My review of Barbara Ehrenreich (2000), Nickel and Dimed: On (Not) Getting By in America. I didn't like it because its economics were naive, and its politics were passivist--there seemed to be a willful refusal to recognize the good done by the New Deal and the Great Society. I sensed--I'm not sure it is really there are not--a tinge of scorn for the subjects of the book and for the politicians who have worked to make their lives more secure over the past century.

Originally posted on August 13, 2002 at http://www.j-bradford-delong.net/movable_type/archives/000486.html:

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Barbara Ehrenreich's "Nickel and Dimed": Archive Entry From Brad DeLong's Webjournal: Barbara Ehrenreich (2000), Nickel and Dimed: On (Not) Getting By in America (New York: Metropolitan Books: 0805063889) http://www.amazon.com/exec/obidos/asin/0805063889/braddelong00.

I have loved all of Barbara Ehrenreich's previous books. Even when I disagreed--and I often did--I admired the argument, enjoyed the process of reading, and learned a lot from every page. But this book was different. When I finished this book, I looked at it with a certain sense of what I can only call... loathing...

I did not dislike this book because of its underlying project. Writing up for the rich the results of an upper-class essayist's anthropological mission to see how the other half live is worthwhile. It is part of the task of afflicting the comfortable which needs to be carried out much more strongly if we are ever to have a better society. The point of Ehrenreich's rapiers of intellect, art, and wit are as sharp as ever when she points out that even so-called "unskilled" work--perhaps especially so-called "unskilled" work--is demanding and challenging: the memory skills required of a waitress, the physical labor of a house cleaner with a vacuum on her back, and the patience of a Wal-Mart "zoner" hanging up the same blouse for the ninth time all push human capacities close to their limits--and for truly lousy pay. How lousy is the pay? Consider "Alyssa... [who] had come by... to inquire about a polo shirt that had been clearanced at $7. Was there any chance it might fall still further?" When you make $7 an hour at Wal-Mart, it matters whether an extra 10% is going to be taken off the price of the $7 shirt.

I did not dislike this book because how it reminded her upper-class readers that every job is worth doing well, and that people who do it well deserve respect: "...when I wake up at 4 A.M. in my own cold sweat, I am... thinking of the table where I screwed up the order and one of the kids didn't get his kiddie meal until the rest of the family had moved on to their Key lime pies.... I want them to have the closest to a 'fine dining' experience that the grubby circumstances will allow. No 'you guys' for me; everyone over twelve is 'sir' or 'ma'am'. I ply them with iced tea and coffee refills; I return, midmeal, to inquire how everything is; I doll up their salads with chopped raw mushrooms, summer squash slices, or whatever bits of produce I can find that have survived their sojurn in the cold storage room mold-free." That is something that her upper-class readers need to hear more often.

I did not dislike this book because of its introspection and navel-gazing. That was useful: to know that this upper-class essayist was shaken by how cruel she became toward the end of a long shift: "This is not me, at least not any version of me I'd like to spend much time with, just as my tiny coworker is probably not usually a bitch. She's someone who works all night and naps during the day when her baby does.... 'Barb', the name on my ID tag... [t]ake away the career and the higher education... and[its] more than a little disturbing, to see... Barb... she's meaner and slyer than I am, more cherishing of grudges, and not quite as smart as I'd hoped."

I did not dislike this book because Ehrenreich itemized the tricks of the bosses: how they get their low-paid employees to value and work for praise, the mendacious anti-union videos of Wal-Mart that leave one wondering "why such fiends as these union organizers, such outright extortionists, are allowed to roam free in the land", and the sleight-of-hand at the moment of employment itself, when "first you are an applicant, then suddenly you are an orientee.... There's no intermediate point in the process in which you confront the potential employer as a free agent, entitled to cut her own deal..." Ehrenreich's insights are sharp as she itemizes the tricks that the bosses use to keep workers from exercising their bargaining power.

I did not mind that too much of the book was not about the experience of the working poor, but the experience of someone trying to find a cheap apartment on short notice (something that is always hard to do) while she cleanses her system of various chemical substances: "If I could just surrender to my increasingly aqueous condition and wait out the weekend with a novel, things would be looking up. But... [the bird] wants to be out of his cage... squawking... pacing dementedly... sit on my head... worry my hair and my glasses frames.... [I am] a cringing figure, glasses peering out the porthole of her sweatshirt, topped by a large, crested--and, I can only imagine, quite pleased with its dominant position--exotic white bird. But I cannot incarcerate him... It's... my way of earning my shelter, to be this creature's friend and surrogate flock." The peculiarities of her particular situation make up some of the best, or at least the funniest, parts of the book.

I did not even--well, not much--mind the failure to do the economics of the situations she found herself in. An independent house cleaner in Portland, Maine makes "up to $15 an hour." The Maids charges its customers $25 an hour. The Maids pays its workers $6.65 an hour. And the owner of the franchise is comfortable, but not rich--he doesn't earn the $25,000 a year per employee that simple subtraction would suggest. So where in this business are the other costs? What sustains the enormous price gaps between what The Maids charges, what those who employ independent cleaners pay, and what The Maids pays?

I do feel a certain degree of pity for Economic Policy Institute economist Larry Mishel, faced with a Barbara Ehrenreich convinced that the reason wages haven't risen in the 1990s is that "employers resist wage increases with every trick they can think of and every ounce of strength they can summon..." He tried to explain to her that employers in 1990 did the same: employer resistance can account for the level of wages, but it is hard to see how--unless you think employers have grown meaner over the past decade--it accounts for slow rates of change.

The working poor are poorly paid and their wages are stagnating not because bosses are mean (although many are: the Wal-Mart boss who told Alyssa that she could not apply her employee discount to the $7 clearance polo shirt in a simple exercise of malevolent herrschaft comes to mind). They are poorly paid because our technology has dropped demand for low-education labor at the same time that our educational system has failed to upgrade the formal educational skills of our workforce. An earlier generation of leftists would have talked about how bosses are bearers of socioeconomic forces, which they cannot contravene or they will go bankrupt. As inadequate as many of its analyses were, at least it was looking in the right place.

I did not even loathe the book because of the strong pains Barbara Ehrenreich took to demonstrate that she was not one of them. The talk of the $30 lunch at understated French country-style restaurants, where she ate salmon and field greens while wondering aloud how people can possibly make it on $6 or $7 an hour; the dismissal of beautiful Old Orchard Beach as a "rinky dink blue-collar resort" (not the kind of place she would go to in her real life)--these grated as I read them.

Why, then, did I look at this book after I finished it like I might look at a dangerous insect? Because of its politics--or, rather, its antipolitics. In this book the government does not appear (save in footnotes discussing the lack of enforcement of the Fair Labor Standards Act). Yet if you look at the things that make the lives of America's working poor better, the actions of government have to rank high on the list. The government sets and enforces (imperfectly) the minimum wage; contrary to what you would believe if you read only the footnotes, the Fair Labor Standards Act does change the way America's workplaces function; for those with kids, the Earned Income Tax Credit provides low-wage workers with kids with a wage boost of forty cents on the dollar for each of their first fifteen hundred hours of work (if they file an income tax return with the IRS and claim it--a big if); what inadequate health care the working poor receive is paid for by the government; and if we are ever going to change the supply-demand balance of the American economy and significantly close the income gaps between working rich and working poor, publicly-funded education must play the major role.

Yet all these are invisible to Barbara Ehrenreich

Because all these are invisible to the Barbara Ehrenreich (see "When Government Gets Mean: Confessions of a Recovering Statist, The Nation (November 17, 1997)), she can write that it is time for America's left to ditch the government. She believes that it is time to stop supporting it, to stop defending it, to stop arguing that what the government does is by and large good, to "...no longer let progressivism be understood as the defense of government." Why? Because "[b]y setting ourselves up as the defenders of... 'big government'... progressives have boxed themselves into a pragmatically and morally untenable position." To Ehrenreich, American government today is made up of "petty-minded bureaucracies like the I.R.S. and the D.M.V." when it is not made up of cops violating people's civil rights.

So from her point of view, the right thing to do is not to care about electing representatives who will vote for expansions of the Earned Income Tax Credit and increases in the minimum wage, but to focus attention of "alternative services": "...squats, cooperatives of various kinds, community currency projects... [a cultural core] offering information, contacts, referrals and a place for people to gather."

And from her point of view a Democratic victory in the 2000 election would have been something to fear, because of its "almost certainly debilitating effect on progressives and their organizations" (see "Vote for Nader," The Nation (August 21/28, 2000)). Never mind that a Democratic Labor Secretary would place a higher priority on enforcing labor laws in a worker-friendly manner, never mind that under a Democratic president the NLRB is more union-friendly, never mind that a Democratic congress would pass and a Democratic president sign minimum wage increases that did not come with enough riders to make their overall benefit questionable, and never mind that under Democratic congresses and presidents the tax code becomes more progressive. None of these are on Ehrenreich's radar screen.

Why not? I don't know. She's smart. She's an extremely skilled observer. She's witty and writes extremely well. The economists of the Economic Policy Institute had their chance to brief her.

Yet it seems as though none of it took...

