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.

Friday, February 16, 2007

Mark Thoma is adding lots of RSS feeds to his weblog:

Economist's View:

The Switch in Time that Saved Nine: While getting ready for my classes this spring on the Great Depression and the coming of the mixed economy, I found myself noticing something in Robert Stern's classic article on "The Commerce Clause and the National Economy" that I had not noticed before: the presence of Frederick H. Wood, formerly general counsel for the Southern Pacific Railroad (the "Octopus") and principal litigation partner at Cravath in the 1930s.

He is there arguing in front of the Supreme Court in both Schechter Poultry and Carter Coal, in both of the cases that are the high-water mark of the judicial resistance to Roosevelt's New Deal before Roosevelt's reelection and the consequent switch in time that saved nine--the shift of Chief Justice Hughes and Justice Roberts to the New Deal side, and then the replacement of two of the dinosaurs by Hugo Black and Stanley Reed: Robert L. Stern (1946), "The Commerce Clause and the National Economy, 1933-46," Harvard Law Review 59:5 (May), pp. 645-93: Mr. Joseph Heller, the Schechters' original counsel, effectively convinced the Court of the trivially local nature of some of the practices involved.... [H]umor was not ineffective in ridiculing the code provisions involved. The defendants' argument was concluded by Mr. Frederick H. Wood, of a large New York firm which represented substantial business interests and which came into the case at the last moment; he oratorically contended that such matters should be regulated only by the states...


James W. Carter brought suit... against the Carter Coal Co., his father, and its other officers, to enjoin the company from accepting the Coal Code.... The case was argued in the district court for two full days by Mr. Frederick H. Wood and Mr. whitney for the plaintiff.... Justice Adkins rendered his oral opinion.... [H]e was compelled by the Schechter case to hold that "as a matter of law" the effect upon interstate commerce of wages and labor relations was... not within the commerce power.... The case was argued [before the Supreme Court] in March [1936] by Mr. Wood.... Mr. Justice Sutherland, speaking for five members of the Court... sidestep[ped] the... constitutionality of the price-fixing provisions... by holding them inseparable from the labor provisions and holding the latter unconstitutional...


Finally the opinion reached the crucial point. Did labor relations in the vast Jones and Laughlin steel-manufacturing enterprise sufficiently affect interstate commerce? Gone was the verbalism of the Carter [coal] case, the reliance upon such metaphysical concepts as proximate or intermediate causation.... "Actual experience," actual relation to commerce, was henceforth to be the criterion.... Mr. Justice McReynolds, in a bitter dissent... [joined by] Van Devanter, Sutherland, and Butler, accused the majority of abandoning the precepts of the Schechter and Carter decisions.... For the second time in two weeks the Court had in substance overruled cases decided less than one year before on major constitutional issues. No serious effort had been made to distinguish... Carter.... There had been no change in the membership.... What had induced Mr. Justice Roberts to switch?... What of the Chief Justice?...

No one who did not participate in the conferences of the Court will know.... But few attributed the difference in results... to anything... in the cases... their facts, the arguments presented, or the authorities cited. Perhaps the series of violent strikes had educated Mr. Justice Roberts as to the close relationship between labor relations and interstate commerce. But the consensus... was that the Chief Justice and Mr. Justice Roberts believed that the continued nullification of the legislative program demanded by the people and their representatives... would lead to acceptance of the President's Court [packing] plan, and that this would seriously undermine the independence and prestige of the federal judiciary....

At the end of the term, Mr. Justice Van Devanter announced his retirement.... Senator [Hugo] Black successed Mr Justice Van Devanter at the beginning of the October Term, 1937. Mr. Justice Sutherland retired in January, 1938, and Solicitor General Stanley Reed took his place...

Frederick H. Wood shows up in front of the Supreme Court ten times during the New Deal years: NORMAN v. BALTIMORE & O.R. CO. (1935); YOUNGSTOWN SHEET & TUBE CO. v. UNITED STATES (1935); A.L.A. SCHECHTER POULTRY CORPORATION v. UNITED STATES (1935); CARTER v. CARTER COAL CO. (1936); four times in various MORGAN v. U.S. proceedings; FORD MOTOR CO. v. NATIONAL LABOR RELATIONS BOARD (1939); and UNION STOCK YARD & TRANSIT CO. OF CHICAGO v. U.S.

There is an oral tradition at Cravath that Wood headed up a sophisticated long-term anti-New Deal litigation strategy: the fact that the named plaintiffs in the big anti-NRA case were orthodox butchers from Brooklyn is said to be no accident, but instead a successful attempt to pin Louis Brandeis by making him see the case as state power vs. the little guy from his minority religion, and not only to swing his vote but to curb his tongue from having its influence on the rest of the liberal wing of the court. And, indeed, in Schechter the NRA went down 9-0 (a blessing for the country).

Wood and company's victory in Schechter in 1935 on the limits of the Commerce Clause and of the federal government's ability to regulate the national economy was extended the following year in Carter Coal, before collapsing in 1937 with the switch. I find myself wanting to know more about this: did they think that they were going to win--stop the New Deal long enough and that when the dust cleared the 1920s would come back?

