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, July 15, 2006

The Pattern of Growth in Income Inequality

Greg Mankiw notes:

Greg Mankiw's Blog: Lazear vs Krugman: NY Times columnist Paul Krugman yesterday:

There's a persistent myth, perpetuated by economists who should know better -- like Edward Lazear, the chairman of the president's Council of Economic Advisers -- that rising inequality in the United States is mainly a matter of a rising gap between those with a lot of education and those without...

And he questions why economist Paul Krugman, a high-ranking candidate for this year's Nobel Prize, writes this.

The reason, I think, is contained in this graph:

Piketty and Saez: Income Shares of Top 1%, Next 4%, and Next 5% in the U.S., 1913-2004

from Thomas Piketty and Emmanuel Saez (2006), The Evolution of Top Incomes: A Historical and International Perspective (Cambridge: NBER Working Paper No. 11955, January 2006).

The big rise in inequality in the U.S. since 1980 has been overwhelmingly concentrated among the top 1% of income earners: their share has risen from 8% in 1980 to 16% in 2004. By contrast, the share of the next 4% of income earners has only risen from 13% to 15%, and the share of the next 5% of income earners has stuck at 12%. The top 1% have gone from 8 to 16 times average income, the next 4% have gone from 3.2 to 3.7 times average income, and the next 5% have been stuck at 3 times average income.

It's hard to attribute this pattern to a rise in the premium salary earned by the well-educated by virtue of the skills their formal education taught them. Such a rise in the education premium would produce a much smoother rise in relative incomes among the whole top tenth of the income distribution. The cross-percentile pattern doesn't fit.

It is especially hard because most theories of the rising education premium attribute it to skill-biased technological change generated by the high-tech computer industrial revolution. But the high-tech boom's effects on overall productivity became large only in the second half of the 1990s, well after the biggest increases in inequality. The timing doesn't fit either.

Something else is going on.

If the New York Times were smarter, it would give Paul Krugman 2000 words every two weeks, rather than confining him to the straightjacket of 700 words twice a week, so that he could explain background issues like this more adequately...

Why Oh Why Are We Ruled by This Moron?

Unbelievable. Greg Djerejian cannot believe this. Neither can I. Impeach George W. Bush. Impeach him now:

The Belgravia Dispatch: Putin To Bush: Thanks, But No Thanks: Well, this is just priceless:

During a joint news conference Saturday in St. Petersburg, Bush said he raised concerns about democracy in Russia during a frank discussion with the Russian leader. "I talked about my desire to promote institutional change in parts of the world, like Iraq where there's a free press and free religion, and I told him that a lot of people in our country would hope that Russia would do the same," Bush said. To that, Putin replied, "We certainly would not want to have the same kind of democracy that they have in Iraq, quite honestly."


BUSH: I talked about my desire to promote institutional change in parts of the world, like Iraq, where there’s a free press and free religion. And I told him that a lot of people in our country would hope that Russia will do the same thing. I fully understand, however, that there will be a Russian-style democracy.

PUTIN: We certainly would not want to have same kind of democracy as they have in Iraq, quite honestly.

BUSH: Just wait.]


This beats Putin's crack about Cheney's unsuccessful hunting shot, methinks. The fact that the President, even as Baghdad descends into ferocious sectarian conflict, would dare to describe Iraq as a model for anything just now (let alone religious freedom!) is flabbergasting (as in stupefying, jaw-dropping, certifiable, just staggering). Or Neroian, even, you might say. Perhaps he's getting all his news from fellow rapturists like my blog pal Hugh Hewitt, or something, but someone really needs to give POTUS a little reality check. But what Wise Men can mount the urgently needed intervention? There are so few left, and POTUS still appears to take Don Rumsfeld and Dick Cheney's word at face value. Crazy times, eh?

Duncan Black adds:

While it's funny, we also have to accept the fact that either Bush is a little bit insane or that the people around him have really just stopped bothering to brief him on anything important. Either way, like his BFF Joe Lieberman, he's lost the plot. He's paved Iraq with streets of gold and turned it into paradise, and nothing can shake him of that fact. The administration is no longer taking responsibility for providing any serious leadership on world affairs, with Bush addressing questions about serious issues with pig jokes.

Meanwhile the smart set in Washington still imagines that there must be some recipe for success, that we can just let several more Friedmans pass in order to ease their consciences.

A little bit insane, Duncan?

Rumsfeld-Loving Joe Lieberman

Duncan Black writes:

Eschaton: One thing I never want to hear again is about what a noble and ethical man Joe Lieberman is.

And directs us to an old story pointed to by Ned Lamont's website: - Democrats Call for Rumsfeld to Resign - Politics | Republican Party | Democratic Party | Political Spectrum: Some Democrats are calling for Defense Secretary Donald Rumsfeld (search) to resign amid controversy surrounding pictures depicting U.S. military personnel abusing Iraqi prisoners outside of Baghdad. But others say the demand for pink slips is merely politics in an election year when Democrats are hoping to oust President Bush.

"The Congress will politicize this, will spend too much time investigating it," Sen. Joe Lieberman, D-Conn., told Fox News. "This has been a setback for our cause."...

"The Pentagon (that) Secretary Rumsfeld oversees has become an island of unaccountability, ignoring the Geneva Conventions, our allies and common sense," House Democratic leader Nancy Pelosi of California said Thursday....

"It's the way it was handled," Kerry said on a campaign stop in California. "The lack of information to the Congress, the lack of information to the country, not managing it, not dealing with it, recognizing it as an issue."

Rep. Charles Rangel, D-N.Y., said Congress should impeach Rumsfeld if he declines to resign and the president refuses to fire him. The New York Times seconded those demands with a Friday editorial headlined, "Donald Rumsfeld Should Go."...

Lieberman told Fox News that the calls for Rumsfeld's ouster are a distraction from the larger picture. "We're in the middle of a war — you wouldn't want to have the secretary of defense change unless there's really good reason for it and I don't see any good reason at this time," Lieberman said....

Pelosi's and others' calls for a resignation are "a sign that opportunism always seeks an occasion in Washington," [Newt Gingrich] said. "There's zero reason for Donald Rumsfeld to resign and every reason for the president and Donald Rumsfeld to tell the truth," Gingrich said. "It's just politics in a presidential election"...

Joe Lieberman: Rumsfeld-lover.

Meanwhile, over at the New York Times, reporter Mark Leibovich whines that it is unfair that Lieberman's Senate Democratic colleagues won't back him as an independent if he loses the Democratic primary, calling their failure to do so "a peculiar brand of stigma":

Lieberman Hopes His Fate Isn't Sealed With a Kiss - New York Times: Mr. Lieberman has also encountered a peculiar brand of stigma from his Democratic colleagues in the Senate.... Several of them say they will support their “good friend” in the primary. But only a smattering say they will support Mr. Lieberman no matter what happens Aug. 8. The rest have either avoided the question... or vowed to support the primary winner, even if it is Mr. Lamont, whom most of them have never met.... People close to Mr. Lieberman say he has been wounded by the conditional devotion he has received from most of his Democratic colleagues in the Senate...

Neither Leibovich nor Lieberman seem to understand what a "political party" is, or what a "primary election" is.

And over at the Horse's Mouth, Greg Sargent is further bemused by Leibovich and Lieberman:

The Horse's Mouth: TIMES AND LIEBERMAN CAMP BASH BLOGS IN TANDEM. The New York Times has just posted a long piece on Joe Lieberman and his efforts to rid himself of the travails he's caused for himself with his embrace, literal and otherwise, of President Bush. Reporter Mark Leibovich brings a great deal of sympathy... lets the Lieberman camp indulge in a bit of ritualistic blog-bashing without offering anyone the chance to rebut it....

Mr. Lieberman... appears taken aback by the ferocity of the onslaught, particularly from liberal blogs. To Mr. Lieberman's camp, the bloggers embody what his longtime friend Lanny Davis calls "the demonizing, hating, virulent, character-assassinating left of the Democratic Party." Mr. Lieberman began, "Some of the vituperations, some of the extremity of the language and anger," before his voice trailed off. He paused for a second and started again: "They're describing a person who is not me."... "He's being subjected to the hate machine like Bill Clinton and George Bush have," said Mr. Davis.... "Joe Lieberman has never been subjected to this before."

There's plenty to dig into in this piece -- among them Lieberman's strained efforts to make light of his embrace of Bush. For my part, I find it surprising that not a single column inch was devoted to allowing anyone to rebut the Lieberman camp's broad-brush attacks on the liberal blogosphere.... [B]asic journalistic fairness should have required the reporter to get a rebuttal.

The piece also gives too little space to the substantive case against Lieberman, quoting just one single Lieberman opponent on the record who's made to sound a touch unhinged...

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

Who are the heirs of Walter Lippman? Glenn Greenwald writes:

Unclaimed Territory - by Glenn Greenwald: The NYT, WP and Time all report the Specter bill as the opposite of what it is: The moderate-to-conservative Editorial Page of The Washington Post today appears to directly criticize the Post's own news article from yesterday, by Charles Babington and Peter Baker, which ludicrously reported that the Specter bill constituted a "concession" and a "clear retreat" by the Bush administration. The Post's Op-Ed points out [that it]... "isn't a compromise, except quite dramatically on the senator's part. Mr. Specter's bill began as a flawed but well-intentioned effort to get the program in front of the courts, but it has been turned into a green light for domestic spying. It must not pass.... This bill is not a compromise but a full-fledged capitulation on the part of the legislative branch to executive claims of power...."