Daniel Gross quotes Christie Romer:

The Forecast for the Forecasters Is Dismal - New York Times: Christina Romer, professor of economics at the University of California, Berkeley, says economists can't predict recessions for the same reason stock market analysts can't accurately predict market crashes. "Both kinds of events, by their nature, are not predictable events," she said. Almost all the postwar recessions were preceded by a shock, like a spike in short-term interest rates, or a sharp rise in oil prices. "It's impossible to see the shocks coming," Ms. Romer said.

The very infrequency of recessions in the United States may make it more challenging to detect their imminent arrival. An entire generation of economists has grown up believing that the business cycle is largely something of the past, like black-and-white TV. Since March 1991, there has been only one recession, which lasted eight months. It's like asking people who spend their time in Alaska to start forecasting tropical storms.

AS a group, forecasters certainly don't see a recession coming. On Feb. 13, those of the Federal Reserve Bank of Philadelphia collectively raised their estimates for real gross domestic product growth for 2007 to 2.8 percent, from 2.6 percent...

Over the past twenty years we have spent about 18 months in "recession" by the NBER's chronology--that's only 7.5% of the time. Moreover, as I wrote last fall:

The odds of economic meltdown | Salon.com : Forecasting recessions is a fool's game. If there is enough solid economic information to make it appear highly likely that a recession is coming -- that production, employment and consumer demand will actually fall -- then it is highly likely that there already is a recession. Businesses are not stupid, and they don't have to wait for economists to tell them what they already know. By the time a gloomy forecast has been issued they've probably already noticed a drop in consumer demand and responded by firing workers and reducing production.

So: Never say that a recession is coming. Say only that a recession is here, or that there might be a recession on the way. Which, in fact, is what I'm saying today. As of the beginning of August 2006, a recession is not here, and I'm not going to violate my own rule by saying one is coming...

However, it is still the case that:

there is a good chance -- for the first time since 2003 -- that there might be a recession in progress six months from now...

That's what Greenspan was talking about last week: possible, not certain.

I feel that over the past five years I have had a leg up on most people I run into on what's going on in the Middle East, especially with respect to the Bush misadventure in Iraq. And one person is responsible: my friend John Boykin, who wrote a biography of American diplomat Philip Habib which is also a history of Ariel Sharon's ill-fated invasion of Lebanon in 1982, operation "Peace for Galilee." And knowing something about "Peace for Galilee" has definitely given me a leg up in understanding what's going on in Iraq. History doesn't repeat itself, but it does rhyme.

Here's what I wrote about John Boykin's book back in 2002:

Philip Habib and Ariel Sharon: Archive Entry From Brad DeLong's Webjournal: My friend John Boykin has just finished a book (John Boykin (2002), Cursed Is the Peacemaker (Belmont, CA: Applegate Press: 0971943206)) http://www.amazon.com/exec/obidos/asin/0981943206/braddelong00 about American diplomat Philip Habib, and his attempt to stop the 1982 Beirut Massacre (which in the end did not happen: he succeeded). It is turning out to be a very timely book, for Habib's principal antagonist as he tried to carry out the mission that Reagan had assigned him was then-Israeli Defense Minister Ariel Sharon, the prime mover behind Operation "Peace for Galilee," Israel's 1982 invasion of Lebanon to expel Yasir Arafat's PLO from the country and to try to install a pro-Israeli government in the country. John says (p. xv) that he "neither knew nor cared about Sharon" when he started the book, and "simply followed the most interesting vein of the story wherever it led." In this context it is interesting that the person who comes off worst of all in the book is Alexander Haig, the person who comes off second worst is Ariel Sharon, and the third-worst impression is made by the soldiers of the IDF--the Israel Defense Force.

Alexander Haig, then American Secretary of State, makes the worst impression of all. In the months leading up to Sharon's invasion, Sharon had repeatedly told Haig that the PLO's armed presence in Lebanon was intolerable, that the security of Israel required that it be ended, and that he--Sharon--was going to do the job. Sharon interpreted what Haig told him back as a green light for the invasion--that Haig understood Israel's problems and requirements, and that such an operation would be acceptable to the United States if it was carried out in response to a sufficiently bloody and brutal provocation. Sharon and his Prime Minister Menachem Begin took the attempted assassination of Israel's Ambassador to Great Britain as such a provocation, and launched its invasion.

But Haig had, apparently, not told Ronald Reagan or anyone else in the White House about his conversations with Sharon, or failed to understand how Sharon would interpret them. When the Israeli invasion of Lebanon began, the White House's first reaction was to summon Special Presidential Envoy Philip Habib to meet with Reagan, and to send him off to the Middle East to stop the war--to find an acceptable political solution. But Alexander Haig (and Ariel Sharon) had a very different view of what Habib's mission was. As John Boykin (pp. 60-61) writes, Habib found it "...very strange, like having two different mandates." Reagan's instructions had been, "Go over there and get this thing settled." Haig's had been, "Go over there"and, as Boykin tells it, more or less go through some motions. Habib was Reagan's representative, but reported to Reagan through Haig, who had "in fact blessed this [invasion] without telling anybody.... [T]hat put [Habib] in a very strange situation."

Reagan's instructions had been based on Reagan's and his immediate circle of advisors' view of the world, which was primitive and simplistic. As Boykin tells the story (pp. 57-58), "Habib always knew what Reagan wanted: for him to keep people from killing one another and to get them talking. That wasn't terribly sophisticated guidance, but it was clear. It suited Habib fine.... Reagan had complete confidence in Phil Habib because he liked him and because Habib came highly recommended and seemed to know what he was doing.... The disadvantage... was that [Reagan] had little understanding of the problems Habib was trying to solve.... He thought Syria's missiles in Lebanon were aimed at the heart of Israel, that the troubles of Lebanon were stirred up by the Soviets, and that the PLO was an instrument of the Soviets.... Habib found Reagan... a man 'who couldn't remember detail from one minute to the next'." As Haig described Reagan (p. 59): "He wasn't a mean man. He was just stupid."

Haig's view of what should happen was very different (see pp. 84-5). Haig thought that a good outcome would see the Israel Defense Force--the IDF--smash the PLO's military capability, send its political leadership running for whatever safety they could find, and in the process destroy whatever of Hafez Assad's Syrian military got in the way. This would, he thought, gut Soviet influence in the Middle East. If it were demonstrated that the U.S. client (Israel) could easily whip the Soviet client (Syria), then more countries would want to be U.S. clients and the U.S. would have won a victory. It was almost as if Haig saw the U.S. and the U.S.S.R. as the fans of rival sports teams, each taking pride and joy in its team's victory.

But it was far from clear that a full-scale military clash between Israel and Syria accompanied by Syria's decisive defeat and withdrawal would "gut Soviet influence" in the Middle East. Leonid Brezhnev had warned Reagan that the Soviet Union would intervene if Israel was not restrained. Soviet airborne troops were already on alert. A Brezhnev anxious to demonstrate the Soviet Union's commitment to its allies might have been willing to base a Soviet Motorized Rifle Army in Syria. A Hafez Assad terrified of what Israel might do might well be willing to accept such a basing--even if it did mean that his independence from Soviet control thereafter would have been... limited. It seems to me (and seemed to almost everyone at the time save Alexander Haig) that a major clash between Israel and Syria would increase the Soviet Union's influence in the Middle East, not decrease it.

Haig thus comes off very badly: not a team player, not able to keep the rest of the administration informed of what was going on beforehand, not willing to tell anyone in the White House why Sharon was so confident during the invasion, hoping that Reagan's special envoy would fail in his mission, and having little sense of what the national security of the United States required--which was not a confrontation between Israeli and Soviet tanks on the road from Beirut to Damascus.

But the rest of the U.S. government comes off little better than Haig. At one point Habib finds that the PLO agreement to terms he thought he had achieved had slipped away because the PLO was no longer frightened of the IDF. Why not? Because (pp. 95-96) "U.S. Vice President George [H.W.] Bush and Defense Secretary Caspar Weinberger, attending the funeral of Saudi King Khalid, had told the Saudis that the U.S. would pressure Israel not to enter Beirut. That news had the effect of telling the PLO that they were not about to be destroyed. So why should they budge?" George H.W. Bush and Caspar Weinberger gain some points with the Saudi regime. In the process they make Philip Habib's task of defusing the Lebanon crisis harder, and thus put an obstacle in the path of achieving America's national security goals.

However, the second-worst impression is left by then-Israeli Defense Minister and now Israeli Prime Minister Ariel Sharon. Sharon successively betrays everyone he deals with. He betrays the Israeli cabinet at the start of the 1982 war by concealing from them the magnitude of the operation he has planned. He betrays Phlip Habib by breaking ceasefire commitments made to him in the early days, before the siege of Beirut begins. He betrays his boss Menachem Begin by launching large-scale attacks on Beirut on the eve of the final settlement--as Boykin writes (p. 233-4), the "August 12 blitz 'was the straw that broke the camel's back with Begin's view of Sharon', says Lewis. Begin was furious with Sharon about it and deeply embarrassed.... He forbade Sharon to take any further military actions without his approval.... The Cabinet divested Sharon of his authority to activate the airforce..."