I should get myself over to the Boalt Hall Library and hope that their copy of Robert T. Swaine (1946), The Cravath Firm and Its Predecessors is still there, because amazon wants $395 for a copy.

Surprisingly--or maybe not surprisingly--the best short things on the web I see about this come from Time Magazine, back when it was an edgy startup interested in informing its viewers and not an organization that saw pleasing its insider sources as job #1. Consider:

Especially good is Time's series of short pieces on the Gold Clause cases, watching as Chief Justice Charles Evans Hughes twists and turns to avoid repudiating the actions of the Roosevelt administration with respect to government debt while also damning those actions as reprehensible:,8816,787934,00.html: Businessmen knew it, Congress knew it, the Brain Trust knew it, Mr. Homer Stille Cummings knew it: The Justices of the Supreme Court would do their duty as they saw it. Yet somehow nearly everyone had overlooked the obvious fact that the nine potent, grave and reverend judges would first take a good look at that duty. Last week when the Court in unmistakable fashion began that scrutiny, business fell into a dither, Congress chattered, the Brain Trust fretted and the Attorney General blushed.... For years the U. S. Government and most corporations promised to repay lenders their principal and interest "in gold coin of the present standard of weight and fineness." On June 5, 1933 Congress, having authorized the President to suspend the gold standard, forbade the writing of any more gold clauses, declared in effect that all those previously written were legally out of bounds. Hence came the four issues before the Supreme Court last week.

Norman C. Norman, 39, a bachelor in the jewelry manufacturing business with his father in Manhattan, demanded $16.60 from Baltimore & Ohio Railroad. He held a coupon of one of the railroad's bonds calling for an interest payment of $22.50 in gold. Since the railroad could not pay in gold he wanted $39.10 in devalued currency. Lower courts had upheld the railroad's refusal to pay Norman C. Norman the additional $16.60...,8816,754528,00.html: The Court upheld the right of Congress--under the Constitutional power of regulating money--to void gold clauses in private bonds. But no such clean bill of health was given the Government in abrogating the gold clauses of its own bonds. Government bondholders were denied the right to sue in the Court of Claims on the somewhat extraordinary grounds that it is impossible to tell how much damage they have suffered since it is now illegal to own gold. However, the Court did not uphold the propriety of the Government's offering devalued money.... In short, Government bondholders have now the right but no legal opportunity to collect, and morally the Government is no better than a malefactor who takes refuge behind a legal technicality—-in this case the right not to be sued without its own consent. No pretty position is this for any government to be in. It posed a problem in New Deal morals.

Almost as disconcerting to citizens was the news that the legality of the country's monetary policy was approved by only five of the nine Justices of the Court. New Dealers were pleased that Chief Justice Hughes had joined with Liberals Brandeis, Cardozo, Roberts and Stone to give them comfort. Little did they care about the dissent of four Justices, for they look down very long Liberal noses at the four Conservatives: Justices Sutherland, Van Devanter, Butler and McReynolds—in particular at Justice McReynolds.... [T]he majority opinion, upholding the Government in every case without exception, would have seemed stronger had Mr. Hughes not thundered so loud... the dissenting opinion would have borne more weight had it been written by a less uncompromising reactionary than Mr. McReynolds... [who] launched not into an opinion but into an elegy for honesty and good government.

"It seems impossible to overestimate the result of what has been done here this day. . . . God knows, I do not want to talk about such matters but it is my duty. . . . The Constitution is gone. . . . This is Nero in his worst form. We are confronted with a dollar which has been reduced to 60¢ which may be 30¢ tomorrow, 10¢ the next day and 1¢the day following. "We have tried to prevent its entrance into our legal system but have tried in vain..."

I remember listening once to the aged Paul Freund reminisce about working for the Solicitor General in the 1930s. He talked about the government's own litigation strategy, and about Charles Evans Hughes's twists and turns as he found that the government had broken its contract with its bondholders but there were no damages, but he never mentioned Frederick H. Wood.

From Marketwatch:

Industrial production falls sharply in Jan. - MarketWatch : By Greg Robb & Rex Nutting, MarketWatch: U.S. industrial production fell in January by the largest amount since Hurricane Katrina devastated the Gulf Coast in September 2005, the Federal Reserve reported Thursday. Industrial output of the nation's factories, mines and utilities fell 0.5% in January, the fourth decline in the past five months. Automakers and other producers are slashing production to bring down their inventories of unsold goods. The decline in factory output was even steeper, with production down 0.7%. Production of motor vehicles and parts fell 6%. Vehicle assemblies fell to their lowest level in nearly a decade. The decline in factory output was broad based. Factory output excluding vehicles fell 0.4%.

The report was "dismal," wrote Stephen Stanley, chief economist for RBS Greenwich Capital, although he judged that the January downturn was a "temporary weather-related bump in the road," not a fundamental shift in the economy. "The sector is in recession," wrote Ian Shepherdson, chief U.S. economist for High Frequency Economics, noting that output fell 1.7% annualized in the fourth quarter and is heading for a decline in this quarter as well.