It wasn't just the [news pages of the] Post which fundamentally misled its readers about this bill. So, too, did Eric Lichtblau in his article in The New York Times.... But in the department of factually false stories, both the NYT and the Post were completely outdone by this indescribably ridiculous Time Magazine article....

By contrast, conservative bloggers and liberal bloggers alike immediately recognized that the Specter bill is a complete capitulation to the Bush administration.... And yet journalists who write for the nation's most influential newspapers and magazines reported the bill as being the opposite of what it really is.... I'm not one of those who believe that blogs have replaced or can replace major journalistic outlets for the gathering of news.... But when it comes to understanding, analyzing and interpreting political and world events, there is very little competition, in my view, between the blogosphere and traditional media outlets.... [I]f I read only blogs but no established media outlets for news analysis, I feel I would be missing nothing. But if I read only established media outlets but no blogs, I would feel that I was operating in the dark.

A reader of this blog sent an e-mail yesterday to the Post's Charles Babington pointing out the grossly misleading nature of his article, and Babington petulantly replied as follows:

From: Chuck Babington
Date: Fri Jul 14, 2006 10:48:26 AM CDT
Subject: Re: Message via Specter Bill

I read the bill. Can you cite a single inaccuracy? Here's my guess: You read neither the bill nor the entire story.

That's how Babington -- after writing a story which conveyed the opposite of reality -- responded to a reader who complained. He condescendingly accused the reader of not having read the bill and/or the article. I was going to e-mail Babington today to highlight for him the patent inaccuracies in his article, but his own newspaper's Editorial Page today already did so.

Our democracy relies upon the media to inform Americans as to what their Government is doing, most particularly to inform them of inaccuracies in claims made by political officials. When, instead, journalists are manipulated by self-interested politicians into conveying fantasy and propaganda rather than reality ("the White House makes major compromises on eavesdropping!"), the damage to our democracy's ability to have meaningful public debates really is immeasurable.

A Free Book for a College Professor: Jerome Feldman (2006), "From Molecule to Metaphor: A Neural Theory of Language" (Cambridge: MIT Press: 0262062534).

Filia: What's this in your mailbox?

Pater: It appears to be a book.

Filia: What book?

Pater: It appears to be Jerome Feldman (2006), From Molecule to Metaphor: A Neural Theory of Language (Cambridge: MIT Press: 0262062534).

Filia: Why did you buy this book?

Pater: I didn't. They just sent it to me.

Filia: Why?

Pater: In the hope that I'll read it, and talk about it, and write about it, and influence people to buy it, and then they'll sell more copies.

Filia: But you are probably not going to do that.

Pater: I might.

Filia: And they're out the $30 cost of the book by sending it to you.

Pater: Actually, they are out more like $4. It costs a lot to create a book and set up the print run, but it probably costs only $4 extra to print 3001 copies of an academic press book rather than 3000 copies.

Filia: Still, how many such books do you get sent?

Pater: About one a day.

Filia: At an average retail price of?

Pater: About $40 a book. But I would have bought very, very, very few of them at that price.

Filia: If I were the Internal Revenue Service, I would say $40 a book x 1 book a day x 300 days a year = $12,000 of unreported income.

Pater: I would say that's a gross overestimate of the value of this fringe benefit, and why aren't you going after frequent flyer miles first?

Filia: And how many of them do you read?

Pater: I open them all.

Filia: And how many of them do you read?

Pater: I skim about half.

Filia: And how many of them do you read?

Pater: I read about a quarter.

Filia: Isn't that a horrible waste? All these books printed up and never read?

Pater: I give them away.

Filia: Is this a smart thing for a publisher to do?

Pater: Figure a $30 gap between the sale price of an extra book and marginal cost, each free book sent out has to generate only 1/10 of an extra full-price book in order to be a good idea from the publisher's point of view.

Filia: But what if a book the publisher sends out winds up in the hands of somebody who would otherwise have bought one?

Pater: From the publisher's perspective, that would be bad.

Filia: You read about a quarter of the free books people send you.

Pater: Yep.

Filia: But you read all the books you buy and pay for.

Pater: I try to.

Filia: And when a book arrives, you have no clue until you look at the invoice whether this is a book you ordered--and have forgotten you ordered it--or a free book the pubisher is sending to you.

Pater: I'm embarrassed to admit that's so.

Filia: The publisher is missing a chance. They should send you the book with an invoice saying $40 due. Then you'll think you ordered the book, you'll pay them $40 per book, and you'll read the books because you'll think you ordered it.

Pater: That strategy would probably work--for a while.

Filia: Are you going to read this one?

Pater: Yes.

Filia: Why?

Pater: It's on a fascinating topic, it's by a Berkeley professor, and it has a blurb on the back by somebody--V.S. Ramachandran--in whose lab Adrian Hon of PerplexCity worked for a summer.

Filia: Is that a good way to choose what to read?

Pater: It's a human way. We're semi-pack animals. Social networks are everything.

Jerome Feldman (2006), From Molecule to Metaphor: A Neural Theory of Language (Cambridge: MIT Press: 0262062534).

In From Molecule to Metaphor, Jerome Feldman proposes a theory of language and thought that treats language not as an abstract symbol system but as a human biological ability that can be studied as a function of the brain, as vision and motor control are studied. This theory, he writes, is a "bridging theory" that works from extensive knowledge at two ends of a causal chain to explicate the links between. Although the cognitive sciences are revealing much about how our brains produce language and thought, we do not yet know exactly how words are understood or have any methodology for finding out. Feldman develops his theory in computer simulations--formal models that suggest ways that language and thought may be realized in the brain. Combining key findings and theories from biology, computer science, linguistics, and psychology, Feldman synthesizes a theory by exhibiting programs that demonstrate the required behavior while remaining consistent with the findings from all disciplines. After presenting the essential results on language, learning, neural computation, the biology of neurons and neural circuits, and the mind/brain, Feldman introduces specific demonstrations and formal models of such topics as how children learn their first words, words for abstract and metaphorical concepts, understanding stories, and grammar (including "hot-button" issues surrounding the innateness of human grammar). With this accessible, comprehensive book Feldman offers readers who want to understand how our brains create thought and language a theory of language that is intuitively plausible and also consistent with existing scientific data at all levels.

Cognitive Disabililities in Investment

People have brains designed by evolutionto figure out whether it's safe to leap to the next branch and when the fruit is ripe. They don't have brains designed to make long-run investment decisions:

[SELECTION RISK]( The age of self-managed retirement funds can be imagined as a wonderful world, one in which enlightened citizens invest their assets wisely over time so as to live out their golden years in comfort and style. Or so one could theorize. In practice, it may turn out to be something less. How much less depends on any number of factors, starting with the particular skills of the individual.

Alas, those skills, such as they are, may fall short of the minimum required to produce even modest results. Indeed, a new academic study throws more than a little skepticism on the notion that the masses are up to the challenge of managing their 401(k)s as a long-term proposition. The evidence for holding this pessimistic outlook comes from a testing of the most-basic of investing skills: picking the best S&P 500 index fund from a list of four choices, i.e., the fund with the lowest cost.

As tasks in financial decisions go, this one is arguably the easiest. There is, after all, just one factor for selecting the best portfolio: expense ratios. Since S&P 500 index funds are commodities in the true sense of the word, the only differentiating factor is one of price. A simpler methodology for picking mutual funds could hardly be imagined. As such, one could reason that if there's any hope of advancing one's investment station in life, success would reveal itself by investors mastering this important, but ridiculously easy investment hurdle.

Unfortunately, the participants in the study inspire anything but confidence as individuals continue to take control of their retirement assets. Why Does the Law of One Price Fail? An Experiment on Index Mutual Funds, a paper authored by professors from Yale, Harvard and the Wharton School, asks Wharton MBA and Harvard College students to allocate an imaginary pot of $10,000 across four S&P 500 index funds with varying expense ratios and commissions of more than a little significance. In the first experiment, the only related literature the students are given to make an informed decision is the prospectus for each fund. The result? To quote the study authors, "Over 95% of control group subjects fail to minimize fees." In other words, only 5% made the correct decision of choosing the lowest-cost index fund.

In a second test, the students are asked to choose from the same index mutual funds but this time they're given the associated prospectus and a one-page summary that highlights the expense ratios of the four index funds. The results are slightly better, but barely. A still-high 80% of the students still failed to pick the lowest-cost index fund.

But wait--it gets worse. This time, students are handed a prospectus for each fund and a summary sheet that shows each index fund's annualized performance since inception. The professors throw a small curve ball to the students here, if only to test the complexity of life in the real world. That is, the performance summaries represent different time periods. No apples-to-apples comparisons here. But in fact, it's all a trick question. "Because each fund’s inception date differs," the professors write, "this information should be ignored when predicting across-fund variation in future fund returns. In fact, we construct our fund menu so that annualized returns since inception are positively correlated with fees; chasing past returns since inception lowers expected future returns. Nevertheless, this is what our subjects do."