Moreover--and this is the coup de grace--Sharon breaks his commitments not to seek to harm Palestinian civilians left in Lebanon. As Boykin writes (p. 271), "As Sharon tells the story [of the refugee camp massacres], the problem was not that hundreds of people got killed. It was just that too many of the wrong people got killed. The Phalangists just 'went too far', he says, killing too many civilians when they were supposed to be killing only terrorists. To Phil Habib and most of the rest of the world, the problem was that no such operation should have happened at all.... Phil Habib... was devastated.... It wasn't just that everything he had worked for all summer had now gone down the toilet. It was that he was the one who had promised the civilians' safety. 'I had signed this paper which guaranteed that these people in west Beirut would not be harmed. I got specific guarantees on this from Bashir and from the Israelis--from Sharon'. He said he 'had been given assurances... that no action would be taken against the Palestinians remaining in the camps.... On the basis of those assurances we had given our word. We had been deceived.... Sharon was a killer, obsessed by hatred of the Palestinians,' Habib said. 'I had given Arafat an undertaking that his people would not be harmed, but this was toally disregarded by Sharon whose word was worth nothing.'" The refugee camp massacres that Sharon masterminded stained the honor not just of Israel but of the United States as well, for it was President Reagan's personal representative who had guaranteed the safety of Palestinian civilians left behind after the PLO's evacuation of Beirut.

The third-worst impression is left by the soldiers of the IDF. Even after all the agreements for the PLO's evacuation from Beirut had been set, they still rolled their tanks up to positions from which they could shoot at evacuees. They spit on U.S. Marines. They smeared their own feces all over the Beirut Airport before they turned control of it over to the U.S. Marine detachment.

That these three--Alexander Haig, Ariel Sharon, and the soldiers of the IDF--come off worst in Boykin's book is very interesting, for if one were to make up a list of the villains who have made the Middle East into the ratf--- it is today, Alexander Haig, Ariel Sharon, and the soldiers of the IDF would not rank high on a list that would include the Ayatollah Khomeini, Yasir Arafat, Hafez Assad, Bashir Gemayel, and a host of other more sinister characters. The IDF is the best-behaved, best-disciplined, and most scrupulous army in the region: the people most likely to be concerned not to harm civilians through their use of force. Alexander Haig is an intelligent, hard-working patriot, even if he does think that victory consists in winning a battle rather than in convincing someone not to be your enemy. Ariel Sharon is trying to find a path to peace and security for Israel in a context in which his enemies command the killing of Jews--any Jews--as pleasing to God, or remind their followers repeatedly about how the Prophet Mohammed broke his truce with the Quraysh and conquered them even though he had sworn it for ten years, and eight years of that time span still remained.

I think that the fact that these three come off as the villains of the peace is an index of Boykin's success. He set himself the task (p. xvi) of "convey[ing] how the world looked through Philip Habib's eyes and tell[ing] the story from his perspective." And these three--Alexander Haig, Ariel Sharon, and the IDF--were the three principal obstacles to Habib's mission of stopping the fighting and keeping Beirut from becoming an abattoir. Thus they loom large as negative forces keeping the protagonist from achieving his goals: they are the villains of the piece. But if you step backward and examine just how limited Habib's goals were--ceasefire, end of the siege of Beirut, evacuation of the PLO fighters to Tunisia--and are led to think about just what were the forces that kept Habib from thinking he could even try to attain larger goals, you will, I think, be led to a much larger set of villains...

Painted by Giuseppe Pellizza da Volpedo in 1901.

An earthquake! 8:40 PM PST March 1, 2007. Epicenter apparently two miles due north, by Acalanes High School, at the corner of Pleasant Hill and Deer Hill Road. I always thought we were roughly halfway between the Hayward and the Calaveras faults, but clearly we are on something.

Within twelve minutes after the earthquake, 1343 people had sent their internet reports to the United States Geological Survey. 4851 responses within 20 minutes. That's a pretty good response, IMHO.

Jeff Faux writes:

Dodging the Question | TPMCafe: Brad DeLong brings us the startling news that there are a lot of poor people in China, that the Chinese rich are not as wealthy as Bill Gates, and that incomes are up since the cultural revolution. Wow! Stop the presses!

What does this have to do with my proposition that we need social protections in the rules of globalization? Nothing. It is a red herring to divert discussion away from the ways in which the globalizing economy creates an upward redistribution of income, wealth and political power--and to stop the conversation about how to change that...

Jeff and I are clearly talking past each other. I think we live in a world in which the tremendous wave of globalization over the past two decades has produced enormous benefits for those members of China's urban working class lucky enough to get jobs in export-oriented industry and for those ex-peasants who have managed to move to China's coastal cities.

Jeff, by contrast, thinks we live in a different world: one in which "class solidarity among [transnational] educated elites and global movers and shakers" leads to "a business partnership between Chinese commissars who provide the cheap labor and American and other transnationals who provide the technology and financing... whose lobbyists in Washington provided access to the US market" which "undercut[s] the bargaining position of labor virtually everywhere," "effectively excluding ordinary people." Thus little "of the sacrificing by the American working class through out-sourcing to China trickles down to the poor Chinese workers" where "wages have been stagnant for most manufacturing workers there for the last decade."

In Jeff's world, American policies to restrict the growth of world trade don't hurt anyone worth worrying about: those whose standard of living falls if trade volumes stop growing or are rolled back are the "90 percent of Chinese citizens with more than US$128.2 million [who] are the children of senior officials"; those "at the top [where] China is a place of immense wealth... commissars turned capitalists [who] ride around Shanghai in a different Rolls every day"; those "Davos... apparatchiks dictate the rules to trade negotiators and high-level international bureaucrats... the government-business revolving door.... Robert Zoellick, who was George W. Bush’s, [who] now works at Goldman-Sachs.... Bush’s treasury secretary Henry Paulson (who came from Goldman Sachs, which is heavily invested in China) [who] tells us we have to be patient. Clinton’s treasury secretary Robert Rubin (also from Goldman Sachs, and now at Citigroup, also invested in China) [who] agrees..."

I don't think we live in that world.

I think we live in a world in which Chinese peasants and workers have not the same but very different interests than American manufacturing workers, who have very different interests from Americans consumers who work outside of manufacturing. I think I am the one who is grounded in reality.

In general, we have a choice between policies. We can eliminate or sharply restrict trade with an odious regime--as we do with Cuba--in the hope that it will put pressure on it for reform. We can encourage the maximum possible trade with an odious regime--as we do with China--in the hope that the more economic, cultural, and political contact there is the more we strengthen the forces over there that we like. Which of these policies we follow will have impacts on domestic income distribution--but much smaller impacts than do our educational, social insurance, and tax policies which do much, much more to move wealth and opportunity down or up the American income distribution.

I tend to be on the side of free trade abroad and social democracy at home. But I am not sure that I am right. I am sure, however, that painting the issues as Davos plutocrats (and their water carriers) and commissars-turned-capitalists on one side and America's working people on the other doesn't move us forward at all.

Brad Setser notices that, this time, bad news for the world economy wasn't good news for the dollar:

Brad Setser: One interesting point: the dollar didn’t benefit from today’s flight to quality. Fair enough. The currencies of countries with big current account deficits facing a shortfall in private inflows aren’t classically considered the gold-standard by those looking for a safety.

That though is a bit different than last spring, when the dollar did benefit for a while from the flight out of emerging markets in May (more here).

I think Macro man probably has this story right: after the April 2006 G-7 communique (the one that briefly made Dr. Roach an optimist) some big players started to bet that the dollar would fall... using the dollar to finance their high-carry bets on Turkey and Brazil... [or] on Turkish, Brazilian and Russian equities. When those bets unwound in May and June, the dollar got a bit of a boost.

Today, though, it was the yen that got the big boost. Bloomberg:

The yen also advanced 4.1 percent against the Turkish lira, 3.9 percent versus the South African rand and 2.8 percent against Iceland's krona as investors shunned riskier assets in emerging markets following a rout in Chinese stock market shares.

Yet more circumstantial evidence that leveraged bets on the emerging world right now are--or were--financed not with dollars but with yen and swiss franc...

A Sabbatical at the Invisible College M.P. Dunleavey of the New York Times found my "How Rich Is Fitzwilliam Darcy?" and wants to talk. So I promoted it, and then I remembered that the comments were very good, and I reread them.

I am still impressed: Abiola Lapite, jam on November 15, 2003 04:56 PM, andrew, Invisible Adjunct, Ian Whitchurch, Diana, Zizka, Pouncer, and Robert Schwartz make up a hell of a seminar.

This is, I think, the promise of the Invisible College that might come into being via the world widee web. In the real world of Berkeley, I don't have "Jam" and "Invisible Adjunct" and "Pouncer" and Ian Whitchurch and John Emerson down the hall. On the internet I do.

