonetheless stunning for its sneering, belligerent partisanship.

This was not the case of a politician who happened to hit a jarring note at just the wrong time. DeLay made clear that he wanted to leave the way he behaved throughout his 22 years in Washington -- contemptuous of the opposition and unrepentant about his cutthroat tactics.

"In preparing for today, I found that it is customary in speeches such as these to reminisce about the good old days of political harmony and across-the-aisle camaraderie, and to lament the bitter, divisive partisan rancor that supposedly now weakens our democracy," DeLay said.

"Well, I can't do that," he said, and that statement had the ring of truth, as if his allergy to bipartisanship is an almost physical limitation. In DeLay's world, "It is not the principled partisan, however obnoxious he may seem to his opponents, who degrades our public debate, but the preening, self-styled statesman who elevates compromise to a first principle."

This is a man who -- now that he's had time to take in the monuments -- sees Lincoln's statue and fixates on the one hand clenched in a "perpetual fist."

I hadn't planned to write about DeLay's departure. He's under indictment in Texas and out of power in Washington; it seemed gratuitous to kick the man on his way out. But DeLay's speech cries out for, if nothing else, a review of the ethical and political wreckage left behind...

Sunday, June 11, 2006

Over at Economist's View: Tim Duy Hears the Keening of the Inflation Hawks at the Fed


Source: Tim Duy: http://economistsview.typepad.com/economistsview/images/duy61106.gif

Tim Duy is puzzled by the Fed. So am I. The inflation hawks appear to be ascendant, and, looking at unit labor costs as a leading indicator of the next six months' price numbers, it is very hard to figure out why.

Economist's View: Fed Watch: Ascendancy of the Hawks: Ascendancy of the Hawks, by Tim Duy: My time of capitulation has come. After the weak labor report, I would have thought a pause in at the next [FOMC] meeting a sure thing.... Since then, however, the din of Fedspeak has become deafening, and it speaks a single message--look for yet another Fed rate hike at the end of the month.... [T]he Fed promised us data dependency, and no one can argue they didn’t deliver, but, as I have argued in the past, they left out something critical: They simply failed to inform us about their underlying economic model. In other words, market participants were unable to grasp the implications of incoming data as far as it affected the Fed’s economic outlook....

[P]olicymakers... came out in force, with Moskow followed by Bernanke, Governor Bies, St. Louis Fed President William Poole, and Governor Kohn. The message: When we said data dependent, we didn’t mean all of the data, we meant just the inflation data. More seriously, David Altig succinctly summarized the message for us:

To paraphrase, yes we are pleased that the recent levels of measured inflation have not unmoored the public's belief in the FOMC's commitment to price stability. But yes, we also realize that the recent inflationary experience is not consistent with those beliefs--or the Committee's own objectives--and we do not take our credibility for granted.

In short, those of us drawn into the direction of a pause (see also Caroline Baum and John Berry) followed the increasing Fed chatter proclaiming the forecast for slower growth, assuming it was a signal from a new Fed Chairman known to be a proponent of inflation targeting.... The first mistake is that even if this was what Bernanke had intended, he does not have the political capital within the FOMC.... The second mistake is more fundamental: Barring clear evidence that the economy has rolled over, central bankers will always weigh incoming inflation data over all other data....

Note that three District Banks--Kansas City (Hoenig), Philadelphia, and New York--wanted to keep the discount rate steady last month.... New York’s interest in holding the discount rate steady is intriguing. Bank President Timothy Geithner’s position puts him in steady contact with global financial markets, and one wonders what he is hearing.... [I]n addition to the ECB, the central banks of Turkey, India, Korea, and South Africa all tightened. Global markets have swooned, and the yield curve in the US has slipped into inversion between the two year and the ten year Treasury rates. If the long end doesn’t starting selling off over the next few weeks, the Fed is setting itself up for a significant inversion....

An expectation that the Fed would not go too far may have been simply naïve. One contact simply noted with a sigh, “But they always go too far.” What will drive them to go too far? We can start making a list:

  1. Fed officials on average will discount financial market signals... dismiss concerns about the yield curve.
  2. Fed officials will discount the impact of the housing slowdown.
  3. Talk of inflation targeting aside, Fed officials will place a high weight on current inflation numbers. Even if the numbers this week look tamer, the hawks will fixate on the last two months of data.
  4. Fed officials will want clear signs in the data before they acknowledge that a slowdown is actually underway. It can take awhile for such data to build. Economists, me included, are prone to this error.

Do I sound somewhat pessimistic? I would rest easier if the economy didn’t look to be slowing, or if experience had not taught me to be wary of asset market (in this case housing) reversals. I would also feel better without the ascendancy of the hawks at the FOMC. Time will tell, but with growth moderating, I am not seeing the inflation threat. The slowdown in nonfarm payrolls eased my mind considerably--it seems unlikely that inflation will get out of hand without considerably higher nominal wage growth than we are seeing. Nor did the last reading on productivity suggest an inflationary surge is at hand...