The disturbing result shows that simply by showing investors higher performance numbers--even when those numbers are clearly irrelevant to the choice at hand--the investors make decisions based largely, if not exclusively on those immaterial numbers.

What makes these dismal results all the more frightening is the fact that the test subjects are educated people--most are MBA students at Wharton, among the most prestigious of business schools. The rest are college students at Harvard, a university that requires no introduction. "Our MBA subjects report an average combined SAT score of 1453, which is at the 98th percentile nationally, and our college subjects reported an average score of 1499, which is at the 99th percentile," the professors report.

Suffice to say, the students in question are better educated and therefore better equipped (in theory, at least) to make investment decisions compared with the general population. Why, then, do these students fail so miserably? And while we're asking questions, let's ponder the reality that the general population faces far more complicated investment issues (asset allocation, rebalancing, etc.) in managing real money.

If nothing else, this study underscores the fact that there are more than a few pitfalls in the democratization of finance. Fortunately, there's an easy solution: secure informed counsel on matters of investment strategy. But that introduces another challenge: picking competent advisors. Getting rich, it seems, is just as tough as it's always been.

Memo to Self: Worthwhile Morning Coffee Videocasts

$80 a Barrel for Oil

$80 a barrel for oil:

The Big Picture: Crude Oil, Average Monthly Gain: Chart of the Day notes that "increased Middle East tensions" (i.e."acts of war") has sent oil surging to new 24-year highs of $79.70 per barrel...

New Data on Income Inequality

Greg Mankiw sees a little bit of good news in the latest income distribution data: after rising astonishingly rapidly from 1986 to 2000, income inequality in 2004 was no worse than in 2000:

Greg Mankiw's Blog: New Data on Income Inequality: In today's NY Times, Paul Krugman calls attention to the update of the Piketty-Saez data on income inequality, although Paul describes the data differently than I would.Here is what I see: After rising substantially from 1986 to 2000, income inequality is essentially the same in 2004 (the most recent year of data) as it was in 2000.

I hope he's right, and that the trend of rising inequality has stopped--it is a very disturbing phenomenon, and further rises would be very worrisome indeed. But I can't be as optimistic as he is. He sees an essentially flat trend from 2000-2004. I see numbers for 1999 and 2000 that may have been transitorily boosted by high salaries paid during the dot-com bubble, and then a decreased in inequality from 2000-2002--a decrease that is then reversed in 2003-2004, which carries us up to bubble levels.

So my hope that we might not see 1999 and 2000 levels of income inequality again appears to have been vain.

Rick Weiss of the Washington Post, What Are You Doing?

Rick Weiss writes that documenting "significant misstatements" by Republican thugs is "incendiary":

Clash Over Stem Cell Research Heats Up: Yesterday, in one of the more incendiary volleys, the journal Science published a letter by three researchers documenting apparently significant misstatements made by [David Prentice] a leader in the movement to block the [stem cell] bill.

Shouldn't Rick Weiss be in a different line of work?

And why the weasel word "apparently"?

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

The letter to the journal focused on David A. Prentice, a scientist with the conservative Family Research Council. Prentice has been an adviser to Sen. Sam Brownback (R-Kan.) -- a leader in the charge to maintain tight restrictions on the research -- and an "expert source" often cited by opponents of embryonic stem cell research.

Prentice has repeatedly claimed that adult stem cells, which can be retrieved harmlessly from adults, have at least as much medical potential as embryonic cells. He often carries a binder filled with references to scientific papers that he says prove the value of adult stem cells as treatments for at least 65 diseases.

In the letter to Science, however, three researchers went through Prentice's footnoted documentation and concluded that most of his examples are wrong.

"Prentice not only misrepresents existing adult stem cell treatments but also frequently distorts the nature and content of the references he cites," wrote Shane Smith of the Children's Neurobiological Solutions Foundation in Santa Barbara, Calif.; William B. Neaves of the Stowers Institute for Medical Research in Kansas City, Mo.; and Steven Teitelbaum of Washington University in St. Louis.

For example, they wrote, a study cited by Prentice as evidence that adult stem cells can help patients with testicular cancer is in fact a study that evaluates methods of isolating adult stem cells.

Similarly, a published report that Prentice cites as evidence that adult stem cells can help patients with non-Hodgkin's lymphoma does not address the medical value of those cells but rather describes the best way to isolate cells from lymphoma patients and grow them in laboratory dishes, the letter said.

And Prentice's reference to the usefulness of adult stem cells for patients with Sandhoff disease -- a rare nerve disorder -- is "a layperson's statement in a newspaper article," the scientists reported.

All told, the scientists concluded, there are only nine diseases that have been proved to respond to treatment with adult stem cells.

"By promoting the falsehood that adult stem cell treatments are already in general use for 65 diseases and injuries, Prentice and those who repeat his claims mislead laypeople and cruelly deceive patients," the scientists wrote.

Prentice, in a brief voice message left for a reporter as he embarked on a trip yesterday, said, "I appreciate them pointing out some of the things . . . that need to be changed and updated." But he accused the letter writers of "mental gymnastics" by focusing narrowly on proven therapies, as opposed to the large number of diseases for which the value of adult stem cells is now being tested.

On Vox: Morning Coffee Videocast: Bush Cries "Wolf" on Deficit

View Brad DeLong’s Blog

For the fourth year in a row, the administration's January deficit forecasts are at the highest end of the range of forecasts--and sure enough, the actual deficit comes in lower. Which allows for press conferences by Bushies touting "progress" on reducing the deficit.

» Read more on Vox

Friday, July 14, 2006

On Vox: Morning Coffee Videocast: Supply-Side Follies

View Brad DeLong’s Blog

This past week saw the Bush administration bamboozle the public once again, as the press corps published "he said, she said" stories giving equal time and credence to Bush claims that cutting taxes raises revenue:

» Read more on Vox

"If You Really Want to Know What's Going on, I Recommend Sticking to the Blogs"

Wow. Orin Kerr says it: "If you really want to know what is going on, I recommend sticking to the blogs."

The Volokh Conspiracy - - FISA, the NSA, and the Specter Bill: In the last 24 hours, there have been some important developments concerning legislation to address the NSA domestic surveillance program. The White House and Senator Specter have agreed to a bill, although the MSM is doing a pretty bad job (at least so far) of reporting what is actually in it. If you really want to know what is going on, I recommend sticking to the blogs. I have posted a few things at my solo blog, including this recent post: The Specter Bill's Major Shift in Constitutional Authority to Conduct Monitoring. Balkinization has several very critical posts, including Jack's post Specter Gives Up The Game -- The Sham NSA Bill and Marty's The Specter Monstrosity. Over at Prawfsblawg, Steve Vladeck has a post entitled The Specter Bill, the TSP, and the FISA Court: Some Thoughts.

This is, I think, a watershed--we have climbed the mountain, and are now coming down on the reality-based side. It's not the best world, this world in which, as Matthew Yglesias put it:

The Social Security Debate Once Again: The New York Times just managed to completely misrepresent the Sununu plan. It's really just a more intense version of the Bush plan.... Still a bad ide... but not orders of magnitude more lunatic as Richard Stevenson described it. It would be nice to get accurate information from the newspapers and not need to rely on the blogosphere to find solid reporting.

But this is the world in which we live in: respected weblogs run by intelligent commentators with good track records and strong senses of honor are our best information sources these days.

A Short Guide to Dynamic Scoring

Jason Furman writes: A SHORT GUIDE TO DYNAMIC SCORING: In recent years, official scorekeepers and academic researchers have devoted increased attention to the macroeconomic effects of tax cuts. The Administration also included a short “dynamic analysis” in this year’s Mid-Session Review of the budget. The results of much of this work indicate that tax cuts can have positive or negative effects on the economy, with the “sign” of the effects depending on... whether and how the tax cuts are paid for.

The Congressional Budget Office, the Joint Committee on Taxation (JCT), and academic researchers have all have found that tax cuts that are not accompanied by offsetting revenue increases or spending reductions — and are financed by borrowing instead — can harm the economy over the long term. The research, including the administration’s own analysis, also indicates that even if tax cuts are paid for, the economic benefits generally are relatively modest, with any increased revenues that result from stronger economic growth offsetting only a small fraction of what conventional cost estimates indicate the tax cuts will cost...

Worth Reading 20060714

Worth reading, July 14, 2006:

alicublog: "Finally saw Brokeback Mountain.... Early on, I was convinced Brokeback's slow pace was a device to keep us from busting out laughing at the sharp deviation from traditional form -- you know, two cowboys bond on the open range, then, presto, ass-fucking. But like most slow-paced movies, Brokeback is very concerned with and serious about time. Ennis and Jack's early days are a cherished memory, so of course they are made long enough to stay in the mind through the rest of the film.... [F]or (I think) straight viewers at least, the gay angle actually illuminates rather than limits the love story, because the taboo on their love is so ingrained in us that we don't need to have it explained in artificial "two houses, both alike in dignity" terms -- terms we know are a writer's invention, and which our minds will automatically try to get around throughout the story, devising alternate, happier endings. Not that we won't root for Ennis and Jack -- of course we will -- but nobody goes into a love story between two men in 1963 rural America with any hope that things will work out..."

