Hoisted from Comments: Robert Waldmann on price flexibility and deflationary expectations:

Grasping Reality with Both Hands: Brad DeLong's Semi-Daily Journal: And Apropos of Keynes, ch. 19...: I am impressed by Krugman's brilliance (as always) but not convinced by his argument (is this the first time for me ?). I don't know exactly what to do. My problem is this. Krugman discusses the price level and notes it didn't matter given the liquidity trap with nominal interest rates as low as they can go. However, this was due to deflation. The price level may not have mattered in the usual way, but the deflation rate mattered a lot.

I can present a story in which the key issue was to get the deflation rate up to 0 and price flexibility was needed to do this. That is a more rapid deflation would be a briefer deflation. The story follows:

Banks fail and the money supply falls partly because their reserves become cash in circulation and the money multiplier thus falls and partly because fearing more failures consumers take cash out of banks (more vault cash to cash in circulation) and banks feel they need higher reserves. Finally some of the cash in circulation is really cash stored under mattresses so it is not working as money at all. The reduction of the money supply causes an increase in the relative price of money (a deflation) so 1% nominal is [a] huge real [interest rate] and investment collapses. Only when the deflation ends can firms afford to invest again.

The deflation ends when the real value of money is so high that there is enough so that money actually circulating fits MV = PY with a normal V. For this to happen, it is necessary that people have built up the desired amount of cash under matresses. There is a new lower equiilibrium price level, and deflation continues until it is reached.

Now, if Krugman bothers to respond to my argument, he will say "what about the Phillips curve? The price level affects nominal interest rates (unless there is a liquidity trap) and they affect aggregate demand, but the change in the inflation rate depends on the unemployment rate via the Phillips curve. The only way to end deflation was to get the unemployment rate down using fiscal policy and/or/including the WPA and public works projects.

To which I say: hmmm the old Phillips curve applies in normal times and not when the key issue is how much money people have stuffed under their matresses. There is no empirical evidence, because we have no information on the shape of the Phillips curve at unemployment over 15% do we?...

Maybe with more price flexibility there would have been a quicker, briefer deflation. Real interest rates would have been even huger during this deflation but investment can be less than zero. I we assume that the bankruptcy of most industrial corporations due to debt deflation would have been no big deal, we can conclude that the NIRA may have prolonged the depression by a few months (by slowing and extending deflation until it was a dead letter)....

Ah I see that it was all there in the General Theory (of course). My argument is the one Keynes deals with immediately before making the argument also made by Krugman

The contingency, which is favourable to an increase in the marginal efficiency of capital, is that in which money-wages are believed to have touched bottom, so that further changes are expected to be in the upward direction. The most unfavourable contingency is that in which money-wages are slowly sagging downwards and each reduction in wages serves to diminish confidence in the prospective maintenance of wages. ["my" argument]

[snip]

It is, therefore, on the effect of a falling wage- and price-level on the demand for money that those who believe in the self-adjusting quality of the economic system must rest the weight of their argument; though I am not aware that they have done so.

That Keynes acknowledges the argument doesn't means he deals with it. If recent past deflation does indeed create expectations of future inflation and so lowers money demand, then price and wage flexibility is indeed a stabilizing force.

PGL at Angry Bear receives an email from David Gross:

Angry Bear: Update: Daniel Gross reads my comment on what Bryan Caplan wrote and emails me this:

Is the sheer a-historicity of it. Roosevelt scared investors and businessmen? Did he scare them as much as, oh, Stalin, who controlled one of the world's largest economies and was expanding his influence? or as much as Mussolini? Or as much as the fascist government of Japan? Or as much as Hitler, who was buys confiscating property of Jewish investors and businessmen? On a comparative basis, the U.S. was certainly the country in the 1930s that was the most hospitable to private investment and capital formation. Economic history unfolds in real history, not in some imagined world. The New Deal was a success if only because it kept the U.S. from sliding into the type of horrific fascism that infected half of Europe and the pathetic weakness that affected the other half.

As we noted, investment demand increased substantially from 1932 to 1937. Daniel Gross mocks the idea that FDR scared investors -- at least relative to the fear investors may have had seeing what was going on in Germany, Italy, Japan, and/or Russia.

Hilzoy:

Obsidian Wings: Happier Birthday!: Edmund Burke's! Ah, for the good old days, when conservatives were conservative, and wonderfully perceptive students of human nature to boot. I thought of citing one of his more famous quotes, but decided to go with this instead:

I hope there are none of you corrupted with the doctrine taught by wicked men for the worst purposes, and received by the malignant credulity of envy and ignorance, which is, that the men who act upon the public stage are all alike; all equally corrupt; all influenced by no other views than the sordid lure of salary and pension. The thing I know by experience to be false.

Never expecting to find perfection in men, and not looking for divine attributes in created beings, in my commerce with my contemporaries, I have found much human virtue. I have seen not a little public spirit; a real subordination of interest to duty; and a decent and regulated sensibility to honest fame and reputation. The age unquestionably produces (whether in a greater or less number than former times, I know not) daring profligates, and insidious hypocrites. What then? Am I not to avail myself of whatever good is to be found in the world, because of the mixture of evil that will always be in it? The smallness of the quantity in currency only heightens the value.

They who raise suspicions on the good on account of the behaviour of ill men, are of the party of the latter. The common cant is no justification for taking this party. I have been deceived, say they, by Titius and Maevius; I have been the dupe of this pretender or of that mountebank; and I can trust appearances no longer. But my credulity and want of discernment cannot, as I conceive, amount to a fair presumption against any man's integrity.

A conscientious person would rather doubt his own judgment, than condemn his species. He would say, I have observed without attention, or judged upon erroneous maxims; I trusted to profession, when I ought to have attended to conduct. Such a man will grow wise, not malignant, by his acquaintance with the world. But he that accuses all mankind of corruption, ought to remember that he is sure to convict only one.

In truth I should much rather admit those, whom at any time I have disrelished the most, to be patterns of perfection, than seek a consolation to my own unworthiness, in a general communion of depravity with all about me.

Notes from the Lounge: Obligations to Future Kids: Erstwhile roomie Glen raises a point I sort of dodged in the post below, partly because it was already way too long, partly because I'm not sure what the right thing to say is. What I suggested was that there's a tension between the idea that it's counterproductive to shame or judge young prospective mothers and fathers, and the idea that we do want to say there's something bad about having a child under circumstances that typically present a variety of problems for the child, because we want to encourage young people to take precautions against having kids before they're really ready. The problem here is that you can't really coherently talk about this as a harm to the child, since the alternative to a child being born to young parents and facing the problems associated that is for the child not to exist. If they postpone childbearing and have another kid later, that kid may have an easier time of it, but it will be a different child. And as Derek Parfit has argued, the obvious candidates for general principles to determine our obligations to future persons (when we can affect not only the welfare but the identity of those persons) all yield some kind of paradox or otherwise unappealing conclusion. It might be tempting there to say: Fine, these different identity situations are just incomparable, and so long as the child born in whatever suboptimal circumstances doesn't literally wish he had never been born, there's not much to say either way about the ethics of having the child. I once wrote a paper defending just that position. But that, too, has some intuitively very unappealing implications. Suppose couple are planning a child, and one has a condition that will make any child they have very severely disabled, mentally and physically, but with a life just barely worth living (from its own perspective). The child will not quite regret having been born, but only just. The incomparability principle entails that if the afflicted partner can just wait a month, take an inexpensive pill, and cure this condition, there is nothing moral (as opposed to prudential) to say in favor of doing this. And that can't be right either.

Yet More Martin-Luther-King-Holiday-Weekend Blogging!

Mark Graber reples to my "To Secure the Blessings of Liberty". He thus celebrates Martin Luther King holiday weekend by reiterating his claims that (i) Dred Scott v. Sanford was rightly decided, and (ii) Lincoln and the Republicans in the 1850s--rather than either Roger Taney with his southern power grab in 1857 or the slavemaster secessionists firing on Ft. Sumter in 1861--who broke the constitutional order set up in 1857.

As you may or may not remember, I read Mark Graber's Dred Scott and the Problem of Constitutional Evil as making seven claims:

1. The 1787 Constitution intended "contested constitutional questions... be settled by the bisectional coalitions."
2. The framers thus set John C. Calhoun's principle of "concurrent majorities" in the Constitutional bedrock
3. The Republicans of the 1850s, who stuck to the letter of the Constitution, refused to admit that they were undermining its spirit.
4. In Dred Scott, Roger B. Taney replaced failing the political protections of slavery provided by sectional balance in numbers of states and populations per section with legally-enforceable protections.
5. In violating the letter of the Constitution, Taney was being faithful to the spirit of the Constitution, and so was preserving it.
6. In criticizing Taney for violating the letter of the Constitution, Lincoln was being unfaithful to the spirit of the Constitution, and so was destroying it.
7. Dred Scott was rightly decided.

Claim number two, especially, struck me as especially weird. Read John C. Calhoun's Discourse. John C. Calhoun himself did not believe that his principle of concurrent majorities was part of the 1787 constitutional order. He believed that it would have been wise for the framers to have made it part of the order. He believed that the constitution should in his day be amended to make it part of the order. He believed that without this principle the country might disintegrate. But he did not believe that the North had any sort of constitutional responsibility or obligation to treat it as part of the 1787 constitutional order.

Mark Graber has thus managed to get himself to the right of John C. Calhoun. This is a position painful and ludicrous for a twenty-first-century American legal academic to find himself in. It is a position so painful and ludicrous that it should induce any twenty-first-century American academic to undertake an agonizing reappraisal--particularly over Martin Luther King holiday weekend.