Here are the best of the comments:

For the purpose of this exercise, though, what matters most is social status, which is an entirely relative affair. As such, the picture of Mr. Darcy as a 6-million-dollars-a-year man gives a rather more accurate portrayal of the motivation behind this gushing re-evaluation of Darcy's charms: tis as easy to love an extremely rich man as a poor one, nay, far easier. Posted by: Abiola Lapite on November 15, 2003 04:45 PM

Please remember that Darcy's income is symbolic. It is literally as good as a lord's. There were no commoners at that income level then. And Darcy must be a commoner: "you are a gentleman and I am the daughter of a gentleman." That said, a good bit of the basket that a Darcy, had one existed, would have bought would have been personal service. You probably can't buy the sorts of levels of personal service nowadays that a rich man during the Napoleonic wars could. Certainly not for $300K. And Schumpeter reminds us that no labour saving device is as good as the attentions of one body-servant. I'd go with $6M. Posted by: jam on November 15, 2003 04:56 PM

Historical price indices are based on the prices that (still) exist in series. Mostly agricultural. This works when we're considering the experience of labourers, most of whose income went on food. It's reasonable to say that a labourer earning 10s a week during the Napoleonic war had the equivalent of $3,000 a year. This, for us, is desperate poverty. But the upper classes (once you get above a couple of hundred a year) didn't live in a price regime dominated by food prices. Servant costs drove much of it: transport, housing, personal grooming and clothing maintenance, at least. What would be the modern equivalent of just the gardeners' bill to keep up Pemberley's grounds? We don't have good series for these prices. So they aren't incorporated into the indices. So the indices don't well reflect upper-class experience. Posted by: jam on November 15, 2003 06:21 PM

I always remind myself that, just one hundred years ago, I would have died from a ruptured appendix, at the age of 18. I'd pay quite a bit for the opportunity to breathe for the next 5 decades. Posted by: andrew on November 15, 2003 06:34 PM

From Auden's "Letter to Lord Byron":

You could not shock her more than she shocks me:
Beside her Joyce seems innocent as grass.
It makes me most uncomfortable to see
An English spinster of the middle class
Describe the amorous effects of "brass",
Reveal so frankly and with such sobriety
The economic basis of society.

I'm trying to remember the title and author a book on Austen that includes a chapter on money/worth/value -- as I recall, it had a good discussion of the difficulties of arriving at contemporary equivalents. Very different price regime, as Jam points out. And it's hard to translate landed wealth into consumer spending power, in part because c. 1811 there simply wasn't (in relative terms) that much to buy (but service was obviously a major expenditure for those who lived high).... The book I mentioned... is Edward Copeland, Women Writing about Money: Women's Fiction in England, 1790-1820 (CUP, 1995) (http://books.cambridge.org/0521454611.htm) Posted by: Invisible Adjunct on November 15, 2003 07:05 PM

How did I not come across that Auden poem before? Brilliant and so true. One of my favorite papers ever in college was one discussing whether Austen was being conventionally romantic or coolly realistic about money and matrimony. I argued via Emma for coolly realistic; Emma is the one with the cash in that story, and just about every Austen trope gets upended. Posted by: tavella on November 15, 2003 07:28 PM

"And it's hard to translate landed wealth into consumer spending power, in part because c. 1811 there simply wasn't (in relative terms) that much to buy (but service was obviously a major expenditure for those who lived high)." It's not that there wasn't stuff to buy (although there was lots less stuff). Fitzwilliam Darcy buys the ornamental shape of his bushes, the depth of his lawns, the stocking of his ponds and streams, the polish of his silver and furniture, et cetera, et cetera, et cetera. We--or, rather, today's rich--live in a world in which things are cheap and servants are expensive, and in which a host of things that Fitzwilliam Darcy would have liked were not available at all.

For example... Flash back to the late fall of 1993, outside the Roosevelt Room of the White House, where High Clinton Administration Officials and ex-investment bankers Roger Altman and Bob Rubin are talking after a meeting. One of them suggests that they both need to get out of Washington for a weekend, so why not charter a plane and a boat and fly down to the Caribbean and spend Saturday and Sunday doing some serious deep-sea fishing. That is, I think, today's equivalent of Darcy's pride in the formal gardens of Pemberley and in his own sartorial attainment of the standards set by Beau Brummel.

Throughout history, it has always been true that if you have the money you can find something to spend it on (unless, of course, it is entailed). And it has also been true that the line between pleasurable convenience and pointless decadent luxury lies at about three times one's current standard of living, and that the line between respectability and unbearable poverty lies at half one's current standard of living--whatever one's current standard of living may be. Posted by: Brad DeLong on November 15, 2003 09:16 PM

Of course, the other thing you can buy with really serious money is an independent foreign policy. The Alberti had one, the Medici had one, and now George Soros has one as well. Posted by: Ian Whitchurch on November 15, 2003 09:30 PM

Keynes mentions somewhere that long-term comparisons of standards of living and of the purchasing power of money are practically impossible because of the change in products and in their quality and because of changes in production technology. At best, one could investigate how much unmilled grain would one hour of unskilled labour buy; but even this is dicey, because both the importance of such grain and the importance of such labour has changed tremendously over time.... On the other hand, Schumpeter pointed out in Capitalism, Socialism and Democracy, that most of the long-term improvement in the standard of living accrued to the lowest income groups. Queen Elizabeth the First already had silk stockings, but Henry VIII would probably have given a king's ransom for modern dental treatment. Saint Simon mentions Marshall Villars as giving the perfect courtier's answer to Louis XIV, the Sun King, when Louis complained that he had no teeth anymore: "Ah, Sire, who has teeth anymore?" The joke was, that in all Versailles only Villars had a perfect set of teeth. Indeed, any of us old enough to have had experienced the agony of treatment of tooth cavities in the days before the introduction of the high-speed, water cooled tooth drill, knows that my above-performed calculation omits the most important features of the rise in living standards. Posted by: Thomas T. Schweitzer on November 16, 2003 10:11 AM

Ninetheenth-century Britain was desperately poor, and not just in terms of advanced medical treatment. This is an anecdote, but I find it illustrative: For example, in New York City, in 1933, seven or eight people were recorded as having died from starvation, pure and simple (as opposed to disease exacerbated by malnutrition). In "Our Mutual Friend," written by Dickens in the 1860's, at a dinner party given by the very newly rich Veneerings, someone makes an impolite "reference to the fact that some half-dozen people had lately died in the streeets, of starvation." That character is roundly castigated for not adding that the poor are responsible for their own starvation, but it does suggest that ordinary living in London in the 19th century was as difficult as in the Depression. This is what makes the numbers so hard to compare to today's American money: London then was like New York in the worst of the 30's and like the worst of third-world cities today. I say the relative inequalify would have given Darcy's money a social status equivalent to $6 million, even though (land values excepted) the actual pounds probably would have bought only about $300,000 a year in goods and services. Another interesting historical point (if Brad ever feels like bringing it up) is the effect of inflation. I think there as George Bernard Shaw play where a character is getting $10,000 a year and he's complaining that it's not enough for a gentleman to live on. Posted by: Diana on November 16, 2003 11:17 AM

A Chinese novel "The Scholars". The protagonist is a poor, rather ineffectual scholar who is held in generally low regard and treated with polite condescension. But when he finally passes his government test (on the umpteenth try, very late in the game) and becomes eligible to hold office, he starts getting marriage proposals and dinner invatations from people who had scorned him only a few days earlier. The differences in the dynamic are big, though. The protagonist is neither bourgeois nor landed nobility. but a literati (literatum?), comparable to European clergy and poor gentry in some respects but now headed for power (and graft) in government. I read a decade ago that in India a family netting $350 a month could keep a servant. I imagine that's gone up a bit. And frankly, having people catering to you in various ways (not just servants, but people who you run into and want you to marry their daughters) is worth a ton of money even if you can't get fruit out of season. Posted by: Zizka on November 16, 2003 03:26 PM

Personally, I would rather follow this sort of discussion all week rather than another round of the "why are we ruled by idiots?" game. Other literary considerations, as you will, please? For openers: Agatha Christe once wrote that, as a girl, she (mis)estimated she would never be so rich as to be able to afford a motor car, but never so poor as to be unable to hire servants. (servantS in the plural, I emphasize, though Dame Agatha took that for granted.) Paralleling the reference to GB Shaw, above, one might note that Tom Wolfe in Bonfire of the Vanities suggests that one simply cannot exist in New York City on a salary of a mere million dollars per year. (It takes at least SIX, per Wolfe ... in despite of Brad's notion that "luxury" begins at a mild THREE times one's current income.) That in mind, is it worth noting that many of those who are constrained to earn their million (or more) per year may still be living "paycheck to paycheck" in much the same fashion as any of our middle-class wage earners? Alternately, those who might derive a moderate income of some $40,000 annually, but purely from dividends and interest on investment, might live quite leisurely and comfortable lifestyles in rural areas. What is "not having to get up for work every Monday morning" worth? Posted by: Pouncer on November 17, 2003 06:11 AM

I tend to think that a higher estimate is in order because such incomes were comparatively rare then and there and the political and social power that would accrue to its possesor would be much greater than the lower numbers, which all sorts of random cardiologists and stockbrokers make today. The whole conversation brings to mind Locke's Second Treatise where he writes: "Sect. 41. There cannot be a clearer demonstration of any thing, than several nations of the Americans are of this, who are rich in land, and poor in all the comforts of life; whom nature having furnished as liberally as any other people, with the materials of plenty, i.e. a fruitful soil, apt to produce in abundance, what might serve for food, raiment, and delight; yet for want of improving it by labour, have not one hundredth part of the conveniencies we enjoy: and a king of a large and fruitful territory there, feeds, lodges, and is clad worse than a day-labourer in England." Posted by: Robert Schwartz on November 20, 2003 03:17 PM

---

Here's the original again:

One Hundred Interesting Mathematical Calculations: Number 16: How Rich Is Fitzwilliam Darcy?: Archive Entry From Brad DeLong's Webjournal:

The mother of the bride-to-be says:

Jane Austen: Pride and Prejudice, Chapter XVII of Volume III (Chap. 59): Good gracious! Lord bless me! only think! dear me! Mr. Darcy! Who would have thought it! And is it really true? Oh! my sweetest Lizzy! how rich and how great you will be! What pin-money, what jewels, what carriages you will have! Jane's is nothing to it -- nothing at all. I am so pleased -- so happy. Such a charming man! -- so handsome! so tall! -- Oh, my dear Lizzy! pray apologise for my having disliked him so much before. I hope he will overlook it. Dear, dear Lizzy. A house in town! Every thing that is charming! Three daughters married! Ten thousand a year! Oh, Lord! What will become of me. I shall go distracted.... My dearest child.... I can think of nothing else! Ten thousand a year, and very likely more! 'Tis as good as a Lord! And a special licence. You must and shall be married by a special licence. But my dearest love, tell me what dish Mr. Darcy is particularly fond of, that I may have it tomorrow...