Environmental Economics: Doesn't it take longer than a day for oil to become gas?: "Doesn't it take longer than a day for oil to become gas? Oil jumped to $78 per barrel yesterday. My wife paid $3.30 for gas this morning. I'm pretty sure it takes more than 48 hours for Middle East oil to become Columbus, OH gas. So what's going on? In short, expectations matter. Prices are expected to go up in the future, so prices jump today. Is this greedy suppliers taking advantage? No just rationality at work..."

Armchair Generalist: Casual Fridays: "The Dog Whisperer starring Cesar Millan.... Cesar sees himself as a dog psychologist.... It's our American culture to treat our pets as children, but the dogs are thinking like pack animals and will take advantage of our failure to appreciate that. Not that we're not supposed to love and care for our pets as companion animals, but at the root, they still have animal instincts. Number one issue with most of the owners - they're not walking the dog enough, or not walking the dog with 'a calm, assertive manner'.... I've stopped using the 25-foot extendable leash in favor of a shorter leash that puts my dog right next to me when we walk.... New feature - Cesar's starting a blog! It's going to be inundated with comments..."

Ben Muse: Economic modeling and trade negotiations

Eschaton: "WHEEEEEEEEE: Bush approval at 36 in both AP and Fox polls. I'll leave it to the smart guys at the Note to explain how popular he is..."

Lawyers, Guns and Money: Mickey Kaus is a %%$%@ Moron, Part LXXIV: "Mickey Kaus is a %%$%@ Moron, Part LXXIV: Yes, I realize this is an unhealthy obsession. Mickey has responded: 'Numerous readers email to note Plano's very Republican voting record--Collins County, of which it's a part, went 71% for Bush in 2004, for example. It's certainly a Bush bastion. It's less clear to me that it's a "conservative" bastion if by that you mean social conservative (gay marriage, school prayer, abortion, etc.). Nor does it seem to be a "pickup" truck, chewin' tobacco bastion in the classic sense. More of a Bobo Boomburg....' Shorter Mickey: If we redefine conservative to mean what I want it to mean, then Plano is kind of not conservative. What an idiot. Conservatives should loathe Mickey even more then I do; for Mickey, it appears, conservatives are ignorant hicks who've never heard of sushi, shop every day down at the Wal*Mart, and who all drive aging pickup trucks with 'I Hate Queers' bumper stickers on the back..."


Greg Mankiw's Blog: The Tradeoff Between Breadth and Depth: "My broad interests (short attention span) help to explain my diverse (incoherent) body of work.... breadth has its costs.... I sometimes fear that because I work in so many different areas, each line of work is more superficial than it otherwise would be.... I am always certain that whatever topic I am working on at that moment, someone else has spent many more hours thinking about it than I have. There is something to be said for devoting a lifetime to mastering a single subject. But it won’t be my lifetime. I just don't have the temperament for it..."

Think Progress: "Oil surged to record highs above $78 a barrel on Friday as intensifying violence in the Middle East raised concerns of possible supply disruptions..."

Big Bang Theory In Ruins: By E. J. Dionne Jr.: The most intellectually honest case for the war in Iraq was... that the Middle East was a mess. A nest of authoritarian regimes bred opposition movements rebelling against the conditions under which too many people lived and energized by a radical Islamist ideology. The situation's hopelessness argued for a hard shove from the United States to create a new dynamic. Installing a democratic government in Iraq would force a new dawn. Newly empowered Muslim democrats would reform their societies, negotiate peace with Israel and get on with the business of building prosperous, middle-class societies. It was a beautiful dream, and even when the administration was asserting things that turned out not to be true, it held the dream out there for all to contemplate.... But when the Big Bang happened, the wreckage left behind took the form of reduced American influence, American armed forces stretched to their limit and a Middle East more dangerously unstable than it was at the beginning of 2003. Whether one ascribes these troubles to the flawed implementation of the Big Bang Theory or to the theory itself, what matters now is how to limit and, if possible, undo some of the damage..."

When the Terrorists Won

When the terrorists won. Nathan Newman argues that we should think much more highly of Ulysses S. Grant as president, because he tried. Ulysses Grant: Our Greatest President?... [W]e should think more about the true founding of a nation with the Civil War where all men were to be "truly created equal" and the President who worked to make it so. No not Lincoln-- who didn't live to finish the job--but the General, Ulysses Grant, who won the Civil War and went on to be the President who would oversee the ratification of the 15th Amendment and enactment of the civil rights enforcement laws that -- after the interregnum of disuse under Jim Crow -- to this day are a backbone of civil rights in this nation....

If Grant is not more respected, it is because the fight for racial justice and Reconstruction that he oversaw has been so rawly defamed over our history to the point of almost being forgotten. As W.E.B. DuBois wrote "[n]ot a single great leader of the nation during the Civil War and Reconstruction has escaped attack and libel." But Grant's accomplishments should be remembered.... Even as Grant was being elected in 1868, he faced Klan-based racial terrorism fighting to manipulate the vote throughout the South. The first result was the 15th Amendment to protect the right to vote but as importantly was the creation under Grant of the Department of Justice in 1871 and a series of "Enforcement Acts" to eliminate Klan violence. The language was sweeping in its defense of black voting rights.... Grant used his new authority to crack down on Klan terrorism in nine South Carolina counties in 1871 and essentially destroyed the Klan there and then throughout the South....

Unfortunately, his successors abandoned those commitments.... So what went wrong and why isn't Grant more honored. Basically, both his policies and reputation were murdered by Klan violence supported by the United States Supreme Court.... [I]n 1873 there was a new surge of racist violence and this time the courts blocked the Grant administration from enforcing the new civil rights laws. Racist violence ran wild as the courts blocked prosecution of the ringleaders. The key legal case was based on an incident in Colfax, Louisiana where more than a hundred people defending black voting rights were murdered by a white mob, yet the prosecution against the leaders were thrown out by lower courts and the Supreme Court in 1875's Cruikshank v. US would affirm that decision, saying that the federal government lacked any power to prosecute private individuals for racial crimes against other individuals. According to that Court, the 14th Amendment "adds nothing to the rights of one citizen as against another."... Reconstruction governments were driven from office throughout the South. Violence destroyed the Republican Party in Mississippi.... In 1876, Confederate General Matthew Butler led a white mob to murder an opposing black militia defending the South Carolina government -- and was then elected to the United States Senate by the new, "redeemed" legislature...

The Further Derangement of the U.S. Income Distribution

Paul Krugman writes:

Left Behind Economics - New York Times: I'd like to say that there's a real dialogue taking place about the state of the U.S. economy, but the discussion leaves a lot to be desired. In general, the conversation sounds like this:

Bush supporter: "Why doesn't President Bush get credit for a great economy? I blame liberal media bias."

Informed economist: "But it's not a great economy for most Americans. Many families are actually losing ground, and only a very few affluent people are doing really well."

Bush supporter: "Why doesn't President Bush get credit for a great economy? I blame liberal media bias."

To a large extent, this dialogue of the deaf reflects Upton Sinclair's principle: it's difficult to get a man to understand something when his salary depends on his not understanding it. But there's also an element of genuine incredulity. Many observers, even if they acknowledge the growing concentration of income in the hands of the few, find it hard to believe that this concentration could be proceeding so rapidly as to deny most Americans any gains from economic growth.

Yet newly available data show that that's exactly what happened in 2004.... Unfortunately, data on the distribution of income arrive with a substantial lag; the full story of what happened in 2004 has only just become available.... Here's what happened in 2004. The U.S. economy grew 4.2 percent, a very good number. Yet last August the Census Bureau reported that real median family income -- the purchasing power of the typical family -- actually fell. Meanwhile, poverty increased, as did the number of Americans without health insurance. So where did the growth go?

The answer comes from the economists Thomas Piketty and Emmanuel Saez... in 2004 the real income of the richest 1 percent of Americans surged by almost 12.5 percent. Meanwhile, the average real income of the bottom 99 percent of the population rose only 1.5 percent. In other words, a relative handful of people received most of the benefits of growth.... Even people at the 95th percentile of the income distribution -- that is, people richer than 19 out of 20 Americans -- gained only modestly. The big increases went only to people who were already in the economic stratosphere.... [T]he real earnings of the typical college graduate actually fell in 2004. In short, it's a great economy if you're a high-level corporate executive or someone who owns a lot of stock. For most other Americans, economic growth is a spectator sport....

[D]on't expect this administration or this Congress to do anything to limit the growing concentration of income. Sometimes I even feel sorry for these people and their apologists, who are prevented from acknowledging that inequality is a problem by both their political philosophy and their dependence on financial support from the wealthy. That leaves them no choice but to keep insisting that ordinary Americans -- who have, in fact, been bypassed by economic growth -- just don't understand how well they're doing.

Colin Powell

Colin Powell:

The Blog | Arianna Huffington: In between panels, I ran into Colin Powell and asked him if we are ever going to get out of Iraq. "We are," he told me, "but we're not going to leave behind anything we like because we are in the middle of a civil war." Powell and Jack Murtha both talking about civil war in Iraq -- shouldn't that be headline news?...


Two notes:

The Blog | Arianna Huffington: As I was making the rounds of these media panels, there was one constant: at some point someone in the audience or on a panel would, without fail, raise the old canard about the supposed inaccuracy of the blogosphere. "We still need a place," some plaintive soul would inevitably say, "where we can go that we can count on for its accuracy."