The weak report "not only eliminates any chances for Fed hikes but opens the way for rate cuts as early as May," wrote Ashraf Laidi, chief currency analyst for CMC Markets, in an email to clients. Capacity utilization fell to 81.2% in January from 81.8% in December. This is the lowest level since last February. The Fed had been worrying about high rates of capacity utilization feeding into inflation.

Dean Baker tells us that one economic number tells us little, but what little this housing number does tell us is bad:

Beat the Press: Housing Starts Plunge, What Will the "Experts" Say?: The Census Bureau reported that housing starts fell 14.3 percent between December and January and now stand 37.8 percent below their year ago level. I always caution about making too much of a single month's data and housing starts are an especially erratic number. Still, it is worth noting that the sharp declines in starts were in the South and West, regions that were not affected by any obvious bad weather for the month.

Ezra Klein thinks that it is "cheap irony" that the American Enterprise Institute is following a talk on the Great Depression and the "forgotten man" with a wine-and-cheese reception:

Ezra Klein: Department of Cheap Irony: I'm not really sure what's being discussed at this AEI forum, but it's sort of awesome to host an event on "The Forgotten Man: A New Look at the Great Depression" and follow it up with a wine and cheese reception...

He doesn't know the half of it. It's Amity Shlaes, who you remember--who will be remembered until the disastrous presidency of George W. Bush fades from the memory of humanity--for this commentary on Hurricane Katrina:

The Thought of George W. Bush Is a Spiritual Atom Bomb of Infinite Power!: Amity Shlaes: It is early to be getting partisan about New Orleans. We are still too close to the awfulness of the hurricane.... Still, Iraq has not caused the US to botch Katrina -- either the preparation or response. On the contrary, the fact that the country and President Bush personally were already mobilised for disaster has saved lives.... September 11 changed Mr Bush and the country.... Mr Bush grew into a new role of leader in emergencies.... In addition to its old Federal Emergency Management Agency, [the government] created the Office of Homeland Security to co-ordinate local, state and federal responses. The level of preparedness for a giant storm may not have been obvious outside the country. But the US was prepared for Katrina. All the old and new federal offices worked together and confronted the storm early...

She's coming to AEI to talk about her forthcoming book about the Great Depression--a book blurbed not by an economist or a historian, but by party-line-toeing right-wing hyena-novelist Mark Helprin: Novelist Mark Helprin has said of The Forgotten Man, “Were John Kenneth Galbraith and Milton Friedman to spend a century or two reconciling their positions so as to arrive at a clear view of the Great Depression, this would be it.” Her last book, The Greedy Hand: Why Taxes Drive Americans Crazy (Random House/Harvest paperback), was a national bestseller. Miss Shlaes also recently coauthored, with the late Robert Bartley of the Wall Street Journal, the contribution on tax philosophy in Intellect into Influence, a Manhattan Institute retrospective volume...

What does the book say?:

The Forgotten Man: A New History of the Great Depression: Challenging conventional history, Amity Shlaes offers a striking reinterpretation of the Great Depression.... Hoover and Roosevelt failed to understand... heaped massive burdens on the country.... From 1929 to 1940, federal intervention helped to make the Depression great by forgetting the men and women who sought to help themselves. In this illuminating work of history, Shlaes follows the struggles of those now forgotten people, from a family of butchers in Brooklyn who dealt a stunning blow to the New Deal, to Bill W., who founded Alcoholics Anonymous, and Father Divine, a black cult leader. She takes a fresh look at the great scapegoats of the period, from Andrew Mellon to Sam Insull of Chicago.... Authoritative, original, and utterly engrossing...

Original? Certainly. Engrossing? Perhaps. Authoritative? I've always liked Samuel Insull--an excellent engineer, a good manager, and a risk-loving speculator who was in the end taken down by the Morgans. The Supreme Court did a good deed by striking down Roosevelt's NIRA in Schechter Poultry, but the oral tradition at Cravath is said to be that the orthodox "family of butchers in Brooklyn" were chosen as plaintiffs by Frederick H. Wood as part of his long-run anti-New Deal litigation strategy, in this case to swing the vote of Louis Brandeis. But Andrew Mellon?

Here's Herbert Hoover's couldn't-be-harsher view of:

the “leave it alone liquidationists” headed by [my] Secretary of the Treasury Mellon, who felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” He insisted that, when the people get an inflation brainstorm, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said: “It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people”...

Milton Friedman likes--alas! liked--to quote R.G. Hawtrey of the British Treasury, who said that Mellon and the others who thought in 1930-1933 that the big danger was excessive inflation were "crying 'Fire! Fire!' in Noah's Flood." A nationwide banking panic is altogether a bad thing. In this dismissal of Mellon's economic policy Friedman was in complete agreement with John Maynard Keynes:

Keynes: It seems an extraordinary imbecility that this wonderful outburst of productive energy [over 1924-1929] should be the prelude to impoverishment and depression [today, in 1932]. Some austere and puritanical souls [like Mellon] regard it both as an inevitable and a desirable nemesis on so much overexpansion, as they call it; a nemesis on man's speculative spirit. It would, they feel, be a victory for the mammon of unrighteousness if so much prosperity was not subsequently balanced by universal bankruptcy. We need, they say, what they politely call a 'prolonged liquidation' to put us right. The liquidation, they tell us, is not yet complete. But in time it will be. And when sufficient time has elapsed for the completion of the liquidation, all will be well with us again...