So how rich is Fitzwilliam Darcy, anyway? What does ten thousand (pounds) a year in the aftermath of the Napoleonic War mean, really?

I have two answers, the first of which is $300,000 a year, and the second of which is $6,000,000 a year.

Consider it first in relative income terms. Output per capita--annual GDP in America today divided by the number of people in America--is valued at some $36,000. Our crude estimates tell us that output per capita in Britain just after the Napoleonic Wars was valued at some 60 pound sterling a year.

Thus in relative income terms--relative to the average of disposable incomes in his society--Fitzwilliam Darcy's 10,000 pounds a year of disposable income gave him about the same multiple of average income in his society as an annual disposable income of $6,000,000 a year would give someone in our society.

On the other hand, my guess is that someone today with a disposable income of $300,000 a year can spend it to get the same utility as Fitzwilliam Darcy could by spending his disposable income of 10,000 pounds a year. This is a guess--a guess that our material standard of living today is some twenty times that of Mr. Darcy's England.

John McCusker, How Much Is That in Real Money?, says one pound after the Napoleonic Wars had the purchasing power of 70 dollars today. I think that economic growth over the past two centuries has been significantly faster than do the sources of McCusker's price indices: I think standard price indices overstate inflation over the past 180 years by almost half a percent per year... getting us down to a multiple of 30 in going from pounds in 1820 to dollars today in terms of real purchasing power. The jump from $300K to $6M comes from the guess that they were about 1/20 as well-off in a material sense as we are. But all of these numbers are nothing but benchmark guesses that give only rough orders of magnitude.

Nevertheless, it is an informed guess. By our standards, early nineteenth century Britain was desperately poor. There are lots of things we take for granted--and that are for us trivially cheap--that Fitzwilliam Darcy could not get at any price. Consider that Nathan Meyer Rothschild, richest (non-royal) man in the world in the first half of the nineteenth century, died in his fifties of an infected abscess that the medicine of the day had no way to treat.

Hoisted From the Archives: How rich is Fitzwilliam Darcy?

He's very rich: certainly in the Forbes 400 of Napoleonic Britain. Figure that his £10,000 a year give him the rough equivalent of the purchasing power of $300,000 a year today, and the rough equivalent of the relative social status of $6,000,000 a year today--and he doesn't have to work for it. Figure him as a thirty-year-old retired dot-com millionaire with wealth of $150 million or so...

One Hundred Interesting Mathematical Calculations: Number 16: How Rich Is Fitzwilliam Darcy?: Archive Entry From Brad DeLong's Webjournal:

The mother of the bride-to-be says:

Jane Austen: Pride and Prejudice, Chapter XVII of Volume III (Chap. 59): Good gracious! Lord bless me! only think! dear me! Mr. Darcy! Who would have thought it! And is it really true? Oh! my sweetest Lizzy! how rich and how great you will be! What pin-money, what jewels, what carriages you will have! Jane's is nothing to it -- nothing at all. I am so pleased -- so happy. Such a charming man! -- so handsome! so tall! -- Oh, my dear Lizzy! pray apologise for my having disliked him so much before. I hope he will overlook it. Dear, dear Lizzy. A house in town! Every thing that is charming! Three daughters married! Ten thousand a year! Oh, Lord! What will become of me. I shall go distracted.... My dearest child.... I can think of nothing else! Ten thousand a year, and very likely more! 'Tis as good as a Lord! And a special licence. You must and shall be married by a special licence. But my dearest love, tell me what dish Mr. Darcy is particularly fond of, that I may have it tomorrow...

So how rich is Fitzwilliam Darcy, anyway? What does ten thousand (pounds) a year in the aftermath of the Napoleonic War mean, really?

I have two answers, the first of which is $300,000 a year, and the second of which is $6,000,000 a year.

Consider it first in relative income terms. Output per capita--annual GDP in America today divided by the number of people in America--is valued at some $36,000. Our crude estimates tell us that output per capita in Britain just after the Napoleonic Wars was valued at some 60 pound sterling a year.

Thus in relative income terms--relative to the average of disposable incomes in his society--Fitzwilliam Darcy's 10,000 pounds a year of disposable income gave him about the same multiple of average income in his society as an annual disposable income of $6,000,000 a year would give someone in our society.

On the other hand, my guess is that someone today with a disposable income of $300,000 a year can spend it to get the same utility as Fitzwilliam Darcy could by spending his disposable income of 10,000 pounds a year. This is a guess--a guess that our material standard of living today is some twenty times that of Mr. Darcy's England.

Nevertheless, it is an informed guess. By our standards, early nineteenth century Britain was desperately poor. There are lots of things we take for granted--and that are for us trivially cheap--that Fitzwilliam Darcy could not get at any price. Consider that Nathan Meyer Rothschild, richest (non-royal) man in the world in the first half of the nineteenth century, died in his fifties of an infected abscess that the medicine of the day had no way to treat.

Original comments in the extended post.

Is it very wrong to use my laptop and my copy of John Scalzi's You're Not Fooling Anyone When You Take Your Laptop to a Coffee Shop (9781596060630) to engage in a little Lockeian appropriation--to reserve a table at a full coffee shop while I wait for my drink?

Or is it very right to do so?

Sorry, John, but I have no galleys to use to serve the purpose and must do what I can. All I have is a .doc file that has been marked-up by the editor, and I need caffeine before my coauthor shows up...

Brad Setser agrees with Jeff Faux that China's exports to the United States must be cut--but for very different reasons:

Brad Setser: DeLong’s position – that the US needs to position itself as a friend of China’s economic development -- is an appealing one. But it is also one that I suspect glosses over some big issues. Both the US and Europe... have done their part to support China’s development over the past few years. US imports from China have increased from $100 b in 2001 to $280b in 2006.... Eurozone imports from China have gone from 62b euros in 2002 to something like 130b euros, maybe a bit more, in 2006.... Both the US and Europe have supplied a lot of demand for Chinese goods over the past few years. The risk of a protectionist backlash is no doubt rising. But so far, the US hasn’t taken any policy actions that have really crimped the expansion of China’s exports – which is what I think worries DeLong.

Nor for that matter has the US government done much – if anything -- to help in the US whose living standards have been adversely affected by China’s export success. DeLong and Jeff Faux would both agree that tax cuts for the have-mores whose assets are worth even-more thanks to large financial inflows from China doesn’t count....

Since 2001, China’s exports have basically quadrupled, Chinese productivity has shot up, the set of products that China produces has expanded dramatically and the external purchasing power of the RMB has fallen. If China’s government stopped intervening and allowed the RMB to rise, the ratio between China’s market GDP and its PPP GDP to rise to a level more typical of other emerging economies with comparable levels of development. China’s government has had a policy of, in effect, subsidizing the use of Chinese labor for the production of goods for export.... China subsidizes – through its exchange rate intervention – the global consumption of Chinese goods, which leaves producers in other poor countries whose governments don’t offer a comparable subsidy at something of a disadvantage.

Chinese exports have increased from about around $265b in 2001 to about $1,000b in 2006 – and are poised to rise to $1,250b in 2007. Now you can argue that this policy of holding down the external purchasing power of China’s workers has worked. Real living standards in China are growing strongly.... China is a far richer place today than it was a few years ago....

But China’s policy of buying dollars (and to a smaller degree euros) also means that China is sinking a growing share of its national wealth into a set of assets that are almost certain to depreciate over time.... The sums involved are not trivial. China is now running a current account surplus of around 10% of its GDP. That implies that about 20% of China’s annual savings... is being invested in assets that are likely to depreciate.... China’s government effectively now has a policy of both holding China’s current living standards down and sinking a fairly large share of China’s savings into assets that are sure to lose value.... The capital losses could destroy the PBoC’s formal capital: borrowing in RMB, even at an artificially low rate, to buy depreciating dollars isn’t a winning financial strategy....

When the time comes for China to realize the losses that are now accumulating quietly on the PBoC’s balance sheet (and soon on the balance sheet of the state foreign investment company), I doubt China’s leaders will say, “you know, these losses were really incurred years ago, when we decided to sink a lot of Chinese savings into depreciating dollars in order to encourage our export sector and make it attractive for foreign firms to locate investment in China. We shouldn’t blame the US for the fact that China’s investments in the US haven’t done well. We were the ones who over-paid for US assets.”