But Mark Graber doesn't. Let's turn the mike over to him:

Balkinization: [A] fundamental principle of an empirically realistic constitutional theory ought to be that constitutional bargains survive only when interpreted, however creatively, in ways that create opportunities for mutually beneficial cooperation.... Of course, members of [the North] will have the luxury of knowing, as civil war wracks their country, that [the slavemasters of the South] was the party responsible for abandoning the constitution. This, however, is unlikely to reduce their casualities....

[C]onstitutional bets made by one generation... should not be enforceable against the next when the result is a sharp imbalance in the benefits... constitutions are best interpreted in ways that enable all parties... to believe that they are better off continuing to cooperate than going at matters alone (or engaging in civil war)....

I think DeLong is mistaken when he insists that northerners ratified on the basis of their belief that slavery would diminish over time (while most hoped so, the best evidence indicates that concerns with slavery were not central for most northern proponents of ratification). But even conceding the point for argument's sake, the more vital constitutional consideration is that as a political matter people are not going to pay off constitutional bets made by their ancestors when the payment requires a sacrifice of crucial interests with inadequate present payoffs.... [T]he constitutional bargain was likely to continue only if the winner, in this case the free states, did not collect. The Constitution of the United States... could survive only when all crucial parties believed that cooperative served their interests, as they presently defined their interests...

I want to make two points in response.

My first point: pacta sunt servanda. Agreements should be kept. We use analogies derived from the law and practice of private contracts in our reasoning about public moral and legal constitutional obligations. Whether it makes sense for us to use these analogies is a deep question well above my pay grade. But we do use them: it is the style of constitutional reasoning that we have. And it tells us that pacta sunt servanda: agreements should be kept.

Oftentimes prudence, empathy, the desire to make additional agreements in the future, et cetera will lead both parties to agree to renegotiate a contract when circumstances change. But that doesn't mean that a dissatisfied party has the right to unilaterally change it. In private law a dissatisfied party's options are to fulfill the terms, to breach and renegotiate, or to breach and litigate. The breach-and-renegotiate option between say, Target and a supplier of electric toothbrushes entails an acknowledgement of breach and negotiations among the parties, with mediation a welcome aid. It doesn't entail the guy who has the job of monitoring compliance--the guy driving the truck and checking in the shipment at Target's loading dock--saying "There are only 100 gross of toothbrushes here, but we'll say there are 144 gross because the original contract turns out to have been unfair."

In this analogy, Roger B. Taney in Dred Scott is not the mediator at the renegotiation. He is the truck driver checking in the shipment. He was not acting as the agent of the High Contracting Parties in their renegotiation. If he were, there would not have been such anguished cries from the free-soil north in resonse to his ruling.

My second point: Go back to how Mark Graber opens his post this Martin Luther King holiday weekend. He opens with an analogy. He sets forth what he regards as a situation capturing the key aspects relevant to Dred Scott of the evolution of the United States over 1787-1860. Here's what he says:

Suppose two tribes who have some reason to cooperate but whose members do not like each other very much ratify a constitution that grants the northern half of their territory to Tribe A and the southern part to Tribe B. Each party is rather happy with the bargain. Each believes that, in the next hundred years, climate changes are likely to enhance the value of their land and make the other tribe’s land nearly uninhabitable. As a result of this constitutional bargain, members of both tribes are able to form an army that provides for the common defense and make mutually beneficial trade agreements with other nations.

After 100 years of no apparent changes, evidence conclusively indicates that Tribe A has won the constitutional bet. The soil on the northern half of the continent is becoming increasingly fertile, while the soil of the southern half of the continent (for natural reasons) is slowly killing the members of Tribe B...

There are two parties to the constitutional contract in Mark Graber's imagination. There is Tribe A--the North--and Tribe B--the slaveholders of the South. Notice anybody missing? Yep. There is no Tribe C--the slaves. One of the most ancient principles of any law worthy of the name is that at some appropirate level quod omnes tangit ab omnibus approbari debet. And the slaves of the United States America were certainly the direct object of the verb tangit, as far as contemplated revisions of the 1787 constitutional order were concerned.

Mark Graber says that if changes in circumstances greatly disadvantage how a constitution impacts some group, that constitution should be revised and amended so that the losers should not have to pay up the full amount of the constitutional bet that they have lost. Well, changes in circumstances from 1787--when with the exhaustion of tobacco soils Thomas Jefferson believed he would someday free all his slaves--to 1860--when with the profits of cotton and sugar Jefferson Davis was damned sure he would not free any of his--greatly disadvantaged Tribe C. Does not Graber's argument that the free-soil North should not have collected on its victorious bet from the slavemasters of the South carry with it a much stronger argument that the slavemasters of the South--transformed by the profits of cotton from seeing slavery as a temporary evil to seeing slavery as a permanent good--should not have collected on their victorious bet from the slaves?

But in Mark Graber's world there is no "Tribe C." There are only Tribes A and B--free-soil Northerners and slavemaster Southerners. The slaves, you see, have not made a constitutional bet because they are not parties to the constitution. They are not and never can be citizens of the United States. They are not among the people who have inalienable rights. Governments are not instituted to secure their rights to life, liberty, or the pursuit of happiness: they have none. Their claim that they are among the "we the people" for whom the constitution is supposed "to secure the blessings of liberty" is null and void, if not simply laughed out of court.

We don't have to think about the impact on Tribe C. For, as Roger B. Taney wrote, African-Americans are:

beings of an inferior order, and altogether unfit to associate with the white race, either in social or political relations, and so far inferior that they had no rights which the white man was bound to respect.

But I maintain the contrary. I maintain that we do have to think about Tribe C. I maintain that everybody doing politics and law in the United States--today or in the 1850s, whether Roger B. Taney or Mark Graber--ought not to pretend that Tribe C is absent from the table. Tribe C has a seat at the table, for as Abraham Lincoln said in 1858:

I agree with Judge Douglas that [the Negro] is not my equal in many respects, certainly not in color—-perhaps not in intellectual and moral endowments; but in the right to eat the bread without the leave of any body else which his own hand earns, he is my equal and the equal of Judge Douglas, and the equal of every other man.

Neurological microfoundations for Adam Smith's Theory of Moral Sentiments:

Edge: THE NEUROLOGY OF SELF-AWARENESS by V.S. Ramachandran: As noted earlier there is one aspect of self that seems stranger than all the others — the fact that it is aware of itself. I would like to suggest that groups of neurons called mirror neurons are critically involved in this ability.... [W]hen the monkey reached for a peanut a certain neuron in its pre motor cortex (in the frontal lobes) would fire. Another neuron would fire when the monkey pushed a button, a third neuron when he pulled a lever. The existence of such Command neurons that control voluntary movements has been known for decades. Amazingly, a subset of these neurons had an additional peculiar property. The neuron fired not only (say) when the monkey reached for a peanut but also when it watched another monkey reach for a peanut!

These were dubbed "mirror neurons" or "monkey-see-monkey-do" neurons. This was an extraordinary observation because it implies that the neuron (or more accurately, the network which it is part of) was not only generating a highly specific command ("reach for the nut") but was capable of adopting another monkey's point of view. It was doing a sort of internal virtual reality simulation of the other monkeys action in order to figure out what he was "up to". It was, in short, a "mind-reading" neuron.

Neurons in the anterior cingulate will respond to the patient being poked with a needle; they are often referred to as sensory pain neurons. Remarkably, researchers at the University of Toronto have found that some of them will fire equally strongly when the patient watches someone else is poked. I call these "empathy neurons" or "Dalai Lama neurons" for they are, dissolving the barrier between self and others. Notice that in saying this one isn't being metaphorical; the neuron in question simply doesn't know the difference between it and others.

Primates (including humans) are highly social creatures and knowing what someone is "up to" — creating an internal simulation of his/her mind — is crucial for survival, earning us the title "the Machiavellian primate". In an essay for Edge (2001) entitled "Mirror Neurons and the Great Leap Forward" I suggested that in addition to providing a neural substrate for figuring out another persons intentions (as noted by Rizzolati's group) the emergence and subsequent sophistication of mirror neurons in hominids may have played a crucial role in many quintessentially human abilities such as empathy, learning through imitation (rather than trial and error), and the rapid transmission of what we call "culture". And the "great leap forward" — the rapid Lamarckian transmission of "accidental" one-of-a kind inventions.

I turn now to the main concern of this essay — the nature of self. When you think of your own self, what comes into mind? You have sense of "introspecting" on your own thoughts and feelings and of " watching" yourself going about your business — as if you were looking at yourself from another persons vantage point. How does this happen ?

Evolution often takes advantage of pre-existing structures to evolve completely novel abilities. I suggest that once the ability to engage in cross modal abstraction emerged — e.g. between visual "vertical" on the retina and photoreceptive "vertical" signaled by muscles (for grasping trees) it set the stage for the emergence of mirror neurons in hominids. Mirror neurons are also abundant in the inferior parietal lobule — a structure that underwent an accelerated expansion in the great apes and, later, in humans. As the brain evolved further the lobule split into two gyri — the supramarginal gyrus that allowed you to "reflect" on your own anticipated actions and the angular gyrus that allowed you to "reflect" on your body (on the right) and perhaps on other more social and linguistic aspects of your self (left hemisphere).

I have argued elsewhere that mirror neurons are fundamentally performing a kind of abstraction across activity in visual maps and motor maps. This in turn may have paved the way for more conceptual types of abstraction; such as metaphor ("get a grip on yourself").