Chances of a Downturn Grow

There's a lot of pessimism in the oil market these days:

ThinkProgress: Oil surged to record highs above $78 a barrel on Friday as intensifying violence in the Middle East raised concerns of possible supply disruptions.

What Is in the Specter Bill?

Orin Kerr reports: The Specter Bill's Major Shift in Constitutional Authority to Conduct Monitoring: I have read the Specter bill.... Section 9... is a "clarification" only if you assume the correctness of the President's more controversial claims to Article II authority. If you accept the more traditional understanding of the separation-of-powers... in... Hamdan v. Rumsfeld... this "clarification" is actually a major reorientation of the role of Congress in foreign intelligence monitoring away from the 1978 framework of FISA.

The key language is the new Section 801 of FISA:

Nothing in this Act [FISA] shall be construed to limit the constitutional authority of the President to collect intelligence with respect to foreign powers and agents of foreign powers.

That strikes me as a pretty major change, given that the purpose of FISA in 1978 was to attempt to regulate that authority.... Similarly, the bill would amend Congress's current command that the Wiretap Act and FISA must provide the exclusive means of conducting monitoring.... Maybe I'm missing something, but my sense is that it largely tracks the David Addington/John Yoo approach to Article II; that is, it would have Congress back away from the claims to authority that Congress made in 1978 that the Administration has suggested it believes are unconstitutional because they infringe on the Commander-in-Chief power.

Congress can certainly do this, of course: Congress passed FISA, and it can repeal or water it down as well. And of course different people will have diffferent views on whether this is a good idea. But it does seem like this is a major shift in approach, and one that is probably more important in the long run than whether the NSA domestic surveillance progam is submitted to the FISA court for review.

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

You know, I don't think there will be a Washington Post in twenty years. Too often what's true in the Post isn't news, and what's new in the Post isn't true:

Eschaton: The Media Is The Problem: Greenwald:

The reporters who write on these matters literally don't understand the issues they are reporting, even though the issues are not all that complicated. Notwithstanding the fact that [Specter's] this bill expressly removes all limits on the President's eavesdropping powers -- and returns the state of the law regarding presidential eavesdropping to the pre-FISA era, when there were no limits on presidential eavesdropping of any kind -- Charles Babington and Peter Baker told their readers in The Washington Post -- in an article hilariously entitled: "Bush Compromises On Spying Program" -- that "the deal represented a clear retreat by Bush" and that "the accord is a reversal of Bush's position that he would not submit his program to court review."

Anyone with a basic understanding of what FISA was and of the conflicts in play could read the Specter bill and see that the last thing it does is entail "compromises" on the part of the White House. Nobody who knows how to read could read that bill and think that. At this point, I believe they don't even read the bill. It's hard to see how they could read the bill and then write that article. Instead, it seems that they just call their standard sources on each side, go with the White House-Specter assessment that this is some grand "compromise" on the ground that it is a joint view of both warring sides, and then throw in a cursory ACLU quote somewhere at the end just to be able to say that they included some opposing views.

But the reporters who are writing about this - and I mean the ones writing in the pages of our country's most important newspapers - don't actually have any idea what they're talking about.

Babington is the same reporter who falsely told his readers on the front page of the Post in March that the Republican "compromise" bill from the Senate Intelligence Committee (offered in lieu of an actual investigation into the NSA program) entailed substantial Congressional oversight of the program, even though a quick reading of the actual bill would have revealed that it entailed no such oversight. Representatives from Sen. DeWine and Snowe's office apparently told him what great oversight their bill provided and so he printed as fact what he was told.

After bloggers pointed out this error, the Post, several days later, was forced to issue a correction (appended to the top of the original article). But the same thing that happened there is happening here - Republican Senators and White House representatives with a vested interest in how the story gets reported characterize the bill in a certain way, and then lazy, uninformed reporters like Babington uncritically regurgitate that version as fact in the newspaper.

As Matthew Yglesias said somewhere, those who want information will continue to get theirs from well-established webloggers with a good track record and a sense of honor, like and The Post's management had better put some scientists to work testing how to make their product a more effective birdcage liner, because that's the only comparative advantage they have left.

Thursday, July 13, 2006

Reading Around: 20060630

Things worth reading, 20060630:

New Economist: Did abortion lower the crime rate? The evidence from England: Since Donohue and Levitt's 2001 QJE article "The Impact of Legalized Abortion on Crime" there has been quite a controversy in the United States about a possible causal relationship between higher abortion rates and the fall in crime.... Leo H. Kahane... David Paton... and Rob Simmons... "The Abortion-Crime Link: Evidence from England and Wales."... The authors have two robust findings: "Of the many results presented in this paper, there are two things we can say with confidence. First, increased unemployment rates are associated with increased crime. Second, the greater the proportion of children in care (our proxy for 'social deprivation'), the greater the crime rate. These results are remarkably consistent and robust to various estimation methods...

A Big, Bad Idea | TPMCafe: By Matthew Yglesias: Man. A while back I wanted to write an awesome takedown article on China hawks. But I could never come up with a really good news peg. And, what's worse, I became obsessed with trying to devise a counter-term for "panda hugger" which is what they call people who don't want to start a war with China. Well, via Kevin Drum, Soyoung Ho at The Washington Monthly has done the job masterfully with a hit piece on "Panda Slugger" Michael Pillsbury. Give it a read and I'll say no more about China policy...

JustOneMinute: GD Hamdan - Careful What You Wish For: The Supreme Court's ruling in Hamdan may represent a Pyrrhic victory for the Democrats - since Bush is now likely to go to Congress for enabling legislation, Dems may be forced into a series of potentially awkward votes just a few months before the election...

Georgetown University Law Center Faculty Blog: Hamdan: Preliminary Observations by Mark Tushnet: So, as the Court analyzed Hamdan, the case involved proceedings that had not been authorized by Congress. Indeed, the thrust of the Court%u2019s opinion is that, Congress having provided for military tribunals in the Uniform Code of Military Justice, the President could not put into effect alternative procedures inconsistent with what Congress had authorized. In the jargon of separation of powers law, the absence of authorization in Hamdan did not place the case in Justice Jackson%u2019s Category Two, where the President acts in the absence of congressional authorization, but rather in Jackson%u2019s Category Three, where Congress%u2019s actions, fairly read, prohibited the action the President took...

A Spat Over Iraq Revealed On Tape: By Glenn Kessler: MOSCOW, June 29 -- The official State Department version is that "there was absolutely no friction whatsoever" between Secretary of State Condoleezza Rice and Foreign Minister Sergei Lavrov during a meeting of foreign ministers in Moscow on Thursday. But a recording of the ministers' private lunch, made when an audio link into the room was accidentally left on, showed that "Condi" and "Sergei" -- as they called each other -- had several long and testy exchanges over Iraq. The disputes concerned relatively minor wording changes in the five-page statement issued after the meeting, but grew out of basic differences between the two governments over how to proceed on Iraq...

Armchair Generalist: Casual Fridays: I finished reading "Cobra II" by Michael Gordon and Bernard Trainor this week, and I am impressed. Initially, I had seen Michael Gordon's interview on The Daily Show, and I didn't think he really sold the book's thesis - he played up to the show's anti-Bush attitudes. When I flipped through the book at the bookstore, it didn't immediately grab me. But upon closer examination, this book is quite possibly the best one out there at explaining the story of how our military got mired in the Gulf. Let me get the main thoughts here up front. The authors focus more on Rumsfeld and his staffers rather than the White House's decisions, but refuse to give the military leadership any breaks. Gen (ret) Jack Keane notes that the Joint chiefs of Staff, the Vice Chiefs (to include himself), and General Tommy Franks all share responsibility for the problems in Iraq by not considering that guerrilla warfare was a serious possibility. It's clear that none of the generals responsible for the ground war were comfortable with Rumsfeld's chopping down the size of the force or with his micromanaging the force flow, but they were all good soldiers and did the best they could do. It's also clear that General Franks could be a real son of a bitch with his temper, and vocalized when he was not getting what he wanted...

Obsidian Wings: Hamdan: The Bigger Picture: As I read the Hamdan decision, it does require that the protections of Article 3 of the Geneva Conventions be extended to all detainees, including these. However, there doesn't seem to be any way at all for this requirement to be enforced. It's not just that it's unclear either that Hamdan allows for an individual cause of action based on the Geneva Conventions, or that the arguments the court made in Rasul would apply to detainees held in Afghanistan. The more serious problem is: if no one other than the ICRC, which has a policy of strict confidentiality, is allowed to visit this facility; if the names of detainees are not released; if no one outside the government has any clue what's going on there, or to whom, then how on earth can anyone try to enforce the law there?...