I suspect China’s leaders will be somewhat less magnanimous. They will argue that the losses... [stem] from the failure of the US to adopt the policies needed to maintain the value of Chinese investment in the US....

I worry that at some point, China will conclude that investing so much of its savings in the non-tradable part of the US economy isn’t the best way of building Chinese wealth, and the flow of funds will stop. If that process is gradual, it will be for the best--but it if it is sudden, well ... a lot of US workers now employed in the non-tradables sector will need to shift into tradables production, pronto. DeLong:

In this alternative scenario, the U.S. has to move about ten million workers out of currently-favored sectors--construction, home-equity-credit financed consumer expenditures, and so on--into export and import-competing manufactures. How much structural unemployment does such a sectoral shift require, and how long does the structural unemployment last? Other countries have to shift up to forty million workers out of export manufactures into other industries, and to generate demand for the products of those industries...

If that process isn’t smooth, I rather suspect the US won’t say, “You know, we got an awful good deal from China for all these years. Rather than complaint about the costs of the transition that followed the end of Chinese financing, we should thank China for selling us so many goods at such generous prices, lending us so much on such generous terms, and for helping keep the profits of US firms up for so long by underpricing its labor.”...

DeLong has in the past argued that the US should aim to try to replicate its post-war success at creating a liberal international economic order. The new liberal international economic order though would extend beyond the US, Europe and a few islands in East Asia. It would in effect, draw in the big population centers of the Asian land mass as well. That is a very appealing vision--one that I think is very widely shared. By the party of Davos. But not just by the party of Davos.

I worry, though, that the conditions that allowed the US to construct a liberal international order after World War 2 no longer exist.... In a sense right now, rather than having a Marshall plan, where the US--at the time the US public sector--financed the reconstruction of Europe on very generous terms while opening its markets to European goods (creating the conditions that allowed Europe to repay the US loan), we have something that looks like a Marshall plan in reverse. Or maybe half the Marshall plan--China doesn't seem to have given much thought to how the US will pay it back.

China’s public sector is, as a matter of policy, providing subsidized financing to the US. The reverse comes because China, still a very poor country, is financing the still very rich US. Bretton Woods 2 is very, very different from Bretton Woods 1.

I am convinced the post-war analogy doesn’t quite fit. But I also don’t have a better one to suggest.

It looks like I'm not going to get to give my short talk on the domestic macroeconomic outlook up at Lake Tahoe this weekend:

That's too bad, because such talks quickly grow stale.

One of the major points of my schtick is that the macroeconomic outlook rarely changes suddenly, so that 90% of the time it is perfectly OK to say, "things are like they were, only three months ago." Nevertheless such talks have a very short half life: people like to know how the most recent news affects things, even if the usual answer is "not much"--except, of course, for those turning points where things do change a great deal, and which we usually see clearly only in retrospect.

I was going to hit three points:

The Great Moderation:

• The business cycle is smaller than it used to be
• Fewer recessions in industrial production
  • Largely good luck
  • But are there structural causes--better financial intermediation, et cetera?
  • We don't really know
• Shallower recessions in industrial production
  • The Federal Reserve is doing a much better job of responding to recessions in real time
  • In large part the Federal Reserve has not let itself get wedged into a situation where it feels it can't respond to recession because inflation is still uncomfortably high
  • Major but still low-probability risk: a steep fall in the dollar accompanied by substantial import price passthrough wedges the Federal Reserve
• Industrial production matters less for the economy as a whole
  • It used to be that fluctuations in the harvest were a really big deal for the macroeconomy
  • Someday, someboy will write: "it used to be that fluctuations in industrial production were a really big deal for the macroeconomy"

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Productivity and Its Contents

• The alarmingly large productivity gains of the early 2000s appear to have been one-off benefits from restructuring
• However, the Silicon Valley-driven productivity speedup of the 1990s is still with us, as strong as ever
  • In the late 1990s the gains went to established high-tech companies and to dot-commers and their VCs
  • Since 2000 the gains have gone to companies that use computers and communications, and as competition sets in to their customers
  • The productivity future looks like the recent past--and you don't have to say "biotech, nanotech" in order to reach that conclusion

---

Factor Shares and the Strength of the Labor Market:

• Rising profit shares because the labor market has been weak
• The unemployment rate has been giving bad signals of labor market relative strength
  • Lots of people not in the labor force nevertheless appear to be pretty easy to hire
  • Unless the Federal Reserve allows the unemployment rate to fall further, wage picture looks grim--which means profit picture looks very bright
  • Political implications of still further increases in income inequality
• Any connection between globalization and labor market weakness?
  • Hard to build a sensible model in which there is
  • But that may reflect economists' limited imagination--lots of people out there in the world think they see it happening

Pictures from playing with Economagic: http://www.economagic.com/

Today in journamalism:

Today's Markets - WSJ.com: Global stock markets remained weak on Wednesday, but the selling pressure that swamped Wall Street late yesterday eased.... U.S. stock markets suffered their worst one-day plunge on Tuesday since Sept. 17, 2001, the first day of stock trading after the Sept. 11 terror attacks. The broad selloff was encouraged by weakness on the Shanghai market, disappointing economic data, weakness in the subprime lending market and rising uncertainty about Iran and Afghanistan. The Dow industrials -- briefly down as much as 546.20 points after a nearly instantaneous drop of about 200 points -- ended the day down 416.02....

But the Dow Industrials did *not* instantaneously drop 200 points. The ticker ran behind because of volume, and they had to switch over to a backup system, and this created the appearance of a sudden 200-point drop--not the reality of such a drop.

The news is not that the DJIA instantaneously dropped 200 points. The news is that Dow Jones, Inc., has not invested enough in infrastructure to be able to produce a reliable real-time index. Plus it's a really lousy index, as indexes go.

Jeff Bater on the day's news:

GDP Revised Down to 2.2% Growth In 4th Quarter on Lower Inventories - WSJ.com: The U.S. economy didn't surge at the end of 2006 as originally thought, according to new government data showing a sharp downward adjustment to fourth-quarter growth partly because of lower business inventory investment.... Gross domestic product increased at a 2.2% annual rate October through December, the Commerce Department said Wednesday in its first revision to GDP growth during the last three months of 2006.... The chain-weighted GDP price index rose 1.7%, above the previously estimated 1.5% rise but below the third quarter's 1.9% climb. The government initially estimated GDP grew by 3.5% in the fourth quarter. The new estimate of a 2.2% seasonally adjusted gain meant the economy was just a little stronger than in the third quarter, when GDP rose 2.0%.

New-home sales plunged in January, falling to the lowest level in nearly four years after back-to-back increases.... Sales of single-family homes decreased 17% to a seasonally adjusted annual rate of 937,000, the Commerce Department said Wednesday. It was the weakest sales rate since 936,000 in February 2003.... The median estimate of 21 economists surveyed by Dow Jones Newswires and CNBC was for sales to fall by 3.6% to a 1.080 million annual rate in January. Commerce's report Wednesday showed new-home sales fell 19% in the Northeast, 8.1% in the Midwest, 9.7% in the South and 37.4% in the West.... The median price was $239,800, higher than the $239,400 in December. There were an estimated 536,000 homes for sale at the end of January, representing a 6.8 months' supply at the current sales rate...

We're now two quarters into a growth recession, and an investment recession, and an industrial recession. But I don't think we're in a real recession yet--still lots of demand for the service sectors.

Econ 210a: Introduction to Economic History: February 28 Class: The Crisis of the Mixed Economy

In the mid-1960s economists thought that they had it right. Bretton Woods. Keynesian domestic demand management. Progressive tax and transfer systems. And perhaps a bit of public ownership of the "commanding heights" and of "indicative planning." The problems of economic management seemed--to some at least, in the first world at least--to be broadly solved. And people were looking forward to future eras in which the "economic problem" would not be allocating scarce resources among various productive uses but allocating abundant products in the interest of human well-being. What is the economic problem in an era in which we have enough food not to be hungry, enough clothing not to be cold, enough shelter not to be wet, and certainly enough diversions not to be bored?

But as a result of the 1970s and 1980s, consideration of these problems was pushed into the far future, because it became clear that economists did not have it right:

Readings:

• 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.
• William Nordhaus (2004), "A Retrospective on the 1970s Productivity Slowdown" http://mirror.nber.org/cgi-bin/sendWP.cgi/311459297/w10950.pdf.
• Olivier Blanchard "European Unemployment: The Evolution of Facts and Ideas," unpublished manuscript, MIT (October 2005), http://www.nber.org/papers/w11750
• Richard Ericson, "The Classical Soviet-Type Economy: Nature of the System and Implications for Reform," Journal of Economic Perspectives 5 (Fall 1991), pp. 11-28, http://uclibs.org/PID/1011.
• J. Bradford DeLong and Barry J. Eichengreen (2001), "Between Meltdown and Moral Hazard: Clinton Administration International Monetary and Financial Policy" http://www.j-bradford-delong.net/Econ_Articles/CIEP/CIEP_revision06102001.PDF

The embarrassing question is: "What is this class doing in an economic history course?" I say: "Some ask 'why?' I say 'why not!'!"

Barry Eichengreen says that when he was on the job market, Zvi Griliches asked him: "You say you're an economic historian, and you study the 1920s and 1930s. How can that be? I lived through the 1920s and 1930s."