How does all this lead to self awareness? I suggest that self awareness is simply using mirror neurons for "looking at myself as if someone else is look at me" (the word "me" encompassing some of my brain processes, as well). The mirror neuron mechanism — the same algorithm — that originally evolved to help you adopt another's point of view was turned inward to look at your own self. This, in essence, is the basis of things like "introspection".... [T]he ability to turn inward to introspect or reflect may be a sort of metaphorical extension of the mirror neurons ability to read others minds.

It is often tacitly assumed that the uniquely human ability to construct a "theory of other minds" or "TOM" (seeing the world from the others point of view; "mind reading", figuring out what someone is up to, etc.) must come after an already pre-existing sense of self. I am arguing that the exact opposite is true; the TOM evolved first in response to social needs and then later, as an unexpected bonus, came the ability to introspect on your own thoughts and intentions.

I claim no great originality for these ideas; they are part of the current zeitgeist. Any novelty derives from the manner in which I shall marshall the evidence from physiology and from our own work in neurology. Note that I am not arguing that mirror neurons are sufficient for the emergence of self; only that they must have played a pivotal role. (Otherwise monkeys would have self awareness and they don't). They may have to reach a certain critical level of sophistication that allowed them to build on earlier functions (TOM) and become linked to certain other brain circuits, especially the Wernickes ("language comprehension") area and parts of the frontal lobes.

Does the mirror neuron theory of self make other predictions? Given our discovery that autistic children have deficient mirror neurons and correspondingly deficient TOM, we would predict that they would have a deficient sense of self (TMM) and difficulty with introspection. The same might be true for other neurological disorders; damage to the inferior parietal lobule/TPO junction (which are known to contain mirror neurons) and parts of the frontal lobes should also lead to a deficiency of certain aspects self awareness....

Some years ago we examined a patient with a syndrome called anosognosia who had a lesion in his right parietal lobe and vehemently denied the paralysis. Remarkably the patient also denied the paralysis of another patient sitting in an adjacent wheelchair! (who failed to move the arm on command from the physician.) Here again was, evidence that two seemingly contradictory aspects of self — its the individuation and intense privacy vs. its social reciprocity — may complement each other and arise from the same neural mechanism, mirror neurons. Like the two sides of a Mobius strip, they are really the same, even they appear — on local inspection — to be fundamentally different.

Have we solved the problem of self? Obviously not — we have barely scratched the surface. But hopefully we have paved the way for future models and empirical studies on the nature of self, a problem that philosophers have made essentially no headway in solving. (And not for want of effort — they have been at it for three thousand years). Hence our grounds for optimism about the future of brain research — especially for solving what is arguably Science's greatest riddle.

More chatter supporting the belief that the only way George W. Bush sees forward is to attack Iran:

Prairie Weather: Condi's mission: Iran attack is on: According to Andrea Mitchell who spoke today with intelligence officials and has just revealed this in discussion, Iran is the official target and that's why Condi is flying east today -- to alert the Saudis and others.

Yes, over at National Review they too are shriller than Paul Krugman now. Over on Lexington Avenue they are calling for George W. Bush's resignation. For all I know, tonight after they finish their Bombay Sapphire martinis they're going to sacrifice Geddy Lee to the Black Dolphin.

Here's George Conway:

Reconcilable Differences on National Review Online: Ahmadinejad and Assad should be thrilled that Bush is tying up more assets in Baghdad and Anbar. They've got us right where they want us.So much for substance. On style, Tom Shales correctly remarks here how tense, anxious and rigid Bush looked last night. Frankly, as he has over the past few weeks, Bush looked like a man who is in way over his head, which he is. The man who got the country into this hole, and whose neglect and incompetence dug us deeper into into it, looks like a man who would like nothing more than to get back to Crawford. We'd all be better off if he would.

Wonkette makes the catch:

Condi, Don't Take Your Love to the Foreign Relations Panel - Wonkette: Dana Milbank has found the only US Senator in support of Bush's Iraq plan, and he's just as bright as you think.

Indeed, the lone lawmaker showing some sympathy was Republican Johnny Isakson of Georgia, who muddied his defense with an extended metaphor about gambling. He said Bush's speech Wednesday night made clear "this one is for all the marbles," and he advised Iraqis to heed "Kenny Rogers's old song, 'You got to know when to hold 'em and know when to fold 'em.' It%'s time for them to deliver on the hand that they've dealt."

Do you think he actually didn't remember the second line of the chorus, or did it come to him halfway through and he had to wing it?

Wonkette may be an effective substitute for Fafblog:

Bush Administration Incompetence to Expand Scope Past Atmosphere - Wonkette: Remember Patrick Rhode? He was the former TV reporter who leveraged a job as deputy advance guy for Bush in 2000 (deputy to the guy who makes sure there's bottled water behind the podium!) into a gig as deputy director of FEMA. Then New Orleans drowned, and Rhode called FEMA's response "probably one of the most efficient and effective responses in the country's history."... He's going to strand all of our astronauts in space.

Patrick Rhode is now listed in NASA's online phonebook as a "senior advisor" to "Organization: A" (Office of the Administrator)

So look for the International Space Station to come crashing down into Detroit, killing thousands, sometime around March.

The General Theory of Employment, Interest and Money, by John Maynard Keynes:

From Chapter 19: Changes in Money-Wages: Thus the reduction in money-wages will have no lasting tendency to increase employment except by virtue of its repercussions either on the propensity to consume for the community as a whole, or on the schedule of marginal efficiencies of capital, or on the rate of interest. There is no method of analysing the effect of a reduction in money-wages, except by following up its possible effects on these three factors.

The most important repercussions on these factors are likely, in practice, to be the following:

(1) A reduction of money-wages will somewhat reduce prices. It will, therefore, involve some redistribution of real income (a) from wage-earners to other factors entering into marginal prime cost whose remuneration has not been reduced, and (b) from entrepreneurs to rentiers to whom a certain income fixed in terms of money has been guaranteed.

What will be the effect of this redistribution on the propensity to consume for the community as a whole? The transfer from wage-earners to other factors is likely to diminish the propensity to consume. The effect of the transfer from entrepreneurs to rentiers is more open to doubt. But if rentiers represent on the whole the richer section of the community and those whose standard of life is least flexible, then the effect of this also will be unfavourable. What the net result will be on a balance of considerations, we can only guess. Probably it is more likely to be adverse than favourable.

(2) If we are dealing with an unclosed system, and the reduction of money-wages is a reduction relatively to money-wages abroad when both are reduced to a common unit, it is evident that the change will be favourable to investment, since it will tend to increase the balance of trade. This assumes, of course, that the advantage is not offset by a change in tariffs, quotas, etc. The greater strength of the traditional belief in the efficacy of a reduction in money-wages as a means of increasing employment in Great Britain, as compared with the United States, is probably attributable to the latter being, comparatively with ourselves, a closed system.

(3) In the case of an unclosed system, a reduction of money-wages, though it increases the favourable balance of trade, is likely to worsen the terms of trade. Thus there will be a reduction in real incomes, except in the case of the newly employed, which may tend to increase the propensity to consume.

(4) If the reduction of money-wages is expected to be a reduction relatively to money-wages in the future, the change will be favourable to investment, because as we have seen above, it will increase the marginal efficiency of capital; whilst for the same reason it may be favourable to consumption. If, on the other hand, the reduction leads to the expectation, or even to the serious possibility, of a further wage-reduction in prospect, it will have precisely the opposite effect. For it will diminish the marginal efficiency of capital and will lead to the postponement both of investment and of consumption.

(5) The reduction in the wages-bill, accompanied by some reduction in prices and in money-incomes generally, will diminish the need for cash for income and business purposes; and it will therefore reduce pro tanto the schedule of liquidity-preference for the community as a whole. Cet. par. this will reduce the rate of interest and thus prove favourable to investment. In this case, however, the effect of expectation concerning the future will be of an opposite tendency to those just considered under (4). For, if wages and prices are expected to rise again later on, the favourable reaction will be much less pronounced in the case of long-term loans than in that of short-term loans. If, moreover, the reduction in wages disturbs political confidence by causing popular discontent, the increase in Liquidity preference due to this cause may more than offset the release of cash from the active circulation.

(6) Since a special reduction of money-wages is always advantageous to an individual entrepreneur or industry, a general reduction (though its actual effects are different) may also produce an optimistic tone in the minds of entrepreneurs, which may break through a vicious circle of unduly pessimistic estimates of the marginal efficiency of capital and set things moving again on a more normal basis of expectation. On the other hand, if the workers make the same mistake as their employers about the effects of a general reduction, labour troubles may offset this favourable factor; apart from which, since there is, as a rule, no means of securing a simultaneous and equal reduction of money-wages in all industries, it is in the interest of all workers to resist a reduction in their own particular case. In fact, a movement by employers to revise money-wage bargains downward will be much more strongly resisted than a gradual and automatic lowering of real wages as a result of rising prices.

(7) On the other hand, the depressing influence on entrepreneurs of their greater burden of debt may partly offset any cheerful reactions from the reduction of wages. Indeed if the fall of wages and prices goes far, the embarrassment of those entrepreneurs who are heavily indebted may soon reach the point of insolvency, %u2014 with severely adverse effects on investment. Moreover the effect of the lower price-level on the real burden of the National Debt and hence on taxation is likely to prove very adverse to business confidence.