Thursday, February 15, 2007

Martin Wolf takes a look in his Magic-8 ball at America's future and sees... social democracy: / Columnists / Martin Wolf - Why America will need some elements of a welfare state: Is globalisation a leading cause of rising inequality in high-income countries? The outcome of the debate on this question may determine whether the US will remain open to trade. If policymakers do not craft an imaginative response, protection against imports may be the outcome, regardless of its (non-existent) merits....

Mr Bernanke mentions the three standard hypotheses: skill-biased technical change; “winner-take-all” markets for the most talented; and globalisation. The last, in turn, would include trade, migration and rewards available to smart players in globalised capital markets.

Mr Bernanke himself comes to the standard and, in my view, largely correct, conclusion that “the influence of globalisation on inequality has been moderate and almost surely less important than the effects of skill-biased technological change.”...

This has long been the persuasively argued view of Jagdish Bhagwati of Columbia University.... Prof Feenstra notes that new possibilities for specialisation in tasks along the value chain may increase demand for skilled labour in both richer and poorer trading partners. But his empirical evidence still suggests that technology is more significant....

What, if anything, should be done? At first glance, the trend towards greater inequality should not worry a person with Mr Bernanke’s principles. But that response would be quite wrong... rising inequality causes declining equality of opportunity... makes losing a job costlier, more objectionable and so more resisted.... In a country in which much social insurance has historically been supplied by employers, the loss of jobs and the closure of businesses is particularly traumatic. Protectionism then emerges as the politically correct form of resistance to the market....

There are two possible responses. One is to insist that people are simply on their own. The present administration will, I predict, be the high water mark of this conservative tide. The other is to create a system of support that does not destroy incentives... greater funding of education for the disadvantaged (ideally, with private supply) and universal health insurance. The left will also want higher minimum wages and generous subsidisation of low earnings.

I am not suggesting that the US should embrace Europe’s interventionist follies. But without more generous government-financed services, the US may be unable to maintain a dynamic, internationally open and socially mobile society. That may seem a paradox. It is not.

I wish I could see it. But I am having a hard time doing so. American politics aren't... logical.

One would have thought that the rise in the value of a sheepskin from a 30% lifetime wage premium over a high-school diploma in 1975 to a 90% premium in 2005 would have called forth an extraordinary wave of public support and public funding for investment in education that would have pushed that premium down somewhat: lots more Americans should be getting a higher education now than were getting one in the mid-1970s. But they aren't.

One would have thought that the increasing importance of pension and health benefits in a more medically-capable and longer-lived society would have made American workers enthusiastic about the "flexicurity" agenda pursued by Labor Secretary Bob Reich and others in the first phase of the Clinton administration. But they weren't--at least not in a manner visible to me or to decisive legislative votes like Sen. Breaux or Rep. Tauzin. And the Labor leaders weren't either. "Burial insurance. We don't want burial insurance" was the refrain that I heard from my spear-carrier perch in the back of the room.

One would have thought that initiatives like Barney Frank's "grand bargain"--the left supports trade liberalization if the right supports social democracy--would have gained more traction with a left that realizes that trade restrictions are negative-sum when they aren't smoke-and-mirrors and a right that recognizes the potential economic and soft-power security gains from an even more interdependent world. But they haven't.

Lots of things that make obvious and indisputable sense in America simply don't happen for one or another strange political reason.

In my view, those who benefit the most from America's open economy are consumers, elderly home-sellers, middle aged mortgage-borrowers, construction workers, and those producing and selling high-end consumer goods who benefit from consumer spending ultimately and indirectly burt surely financed by low interest loans from the People's Bank of China. They don't know how much they gain. Those who lose the most from America's open economy are manufacturing and other workers who find themselves competing with imports. They know how much they lose.

A substantial and relatively rapid fall in the dollar unaccompanied by macroeconomic distress would, I think, make a big difference. But absent that, I don't see any political coalition assembling in America for freer trade. Maintaining stasis will be the best we can hope to do.

So I share Martin Wolf's sense of where the U.S. should go--I have shared it for a couple of decades, at least. What I don't see is how to get there.

To my knowledge, Orley Ashenfelter and Ceci Rouse are still state-of-the-art in investigating whether the returns to education diminish with "ability." They find that at least at current levels of education they do not: the returns to those of relatively low "ability" of an additional year of education appear to be at least as high as to those of high "ability"...

Is there anything to show that there is any gender-ethnicity-"ability"-education cell in the American distribution that would not find its life-chances materially and significantly boosted if we could somehow get them an extra year of education?

Wednesday, February 14, 2007

Mark Thoma watches as Ken Rogoff wonders why the dollar hasn't collapsed yet:

Economist's View: Kenneth Rogoff: Why Hasn't the Dollar Crashed Yet?: Many people have been asking why the dollar hasn't crashed yet. Will the United States ever face a bill for the string of massive trade deficits...?... [S]taggeringly, US borrowing now soaks up more than two-thirds of the combined excess savings of all the surplus countries in the world.... Foreigners are hardly reaping great returns on investing in the US. On the contrary, they typically get significantly lower returns than Americans get on their investments abroad. ...