Roubini Global Economics (RGE) Monitor: Levered long/ long funds Brad Setser | Jun 29, 2006: An anonymous partner at a mid-sized London hedge fund expressed something I was trying to say a couple of weeks ago fair better than I could have. From the Financial Times: "'A lot of managers have gone from being long-short funds [funds that make bullish and bearish bets on stocks] to being long-long funds with leverage, which removes the whole point of hedge funds offering protection in the event of a downturn', said a partner at a mid-size hedge fund in London." I expressed my argument somewhat less elegantly %u2013 saying that that some hedge funds were not really hedged. And many of my readers pointed out -- quite correctly %u2013 that no one that is fully hedged makes money. But what I was getting at was that it was quite costly to hedge say a long position in an emerging market equity market with an offsetting short position in the same equity market. Funds that hedged in the same market didn't do as well as funds that did not hedge. Until May, a rising tide was lifting all boats. And punishing shorts. So there was a temptation to become a long/ long fund. Or to find proxy hedges that didn%u2019t cost you an arm and a leg...

Fed Raises Rates, but Scales Back Talk of Inflation - New York Times: By EDMUND L. ANDREWS: WASHINGTON, June 29 %u2014 The Federal Reserve raised interest rates for the 17th consecutive time on Thursday, but kicked off a powerful celebration in the stock market by lowering its alarms about inflation. As expected, the central bank raised its crucial lending rate another quarter-point, to 5.25 percent, and left itself room to raise it again before stopping. But for the first time since it began lifting rates two years ago, the Fed stopped short of signaling that further interest rate increases were all but certain. In what traders described as a huge "relief rally," the Dow Jones industrial average surged 217 points, or 2 percent, in its biggest one-day jump in three years. Other stock and bond market indicators also rose, as interest rates on long-term bonds edged down. The dollar fell against major currencies, with foreign investors reducing their calibrations for interest rates in the United States...

Economist's View: Paul Krugman: How To Be a Hack: Portrait of a hired gun.... How can you tell the hacks from the serious analysts? One answer is to do a little homework. Hack jobs often involve surprisingly raw, transparent misrepresentations of fact.... But there is another telltale clue: if a person, or especially an organization, always sings the same tune, watch out. Real experts, you see, tend to have views that are not entirely one-sided. For example, Columbia's Jagdish Bhagwati, a staunch free-trader, is also very critical of unrestricted flows of short-term capital. Right or not, this mixed stance reflects an honest mind at work. You might think that hacks would at least try to simulate an open mind... But it almost never happens. Of course, honest men can disagree, and they can also make mistakes. But it's still a good idea to tune out supposed experts whose minds are made up in advance...

Choice, Chance, and Wealth Dispersion at Retirement: Steven F. Venti, David A. Wise NBER Working Paper No. 7521 Issued in February 2000: People earn just enough to get by' is a phrase often used to explain the low personal saving rate in the United States. The implicit presumption is that households simply do not earn enough to pay for current needs' and to save. We show in this paper that at all levels of lifetime earnings there is an enormous dispersion in the accumulated wealth of families approaching retirement. It is not only households with low incomes that save little; a significant proportion of high income households also saves little. And, a substantial proportion of low income households save a great deal. We then consider the extent to which differences in household lifetime financial resources explain the wide dispersion in wealth, given lifetime earnings. We find that very little of this dispersion can be explained by chance differences in individual circumstances largely outside the control of individuals' that might limit the resources from which saving might plausibly be made. We also consider how much of the dispersion in wealth might be accounted for by different investment choices of savers some more risky, some less risky given lifetime earnings. We find that investment choice is not a major determinant of the dispersion in asset accumulation. It matters about as much as chance events that limit the available resources of households with the same lifetime earnings. We conclude that the bulk of the dispersion must be attributed to differences to in the amount that households choose to save. The differences in saving choices among households with similar lifetime earnings lead to vastly different levels of asset accumulation by the time retirement age approaches...

Worth Reading, 20060713

Worth reading, 20060713:

John Quiggin: "Mumbai terror attacks: Yet another terror attack, with 200 killed. All such crimes, whether committed by terrorist gangs or national governments, should be condemned without reservation. The idea that causes such as national independence, religion or political ideology justify the murder of ordinary people going about their daily business is utterly pernicious, as is the view that similar killings (whether directly intended or inevitable ‘collateral damage’) are justified in retaliation for such crimes..."

Informed Comment: "The Beginning of a New War? Will it Spill over on Iraq? All hell broke loose on Wednesday in the Mideast, with a Hizbullah attack on the Israeli army and Israeli reprisals, and the Israeli dropping of a 500 pound bomb on Gaza. I roundly condemn Hizbullah's criminal and stupid attack on Israel and escalation of a crisis that is already harming ordinary Palestinians on a massive scale. Likewise, the Beirut airport is not in south Lebanon and for the Israelis to bomb it and neighborhoods in south Beirut is a disproportionate use of force..."

Blood & Treasure: once more into the breach: "I was wondering idly what the actual military term was for Israel’s two front rampage in Gaza and Lebanon might be, when I saw this: 'Israel's army chief of staff, General Dan Halutz, said his military would target infrastructure and "turn back the clock in Lebanon by 20 years" if the soldiers were not freed.' Ah, that’s it. It’s a chevauchee: 'Rather than besieging a castle or conquering land, soldiers on a Chevauchée aimed to create as much destruction, carnage and chaos as possible to both break the morale of enemy peasants and deny their rulers income and resources...' in order to pressure the opposition into giving them what they want. Broadly speaking, it’s what Henry V was up to in France as depicted by Shakespeare. It’s a bit harder to romantcise these days, though..."

Asymmetrical Information: Addendum to previous post: "Addendum to previous post: Is anyone else tired of this Greg Mankiw fellow consistently writing multiple daily posts of astonishing awesomeness? Frankly, we don't need that kind of stuff around here. It's a classic story of how some tycoon with an unfair share of assets--in this case intelligence, writing flair, and Harvard professorships--uses his power to muscle out the little guy. Frankly, Marginal Revolution and EconLog were already two excellent economics blogs too many, as far as I'm concerned. We certainly didn't need more academic types muscling in on mom-and-pop operations, threatening to put us out of business. It's a good thing I write for free, isn't it? Because otherwise, I don't think I could afford to keep it up in the face of all this unfair competition. Where's the antitrust department when you need them?..."

Asymmetrical Information: Deficits as far as the eye can see . . .: "As an econ blogger, I presumably have a responsibility to comment on the deficit. This [from the Economist] about sums up my opinion..."

The Valve - A Literary Organ | Essentialism run riot: "I recently ran across a collection of Essentialist Explanations that is glossed thus: This page comprises a list of 794 'essentialist explanations' of the form 'Language X is essentially language Y under conditions Z'..."

Lois Romano: Beyond the Poll Numbers, Voter Doubts About Clinton: "Clinton's assets are formidable: an unrivaled ability to generate publicity and money, and approval ratings that are notably strong, given her polarizing reputation and the controversies she has weathered over 15 years in the national eye. In recent public opinion polls, she handily leads potential Democratic rivals. Beneath these positives, however, there is evidence of unease.... Follow-up interviews with skeptical Democrats and independents who participated in the Post-ABC News poll suggest that many view her as an inscrutable public figure who gets high marks for her ability and intellect but who nonetheless gives them pause because they find it difficult to relate to her on a personal level.... [S]upporters say the powerful scrutiny she faces means that, far more than the typical politician, she has little room for public error or spontaneity, since even casual comments often draw national headlines. In addition, some political analysts believe that politicians who are women must work harder to be perceived as strong and serious..."

Marginal Revolution: Trudie's advice to would-be economists


The Horse's Mouth: "TIMES FORGETS THAT SOME ECONOMISTS ARE FOR A MINIMUM WAGE INCREASE. In today's Times piece about Democratic plans to make a minimum wage increase an issue in the midterm elections, reporter Edmund Andrews writes that many economists oppose an increase and lets a conservative economist argue the case against a boost -- but forgets to mention that many economists are for an increase, too..."

SSRN-Is the Market Mad? Evidence from Mad Money by Joseph Engelberg, Caroline Sasseville, Jared Williams

Confessions of a Community College Dean: Reward or Fix?: "We’re doing budget dances again. With steadily dwindling resources, now we have to make choices between rewarding programs that have achieved growth, and fixing programs that have sprung leaks in recent years. It’s pretty much either/or; we don’t have the money to do both.... If we take the ‘money sends messages’ approach and use what little we have to reward the areas that have grown, we will continue to bleed out in the other areas. If we shore up the holes, we will be punishing success. Neither is good....I suspect that, over the long term, the answer will be to abandon the idea of the 'comprehensive' community college, in favor of a statewide system of community colleges with different strengths. (Boutique majors could be hosted at particular campuses, with online sections open to students across the entire state.) But that’s the kind of strategic decision best made deliberately, with forethought, broad discussion, and statewide buy-in. It’s not the kind of thing to decide on the fly, unilaterally, at one college.... And we can’t base long-term strategic decisions on who happens to decide to retire next semester..."

Econbrowser: Out of sample prediction of the euro, pound and CAD: "As some of you will know, my main area of research is in empirical exchange rate modeling (see Meese and Chinn (1995) and Cheung et al. (2005)). In a recently completed a paper to be presented at conference at the HKIMR, Ron Alquist and I have conducted another exercise.... At most horizons, the interest rate parity model does as well as the random walk.... The sticky price monetary model outperforms the random walk in 4-quarter ahead forecasts during 1987q2-2004q4 for the pound, but significantly worse for the Canadian dollar.... We find favorable support for the use of the measure of external imbalance, particularly when we estimate the cointegrating vector over the longer sample. In the second subsample, it outperforms the random walk at short horizons for the Canadian dollar and the pound at 5 and 10 % level significance level. The results are less favorable at long horizons and not particularly positive for the euro..."