This is not a complete catalogue of all the possible reactions of wage reductions in the complex real world. But the above cover, I think, those which are usually the most important.

If, therefore, we restrict our argument to the case of a closed system, and assume that there is nothing to be hoped, but if anything the contrary, from the repercussions of the new distribution of real incomes on the community's propensity to spend, it follows that we must base any hopes of favourable results to employment from a reduction in money-wages mainly on an improvement in investment due either to an increased marginal efficiency of capital under (4) or a decreased rate of interest under (5). Let us consider these two possibilities in further detail.

The contingency, which is favourable to an increase in the marginal efficiency of capital, is that in which money-wages are believed to have touched bottom, so that further changes are expected to be in the upward direction. The most unfavourable contingency is that in which money-wages are slowly sagging downwards and each reduction in wages serves to diminish confidence in the prospective maintenance of wages. When we enter on a period of weakening effective demand, a sudden large reduction of money-wages to a level so low that no one believes in its indefinite continuance would be the event most favourable to a strengthening of effective demand. But this could only be accomplished by administrative decree and is scarcely practical politics under a system of free wage-bargaining. On the other hand, it would be much better that wages should be rigidly fixed and deemed incapable of material changes, than that depressions should be accompanied by a gradual downward tendency of money-wages, a further moderate wage reduction being expected to signalise each increase of, say, 1 per cent. in the amount of unemployment. For example, the effect of an expectation that wages are going to sag by, say, 2 per cent. in the coming year will be roughly equivalent to the effect of a rise of 2 per cent. in the amount of interest payable for the same period. The same observations apply mutatis mutandis to the case of a boom.

It follows that with the actual practices and institutions of the contemporary world it is more expedient to aim at a rigid money-wage policy than at a flexible policy responding by easy stages to changes in the amount of unemployment; -- so far, that is to say, as the marginal efficiency of capital is concerned. But is this conclusion upset when we turn to the rate of interest?

It is, therefore, on the effect of a falling wage- and price-level on the demand for money that those who believe in the self-adjusting quality of the economic system must rest the weight of their argument; though I am not aware that they have done so. If the quantity of money is itself a function of the wage- and price-level, there is indeed, nothing to hope in this direction. But if the quantity of money is virtually fixed, it is evident that its quantity in terms of wage-units can be indefinitely increased by a sufficient reduction in money-wages; and that its quantity in proportion to incomes generally can be largely increased, the limit to this increase depending on the proportion of wage-cost to marginal prime cost and on the response of other elements of marginal prime cost to the falling wage-unit.

We can, therefore, theoretically at least, produce precisely the same effects on the rate of interest by reducing wages, whilst leaving the quantity of money unchanged, that we can produce by increasing the quantity of money whilst leaving the level of wages unchanged. It follows that wage reductions, as a method of securing full employment, are also subject to the same limitations as the method of increasing the quantity of money. The same reasons as those mentioned above, which limit the efficacy of increases in the quantity of money as a means of increasing investment to the optimum figure, apply mutatis mutandis to wage reductions. Just as a moderate increase in the quantity of money may exert an inadequate influence over the long-term rate of interest, whilst an immoderate increase may offset its other advantages by its disturbing effect on confidence; so a moderate reduction in money-wages may prove inadequate, whilst an immoderate reduction might shatter confidence even if it were practicable.

There is, therefore, no ground for the belief that a flexible wage policy is capable of maintaining a state of continuous full employment; -- any more than for the belief than an open-market monetary policy is capable, unaided, of achieving this result. The economic system cannot be made self-adjusting along these lines.

If, indeed, labour were always in a position to take action (and were to do so), whenever there was less than full employment, to reduce its money demands by concerted action to whatever point was required to make money so abundant relatively to the wage-unit that the rate of interest would fall to a level compatible with full employment, we should, in effect, have monetary management by the Trade Unions, aimed at full employment, instead of by the banking system. Nevertheless while a flexible wage policy and a flexible money policy come, analytically, to the same thing, inasmuch as they are alternative means of changing the quantity of money in terms of wage-units, in other respects there is, of course, a world of difference between them. Let me briefly recall to the reader's mind the three outstanding considerations.

(i) Except in a socialised community where wage-policy is settled by decree, there is no means of securing uniform wage reductions for every class of labour. The result can only be brought about by a series of gradual, irregular changes, justifiable on no criterion of social justice or economic expediency, and probably completed only after wasteful and disastrous struggles, where those in the weakest bargaining position will suffer relatively to the rest. A change in the quantity of money, on the other hand, is already within the power of most governments by open-market policy or analogous measures. Having regard to human nature and our institutions, it can only be a foolish person who would prefer a flexible wage policy to a flexible money policy, unless he can point to advantages from the former which are not obtainable from the latter. Moreover, other things being equal, a method which it is comparatively easy to apply should be deemed preferable to a method which is probably so difficult as to be impracticable.

(ii) If money-wages are inflexible, such changes in prices as occur (i.e. apart from "administered" or monopoly prices which are determined by other considerations besides marginal cost) will mainly correspond to the diminishing marginal productivity of the existing equipment as the output from it is increased. Thus the greatest practicable fairness will be maintained between labour and the factors whose remuneration is contractually fixed in terms of money, in particular the rentier class and persons with fixed salaries on the permanent establishment of a firm, an institution or the State. If important classes are to have their remuneration fixed in terms of money in any case, social justice and social expediency are best served if the remunerations of all factors are somewhat inflexible in terms of money. Having regard to the large groups of incomes which are comparatively inflexible in terms of money, it can only be an unjust person who would prefer a flexible wage policy to a flexible money policy, unless he can point to advantages from the former which are not obtainable from the latter.

(iii) The method of increasing the quantity of money in terms of wage-units by decreasing the wage-unit increases proportionately the burden of debt; whereas the method of producing the same result by increasing the quantity of money whilst leaving the wage unit unchanged has the opposite effect. Having regard to the excessive burden of many types of debt, it can only be an inexperienced person who would prefer the former.

(iv) If a sagging rate of interest has to be brought about by a sagging wage-level, there is, for the reasons given above, a double drag on the marginal efficiency of capital and a double reason for putting off investment and thus postponing recovery...

Sandy Levinson says that Bush is an adolescent:

Balkinization: Our adolescent President: David Sanger... includes the following paragraph:

[Bush] put [the logic of his plan] far more bluntly when leaders of Congress visited the White House earlier on Wednesday."I said to Maliki this has to work or you're out," the president told the Congressional leaders, according to two officials who were in the room. Pressed on why he thought this strategy would succeed where previous efforts had failed, Mr. Bush shot back: "Because it has to."

Two comments: 1) What exactly does it mean to say "I said to Maliki this has to work our you're out." I thought that the US considered Iraq a "sovereign" state--recall the justification for handing over Saddam Hussein to the Shi'ite government. So how, precisely, can the US assure that Maliki is "out." Is the Iraqi government a wind-up toy after all, whose energy from the last winding-up is running down and thus in need of another American wind-up? 2) Even more to the point, does "Because it has to" count as an answer to the question? Isn't this exactly the response one would might expect from, say, a semi-delusional adolescent when asked why he believes that some particular act will enable him to attain a goal, say a date with the homecoming queen?...

I am the father of two adolescents. Trust me: adolescents understand that "because it has to" is not a reason to expect something to work. Adolescents are reality-based.

What George W. Bush is is a toddler:

With Iraq Speech, Bush to Pull Away From His Generals - washingtonpost.com: F]ew of the key Baker-Hamilton recommendations appealed to the administration, which intensified its own deliberations.... How to look distinctive from the study group became a recurring theme.... [T]he National Security Council became enamored of the idea of sending more troops to Iraq in part because it was not a key feature of Baker-Hamilton...

If only James Baker had spent a good chunk of his life running a day-care center. Then he might have been qualified to run the Iraq Study Group. He would have understood. He would have known that the right strategy for dealing with a toddler requires that you say things like:

"Georgie. Mr. Baker will be very angry if you eat your vegetables!"

"Georgie. Mr. Baker will be very angry if you clean up your mess!"

"Georgie. Mr. Baker will be very angry if you reduce troop numbers in Iraq!"

"Georgie. Mr. Baker will be very angry if you negotiate with Iran!"

Impeach George W. Bush. Impeach him now.

Pat Lang shrilly writes:

Sic Semper Tyrannis 2007: The Fatal Flaw...: The Political Action part of this plan is where the whole scheme is going to collapse. In "Bushworld" the Maliki "government," sheltered behind American troops in the Green Zone is somehow the equivalent of George Washington's "infant" first administration in that it is groping toward a consolidation of its power in the context of a true regard for the interests of the various peoples of Mesopotamia and Kurdistan. In "Bushworld" all that is needed is to be sufficiently encouraging and mentoring with Maliki and his ministers to "jump start" the functions of a federal state endowed with a reasonably strong central government. In "Realworld" Maliki is merely another Shia Arab activist seeking to consolidate Shia Arab control over as much of the old Iraq as can be managed. In "Realworld" Maliki can not suppress the Shia militia leaders because he is their brother, embarked on the same quest for Shia power. In "Bushworld" we have asked the Maliki government to participate with us in fighting, if necessary, (and it will be) the Mahdi Army of Moqtada al-Sadr. In "Realworld" Sadr is an ally from whom Maliki may not distance himself, because he and Sadr represent the same cause. Think not? Think about Saddam's execution. Think about it. Who ran the execution? Who set the terms and circumstances? Was it Maliki?