And after today (except for special fill-in and guest lectures, except for dissertation and thesis supervising, except for talking to students about their class papers and then grading them, except for seminars--but I don't have organizational responsibility for any this semester) I am off the teaching line...

Amazon.com: Cursed is the Peacemaker: The American Diplomat Versus the Israeli General, Beirut 1982: Books: John Boykin: Reviewer: Mr Bassil A MARDELLI (Riad El-SOLH , Beirut Lebanon) - See all my reviews Habib told Asad of Syria, he (Habib) was nothing if not a man of principle. Habib saw in Hafiz Asad a staunch supporter. Rigidly and puritanically attached to neutrality considering the political animosities between Lebanon (Bashir) and Syria (Asad), Habib was labelled `adventurous' when he took and maintained firm stand supporting the election of Bashir Gemayel to the Presidency of Lebanon. Habib's faith never faltered at times USA's image was construed as one of vacillation and indecision. From the beginning, he kept reminding his listeners that USA traditional policy, for the better sake of each party, had been to maintain neutrality. Initially he had come to Lebanon strenuously dedicated to easing the tension between PLO and Israel, to find himself walking on tight rope attached to four corners, Israel/Lebanon/PLO/Syria, and each side had his `knife' readily available to cut the rope. His biggest pressure was to put an end to civilians' bloodshed preceded only by Mother Theresa. Philip Habib had an impressive opponent in the person of Menahim Begin the Prime Minister of Israel, but perhaps his main challenge remained the portly protective and aggressive shadow of Ariel Sharon. Comment | Was this review helpful to you? (Report this) 1 of 1 people found the following review helpful: Good Foreign Service War Stories, January 10, 2005 Reviewer: Reader (Arlington, Virginia) - See all my reviews "Cursed is the Peacemaker" tells the story of how legendary diplomat Philip Habib negotiated an end to the Israeli siege of Beirut in 1982. The book is based on declassified documents and interviews with friends and colleagues of Habib. It is well-written and does a great job of conveying the atmospherics and intrigue surrounding a sensitive, high-level diplomatic mission. As pure diplomatic history, however, the book leaves much to be desired, since it glosses over the details of the negotiations and often fails to put developments into a broader political context. At times, the history gets buried beneath the war stories, the great quotes, the inside-Washington gossip, and the focus on Habib's colorful personality. But these are quibbles: the book is a real page-turner. Anyone interested in State Department history or the modern Middle East will love it. Comment | Was this review helpful to you? (Report this) 16 of 19 people found the following review helpful: Reagan's Special Envoy: Blueprint for Middle East Peace, November 28, 2002 Reviewer: Bonnie Britt (USA) - See all my reviews Here is a true and engaging story that goes to the heart of a bloody feud unresolved since 1947. "Cursed is the Peacemaker" is the go-to book for the historical drama of what it took to negotiate that brief shining moment when there was-- as close as it gets-- to a cease-fire between Israelis vs. Palestinians and others in the Arab world. Author John Boykin (a former editor at Stanford Magazine) recounts the gripping story through the eyes and viewpoint of Philip Habib, Reagan's Special Envoy charged with the enormous task of staunching the bloodshed and destruction in Beirut in 1982...in 1947 and left with an unfulfilled United Nations mandate that was to have been, like Israel, the provision for their homeland, some Palestinians relocated to West Beirut where Palestinian leaders carried on the battle against Israel, which retaliated. In June 1982, Israel invaded Lebanon and laid siege to Beirut to destroy the Palestinian Liberation Organization (PLO) once and for all. The PLO is the umbrella of organizations that leads the Palestinian diaspora. President Reagan gave Habib, the Brooklyn-born son of Lebanese immigrants, the task of talking to the warring sides and persuading them to make some changes. Everything from vitally important matters down to the price of Israeli pickles was thrown on the table and it was up to Habib to sort it out. He convinced the Israelis to stop shooting long enough for thousands of Palestinian guerrillas to sail from the Mediterranean port city under the watchful eyes of a multi-national force of 800 U.S. Marines, 900 French and 500 Italian soldiers. This was no easy feat. Habib persuaded the Palestinians to leave their families behind in the West Beirut refugee areas of Sabra and Shatila with their safety guaranteed by the multi-national force and the word of Ariel Sharon. This very readable story explains how imperfectly Habib accomplished his task and yet how Habib's work stands as the blueprint for the diplomacy that a person of iron will and stature will need if ever there is to be a negotiated end to this war that rips at the heartland of Christian, Jewish and Muslim civilizations. Boykin recounts the history in an engaging way and he's careful not to assert his own opinions. The viewpoints he presses are those that he documents were those of Habib, the talented, hard- working, often gruff U.S. negotiator. The book's completeness is a tribute to Boykin's persistence in using, among other resources, the Freedom Of Information Act, archives at Georgetown University's Foreign Affairs Oral History Program, and extensive interviews with Habib's peers, his bosses and underlings to piece together this important story about a critical juncture in the life of an historical figure who steadfastly refused to talk to reporters during negotiations. Boykin provides the listening post for readers to "overhear" the blunt conversations between Habib and the Marine Colonel James Mead whom Habib came to rely upon to keep warring parties apart. But Mead was no patsy. While he came to grudgingly respect Habib, he was protective of those in his command. Boykin lays out the negotiating positions of the various sides, noting that the intransigence, the absolutist positions by Israel and Syria were non starters. Boykin conducted interviews with dozens of well-known diplomatic players who knew Habib well-- everyone from Nobel Laureate Oscar Sanchez Arias to Henry Kissinger (who knew Habib from his days negotiating an end to the U.S. war in Viet Nam). It can safely be said that there can be no peace in the Middle East until there is a measure of justice for the massacre at Sabra and Shatila, refugee camps that resemble acres of the crowded tenement buildings that dot working class areas of New York City. In these camps, Christian Phalangists went door to door wantonly murdering more than 800 Palestinians while Israeli soldiers stood guard seeing to it that no Palestinian could escape. Details of what led to the massacre, for which even the Israelis hold Ariel Sharon culpable, are of historical importance. Boykin describes what went on behind the scenes just before the massacre of Palestinians on September 16-18, 1982. It was the tragedy Habib had labored all summer to prevent and in the end, he didn't, in part because Secretary of Defense Caspar Weinberger withdrew the Marines who were charged with keeping the warring parties apart. When the Marines left, the French and Italians also left Beirut. That their families would be protected was the key to persuading the Palestinians to lay down their guns and leave Beirut. That Ariel Sharon broke his word and allowed his soldiers to stand guard while mass murder was committed can not be glossed over, especially since two decades later, Sharon became Israel's elected leader. This story is a microcosm for what has gone wrong in the Middle East. If peace is to come to the region, this story may contain kernels of the reconstructed blueprint for what, along with iron will, is needed to find a peaceful solution.

Jeff Faux is... confused, to put it politely. He opens:

Confronting Davos: The Class Politics of Global Governance | TPMCafe: it’s no surprise that a cross-border class politics has developed in the wake of the globalizing economy... a one-party system. Call it the Party of Davos, after the annual elite bash in the Swiss Alps that resembles the big-donor receptions at a political convention--corporate CEOs and world class investors, the people who carry their bags, and the politicians, pundits and policy intellectuals who carry their water...

Well, as one of the policy intellectuals who carries the water for the "corporate CEOS and world-class investors... people who carry their bags, and the politicians" I guess I should respond. Jeff goes on:

[T]he economic challenge to Americans is not from China, per se, but from a business partnership between Chinese commissars who provide the cheap labor and American and other transnationals who provide the technology and financing--and whose lobbyists in Washington provided access to the US market.... [T]his reality is rarely if ever part of the mainstream discussion of globalization. It discomforts advertisers and campaign contributors. Better to define the issues with the abstract homilies of economics 101--“free-trade vs. protectionism.”...

[...]

Don’t think of your job, they tell anxious workers, think of the benefits of cheap prices.... [W]hatever numbers you want to believe, neither economic theory nor statistical calculation can determine whether the benefits of cheaper sneakers are worth the costs of lost jobs, disrupted lives and increased economic security. It is essentially a values question. In the context of the domestic economy, Progressives rightly reject the argument, even where true, that lower prices and greater employment generated by cheaper labor would justify the elimination of social protections and safety nets. Yet intimidated by the prospect of being labeled a “protectionist,” many support international trade regimes that are based on the same argument...

Let me respond with a question: Is there a way to interpret Jeff other than as a call to keep China a society of poor subsistence rice farmers as long as possible--keep them poor, barefoot, uneducated, and by no means allow them to work at any of the high-value manufacturing occupations we want to keep in the United States?

He reminds us of Tom Friedman past:

The Poor Man: [A]t long last, someone in a respectable publication has pointed out that Glenn Reynolds is completely insane.... [Reynolds's] comment...--that the government should be murdering Iranian scientists and religious leaders, because we have been continuously at war with them for thirty years--was a bit blunt, but wasn't really unrepresentative of his views.

Why should this be getting attention all of a sudden? Fans of his oeuvre could probably think of a handful of crazier comments right off the top of their head--in fact, I immediately thought of that time in 2003 when Prof. Christmas opined that, seeing as we were already at war with France and all, we should probably start some nice proxy wars [against France] in Africa....