[T]he central banks of Japan and China are holding almost two trillion dollars worth of low-interest... US treasury bonds and mortgages. This enormous subsidy to American taxpayers is, in many ways, the world's largest foreign aid program....

Most sober analysts have long been projecting a steady trend decline in the dollar.... So why hasn't more adjustment taken place already? The first answer, of course, is that the trade-weighted dollar has fallen--by more than 15% in real terms since its peak in early 2002. Yet the US deficits have persisted, and even risen, since then.

The real driving force has been two-fold. First and foremost, America's government and consumers have been engaged in a never-ending consumption binge. On the consumer side, this is quite understandable.... 25 years of stunning prosperity punctuated by only two mild recessions... Americans feel pretty confident about their economic situation.... People have enjoyed such huge capital gains over the past decade that most feel like gamblers on a long winning streak. By now, they see themselves as playing with the house's (or their houses') money.

It is less easy to rationalise... the US government.... When a... government launches a war, it typically cuts back... and raises taxes. The Bush administration did the opposite... good politics, for a time....

In order for the US economy to run deficits with the world, other countries must be willing to... supply... savings.... [T]here is global investment shortfall... due to... medium-term institutional roadblocks to investment in many developing countries, where long-term returns now seem to be by far the highest. The net result is that money is being parked temporarily in low-yield investments in the US, although this cannot be the long-run trend.

What then is future of the dollar? As long as the status quo persists... the US can continue to borrow... without immediate consequence.... Nevertheless, it is not hard to imagine... dollar collapses. Nuclear terrorism, a slowdown in China, or a sharp escalation of violence in the Middle East could all blow the lid off the current economic dynamic....

[T]he fact that the US trade balance has defied gravity for so many years has made it possible for the dollar to do so, too. But some day, the US may well have to pay the bill... [and] pray that their creditors will be as happy to accept dollars as they are now.

Why didn't either Barry Eichengreen or I assign our joint "The Marshall Plan: History's Most Successful Structural Adjustment Programme" for Econ 210a this year? Neither of us can remember why it fell off...

It is one of the only two big articles we have written together. You'd think our bilateral bargaining would ensure that both of them got on the reading list...

George Tenet really isn't helping himself here:

Long a Target Over Faulty Iraq Intelligence, Ex-C.I.A. Chief Prepares to Return Fire - New York Times: By MARK MAZZETTI and JULIE BOSMAN: George J. Tenet has maintained a determined silence even as senior White House officials have laid the blame for the prewar mistakes about Saddam Hussein on him.... Vice President Dick Cheney... pin[ned] the mistake about the Iraq intelligence squarely on him.

Now... Tenet... will use the book to juggle a host of agendas: polishing his legacy, settling scores and explaining just what he meant when he said it was a "slam dunk" that Mr. Hussein had unconventional weapons.... Friends and former colleagues... say... top aides with whom Mr. Tenet clashed in the past, including Secretary of State Condoleezza Rice, are... targets of criticism....

Mr. Tenet is not expected to take on Mr. Bush, with whom he developed a close bond during early morning intelligence briefings in the Oval Office. But Mr. Tenet's friends said he had been surprised when Mr. Cheney and Ms. Rice, appearing on Sunday talk shows last September, fingered him in justifying Mr. Bush's decision to go to war with Iraq....

One person who has read early drafts of the book said Mr. Tenet defended himself by carefully parsing the "slam dunk" comment: he said he was not telling Mr. Bush that there was rock-solid evidence that Mr. Hussein had chemical and biological weapons, only that the president could make a "slam dunk" case to the American public about these weapons programs.

If true, Tenet appears to have forgotten who he was supposed to work for.

Kevin Drum: John Bolton tells the truth (for once)!

The Washington Monthly: NORTH KOREA WATCH.... Over at The Corner, Andy McCarthy, who thinks the North Korea deal stinks, says:

Don't take my word for it. Take John Bolton's.

Um, sure. Still, maybe he has a point. Here's Bolton:

This is the same thing that the State Department was prepared to do six years ago. If we going to cut this deal now, it's amazing we didn't cut it back then.

The man's got a point. And six years ago this deal would have come without an already built stockpile of nuclear weapons. Perhaps there's a lesson there?

Doug Merrill reviews Fritz Stern's Five Germanys I Have Known

afoe | A Fistful of Euros: Five Germanys I Have Known by Fritz Stern: Fritz Stern was born in what was then Breslau, Germany, grandson of Jews who converted to Christianity, son and grandson of physicians and researchers, at a time when medicine was truly becoming a science and Germany was leading the way. His godfather and namesake was Fritz Haber, who discovered how to fix atmospheric nitrogen, won a Nobel, led research into poinson gas as a weapon, and died shortly after his forced emigration from Germany.

Stern emigrated with his family to the United States in late 1938, in the proverbial nick of time... became a distinguished historian of Germany and Europe... an active participant in transatlantic relations... liberal perspective.