University Vacations Are Longer than They Used to Be

Academic summer vacations have sure grown since the old days:

Statutes of Gregory IX for the University of Paris 1231: We also forbid [imprisoning one] student for a debt contracted by another....

Neither the bishop nor his official, nor the chancellor shall exact a pecuniary penalty for removing an excommunication.... Nor shall the chancellor demand from the masters... any emolument... for granting a license [to teach]....

Also the vacation in summer is not to exceed one month, and the bachelors, if they wish, can continue their lectures in vacation time....

[W]e prohibit... students from carrying weapons in the city, and the university from protecting those who disturb peace and study. And those who call themselves students but do not frequent the schools, or acknowledge any master, are in no way to enjoy the liberties of the students.

Moreover, we order that the masters in arts shall always read one lecture on Priscian, and one book after the other in regular courses.... The masters and students in theology... shall not show themselves philosophers but strive to become God's learned. And they shall not speak in the language of the people, confounding the sacred language with the profane. In the schools they shall dispute only on such questions as can be determined by the theological books and the writings of the holy fathers.

It is not lawful for any whatever to infringe this deed of our provision, constitution, concession, prohibition and inhibition or to act contrary to it, from rash presumption. If anyone, however, should dare attempt this, let him know that he incurs the wrath of almighty God and of the blessed Peter and Paul, his apostles.

Given at the Lateran, on the Ides of April [April 13], in the fifth year of our pontificate [1231].

The Medicare Drug Benefit Once Again

Robert Pear--who knows these issues in a way he doesn't know budget issues--files a good report:

In Texas Town, New Drug Plan Baffles Patient and Provider Alike - New York Times: By ROBERT PEAR: McALLEN, Tex. — In Washington, Bush administration officials say Medicare's new prescription drug program is humming along smoothly, filling more than three million prescriptions a day and cutting costs by an average of 50 percent for each beneficiary. But here in the Rio Grande Valley, the picture is different.

Many patients say they have difficulty getting the drugs they need. Pharmacists, swamped with questions and complaints from beneficiaries, have run into many practical problems as they try to navigate a complex program administered by dozens of prescription drug plans, each with its own policies and procedures. Doctors and pharmacists are struggling to figure out which drugs are covered by which plans.

"Intellectually, the program is a good idea," said Dr. E. Linda Villarreal, a former president of the Hidalgo-Starr County Medical Society. "But there's been total chaos and confusion among most of my patients, who do not understand the system and how to work it."... Jose M. Flores, a Medicare beneficiary who lives outside McAllen, used the new drug benefit four times from January to April to purchase Byetta, an injectable medicine for diabetes. Each time he paid $40. So when he went to the pharmacy on May 25, he was dismayed to be told that he owed $167.56 for the next month's supply. Mr. Flores had reached the notorious gap in Medicare's drug coverage. He had to pay the full price of Byetta. His Medicare drug plan paid nothing. "It's almost useless," said Mr. Flores, a 66-year-old school bus mechanic who was interviewed at his home in La Joya, Tex. "I'm paying the premium, but not getting protection."

In coming months, millions of beneficiaries will have similar experiences, as the cost of their drugs reaches the initial coverage limit of $2,250. Like Mr. Flores, they will have to pay the full cost of each medicine until their out-of-pocket costs reach $3,600. At that point, Medicare coverage resumes, paying 95 percent of the cost of each prescription....

Mr. Flores is angry with Medicare, with his drug plan and even with the pharmacists who try to help him. He says no one told him about the coverage gap when he signed up. Vanessa M. Recio, a pharmacist at Saenz Medical Pharmacy in Mission, Tex., said: "All I do all day is talk to angry patients. I process insurance claims and try to solve problems with Medicare."...

Competition among Medicare drug plans drove down premiums, but has complicated operation of the program. Pharmacists here say that most of their low-income Medicare customers have insurance cards from several Medicare drug plans. "They come in and ask, 'Which card should I use?' " said John P. Calvillo, a pharmacist at the Cornerstone Pharmacy in Edinburg, Tex., outside McAllen. That question is not always easy to answer. "Doctors and pharmacists often have trouble finding out what drugs are on the formularies," Mr. Calvillo said. "It's a crapshoot every day."

Typically, a doctor writes a prescription, and the patient takes it to a pharmacist, who submits a claim to the insurer. In many cases, the doctor learns the drug is not covered only after the claim is rejected. The doctor and the pharmacist may repeat the process three or four times until they find a drug that is covered. "This is a huge problem," Ms. Recio said. "In many cases, when doctors write a prescription, they do not have a list of what medicines are covered. They don't even know what plan the patient is in."...

Many doctors are eager to help patients. A few use handheld devices loaded with the formulary for each plan. Some check the Internet to see which drugs are covered by a particular plan. But others said they did not have time to do such research...

