When I got out of the taxi in front of the New School in Manhattan on Friday morning, it was 13F. 13F! And back here in California, the ice cream truck came by our house on Wednesday afternoon...

Comment on Stock and Watson: Hoisted from the Archives:

J. Bradford DeLong (2004) "Comment on James Stock and Mark Watson (2003), 'Has the Business Cycle Changed?' in Monetary Policy and Uncertainty: Adapting to a Changing Economy (Kansas City: Federal Reserve Bank of Kansas City):

James Stock and Mark Watson's paper challenges things that I thought I knew, and tells me that I am going to have to rethink a bunch of issues--going to have to mark my beliefs to market once again.

To the extent that there has been a conventional wisdom among economic historians, the extraordinary moderation of the business cycle--the reduction in the size of swings in the unemployment rate, and in the variance of annual output growth--has been due to very important learning about how to better conduct monetary policy. Christina Romer has been the most powerful advocate of this line of narrative. And this has been what I have taught my students over the past several years.

The founding of the Federal Reserve brought the possibility of an elastic currency, and of avoiding the great liquidity catastrophes that afflicted the U.S. in the late nineteenth century. The silver-agitation crises of the 1890s, the great crash of 1873 when British investors grew nervous about the "crony capitalism" of America (a crisis with remarkable similarities to the 1997-1998 East Asian crisis), the Panic of 1907 (mitigated by J.P. Morgan's getting the New York Clearing House to expand the effective money supply via printing Clearing House Loan Certificates, and then cramming them down the throats by telling banks that they would incur his permanent displeasure if they did not accept them as valid and liquid instruments).

But the Fed's performance in its first two decades was not impressive. The disaster of the Great Depression brought further institutional changes. The coming of deposit insurance to avoid the radical instability of the money multiplier that was such a powerful features of the Great Depression in America. Keen awareness of the dangers of, as Milton Friedman's teachers put it, "unbalanced deflation." The role of fiscal policy when short-term safe interest rates are near their zero nominal bound floor and yet risk, default, and term premiums remain high. Before World War II an economic disaster of the magnitude of the Great Depression was always a live possibility. With the institutional and organizational changes, since World War II a macroeconomic disaster of the magnitude of the Great Depression is--well, before the recent Japanese experience, I would have said impossible.

Nevertheless, when you compare the pre-Great Depression to the post-World War II period there is less of a reduction in the size of the business cycle than economists hoped or, in the case of Arthur Burns and many others, confidently expected. Improved credit markets allowed households to smooth their spending. Automatic stabilizers meant that incomes varied less than production. In his 1959 presidential address to the American Economic Association, Arthur Burns went as far as to say that deep recession--large spikes in the unemployment rate--were no longer a problem.

He was wrong. Look at 1975. Look at 1982-1983. In Christina Romer's interpretation, Arthur Burns was wrong because he did not recognize the developing stop-go nature of Federal Reserve policy. Most of the time the Fed worried about achieving maximum purchasing power. Some of the time the Fed worried about achieving price stability. While it was worried about achieving maximum purchasing power it successfully stabilized production, but at too high a level that allowed inflation to rise. As the late Rudi Dornbusch used to say, expansions in the U.S. before 1985 did not die of natural causes: they were killed by a Federal Reserve that had shifted to a mindset in which reducing inflation was job #1. Thus the first four post-World War II decades saw longer expansions, fewer recessions, but still substantial output variance driven by large inflation-control recessions. And the conventional wisdom has been that the remarkably good performance of the last two decades has been due to the Federal Reserve's greater success at maintaining its balance: at acting pre-emptively and maintaining an appropriate balance between price stability and maximum purchasing power, rather than careening from one objective to the other.

Now come James Stock and Mark Watson to challenge this belief. The reduction in output volatility is there, is real, is very large. (Although, as Larry Summers was saying in the shadow of Mt. Moran an hour ago, the fact that Stock and Watson's index of the size of the business cycle has fallen by 3/4 over a time period in which the average German unemployment rate rose from 2% to 8% makes one wonder whether the variance of output is what belongs on the left-hand side.)

But Mark Watson and Jim Stock look hard and find little sign that reduction in output volatility is due to changes in how the Federal Reserve reacts to economic circumstances. By process of elimination, they conclude that the reduction in the output business cycle is primarily due to luck and not to skill: primarily to smaller shocks hitting the American (and the other OECD economies) and only secondarily to better monetary policy.

This surprises me. This is a shock. I would have bet serious money that Stock and Watson's calculations would have come out the other way. I need to mark my beliefs about this to market. Clearly I have some serious rethinking to do before I give my "macroeconomic stability" lecture to my graduate students at the end of the semester.

But humans are, as cognitive psychology teaches us, really bad at changing their minds. We are really good at finding ways to explain away and ignore new information.

So let me now try to explain away and ignore Stock and Watson's results:

First, their idea of "policy" is limited to "systematic reactions by the Fed that change interest rates now and in the future in response to past changes in inflation and in economic growth rates." This is a very limited definition of "policy." For one thing, it leaves out much of what Christina Romer sees as harmful in pre-1984 policy: the fact that the Fed reacted in one way when it was worried about price stability, and reacted in another very different way to a similar economic situation when it was worried about maximum purchasing power. Stock and Watson's Taylor Rule framework can't see this at all. (Now it is true when Stock looks for evidence that such stop-go policy he fails to find it, but our econometric techniques are not very good at picking up such non-linearities.)