Persons unknown plunge the rhetorical dagger that is Robert Novak into the back of Condi Rice and Phil Zelikow. Is this payback for Condi Rice's betrayal of Scowcroft and Baker and the Iraq Study Group?

Robert D. Novak - The Mess at State - washingtonpost.com: Members of the Senate intelligence committee, Republicans and Democrats alike, were alarmed last week that John Negroponte was leaving as director of national intelligence after less than two years to become deputy secretary of state. By way of explanation, he informed one Republican senator that he did not want to make the switch but that the White House had prevailed on him to do so.... [T]o pull him out just as his on-the-job training was completed reflects a panicky desire to fill the deputy secretary post, which had been unfilled for an unprecedented six months. Five other key State Department positions are either vacant or are soon to be vacant.

Republicans in Congress who do not want to be quoted tell me that the State Department under Condoleezza Rice is a mess.... Rice has failed to manage.... Rice's previous government duties had been as an analyst and staffer rather than as a manager.... The deputy's post went to Robert Zoellick, one of the most talented national security administrators of the past generation who during Bush's first term was U.S. trade representative.... Zoellick took a bullet for the team, dropping down a step to No. 2 at State....

Estranged from Zoellick, Rice relied on Burns and State Department Counselor Philip Zelikow.... Zelikow was near the top of the arrogance scale in a building where arrogance is the norm.... Zoellick... had enough after 18 months.... That began a furtive, sporadic search for a deputy. Several prospects (including Marine Gen. James Jones, who just retired as NATO's supreme allied commander) said no.... Negroponte... was implored by fellow Foreign Service officers to bring order out of chaos...

The word is that the reality-based Republicans are finally making their move. With the reality-based Gates running the Pentagon and bossing the military intelligence assets, Negroponte is no longer needed to control the intelligence crazies. Thus he has moved to State in order to take control when Condi Rice gets sacrificed for incompetence. Meanwhile, chief-of-staff Josh Bolten is boasting to the Wall Street Journal's Washington Wire that you can see that he is powerful and in control because he has managed to fire Harriet Miers.

There have been many times in the past when the word was that the reality-based Republicans are finally taking control. All such claims were false.

John Burns and Sabrina Tavernise of the New York Times write:

Promising Troops Where They Aren't Really Wanted - New York Times: Shiites, the principal victims of Saddam Hussein's repression, had joined with Iraqi Kurds in hailing the American-led invasion in 2003, seeing it as opening their way to power. But once they consolidated their control through two elections in 2005, they began distancing themselves from the Americans, seeing their liberators increasingly as an impediment to the full control they craved.... American officials have warned that with lessening American oversight, Shiite leaders might shift to a sectarian strategy that punished Sunni insurgents but spared Shiite militias. The execution 11 days ago of Saddam Hussein, carried out in haste by the Maliki government over American urgings that it be delayed until the legal paperwork was completed, only reinforced such fears...

Might shift to a sectarian strategy? American officials have warned that Shiite leaders might shift to a sectarian strategy that punished Sunni insurgents but spared Shiite militias? Might at some point in the future shift to a sectarian strategy?

Why not say the truth: that Shiite leaders have shifted to a sectarian strategy that punished Sunni insurgents but spared Shiite militias? Why oh why can't we have a better press corps?

We do have pieces of it. The McClatchy News Service--the wire service formerly known as Knight-Ridder. Here is Nancy Youssef:

McClatchy Washington Bureau | 01/09/2007 | Soldiers doubt an influx of American troops will benefit Iraqi army: MUQDADIYAH, Iraq - It was supposed to be a reconciliation meeting, a get-together to introduce the Sunni Muslim mayor and police chief of this city north of Baghdad to the mostly Shiite Muslim Iraqi soldiers who'd been assigned to protect their town.

But as the mayor and police chief approached the entrance to the Iraqi army base here last month, Iraqi troops seized their bodyguards and tossed them to the ground. Then the soldiers put their boots on the bodyguards' backs, a literal reminder that the Sunni officials were under the boot of the Shiite military....

In the end, no matter what the Americans do, the Iraqis will find their own way, the U.S. commander of the trainers here said. "There is no doubt in my mind that when the coalition does leave that this situation will get resolved within a fairly short period of time. These people will figure it out. It may be ugly. It may be very ugly. But they will figure it out," said Lt. Col. Jody Creekmore, who arrived in Iraq last summer from Huntsville, Ala., leaving behind his three teenage children. U.S. soldiers here say the Iraqis can fire their weapons and run checkpoints well. But the Iraqis don't agree on what it means to be a soldier in the post-Saddam Hussein military, whom to shoot at and from whom they should defend Iraq....

Existing side-by-side in this farming community are al-Qaida fighters who want to transform Iraq into a Sunni Islamic state, Shiite militiamen loyal to firebrand cleric Muqtada al-Sadr and his Mahdi Army militia, and foreign fighters battling to stamp their own form of religious extremism on Iraq. They hide in palm groves, infiltrate army units and take over neighborhood homes. Local commanders say that other government officials often undercut efforts to defeat these enemies. Col. Ishmael Ahmed Ali, the acting brigade commander for the Iraqi army division that's in charge of Muqdadiyah, said he knew that Shiite militias had infiltrated the battalion long before they stomped the mayor's and the police chief's guards. But because of the government, he can't fight them....

The American trainers said teaching counterinsurgency doctrine had become secondary to more basic pursuits, such as how to load a weapon, take care of equipment and even find basic supplies: food, water and bullets. In U.S commanders' sparse offices and barracks, piles of books on counterinsurgency tactics sit unused behind desks...

Sidney Blumenthal on what the hell he thinks is going on inside the White House bunker:

Salon.com | Shuttle without diplomacy: James Baker, the consummate Republican political operator over the past 30 years, did not expect that President Bush would accept the recommendations of the Iraq Study Group he co-chaired simply on its merits. Baker's hidden political hand was unrevealed in the report's dire analysis or in its urgent suggestions.... [H]e understood that enlisting all of these formidable figures was insufficient. Baker privately... counted on the decisive intervention of one person in the president's closed inner circle -- who sees him alone and could not be kept from him, and on whom he has become dependent for support and trusts implicitly -- to deliver the bad news that continuing those policies would only deepen the disaster and explain that he had no way out except to change course....

Scowcroft traveled to Egypt and Saudi Arabia, broaching his ideas to President Hosni Mubarak and King Abdullah. They told him they were fully supportive... but were skeptical that Rice or Bush would embrace Scowcroft's program.... Scowcroft and Baker began reassembling the elder Bush's national security team, using the Iraq Study Group as a mobilizing tool. They saw this as a last chance to save the Bush presidency.... Scowcroft briefed Rice.... She seemed to concur with his views and asked him, "How are we going to present this to the president?" "Not we," replied Scowcroft. "You." She appeared taken aback.... Rice became the linchpin for Scowcroft's and Baker's plans.

Rice now confronted the biggest quandary of her career. On one side were... not only Scowcroft and Baker but also... Bush's father. On the other was the president... whom she had flattered as the equal of Lincoln and Churchill.... Rice had been Bush's enabler. It was because Scowcroft understood her special relationship that he sought to win her over.

Rice's turn appeared to be reflected in a speech delivered at the Middle East Institute in Washington on Sept. 15 by Philip Zelikow, her counselor, closest aide and friend... he asserted that "some sense of progress and momentum on the Arab-Israeli dispute is just a sine qua non for their ability to cooperate actively with the United States on a lot of things that we care about."... Rice publicly rebuked him, which provoked his abrupt resignation....

Informed correspondents of the Washington Post and New York Times related in conversation that Bush furiously called the [Iraq Study Group] report "a flaming turd," but his colorful remark was not published. Perhaps it was apocryphal. Nonetheless, it conveyed the intensity of his hostile rejection.... Scowcroft and Baker... waited for Rice....

[Meanwhile,] Kagan and Keane and a team of neocons at AEI whipped up a PowerPoint presentation, and one week after the ISG report release, on Dec. 11, they were ushered into Bush's presence. The president had become enraged at the presumption of the Baker-Hamilton Commission.... "How to look distinctive from the study group became a recurring theme. As described by participants in the administration review, some staff members on the National Security Council became enamored of the idea of sending more troops to Iraq in part because it was not a key feature of Baker-Hamilton."... The Joint Chiefs were ignored and sidelined.... Their dissent, leaked to the Washington Post for appearance in the paper on the day of Bush's "surge" speech, was an extraordinary gesture by the senior military leaders to distance themselves from impending failure.

Rice... finally intervened. When the U.S. military commanders in Iraq and U.S. ambassador Zalmay Khalilzad protested against a rush by the Iraqi government to hang Saddam Hussein, Rice overrode their objections and gave the signal to Iraqi Prime Minister Nouri al-Maliki to proceed.

Maliki's management and subsequent defense of the gruesome circus... disabused any illusion that he could act in the larger Iraqi national interest.... He is to his marrow a creature of the Dawa Party.... [T]he Maliki government... cannot and does not wish to be reformed.... Maliki exists only to achieve Shiite control, and if he did not he would not exist. There is no other Maliki. Nor can Bush invent one...

Wonkette observes that CNN is too stupid to breed true:

Live-Blogging the Surge Speech: Let's Laugh Together - Wonkette: 9:23: Good-bye CNN! When your immediate followup to the speech is Jabbering Larry King asking a Baghdad reporter about the response in Iraq -- at 5:23 a.m. local time -- we're going to risk it over at Fox and MSNBC.