The book begins with background on Breslau, the emancipation of Jews in the 19th century, industrialization, science and what all of these meant for his immediate ancestors. The five Germanys he has known are Weimar, the Third Reich, the Federal Republic, the GDR and the post-unification Federal Republic. He tells his stories vividly, mixing a historian's detachment with a memoirist's recollection and commitment.

My academic background is in political science and German history, so this is a bit of intellectual homecoming.... Stern is... something like an academic great-uncle. I've never met him, but the closer he got to the present, the more names he mentioned that I either knew, or knew at one remove.

The sixth Germany -- the one his parents and grandparents lived in -- is the one that I learned the most about. The turn to modernity is fascinating, and seeing how it happened in one family is a great way to understand the changes and disruptions involved.... The five Germanys in 500 pages are as good an overview of the period as any, and a good deal livelier than a survey without the memoir. Plus Stern is a delightful, lively writer, and his life has been full of unexpected connections. Allen Ginsberg was a good friend from his first day of college...

Eddie Lazear is an aggregate productivity-growth optimist:

White House Sees Strong Productivity - JOHN D. MCKINNON February 12, 2007; Page A6 WASHINGTON -- President Bush's economic team predicts rapid gains in U.S. productivity can continue for the foreseeable future.... From 2000 to 2005, productivity -- a measure of the goods and services produced per hour of work -- has increased at about 3% a year, higher even than the 2.5% growth during the late 1990s....

In recent months, White House economists said productivity gains finally have begun delivering another benefit: higher real earnings for ordinary workers. Administration officials are optimistic they will see more productivity-driven earnings growth in the years ahead....

Most economic forecasters, however, doubt the U.S. economy can maintain a 3% productivity pace in the next decade, and there are signs that productivity growth is tapering off. The new White House budget relies on an economic forecast -- largely comparable with private-sector predictions -- that implicitly sees productivity growth of about 2% a year for the next five years.... Going forward, productivity gains will depend on continued strong investment and increased efficiency but also on increasing workers' skills, the report said.... Future breakthroughs in alternative energy sources and improving efficiency in the health-care sector could provide big sources of productivity gains, comparable to the high-tech revolution of the 1980s and 1990s, Mr. Lazear said...

Why oh why can't we have a better press corps? Yet another New York Times edition. Judy Miller doesn't work at the New York Times any more. Why does Michael Gordon?

Democracy Now! | New York Times Trumpets Pentagon's Claims Over Iran Sending Bombs to Iraq: AMY GOODMAN: The new accusations of Iranian-supplied bombs in Iraq first appeared in Saturday's New York Times. The article was headlined "Deadliest Bomb in Iraq is Made by Iran, US Says." Some media critics immediately compared the New York Times piece to its articles on Saddam Hussein's alleged weapons program that were used by the Bush administration to make the case for invading Iraq.

These critics have pointed out two similar features between Saturday's article and those before the war: near complete reliance on unnamed government sources and the byline of New York Times reporter Michael R. Gordon.

Gordon and former New York Times reporter Judith Miller co-authored the infamous September 8, 2002 piece, alleging Iraq attempted to purchase aluminum tubes towards developing nuclear weapons. The New York Times later singled out the article as part of its editor's note apologizing for its inaccurate coverage of Iraq and WMDs. Well, Michael Gordon appeared on Democracy Now! last March. During our interview, I asked him about his reporting in the lead-up to the US invasion of Iraq.

MICHAEL GORDON: There was no agency in the American government that said Saddam was not involved in WMD. You know, the State Department, although it's turned out to be correct, certainly on the nuclear issue, did not turn out to be -- you know, didn't challenge the biological case, the chemical case, and I'm going to offer you this last thought, and I'm happy to respond to any questions you have, but you know, there are a number of complicated WMD issues --

AMY GOODMAN: Let me just ask something on that. Are you sorry you did the piece? Are you sorry that this piece --

MICHAEL GORDON: No, I'm not. I mean, what -- I don't know if you understand how journalism works, but the way journalism works is you write what you know, and what you know at the time you try to convey as best you can, but then you don't stop reporting.

AMY GOODMAN: Well, let me, let me --

MICHAEL GORDON: Can I answer your question, since you asked me a question?

AMY GOODMAN: Well, no, I wanted to get --

MICHAEL GORDON: No, wait a second, if you ask me a question -- I'm happy to answer all your questions, but what I'm trying to explain to you is one thing. That was what I knew at the time. It's true that it was the key judgment. It's the same information they presented to Colin Powell, by the way, and it's what persuaded him to go to the United Nations and make the case on the nuclear tubes. I wrote the contrary case, giving the IAEA equal time. They disputed it. I don't have a dog in this fight. I didn't know what was the ultimate truth. When the IAEA came out in January and disputed it, I reported it.

AMY GOODMAN: Michael Gordon, let me just respond. We don't -- we have limited time in the program, but I just --

MICHAEL GORDON: Well, then you should let me answer your questions.


MICHAEL GORDON: No, you haven't let me answer your question.

AMY GOODMAN: Are you sorry then, that the New York Times was sorry that this piece appeared as it did on the front page of the New York Times.

MICHAEL GORDON: I don't think "sorry" is the word the New York Times used.