[Reynolds] was riffing on Thomas L. F------ Friedman, September 2003, NY Times:

It's time we Americans came to terms with something: France is not just our annoying ally. It is not just our jealous rival. France is becoming our enemy. If you add up how France behaved in the run-up to the Iraq war (making it impossible for the Security Council to put a real ultimatum to Saddam Hussein that might have avoided a war), and if you look at how France behaved during the war (when its foreign minister, Dominique de Villepin, refused to answer the question of whether he wanted Saddam or America to win in Iraq), and if you watch how France is behaving today (demanding some kind of loopy symbolic transfer of Iraqi sovereignty to some kind of hastily thrown together Iraqi provisional government, with the rest of Iraq's transition to democracy to be overseen more by a divided U.N. than by America), then there is only one conclusion one can draw: France wants America to fail in Iraq. France wants America to sink in a quagmire there in the crazy hope that a weakened U.S. will pave the way for France to assume its "rightful" place as America's equal, if not superior, in shaping world affairs....

Tom Friedman... was telling us at the time that we needed to invade Iraq because we just had to kill some Arabs. We just had to, OK? Something about a bubble or something, too--you had to be there, man, it all made perfect sense. I know it seems weird now, man, but it was this magical time... The Summer of War!--when we all just knew we were going to change the world. All that stuff our parents told us about Vietnam and all that s---? We were just going to blow that away, man, just tear down their world and build it all up new, like better than ever, like nothing you'd ever seen before!...

Nathan Newman comes to Jeff Faux's support, and inflicts heavy damage on DeLong:

Why Mexico is Not Enough | TPMCafe: It's the oddest thing that progressives demand higher wages for workers in the developing world and we get accused of wanting to keep them impoverished-- a neat trick by folks like Brad, admittedly. But here's the deal we should all want. Chinese workers should be able to demand higher wages to the point THEY WANT; if those WORKERS decide that trading off lowering wages for higher employment in the global economy is what they want, so be it. But right now, they are settling for low wages based on the decisions of Chinese and allied US CORPORATIONS and GOVERNMENT decisions.

So here's the global deal we should demand. Full trading rights for countries that honor the basic free speech rights of their workers to collectively organize. No trade rights for countries that don't. This isn't an argument for shutting down trade with China; it's a demand that they give free speech rights to their own employees as a condition of trade....

The question is not do We WANT Chinese workers to be poor and barefoot; the question is whether we are willing to fight seriously and consistently for them to have a voice to say what THEY WANT?

Over at TPM Cafe, I respond to the eloquent and dangerous Jeff Faux yet again:

Sailing into Harm's Way versus the Dangerously Eloquent Jeff Faux | TPMCafe:

I had written:

Is there a way to interpret Jeff other than as a call to keep China a society of poor subsistence rice farmers as long as possible--keep them poor, barefoot, uneducated, and by no means allow them to work at any of the high-value manufacturing occupations we want to keep in the United States?

Jeff Faux writes back:

Feb | TPMCafe: Brad missed the point. There are rich people in poor countries and poor people in rich countries. China is not just a society of poor, barefoot, uneducated peasants. At the top, China is a place of immense wealth.... Why is it that it is the responsibility of $40,000 year American working families to sacrifice their future in order to raise up the living standards of poor Chinese, when commissars turned capitalists ride around Shanghai in a different Rolls every day?...

I think it's time to put myself seriously in harm's way here...

I reply:

There aren't many commissars-turned-capitalists.

Scratching on the back of my envelope, I find that at current exchange rates, China's GDP per worker--and there are 800 million workers--is $3,000 per year. (In 1990 it was $1,100 of today's dollars per year.) According to Piketty and Qian's guesses, the top 0.1% of China's workers get an average of $30,000 per year at current exchange rates. This elite of some 800,000 do live considerably better in their homes in Shanghai than Americans with $30,000 do--unskilled labor and the services it provides are really cheap in Shanghai because China is still really poor (perhaps at a level equivalent to $100,000 per year if you like being waited on and having a household staff; much less if you don't). Redistribute all the income of the 800,000 commissars-turned-capitalists back to the masses, and you boost median standards of living in China by 1% above current levels.

In 1877, it was the United States that was the rising superpower across the ocean to the west of the world's industrial and military leader. Today it is China. In 1917 and again in 1941 it was greatly to Britain's benefit that America regarded it as a friend and an ally rather than as a competitor and an enemy. And since 1945 it has been greatly to Britain's benefit that America has regarded it as a trading partner rather than an industrial competitor.

There is a good chance that China is now on the same path to world preeminence that America walked 130 years ago. Come 2047 and again in 2071 and in the years after 2075, America is going to need China. There is nothing more dangerous for America's future national security and nothing more destructive to America's future prosperity than for Chinese schoolchildren to be taught in 2047 and 2071 and 2075 that America tried to keep the Chinese as poor as possible for as long as possible.

Over at TPM Cafe, I respond to the eloquent and dangerous Jeff Faux yet again:

Sailing into Harm's Way versus the Dangerously Eloquent Jeff Faux | TPMCafe:

I had written:

Is there a way to interpret Jeff other than as a call to keep China a society of poor subsistence rice farmers as long as possible--keep them poor, barefoot, uneducated, and by no means allow them to work at any of the high-value manufacturing occupations we want to keep in the United States?

Jeff Faux writes back:

Feb | TPMCafe: Brad missed the point. There are rich people in poor countries and poor people in rich countries. China is not just a society of poor, barefoot, uneducated peasants. At the top, China is a place of immense wealth.... Why is it that it is the responsibility of $40,000 year American working families to sacrifice their future in order to raise up the living standards of poor Chinese, when commissars turned capitalists ride around Shanghai in a different Rolls every day?...

I think it's time to put myself seriously in harm's way here...

I reply:

There aren't many commissars-turned-capitalists.

Scratching on the back of my envelope, I find that at current exchange rates, China's GDP per worker--and there are 800 million workers--is $3,000 per year. (In 1990 it was $1,100 of today's dollars per year.) According to Piketty and Qian's guesses, the top 0.1% of China's workers get an average of $30,000 per year at current exchange rates. This elite of some 800,000 do live considerably better in their homes in Shanghai than Americans with $30,000 do--unskilled labor and the services it provides are really cheap in Shanghai because China is still really poor (perhaps at a level equivalent to $100,000 per year if you like being waited on and having a household staff; much less if you don't). Redistribute all the income of the 800,000 commissars-turned-capitalists back to the masses, and you boost median standards of living in China by 1% above current levels.

In 1877, it was the United States that was the rising superpower across the ocean to the west of the world's industrial and military leader. Today it is China. In 1917 and again in 1941 it was greatly to Britain's benefit that America regarded it as a friend and an ally rather than as a competitor and an enemy. And since 1945 it has been greatly to Britain's benefit that America has regarded it as a trading partner rather than an industrial competitor.

There is a good chance that China is now on the same path to world preeminence that America walked 130 years ago. Come 2047 and again in 2071 and in the years after 2075, America is going to need China. There is nothing more dangerous for America's future national security and nothing more destructive to America's future prosperity than for Chinese schoolchildren to be taught in 2047 and 2071 and 2075 that America tried to keep the Chinese as poor as possible for as long as possible.

Over at the coffeehouse that is TPM Cafe, I feel compelled to sail into harm's way vis-a-vis the eloquent and dangerous Jeff Faux:

A Question for Jeff Faux... | TPMCafe:

Jeff Faux is... confused, to put it politely. He opens:

Confronting Davos: The Class Politics of Global Governance | TPMCafe: it’s no surprise that a cross-border class politics has developed in the wake of the globalizing economy... a one-party system. Call it the Party of Davos, after the annual elite bash in the Swiss Alps that resembles the big-donor receptions at a political convention--corporate CEOs and world class investors, the people who carry their bags, and the politicians, pundits and policy intellectuals who carry their water...

Well, as one of the policy intellectuals who carries the water for the "corporate CEOS and world-class investors... people who carry their bags, and the politicians" I guess I should respond.

Jeff goes on:

[T]he economic challenge to Americans is not from China, per se, but from a business partnership between Chinese commissars who provide the cheap labor and American and other transnationals who provide the technology and financing--and whose lobbyists in Washington provided access to the US market.... [T]his reality is rarely if ever part of the mainstream discussion of globalization. It discomforts advertisers and campaign contributors. Better to define the issues with the abstract homilies of economics 101--“free-trade vs. protectionism.”...

[...]

Don’t think of your job, they tell anxious workers, think of the benefits of cheap prices.... [W]hatever numbers you want to believe, neither economic theory nor statistical calculation can determine whether the benefits of cheaper sneakers are worth the costs of lost jobs, disrupted lives and increased economic security. It is essentially a values question. In the context of the domestic economy, Progressives rightly reject the argument, even where true, that lower prices and greater employment generated by cheaper labor would justify the elimination of social protections and safety nets. Yet intimidated by the prospect of being labeled a “protectionist,” many support international trade regimes that are based on the same argument...

Let me respond with a question: Is there a way to interpret Jeff other than as a call to keep China a society of poor subsistence rice farmers as long as possible--keep them poor, barefoot, uneducated, and by no means allow them to work at any of the high-value manufacturing occupations we want to keep in the United States?