A Monetary Policymaker's Passage to India (2006-16, 07/07/2006): "Each year, the President of the San Francisco Fed joins the Federal Reserve Board Governor responsible for liaison with Asia on a "fact-finding" trip to the region..."

Tom Watson: MySpace is YourSpace: "Typepad is like the ancient Buick Skylark I used to drive. Sometimes it flies, that killer 350 smacking down shiny Camaros out on Central Avenue. And sometimes it just answers with a cold, empty 'click, click, click' when you turn the key. Today was the dead battery Typepad, so while I sat there unable to post, it got me thinking about these internets of ours. Specifically about social networks, actually - those hotter-than-Hades social-bookmarking, social-tagging, and social-er-hooking-up sites that are sucking up more and more user time online, and more and more ink in the press. First off, I'm not hooked. Yeah, I use tags...sometimes. When I forget, I forget. Mostly I use 'em to keep track of stuff for myself, whether on Technorati or Flickr or my own blog. I don't use them to meet other taggers. Same thing with Delicious (when I can figure it out). The only other reason I use tags is the somewhat hypocritical notion that they'll deliver a larger audience. Both selfish reasons, unrelated to a wider sense of online community - for that, I rely on comments, both on my blog and the many other sites I track on a regular basis. Comments are social networking, to me..."

Brendan Nyhan: Bush vs. his economists III

Information Technology and the Location of Corporate Headquarters

Mark Thoma writes:

Economist's View: Information Technology and the Location of Corporate Headquarters: This is an example of what Paul Krugman discussed in his column "The New York Paradox" where agglomeration economies, the benefits from the clustering of related firms, create an incentive for firms to locate in New York's financial center. However, up until recently, the high cost of locating an entire headquarters operation in New York... innovations in information technology... allowing many of the support personnel to work in lower cost areas in other parts of the world and communicate electronically with upper management.

This article on the movement of biotech headquarters to the U.S. to be located near sources of financing... shows that the phenomena is general - New York is not the only destination - there are agglomerations of biotech firms in places like Cambridge, Massachusetts and Carlsbad, California....

Europe's biotech 'immigrants' to America, by Andrew Pollack, Commentary The New York Times/IHT: When the Scottish government injected $9 million into the biotechnology company Cyclacel last October, the country's enterprise minister explained that "there could not be a more important company for Scotland's future." So how did Cyclacel show its gratitude just two months later? By moving its headquarters to Short Hills, New Jersey, and merging with a publicly traded American company.

Cyclacel executives say there was no slight intended to the government and the company's 65 research scientists, who continue to work in Dundee, Scotland, and Cambridge, England. "The issue was one of access to the capital markets of the United States," said Spiro Rombotis, Cyclacel's chief executive. Only American investors, he said, could provide the tens of millions of dollars needed to carry the company's cancer drugs through clinical trials.

Cyclacel is not alone among European biotechnology companies that consider their science second to none, while conceding the superiority of U.S. financial markets. A number of European players from countries including Denmark, France and Germany have come to the United States for greater access to the world's largest investment pool for life sciences....

The German company Micromet now has a Nasdaq listing and a U.S. headquarters, after reverse-merging with Cancervax, of Carlsbad, California. Most of its operations are still back in the home country....

Oxxon Therapeutics, a British company, moved its headquarters to Boston but then moved back to England. "It's extremely difficult to manage small operations on both sides of the Atlantic," said Craig Smith, Oxxon's chairman....

There has long been a school of thought that argued that manufacturing moved to resource and transport hubs, and then that design and engineering moved to manufacturing, and then finance and management moved to design and engineering--and thus that this century's finance and management hubs are the resource and transport hubs of two centuries ago.

It seems that now we are seeing a different process: design, engineering, and management moving to be within hand-holding distance of midtown Manhattan or of Sandhill Road.

Why Oh Why Are We Ruled by These Morons?

Impeach George W. Bush. Impeach him now.

History News Network: Rick Shenkman: Bush's Blinders: At one of the most important moments of his presidency--his meeting with Saudi Crown Prince Abdullah at the Crawford ranch in the spring of 2005--the president failed to address any of the points the Saudis had indicated beforehand they wanted to discuss. Shrewd bargaining? Not according to Ron Suskind's new book (which I heartily recommend): The One Percent Doctrine. Bush didn't address the Saudi's agenda because he hadn't been told about it. The Saudi wish list had gone to Cheney not Bush.

As Suskind puts it, this was a major blunder. This was arguably in the age of terrorism one of the most important meetings Bush was to have.

Simple oversight? Suskind's story is that Cheney is driving our foreign policy. This story is just one of many examples he uses to make the case. I should mention what the Saudis wanteed. They wanteed some sign that the administration would act as more of a neutral broker in the Middle East Palestinian/Israeli conflict. Bush gave them nadda.

You know, it would be so nice to hava a real president.

Why Oh Why Are We Ruled by These Morons?

Impeach George W. Bush. Impeach him now.

History News Network: Rick Shenkman: Bush's Blinders: At one of the most important moments of his presidency--his meeting with Saudi Crown Prince Abdullah at the Crawford ranch in the spring of 2005--the president failed to address any of the points the Saudis had indicated beforehand they wanted to discuss. Shrewd bargaining? Not according to Ron Suskind's new book (which I heartily recommend): The One Percent Doctrine. Bush didn't address the Saudi's agenda because he hadn't been told about it. The Saudi wish list had gone to Cheney not Bush.

As Suskind puts it, this was a major blunder. This was arguably in the age of terrorism one of the most important meetings Bush was to have.

Simple oversight? Suskind's story is that Cheney is driving our foreign policy. This story is just one of many examples he uses to make the case. I should mention what the Saudis wanteed. They wanteed some sign that the administration would act as more of a neutral broker in the Middle East Palestinian/Israeli conflict. Bush gave them nadda.

You know, it would be so nice to hava a real president.

Another Reason Joe Lieberman Should Not Stay a Senator

Some of Lieberman's spear-carriers get nastier:

New York Observer: Mr. Lieberman’s supporters have come to suggest that much of the burgeoning liberal opposition to his candidacy is motivated by anti-Israel and anti-Semitic sentiment.... Dan Gerstein, a political consultant and informal advisor to the Lieberman campaign... says he has detected what he calls a “growing strain of anti-Semitism on the far left,” which he believes is in part fueling the strident opposition to Mr. Lieberman....

[L]iberal bloggers say that the anti-Semitism charge is just a feint to draw attention away from the broad and increasingly well-disciplined opposition to Mr. Lieberman among the party’s grassroots. “There is a suspicion that the blogs are not challenging Lieberman for the reasons they say they are,” said Ezra Klein, a writing fellow at The American Prospect who has been critical of Mr. Lieberman. “That it is indicative of some larger and more pernicious influence. It’s a little bit harder to say that these are a bunch of liberals who have gotten organized and don’t like Joe Lieberman.”

Ezra Klein responds:

TAPPED: AM I AN ANTI-SEMITE? Possibly. I am, after all, quoted in a New York Observer article hinting that there's more to blogger opposition of Joe Lieberman than meets the eye -- namely, a deep seated revulsion towards Zionism (death to the infidels remix). Not to kvetch over this, but that's a meshugina interpretation of the primary. When Jason Horowitz called to ask me about anti-Semitism's influence in the blogosphere, my first response was similar: Say my name, real slowly, and then ask again. To posit that the land of Glenn Greenwald, Ezra Klein, Matthew Yglesias, Max Sawicky, and Lindsay Beyerstein carries some grudge against Jews is a bit rich. And that doesn't even approach the veneration for Paul Wellstone or the support for Russ Feingold.

What my quote was actually saying, before it got chopped off, was that it's a pleasant fantasy for certain self-righteous elements of the party to recast this battle as a brave war for religious tolerance rather than an ideological and tribal confrontation over one man's repeated abandonment of progressivism. To brush off the stones and arrows flung by the bigots, after all, is both easy and heroic -- it's more of the Great Man myth peddled by the same folks who got us into Iraq because simply chasing down some isolated terrorists wasn't grandly historical enough for them. To face up to a war gone wrong, the inherent hollowness of reflexive "centrism," the psychological oddities of a Democrat who seeks all his praise amongst Republicans, and the simple truth that this blogger insurgency has found a powerful resonance within the Connecticut electorate would require a much more honest and searing reassessment on the part of Lieberman's backers. Better, rather, to pull out the kill card and shut down the conversation through fatuous accusations of anti-Semitism...

Marginal Revolution: Advice to Would-Be Economists

Career advice:

Marginal Revolution: Trudie's advice to would-be economists: One loyal MR reader, Lee Beck, writes:

My idea is that economics can bridge the gap between my love of math (like real-analysis) and my love of political philosophy (like that of your man Hayek). Sadly, this hasn't worked out so far. I thought my micro and macro courses last year were bores. This confused me so much that I took my obsession with Richard Posner to be a sign that I should go into law instead of economics. Is that crazy? How can I know whether being an economics professor is for me? What if I worked through Debreu's Theory of Value next semester and liked it. Would that be proof? What's the hard stuff that I should love before entering the field?...