AMY GOODMAN: That was the New York Times reporter Michael Gordon speaking on Democracy Now! last March. I'm joined in studio now by Rick MacArthur, publisher of Harper's....

RICK MACARTHUR: ...[W]hat's interesting about Michael Gordon is that when he did the reporting on the phony aluminum tube story with Judith Miller four years ago, he somehow escaped unharmed and is now thriving.... [H]e's going around acting like he's an expert on Iraq, when, in fact, he's still playing the role of conduit for the official line, the Army line or the government line, depending on who he's talking to on what day....

[W]hat's interesting is the play that they gave his story on Saturday.... They put it on the top of the front page... the lead story.... [N]ot far down in the... Monday story -- you find a paragraph where they say -- and this is very interesting -- that they don't have any real evidence, any direct evidence, that any of this is true.... Newsday, a perfectly respectable newspaper, puts "US: Iran is Arming Shia" on page 22 on Monday.... They report what the military officials [in Washington] are claiming, but in the second paragraph, they say the military command in Baghdad denied, however, that any newly smuggled Iranian weapons were behind the five crashes of US military helicopters... shot down by insurgent gunfire.... [T]hat is what journalism is, contrary to what Michael Gordon says. It's putting the story in perspective, pointing out that the... [insurgency is] dominated by Sunni, not by Shia.... [T]he most damning omission... is complete lack of perspective on who's fighting whom, who's shooting at whom in Iraq. Does the Iranian government really have an interest in destabilizing what's now a Shiite-dominated government? Doesn't make any sense.... [T]here's no logic to it... just this massive omission...

Econ 210a: February 21: Question: Why Isn't the Whole World Developed? The economic history of the world both in the post-WWII period 1945-1990 and, in broader perspective, over the past two centuries has been one in which the world has shrunken enormously in distance along every conceivable measurement, and yet in which income and productivity differences between societies have grown enormously. What, in your judgment, are the possible big-picture theories for explaining this phenomenon that are worth investigating?

Monday, February 12, 2007

Ummm... Greg? Greg?! GREG!!

Greg Mankiw writes:

Greg Mankiw's Blog: More on Inequality: Ben Bernanke gives a talk on inequality, concluding that

the challenge for policy is not to eliminate inequality per se but rather to spread economic opportunity as widely as possible.

By contrast, Brad DeLong concludes

An unequal society cannot help but be an unjust society.

These quotations go to the heart of the policy divide behind right and left. The key question: To what extent is inequality of outcomes a source for concern in and of itself? People will always differ in productivity. Should policymakers act to offset these innate differerences, or should their goal be to give everyone the same shot and not be surprised or concerned when outcomes differ wildly? To a large extent, policymaking often comes back to Rawls vs Nozick.

And quoting often comes back to giving the reader the proper context.

Greg shoulda quoted my whole paragraph. It says:

An unequal society cannot help but be an unjust society. The most important item that parents in any society try to buy is a head start for their children. And the wealthier they are, the bigger the head start. Societies that promise equality of opportunity thus cannot afford to allow inequality of outcomes to become too great...


Sunday, February 11, 2007

Just a thought...

Robert Barro should have called his 2005 "Rare Events and the Equity Premium" paper something like "Rare Events and the Low Riskfree Rate" instead...

The paper uses the possibility of future disastrous falls in economy-wide consumption and in payouts on equities to explain the high equity premium. The primary channel is not that fear of future catastrophe depresses the price and hence raise the in-sample average return to equities (for we don't observe many such disastrous falls in our sample). The primary channel is that fear of future catastrophe raises desired savings to carry purchasing power forward in time in case of need. But since assets are in fixed supply in the Lucas-tree model Barro uses, this outward shift in savings demand drives the prices of real bonds up and the returns on real bonds down. It also--for CRRA greater than one--drives the prices up and the returns down on equities as well. A greater fear of future catastrophe is a source of high, not low, price-dividend and price-earnings ratios.

Hence the story implicit in Barro (2005): the implicit story is that stock market multiples were much higher in 2000 than they were in 1982 because the likelihood of a macroeconomic catastrophe greater than the Great Depression was much higher in 2000 than it was in 1982. Hence people were desperate to save for the future to insure against the greater likelihood of macroeconomic catastrophe. And that was the force underpinning the 1990s stock market boom.

This is, I think, a trap set for us by using the Lucas-tree model as a workhorse. Its lack of production and accumulation is, I think, a much bigger drawback than is sometimes recognized...

David Wessel of the Wall Street Journal sees eerie parallels between the Bushies foreign and domestic policy misadventures:

Capital - Bush's Course on Budget Parallels Iraq: The numbers in President Bush's budget add up -- arithmetically... if Iraq and Afghanistan cost only $50 billion in 2009 and nothing thereafter; if the president and Congress hold growth in annually appropriated domestic spending well below inflation; if they let the alternative minimum tax reach deeper into the middle class or raise taxes on others to prevent that; if Congress squeezes $66 billion (4%) from Medicare over five years.... If former Republican Treasury Secretary James A. Baker III and former Democratic Rep. Lee Hamilton led a budget commission like their Iraq Study Group, what would they say?...