Wow:

Microsoft Watch - Operating Systems - Allchin's "Buy a Mac" E-mail Exposed: Jim Allchin's "I would buy a Mac" statement now has context. The e-mail is publicly available.... Yesterday, Apple CEO Steve Jobs used the quote during his Macworld keynote. What an opportunity for Jobs, to quote the Windows executive saying he would buy a Mac. The quote was taken out of context, not that Jobs probably had any context to give.

Ummm... I don't think so. I think Allchin said "I would buy a Mac today if I were not working for Microsoft," and gave reasons.

There's a court case going on in Iowa, where the Mac-loving e-mail appeared last month. It's now available among plaintiff's documents, but readers need go no further than the next paragraph to read the entire e-mail. Allchin, who is co-president of Microsoft's Platforms & Services Division, sent the e-mail to Microsoft Chairman Bill Gates and CEO Steve Ballmer on January 7, 2004:

This is a rant. I'm sorry.

I am not sure how the company lost sight of what matters to our customers (both business and home) the most, but in my view we lost our way. I think our teams lost sight of what bug-free means, what resilience means, what full scenarios mean, what security means, what performance means, how important current applications are, and really understanding what the most important problems are customers face are. I see lots of random features and some great vision, but that doesn't translate into great products.

I would buy a Mac today if I was not working at Microsoft. If you run the equivalent of VPC [Virtual PC] on a Mac you get access to basically all Windows application software (although not the hardware). Apple did not lose their way. You must watch this new video below. I know this doesn't show anything for businesses, but my point is about the philosophy that Apple uses. They think scenario. They think simple. They think fast. I know there is nothing hugely deep in this.

[Note: Link is now dead]

I must tell you everything in my soul tells me that we should do what I called plan (b) yesterday. We need a simple fast storage system. LH [Longhorn, i.e. Vista] is a pig and I don't see any solution to this problem. If we are to rise to the challenge of Linux and Apple, we need to start taking the lessons of 'scenario, simple, fast' to heart. Jim

Aha. Interesting blowback at Mark Thoma's site against Daniel Gross and me:

Economist's View: The New Deal and the Great Depression: When Brad DeLong said:

A normal person would not argue that the New Deal prolonged the Great Depression.

It got quite a reaction.

Arnold Kling says:

...In case you have not been following it, Daniel Gross and Brad DeLong have been hurling insults at people who fail to genuflect to the proposition that the New Deal helped to cure the Great Depression. A reasonable view is that some New Deal policies helped, and some hurt....

Knowing what I know now, if I could go back to 1933 and tell President Roosevelt what to do, I would say "yes" to deposit insurance, "yes" to going off the gold standard, and "no" to pretty much every other New Deal policy, including Social Security. I would also encourage two things that were not tried--a monetary expansion and a fiscal expansion (which in those days, with taxes relatively low, would have meant more government spending).... Whether Roosevelt's actual policies were, on balance, helpful or harmful, is something that I think reasonable people can debate. Hurling insults at one side or the other is not appropriate...

But relative to Hoover, Roosevelt's administration did pursue both fiscal and monetary expansion. Fiscal policy shifted from Hoover's balance-the-budget-at-all-costs to Roosevelt's we-won't-worry-about-the-deficit-for-a-while--a big difference. It would have been much better if the New Deal had involved much bigger deficits, but the deficits it did involve were quite a help.

Similarly for monetary policy: Hoover's Fed was desperate to avoid gold losses, which meant raising interest rates whenever gold flowed out. Roosevelt's Fed wasn't. Again, a bigger monetary expansion would have been a greater help, but the change from Hoover to Roosevelt was a great help.

So you have four big macroeconomically-significant pluses working to alleviate the Great Depression: deposit insurance, abandoning the gold standard, fiscal expansion, and monetary expansion. What do you have on the negative side? The short-term damage done in 1993-4 by the NIRA, and the work-relief programs that probably created several percentage points' worth of structural unemployment.

Jim Hamilton also weighs in, citing Cole and Ohanian as critics of the NIRA:

What is supposed to help the economy recover [in a pure laissez-faire economy] is that a substantial pool of unemployed workers should result in a fall in wages and prices that would restore equilibrium in the labor market.... And yet, in the midst of quite significant unemployment, between 1933 and 1934, average hourly earnings increased by over 25% in sectors such as iron and steel, furniture, and cement, and over 50% at lumber mills. How could that be?... Cole and Ohanian noted... the NIRA and NLRA... limit[ing] the extent of competition between firms and competition between workers. Among the NIRA codes that Cole and Ohanian highlight include minimum prices below which firms were not allowed to sell their products, restrictions on productive capacity and the amount that could be produced, and limitations on the workweek. Cole and Ohanian concluded on the basis of model simulations that these kinds of New Deal policies might have accounted for 60% of the persistence in the output gap.... The notion that if we can just create more monopoly power for every single sector of the economy, encouraging every sector to produce less so they can raise their wages and prices, that we will then somehow make everybody richer, is so spectacularly wrong-headed that I would be just as dumbfounded to find that Brad De Long believes it as he seems to be by those of us who maintain that some aspects of New Deal policy surely did make the recovery from the Great Depression slower.

Let me agree with Jim that a durable, comprehensively-implemented NIRA would have been a disaster, but my understanding (from Ellis Hawley's The New Deal and the Problem of Monopoly) was that it was neither comprehensively implemented nor durable. It was always spotty, and was a dead letter by the middle of 1934, a year before it was overturned in Schechter Poultry.

I would love to be able to argue that there were steep increases in wage and price rigidity in the 1930s as a result of government policies that made the economy much more vulnerable to contractionary shocks--that would be a hell of a paper to write--but I have never been able to make the case work quantitatively. And IIRC Cole and Ohanian purposely focus on only the bad sides of the New Deal: their counterfactual is one with deposit insurance, with going off gold, and with abandoning the Hoover era's balance-the-budget fiscal and keep-gold-from-leaving-the-country monetary policies.

So no, reasonable people could not argue that the New Deal prolonged the Great Depression.

The furthest I will go is to agree that reasonable people can argue over whether reasonable people could argue that the New Deal prolonged the Great Depression.

The Carpetbagger Report:

CR: I realize that the Bush White House looked at the Iraq Study Group with some disdain.... Within a few minutes of Bush thanking ISG members for their work, Bush made the panel instantly irrelevant. The report that was going to "change everything" went from front-of-the-bookstore to remainder-table-discount in a matter of days. But far more troubling is the notion that the Bush administration has shaped its escalation plan in part to spite the ISG.

Although the president was publicly polite, few of the key Baker-Hamilton recommendations appealed to the administration, which intensified its own deliberations over a new "way forward"in Iraq. How to look distinctive from the study group became a recurring theme.... [S]taff members on the National Security Council became enamored of the idea of sending more troops to Iraq in part because it was not a key feature of Baker-Hamilton.

I had to read that a couple of times to make sure I wasn't seeing things.... Troop escalation wasn't in the ISG report, so the Bush gang latched onto the idea because the ISG didn't endorse it? As if this all some kind of exercise in Oedipal spite Exactly what kind of men-children are we dealing with here?

Legal Fiction's publius, who also seemed disturbed by this, had a good piece on the subject.

[I]f the NSC official is correct, Bush is picking this option out of vanity and spite simply because the Baker Group didn't offer it. All in all, it sounds like a promising strategy. After all, if history has taught us nothing else, it's that military strategies with no empirical basis adopted out of pride and vanity are usually phenomenally successful.

Be afraid.

Bob Davis tells us about the future of Cuba:

Cuban Economists Envision Role For Markets in Post-Castro Era - WSJ.com: By BOB DAVIS: With Fidel Castro ailing and absent from the public stage, some influential Cuban intellectuals are laying plans for a more market-oriented approach.... Cuban economists' proposals would cut down on state interference in businesses and aim to wring more productivity out of the island nation's economy. Among the steps under discussion: decentralizing control, expanding the power of managers at privately owned agricultural cooperatives, extending private ownership to other sectors, boosting investment in infrastructure and increasing incentives to workers.

None of the plans would shuck communism for capitalism or open the island further to foreign investment -- which economists outside Cuba say are critical for the island to prosper. But the fact that the government is permitting -- and perhaps even encouraging -- the debate suggests regime officials might find these kinds of changes acceptable, though it may take Mr. Castro's death to put them into action.

"We are in the midst of a process of debate, which is cautious and controlled, but is happening for the first time in many years," said Pedro Monreal, a senior professor at the Center for Research on the International Economy in Havana. "It's an historic moment," says Julia Sweig, a Cuba specialist at the Council on Foreign Relations in Washington. "The Cuban regime feels confident enough to have voices it once purged be at the center of the economic debate on reform."...

Cuba claims its economy grew at 12.5% last year, after an 11.8% gain in 2005, which would make it one of the world's fastest-growing nations, but critics say the numbers are as phony as those once produced by the Soviet Union. Carmelo Mesa-Lago, a professor emeritus at the University of Pittsburgh, who has long tracked the Cuban economy, says Cuba engages in statistical sleights of hand, such as double-counting entries, changing base years to yield better results and failing to show how it estimates revenue produced by Cuban doctors and other professionals working overseas.

"I don't see anything [in Cuban economic statistics] that would warrant this magic rate of growth," says Mr. Mesa-Lago, who figures the government is probably inflating its growth statistics by at least two-thirds.

Whatever growth Cuba manages owes a lot to Venezuela, which provides it with subsidized oil -- some of which Cuba re-exports -- and employs tens of thousands of Cuban professionals....