Trudie responds:

It is not foolish to want to become an economist, but it is foolish to be attracted by this blog. Yes we have serious posts about the option value of gold. But graduate study in economics will not sample "Markets in Everything" (remember the Whizzinator?), not consider whether teenage Thomas Jefferson would have a crush on Veronica Mars, nor will it ask "Why Don't People Have More Sex?". Liking this blog, on average, is a sign that you have broad interests and thus are ill-suited for graduate study in economics. There is also, dare I say it, a chance that you are simply a silly goose with time to kill. On the other hand, Greg Mankiw is now reading Jacqueline Passey, so anything is possible. Welcome, Bizarro Universe.

Two core groups of people are well-suited to be economists:

  1. You math GRE score is over 800, you are totally focused, you love working long hours on your own, and you have good enough letters of recommendation to get into a Top Six or perhaps Top Ten graduate school. Note that white Americans from this category have been partially preempted by competition from foreigners.
  2. You could be happy as an academic without much of a research career. Working at a teaching school is a rewarding life, albeit a poor one relative to your investment in human capital....
  3. You do not fit either #1 or #2. Yet you have climbed out of the cracks rather than falling into them. You do something different, and still have managed to make your way doing research, albeit of a different kind. You will always feel like an outsider in the profession and perhaps you will be underrewarded. But you will have a great deal of fun and in the long run perhaps a great deal of influence.

Sadly, the chance of achieving #3 is fairly low. You need some luck and perhaps one or two special skills other than math....

Greg Mankiw is a classic #1. Brad DeLong started off as a #1, although he has been evolving into a #3. Maybe he was a #3 in hiding all along. I've been a #3, although with a dose of #1 from having gone to Harvard. Alex is a classic #3....

Should you become a legal academic? You will have a greater chance to work with ideas and concepts. A greater chance to write books and also to read them. You are more likely to strut, wear three-piece suits, and speak in stentorian tones. If I were starting out today, perhaps I would take that route, although I would fail at the strut and the suits....

And by the way, buy her roses, ask her to marry you, and live happily ever after. The rest probably won't matter so much..

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

Our financial press:

SSRN-Is the Market Mad? Evidence from Mad Money by Joseph Engelberg, Caroline Sasseville, Jared Williams: We document market inefficiency in the in the days following the buy recommendations of Jim Cramer, host of the popular CNBC show Mad Money. The average cumulative abnormal overnight return for the smallest quartile of recommended stocks is 5.19%, and these returns completely disappear within 12 trading days. We also find that trading volume, buy-sell imbalance, and short sales volume are all significantly higher than normal on the day following Cramer's recommendations. These findings allow us to test hypotheses about the behavior of different types of traders. Finally, our GMM estimates of the components of the bid-ask spread suggest that market makers are aware of Cramer's recommendations and anticipate the order flow imbalance following Cramer's recommendations.

Suggested Citation: Engelberg, Joseph, Sasseville, Caroline and Williams, Jared, "Is the Market Mad? Evidence from Mad Money" (March 15, 2006). Available at SSRN:

Wednesday, July 12, 2006

Signs of a Forthcoming Labor Market Slowdown?

Barry Ritholz is not happy:

The Big Picture: Chart of the Week: Leading Indicators Point To Employment Slowdown: Has the US labor market has had its day? “Analytically, this expectation is based on a deceleration in GDP growth primarily caused by the end of the housing boom. It has been the main driver behind the increase in jobs for years. But more important is the fact that corporate profit growth should have peaked: input costs have soared, but pricing power did not. Therefore, companies are becoming less keen to hire,” according to HVB Group.

Source: HVB Group

HVB Group further notes: “This is already reflected in some forward-looking employment indicators. Hiring plans are tending south as is the CEO confidence survey. This implies that CEOs will reduce new hires or even slash some of their headcount further. But the most striking warning signals are the help wanted index as well as temporary employment.”

Things Worth Reading (20060712)

As of July 12, 2006:

Alterman: Robert Novak, traitor - Altercation - "The upshot here appears to be that Novak lied to everyone in order to betray his country on behalf of Rove and company. First he revealed the name of an active CIA officer, blowing any and all operations with which she has ever been involved, costing the country millions, and possibly endangering lives despite the specific request from the agency that he not do so.... "Harlow, the former CIA spokesman... warned Novak, in the strongest terms he was permitted to use without revealing classified information, that Wilson's wife had not authorized the mission and that if he did write about it, her name should not be revealed. Harlow... called Novak back to repeat that the story Novak had related to him was wrong and that Plame's name should not be used...." Next, [Novak] played Joan of Arc by insisting he would never reveal the names of his sources to Mr. Fitzgerald while simultaneously doing just that. Why in the world is The Washington Post continuing to stand by this scoundrel? Is it all because he’s a member of the club and insiders protect their own? It worked for Kim Philby and I’m beginning to think it’s working here too."

Andrew Tobias on the benefits of competition, Medicare, and drug prices: Yes, competition and bargaining are good things. Extending PhRMA's monopolies is not a good idea.

Brad Delong on the Bush administration's latest round of deficit spin games: In which I correctl predict that the press corps will fall for it once again.

Digby on the Problem with Joe Lieberman, and with Joe Lieberman Weekly: Digby is a national treasure.

SSRN-Secret Compensation by Iman Anabtawi: There's a question about whether businesses should honestly report the options they grant?

Paul Blustein: Smaller Budget Deficit Projected: Tax Cuts Credited; Long-Term Outlook Still Seen as Bleak Paul Blustein: White House Lowers '06 Deficit Estimate: Paul Blustein is best-of-breed among Washington Post reporters. He should be doing a better job.

Daniel Gross: More Irony Please: Daniel sees irony in a place where it's only there because he puts it in there himself.

Barry Ritholz: The Big Picture: Jobs Report Redux: "David Rosenberg has an even more sharp tongued riposte: 'The argument that the household survey "better captures the 'entrepreneurial spirit' of America" is a hoax of gargantuan variety'.... [P]lenty of people legitimately work at home. But anytime I ever knew anyone who was 'looking for work', they invariably described themselves as 'self-employed/independent contractors / freelancers'."

Barry Ritholz: The Big Picture: Making Insider Trading Legal: "I'm still digging out from what I missed while on vacation, but this obscure speech from SEC Commissioner Paul Atkins last week could not go unreported on. Jesse Eisinger rightly calls out this absurdity by a man who's job is ostensibly protecting investors."

NYO - Off the Record: The Wall Street Journal news reporters appear annoyed at the failure of the news editors to protect them from their own editorial page.

Khalilzad Is Unhappy: "U.S. Ambassador to Iraq Says Highly-Touted Baghdad Security Crackdown is Not Succeeding.... President Bush trumpeted a major joint US-Iraqi effort to improve security in Baghdad.... 'Q: Hello, Mr. Ambassador. So the security crackdown in Baghdad has been going on a couple of weeks -- what's your assessment of how well is it going? Is it succeeding?' 'AMB. KHALILZAD: It has not produced the results I expected so far. The plan is being reviewed, and adjustments will be made. No, it has not performed to the level that was expected'...

Worse than Selim the Sot: 'Justice Department Lawyer To Congress: "The President Is Always Right.".... Steven Bradbury, head of the Justice Department's office of legal counsel..'

Mercury Rising: Augusto Pinochet got $26M peddling cocaine: "Augusto Pinochet's $26m (£14m) fortune was amassed through cocaine sales to Europe and the US, the general's former top aide for intelligence has alleged. In testimony sent to Chilean Judge Claudio Pavez, Manuel Contreras alleges that Pinochet and his son Marco Antonio organised a massive production and distribution network, selling cocaine to Europe and the US in the mid-1980s. According to Contreras, once Pinochet's ally and now a bitter enemy, Pinochet ordered the army to build a clandestine cocaine laboratory in Talagante, a rural town 24 miles from Santiago... to produce... 'black cocaine' capable of being smuggled past drug agents in the US and Europe." / Comment & analysis / Comment - Edwin Truman - Time is running out to rebuild the Fund: "The IMF has shaped a prosperous global economy and stable international financial system for more than 60 years. It is in eclipse. Time is running out to reform the Fund. At your first IMF annual meetings in Singapore in September, you face this big challenge. If you and your colleagues fail to address it, the adverse consequences for global economic and financial stability could be enormous. The Singapore meetings should produce concrete progress on a three-part package: meaningful governance reform, significant steps in policing the policies of the systemically important countries and a strengthened IMF role in crisis lending."

Kotlikoff: Is the United States Bankrupt?

The Washington Monthly: 'Riverbend gives us a clue in her description of the sectarian massacre that unfolded last Sunday in a Baghdad neighborhood.... [T]he reason for the nonresponse is probably pretty obvious: the Shia-controlled Interior Ministry had no interest in stopping the massacre and the U.S. military wasn't capable of stopping it. They "sat by" because there was nothing they could do to prevent the fighting and no one wanted to be caught in the middle of a full-blown (though neighborhood-sized) civil war when it finally broke out. Despite everything, I'd be in favor of staying in Iraq if anyone could provide a plan for success that seemed even minimally credible. But no one has. That leaves only one sensible option.'