They would hardly need to rewrite their cover letter. "There is no magic formula.... However, there are actions that can be taken to improve the situation and protect American interests," they said in the Iraq report. "Many Americans are dissatisfied, not just with the situation... but with the state of our political debate.... Our country deserves a debate that prizes substance over rhetoric, and a policy that is adequately funded and sustainable."

William Gale of the Brookings Institution.... "The Bush administration's two signature policies have been the war in Iraq and consistent pressure for tax cuts," he argues. "On the surface, they look quite different and were advocated by different parts of the administration. Look a little deeper and some common patterns emerge -- so maybe this says something about the principles or management style of the Bush administration."... "[F]alsely rosy scenarios" about the post-Saddam landscape... unrealistic hope that the budget surplus was large enough to cut taxes without creating deficits... contingency planning was regarded by the Bush White House as a sign of weakness.... Smart critics... disregarded and shunned.... Only true believers remained to give the president advice. Eventually, Mr. Bush changed his team--hiring new secretaries of defense and Treasury--but too late to get credit from the public or to forge bipartisan consensus in Congress.

Imagine what might have happened differently had Mr. Bush installed Josh Bolten as chief of staff, Rob Portman as budget director and Hank Paulson as Treasury secretary at the start of his second term, instead of waiting two years. Might the conversation on Mr. Bush's ideas for limiting tax breaks for health insurance be bearing fruit, not just taking shape?...

OK. Take a breath. The U.S. economy is not Iraq, and today's headlines are upbeat... [thanks to] the unabated willingness of foreigners to lend to the U.S. is keeping interest rates down. But look ahead, and there is an unwelcome parallel between Iraq and the budget. Current policy is unsustainable, but there is no easy way out.... Baker and Hamilton had little apparent effect on the president's Iraq policy. Maybe they would have better luck on economics.

My view--which may be wrong--is that David Wessel is way optimistic when he hopes that Bolten, Portman, and Paulson will rebase the Bush administration's economic policies in reality. Bolten's tenure at OMB was unimpressive, and now Bolten appears to be reduced to wandering around Washington saying that he does too have power, and pointing to his ability to fire Harriet Miers as evidence of his strength. Portman's tenure at USTR was similarly unimpressive, and there are no signs that his influence was able to make the current Bush budget more of a policy and less of a propaganda department. And Cheney appears to have cut Paulson off at the knees and killed Paulson's back-channel Social Security negotiations--with no effective response from Paulson: there has been no statement from Bush that Paulson is Bush's chief economic policy adviser and speaks for him on economic policy issues.

In short, things are worse inside the Bush administration than David Wessel believes.

Marty Lipton has driven the New York Times's Gretchen Morgenson into shrillness:

Memo to Shareholders: Shut Up - New York Times: TO all those public company shareholders who are trying to make directors more accountable to owners and more watchful over executives: Cheer up. Your efforts seem to be gaining genuine traction. How do we know? Martin Lipton told us so... founding partner of Wachtell, Lipton, Rosen & Katz... invented the poison pill.... More recently, Mr. Lipton has become the apologist for embattled chief executives who don't like shareholders sounding off on excessive pay and cozy boards.

Last week, he sounded a grave warning at the 25th annual Institute on Federal Securities in Miami. "Today shareholder activism is ripping through the boardrooms of public corporations and threatening the future of American business."... Directors are under siege, he averred, thanks to shareholder activists.... Finally, Mr. Lipton thundered: "We cannot afford continuing attacks on the board of directors. It is time to recognize the threat to our economy and reverse the trend."... Mr. Lipton also asked such fundamental questions as whether qualified people would agree to serve as directors in the current environment and whether directors would become so risk-averse that their companies would suffer.

Those are both worthwhile topics for a reasoned, probing discussion. But the sheer desperation in Mr. Lipton's speech... may have been the best proof yet that shareholders' rightful demands to make directors more accountable are getting results. Mr. Lipton did not return a phone call seeking comment....

"It's almost like listening to a small boy who has lost his favorite toy--in this case the poison pill"... said Herbert A. Denton, president of Providence Capital in New York... adviser to minority shareholders....

If the public corporation is an endangered species, as Mr. Lipton argued, it is not because of shareholders. Those who owned stock in Enron, WorldCom, Adelphia and Tyco did not create the scandals that rocked those companies and sowed mistrust among others. Selfish managers and passive directors did that work handily. Almost everyone gets nostalgic, of course. And Mr. Lipton may pine for the days when the poison pill reigned supreme, his chief-executive clients were safe and boards resided quietly in their Amen corner...

Matthew Yglesias says: "It's good to own the magazine":

Matthew Yglesias / proudly eponymous since 2002: It's Good to Own the Magazine: This is pretty sweet. As you may recall, New Republic editor in chief Martin Peretz recently took to the pages of his magazine to accuse George Soros of being a "young cog in the Hitlerite wheel." As Soros points out (follow the link) this charge is false. Peretz, in his response to Soros' response, won't even admit what he accused Soros of doing much less concede that the allegation was false!

It seems to me that when a magazine falsely accuses someone of being a Nazi collaborator that a correction would be warranted.

Is this really true? Could TNR seriously be planning not to run a correction?