The disconnect between the Cuban government's claims and the Cuban's people's bleak living standards may increase popular pressure for change. "The Cuban people can believe that the economy is growing statistically, but it's not growing in their homes," says Rafael Hernández, editor of the magazine "Temas" -- "Issues" in English -- a scholarly quarterly in Havana that writes about the Cuban political-economy and society.

Mr. Hernández says the government should pick up the renovation agenda that Mr. Castro and his brother Raúl, now Cuba's acting president, shut down in 1996 for straying too far from socialist ideology and for potentially undermining political control. At the time, the regime approved agricultural co-ops -- which survive today -- where the state continues to own the land but members own the business and equipment. These entities can sell a portion of their output in farmer's markets at prices higher than those set by the state. Now, Mr. Hernández says the co-ops should be used as a model for other sectors.

Small textile or shoe makers should be able to start co-ops that sell in private markets, he said. Currently, the government permits only families to own such private businesses; a co-op would be able to expand and hire employees outside the family. But under Mr. Hernández's concept, co-op members wouldn't be permitted to sell shares in their venture, which might accelerate capital accumulation. "Co-ops are socialist," he says. "You could do it without violating socialist principles."...

Even to well-connected Cubans, the direction of the debate is difficult to follow. "It's a kind of black-box process," says Mr. Monreal. He views Raúl Castro's decision last month to examine agricultural problems, but to defer any decisions for six months until an economic survey is completed, as a template of how the regime will incorporate changes. The president's brother, who has served for decades as defense minister, has frequently backed economic overhauls and the companies owned by Cuba's armed forces -- including tourism firms, cigar marketers and consumer-goods retailers -- are among the best-managed on the island....

Cuban economic history under Fidel Castro is a tale of timid liberalization and retrenchment, with purges of reformers caught taking the wrong positions. During one crackdown in 1996, Mr. Monreal, Mr. Hernández and others were forced out of their jobs.... It may take Mr. Castro's death -- or at the very least, a public declaration that he is permanently incapacitated -- to give government officials the confidence to institute even modest economic retoolings. Mr. Castro has relentlessly opposed any changes that smack of capitalism, and believes Venezuelan oil subsidies have reduced the island's economic problems and need for market-based incentives.

In the past few years, Mr. Castro has led drives to recentralize the economy and stamp out corruption, which has often meant more repression of Cuba's tiny private sector. For instance, he fired thousands of gas-station attendants he suspected of siphoning off gasoline to sell on the black market, and replaced them with "social workers" -- Cuban youths doing government service. The government has even banned private citizens from starting businesses as masseuses and clowns.

Except, of course, for the 24-7 clowns who are the Cuban Communist Party's Central Committee.

In an otherwise good story, Michael Abramowitz, Robin Wright and Thomas E. Ricks of the Washington Post can't resist dropping a key word from a sentence:

With Iraq Speech, Bush to Pull Away From His Generals - washingtonpost.com: Bush's decision [to surge] appears to mark the first major disagreement between the White House and key elements of the Pentagon over the Iraq war since Gen. Eric K. Shinseki, then the Army chief of staff, split with the administration in the spring of 2003 over the planned size of the occupation force, which he regarded as too small.

I am told--and I am sure Ricks knows--that this is the first major public disagreement, not the first major disagreement. The army's opinion of the choice of Paul Bremer as proconsul was unprintable. The army has long believed that what is needed in Iraq is not more troops but Arabic-speaking military police. The army has long believed that its task would be much easier if there were a serious economic development effort. It has been blown off by the White House all three times.

Just because disagreements did not become open and public does not mean that they did not exist.

Jason Zengerle thinks that I am rude and "cavalier" to analogize wishing for a pony to his wish that granting General Petraeus roughly one-tenth of the additional forces his counterinsurgency doctrine says are needed will lead to victory in Iraq.

I get shrill in response. Somehow Cecil the Wonder Turkey enters the picture.

J. Bradford DeLong: Academic CV

Professor of Economics
601 Evans Hall
University of California at Berkeley
Berkeley, CA 94720-3880

phone: (510) 643-4027
fax: (510) 642-6615
delong@econ.berkeley.edu http://www.j-bradford-delong.net

Research Associate
National Bureau of Economic Research
Cambridge, MA 02139

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A. Education

Ph. D., Department of Economics, Harvard University, Cambridge, MA (June 1987).

M. A., Department of Economics, Harvard University, Cambridge, MA (June 1985).

B. A. summa cum laude, Committee on Degrees in Social Studies, Harvard University, Cambridge, MA (June 1982).

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B. Positions

Co-Editor, The Economists' Voice (2005-present).

Chair, Political Economy of Industrial Societies Major, University of California at Berkeley, Berkeley, CA (July 2001-present).

Professor, Department of Economics, University of California at Berkeley, Berkeley, CA (July 1997-present).

Co-Editor, Journal of Economic Perspectives (1996-2004).

Visiting Scholar, Federal Reserve Bank of San Francisco, San Francisco, CA (July 1996, intermittent).

Associate Professor, Department of Economics, University of California at Berkeley, Berkeley, CA (July 1993-June 1997).

Frederick S. Danziger Associate Professor, Department of Economics, Harvard University, Cambridge, MA (July 1991-June 1993).

Visiting Lecturer, European University Institute, Florence, Italy (March 1992-April 1992).

Assistant Professor, Department of Economics, Harvard University, Cambridge, MA (July 1988-June 1991).

Assistant Professor, Department of Economics, Boston University, Boston, MA (July 1987-June 1988).

Instructor, Department of Economics, Massachusetts Institute of Technology, Cambridge, MA (September 1986-June 1987).

Deputy Assistant Secretary for Economic Policy, United States Department of the Treasury, Washington, DC (April 1993-May 1995).

Research Associate, National Bureau of Economic Research, Cambridge, MA (October 1995-present).

John M. Olin Fellow, National Bureau of Economic Research, Cambridge, MA (July 1991-June 1992).

Alfred P. Sloan Research Fellow, Alfred P. Sloan Foundation, New York, NY (July 1990-April 1993).

Faculty Research Fellow, National Bureau of Economic Research, Cambridge, MA (November 1987-September 1995).

Alfred P. Sloan Dissertation Fellow, Harvard University, Cambridge, MA (July 1985-June 1986).

National Science Foundation Graduate Fellow, Harvard University, Cambridge, MA (September 1982-June 1985).

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C. Principal Academic Research Publications

J. Bradford DeLong and Konstantin Magin (2007 forthcoming), "The Future of the Stock Market Equity Return Premium," Journal of Economic Perspectives.

J. Bradford DeLong and Konstantin Magin (2006) "Contrary to Robert Shiller's Predictions, Stock Market Investors Made Much Money in the Past Decade: What Does This Tell Us?," The Economists' Voice: Vol. 3 : Iss. 7, Article 2. Available at: http://www.bepress.com/ev/vol3/iss7/art2

Marco Becht and J. Bradford DeLong (2006), "Corporate Control in the United States: An Historical Perspective," in Randall Morck, ed., Historical Patterns of Corporate Control (Chicago: University of Chicago).

J. Bradford DeLong (2005) "Divergent Views on the Coming Dollar Crisis," The Economists' Voice: Vol. 2 : Iss. 5, Article 1. Available at: http://www.bepress.com/ev/vol2/iss5/art1

Dean Baker, J. Bradford DeLong, and Paul Krugman (2005), "Asset Returns and Economic Growth," Brookings Papers on Economic Activity 2005:1. http://www.j-bradford-delong.net/movable_type/BDK-BPEA.pdf

J. Bradford DeLong (2004) "Should We Still Support Untrammelled International Capital Mobility? Or are Capital Controls Less Evil than We Once Believed?," The Economists' Voice: Vol. 1 : Iss. 1, Article 1. Available at: http://www.bepress.com/ev/vol1/iss1/art1

J. Bradford DeLong (2004), "India Since Independence: An Analytic Growth Narrative," in Dani Rodrik, ed., Modern Economic Growth: Analytical Country Studies. http://econ161.berkeley.edu/Econ_Articles/India/India_Rodrik_DeLong.html

J. Bradford DeLong, Claudia Goldin, and Lawrence H. Katz (2003), "Sustaining American Economic Growth," in Henry Aaron, ed., Agenda for the Nation 2003 (Washington: Brookings Institution). http://econ161.berkeley.edu/movable_type/archives/000324.html

J. Bradford DeLong (2003), "Productivity Growth in the 2000s," NBER Macroeconomics Annual 2003. http://www.j-bradford-delong.net/Econ_Articles/macro_annual/delong_macro_annual_05.pdf

Steven Dowrick and J. Bradford DeLong (2003), "Globalisation and Convergence," in Michael Bordo et al., ed., Globalization in Historical Perspective (Chicago: University of Chicago Press). http://econ161.berkeley.edu/Econ_Articles/Dowrick/GandC.PDF

J. Bradford DeLong (2003), "Bequests: An Historical Perspective," in Alicia Munnell and Annika Sunden, eds., Death and Dollars: The Role and Impact of Gifts and Estates (Washington: Brookings Institution).

Marco Becht and J. Bradford DeLong (2002), "One Boardroom Fits All?" Foreign Policy July/August 2002 http://www.mbecht.org/documents/foreign_policy.pdf

J. Bradford DeLong and Barry J. Eichengreen (2002), "Between Meltdown and Moral Hazard: Clinton Administration International Monetary and Financial Policy," in Jeffrey Frankel and Peter Orszag, eds., American Economic Policy in the 1990s (Cambridge: MIT Press). http://www.j-bradford-delong.net/Econ_Articles/CIEP/CIEP_revision06102001.PDF

J. Bradford DeLong and Lawrence H. Summers (2002), "The New Economy: Background, Questions, Speculations," in Economic Policies for the Information Age (Kansas City: Federal Reserve Bank of Kansas City).