John Thornhill Channels Tony Judt

John Thornhill gives us Tony Judt's view of western Europe:

FT.com / Comment & analysis / Comment - Economists are from Mars, Europeans from Venus: By John Thornhill Published: June 9 2006 20:44 | Last updated: June 9 2006 20:44

A Martian economist visits earth. Not only does its arrival prove -- as many suspected -- that some economists really do live on other planets, it also provides fresh perspectives on our world.

Earthling economists chatter excitedly to our visitor about the stunning growth rates in China. This miracle economy of the 21st century has overtaken France and the UK.... Our Martian friend scratches its heads.

When my economics professor last visited earth in 1945 he told me that the Europeans had just experienced a terrible civil war in which 36m people had been killed, including many of their most brilliant minds. Now you tell me that 60m French people produce almost as much economic output each year as 1.3bn Chinese, who have been the dominant economic power for most of your planet's history. What is more, the French can do this while working 35-hour weeks and producing 246 different types of cheese. How did this economic miracle come about?

The earthling economists stare at each other and then down at their feet. "We don't normally look at things that way. We tend to say that Europe is suffering from 'eurosclerosis', you know, low growth, high unemployment, bloated welfare states and a looming demographic crisis."

"Maybe I need to talk to historians rather than economists to see how all this came about," says our Martian friend, blinking his eyes and flitting back several months in time to hear a lecture in Washington on The Future of Decadent Europe.

Tony Judt, the British historian, is talking about the dangers of conflating economic "inevitability" and geo-strategic prediction.... Mr Judt stresses the primacy of politics in human affairs and explains how postwar Europe created something novel in human history by transforming a tax-raising, military-spending state into a social state devoting huge amounts of money to health, education, pensions, housing, welfare and public facilities. Europe built these liberal welfare states, Mr Judt reminds his audience, not as a vision of a utopian socialist future but as a means of securing political stability and preventing a recurrence of its terrible past....

Europe today is a compromise caught somewhere between the lessons of memory and the distractions of prosperity, between prophylactic social provisions and the attraction of maximising profit. Like all such compromises, it is deeply contradictory and flawed. But of all the models that are on offer in the world today, it is the one most likely to be well-equipped to face the coming century,"

Mr Judt concludes.

Our visiting economist beams back a telepathic memo to the Martian Council of Economic Advisers:

The US economy is impressive -- as previous reports have indicated -- but its model is unique, not universal.... [E]ven our voters would balk at corporate bosses paying themselves huge bonuses while reneging on promises to pay their employees' pensions. Nor would our Red House be best advised to emulate the White House in its management of public finances. Eating tomorrow's lunch today makes for economic indigestion.

China's economy is astonishing.... But... any figure divided by 1.3bn ends up being rather small.... The Chinese may become collectively rich, but many will remain individually poor. And, if politics really does take primacy over economics, we may well be in for some surprises.

In their funny way, it is the Europeans who are at least discussing the big questions we Martians are facing too: how to reinvent the state's functions and strengthen the realm of collective international (interplanetary) action. For sure, Europeans will have to swallow their medicine by cutting wasteful state spending, liberalising labour markets and revolutionising higher education. But, as the Nordic economies have shown, the state's provision of public goods serves an economic purpose. Social justice can help maximise an economy's potential and sharpen its competitiveness...

Marginal Revolution: Net neutrality, part II

Tyler Cowen has an informed view on net neutrality. I think I'll "borrow" it: he knows more about this than I do:

Marginal Revolution: Net neutrality, part II: Many readers have been asking me to clarify my stance on net neutrality. Here are a few qiuck but key points:

  1. I favor net neutrality in the current environment. Without neutrality, Comcast and Verizon would use differential pricing schemes to extract more revenue and thus diminish some forms of Net output, including Google, Amazon, ebay, and possibly blogs.
  2. If the cable and telecom companies had no legally-backed monopoly powers, I would not favor legally enforced net neutrality. "Let the market decide" would be a good answer.
  3. Those powers are eroding with time but still the market for high-speed connections is far from contestable. Municipal wireless would matter a great deal but that is not a pure market solution either.
  4. Ex ante, it is hard to predict what will "stick" on the Net. I see positive and uninternalized social value in the level of experimentation which we currently enjoy. Profit-maximizing pricing from Verizon and Comcast would choke this off to some degree.
  5. Bandwidth might become so scarce that differential pricing is needed to give companies the incentive to create more of it. Then net neutrality could be a bad idea, even in spite of #1-4. But we are not there now and maybe we will never be. Municipal wireless, or some related idea, probably will arrive first. In the meantime stop watching those silly videos.
  6. A related question is this: we all know that road pricing can make economic sense. But should we favor differential and profit-maximizing pricing on non-contestable roads? At low levels of congestion, probably not. It is better to let people get to work.

Here is my previous post on net neutrality. Here is one good summary of the issues.

Posted by Tyler Cowen