J. Bradford DeLong, "Macroeconomic Vulnerabilities in the Twenty-First Century Economy: A Preliminary Taxonomy," International Finance 2002:2. Also in Adam Posen, ed., Stabilization Policy: Why and How? (New York: Council on Foreign Relations) http://econ161.berkeley.edu/movable_type/archives/000331.html

J. Bradford DeLong (2002), "Review of Robert Skidelsky (2000), John Maynard Keynes, volume 3, Fighting for Britain," Journal of Economic Literature. http://www.j-bradford-delong.net/movable_type/archives/000757.html

J. Bradford DeLong (2001), "Introduction to the North America Symposium," Journal of Economic Perspectives (Winter), pp. 81-83.

J. Bradford DeLong (2000), "Sources of American and Prospects for World Economic Growth," in David Gruen, ed., The Australian Economy in the 1990s (Sydney: Reserve Bank of Australia).

J. Bradford DeLong and A. Michael Froomkin (2000), "Speculative Microeconomics for Tomorrow's Economy," in Brian Kahin and Hal Varian, eds., Internet Publishing and Beyond: The Economics of Digital Information and Intellectual Property (Cambridge: M.I.T. Press).

J. Bradford DeLong (2000), "Overstrong Against Thyself: War, the State, and Growth in Europe on the Eve of the Industrial Revolution" , in Mancur Olson and Satu Kahkohnen, eds., A Not-So-Dismal Science: Development and the Political Economy of Institutions (Oxford: Oxford University Press), pp. 138-167.

J. Bradford DeLong, Alan Krueger, and Timothy Taylor (2000), "Introduction to the Millennial Issue," Journal of Economic Perspectives (Winter).

J. Bradford DeLong (2000), "The Triumph [?] of Monetarism," Journal of Economic Perspectives (Winter).

J. Bradford DeLong and A. Michael Froomkin (2000), "Review of Charles Ferguson, High Stakes, No Prisoners," Harvard Business Review 78:1 (Jan-Feb), pp. 159-164.

J. Bradford DeLong (1999), "Seeing One's Intellectual Roots: A Review Essay on James Scott's Seeing Like a State," Review of Austrian Economics 12:2, pp. 257-64.

J. Bradford DeLong (1999), "Why We Should Fear Deflation," Brookings Papers on Economic Activity (Spring).

J. Bradford DeLong (1999), "Introduction to the Symposium on Business Cycles," Journal of Economic Perspectives.

J. Bradford DeLong (1997), "American Fiscal Policy in the Shadow of the Great Depression", in Michael Bordo, Claudia Goldin, and Eugene White, eds., The Defining Moment: The Great Depression and the American Economy in the Twentieth Century (Chicago: University of Chicago Press). http://www.j-bradford-delong.net/movable_type/2003_archives/000121.html

J. Bradford DeLong (1997), "America's Peacetime Inflation: The 1970s," in Christina Romer and David Romer. eds., Reducing Inflation: Motivation and Strategy (Chicago: University of Chicago Press). http://www.j-bradford-delong.net/pdf_files/Peacetime_Inflation.pdf

J. Bradford DeLong and Robert J. Waldmann (1997), "Interpreting Procyclical Productivity Movements: Evidence from a Cross-Nation Cross-Industry Panel," Federal Reserve Bank of San Francisco Economic Review 1997:1 (Spring), pp. 33-52.

J. Bradford DeLong (1996), "Keynesianism, Pennsylvania-Avenue Style: Some Economic Consequences of the 1946 Employment Act," Journal of Economic Perspectives 10:3 (Summer), pp. 41-53. http://www.j-bradford-delong.net/pdf_files/Keynesianism_Pennsylvania.pdf

Carlos Ramirez and J. Bradford DeLong (1996), "Banker Influence and Business Economic Performance: Assessing the Impact of Depression-Era Financial Reforms," in Michael Bordo and Richard Sylla, eds., Anglo-American Financial Systems: Institution and Markets in the Twentieth Century (New York: Irwin), pp. 161-178.

J. Bradford DeLong, Christopher L. DeLong, and Sherman Robinson (1996), "In Defense of Mexico's Rescue", Foreign Affairs 75:3 (May/June), pp. 8-14.

J. Bradford DeLong and Barry Eichengreen (1993), "The Marshall Plan: History's Most Successful Structural Adjustment Programme," in Rüdiger Dornbusch, Wilhelm Nölling, and Richard Layard, eds., Postwar Economic Reconstruction and Lessons for the East Today (Cambridge, MA: M.I.T. Press), pp. 189-230.

Robert B. Barsky and J. Bradford DeLong (1993), "Why Does the Stock Market Fluctuate?" Quarterly Journal of Economics 108: 2 (May), pp. 291-312. http://www.j-bradford-delong.net/movable_type/archives/000635.html

J. Bradford DeLong and Lawrence H. Summers (1993), "Macroeconomic Policy and Long-Run Growth," Federal Reserve Bank of Kansas City Quarterly Review.

J. Bradford DeLong and Lawrence H. Summers (1992), "Equipment Investment and Economic Growth: How Robust Is the Nexus?" Brookings Papers on Economic Activity (Fall).

J. Bradford DeLong and Kevin Lang (1992), "Are All Economic Hypotheses False?" Journal of Political Economy 100:6 (December), pp. 1257-72.

J. Bradford DeLong and Andrei Shleifer (1993), "Princes and Merchants: City Growth Before the Industrial Revolution," Journal of Law and Economics 36 (October), pp. 671-702. http://www.j-bradford-delong.net/pdf_files/Princes.pdf

J. Bradford DeLong (1992), "Productivity and Machinery Investment: A Long Run Look 1870-1980," Journal of Economic History 53: 2 (June), 307-24.

J. Bradford DeLong and Andrei Shleifer (1992), "Closed End Fund Discounts: A Yardstick of Small-Investor Sentiment," Journal of Portfolio Management 18:2 (Winter), pp. 46-53.

J. Bradford DeLong (1991), "Did J. P. Morgan's Men Add Value?: An Economist's Perspective on Financial Capitalism," in Peter Temin, ed., Inside the Business Enterprise: Historical Perspectives on the Use of Information (Chicago, IL: University of Chicago Press for NBER), pp. 205-36. http://www.nber.org/papers/w3426

J. Bradford DeLong and Andrei Shleifer (1991), "The Stock Market Bubble of 1929: Evidence from Closed-End Funds," Journal of Economic History 52: 3 (September), pp. 675-700.

Robert B. Barsky and J. Bradford DeLong (1991), "Forecasting Pre-World War I Inflation: The Fisher Effect and the Gold Standard," Quarterly Journal of Economics 106: 3 (August) , pp. 815-36.

J. Bradford DeLong and Lawrence H. Summers (1991), "Equipment Investment and Economic Growth," Quarterly Journal of Economics 106: 2 (May), pp. 445-502. http://www.j-bradford-delong.net/pdf_files/QJE_Equipment.pdf

J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1991), "The Survival of Noise Traders in Financial Markets," Journal of Business 64: 1 (January), pp. 1-20.

J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1990), "Noise Trader Risk in Financial Markets," Journal of Political Economy 98: 4 (August 1990), pp. 703-738. http://www.j-bradford-delong.net/pdf_files/Noise_Traders_Main.pdf

J. Bradford DeLong (1990), "'Liquidation' Cycles: Old-Fashioned Real Business Cycle Theory and the Great Depression" (Cambridge, MA: Harvard University Department of Economics).

J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1990), "Positive-Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance 45: 2 (June), pp. 374-397.

Robert B. Barsky and J. Bradford DeLong (1990), "Bull and Bear Markets in the Twentieth Century," Journal of Economic History 50: 2 (June), pp. 1-17.

J. Bradford DeLong (1990), "In Defense of Henry Simons' Credentials as a Classical Liberal," Cato Journal 9: 1 (Winter), pp. 105-122.

J. Bradford DeLong (1989), "Facets of Interwar Unemployment," Journal of Monetary Economics 49:3 (September), pp. 800-802.

J. Bradford DeLong, Andrei Shleifer, Lawrence H. Summers, and Robert J. Waldmann (1989), "The Size and Incidence of Losses from Noise Trading," Journal of Finance 44: 3 (July), pp. 681-696. http://econ161.berkeley.edu/pdf_files/Noise_Traders_Incidence.pdf

J. Bradford DeLong (1988), "Productivity Growth, Convergence, and Welfare: Comment," American Economic Review 78: 5 (December), pp. 1138-1154. http://www.j-bradford-delong.net/pdf_files/Baumol_Convergence.pdf

J. Bradford DeLong and Lawrence H. Summers (1986), "Is Increased Price Flexibility Stabilizing?" American Economic Review 76: 5 (December), pp. 1031-1044. http://www.nber.org/papers/W1686

J. Bradford DeLong and Lawrence H. Summers (1986), "The Changing Cyclical Variability of Economic Activity in the United States," in Robert J. Gordon, ed., The American Business Cycle: Continuity and Change (Chicago, IL: University of Chicago Press for the National Bureau of Economic Research), pp. 679-719. http://econ161.berkeley.edu/TCEH/2000/seven/Cyclical_Variability.pdf