Second, it is not at all clear that the actual shocks to the economy have been smaller since 1984. Before 1984 we have the Vietnam War, the oil shocks of 1973 and 1979, et cetera. Since 1984 we have the stock market crash of 1987, the dot-com bubble and then the NASDAQ crash, the extraordinary near-panic of 1998 (which one low-ranking LTCM employee is supposed to have characterized as a nine-sigma shock: the universe will not last long enough for there to be an even chance of even one nine-sigma shock happening ever), 911, presidential warnings that all Americans are at risk of attack by Iraqi drone aircraft carrying weapons of mass destruction. These shocks are smaller than the earlier shocks in Stock and Watson's framework, but are they really smaller in reality?

Doesn't the swift reaction of the Fed to 1987, to 1998, to 2001--swift reactions that find no place in Stock and Watson's measures of "policy"--play a role in reducing the size of the business cycle? Doesn't the emergence of more private-sector willingness to speculate on stability as a result of confidence in the Fed reduce the magnitude of what Stock and Watson call "shocks"?

So my rationalization is that a lot of what Stock and Watson's framework calls "shock" is actually "policy". This is not a criticism, really: they have done a very good job. But it is a product of the limitations of our analytical tools.

---

Responses to Comments:

First, let me thank everyone--Alice Rivlin and Anne Krueger, Bill Poole and Allen Sinai, Marty Feldstein and Larry Summers, John Berry and Chairman Greenspan--who has tried in the discussion to stiffen my backbone and restore my full and unblemished confidence in the conventional wisdom. But it is worth remembering that ex ante I would have bet serious money that Stock and Watson's calculations would have come out the other way. And it is still a shock to me that it did not.

Second, let me underscore Antonio Fraga's point. Any interpretation of recent events that points to a smaller magnitude of shocks to the world economy has to explain why things have looked so different--look like the shocks are bigger--from a developing-country standpoint.

Looking back at my career, I see many local analytical low points. But my personal global analytical nadir came in early 1994, when I wrote a memo for my Treasury boss saying that yes, the Bank of Mexico's policy was inappropriate and overstimulative, but that the magnitude of the policy mistake was small and there was no reason to expect it to generate a serious problem. Now I still think the Bank of Mexico's sins against the Gods of Monetarism in 1994 were small, were venial, not mortal. But the punishment was swift and awful. And that is hard to reconcile with the view of a placid, low-shock world economy.

Mark Thoma directs us to the New York Review of Books, where Paul Krugman sums up his view of Milton Friedman:

Who Was Milton Friedman? - The New York Review of Books: Friedman's laissez-faire absolutism contributed to an intellectual climate in which faith in markets and disdain for government often trumps the evidence. Developing countries rushed to open up their capital markets, despite warnings that this might expose them to financial crises.... Electricity deregulation proceeded despite clear warnings that monopoly power might be a problem.... Conservatives continue to insist that the free market is the answer to the health care crisis, in the teeth of overwhelming evidence to the contrary.

What's odd about Friedman's absolutism on the virtues of markets and the vices of government is that in his work as an economist's economist he was actually a model of restraint. As I pointed out earlier, he made great contributions to economic theory by emphasizing the role of individual rationality—-but unlike some of his colleagues, he knew where to stop. Why didn't he exhibit the same restraint in his role as a public intellectual?

The answer, I suspect, is that he got caught up in an essentially political role. Milton Friedman the great economist could and did acknowledge ambiguity. But Milton Friedman the great champion of free markets was expected to preach the true faith, not give voice to doubts. And he ended up playing the role his followers expected. As a result, over time the refreshing iconoclasm of his early career hardened into a rigid defense of what had become the new orthodoxy.

In the long run, great men are remembered for their strengths, not their weaknesses, and Milton Friedman was a very great man indeed—-a man of intellectual courage who was one of the most important economic thinkers of all time, and possibly the most brilliant communicator of economic ideas to the general public that ever lived. But there's a good case for arguing that Friedmanism, in the end, went too far, both as a doctrine and in its practical applications. When Friedman was beginning his career as a public intellectual, the times were ripe for a counterreformation against Keynesianism and all that went with it. But what the world needs now, I'd argue, is a counter-counterreformation.

And Krugman counters criticisms by Schwartz and Nelson:

'WHO WAS MILTON FRIEDMAN?' - The New York Review of Books: I'm sorry that Anna Schwartz, one of the world's greatest monetary scholars, is so upset at what I wrote. Rather than getting into a point-by-point argument, let me address three issues.

First, the letter from Anna Schwartz and Edward Nelson actually illustrates Friedman's slippery treatment of the Fed's role in the Depression even better than the examples I used in the article. On one side the letter says, as Friedman did, that the problem was that the Fed did too little—-that it failed to exercise its power to rescue the banks. But on the other side the letter approvingly quotes Friedman saying that the Fed did too much—-that in the absence of the Fed, with its "enormous power," we wouldn't have had a downturn on "anything like the scale we experienced." I'm sorry, but those are contradictory positions. If there's doubletalk here, it's not on my part.

Second, do I believe that monetary policy was helpless in the 1930s? Yes, I do. At the beginning of the Depression, expansionary monetary policy might have averted the worst. But after the banking crisis had run its course, and interest rates were almost zero, what could open-market operations have accomplished? They would simply have pushed cash into idle hoards, as happened in Japan in the late 1990s.

And given Japanese experience, I'm truly puzzled by the assertion that the liquidity trap—-a situation in which interest rates are so low that there's no incentive to lend, so that increasing the money supply doesn't do anything to stimulate the economy—-has no empirical basis: here we had a modern central bank, which knows all about what modern theory says you should do to fight a slump, and did in fact conduct large open-market operations under the rubric of "quantitative easing" And despite all that, the Bank of Japan still found itself impotent.

Finally, about monetarism: I don't think anything I said implies that "monetary policy today has returned to the pre-Friedman status quo." But to say that central banks now take responsibility for inflation is a long way from saying that monetarism has succeeded. And it is, by the way, very strange to imply that only monetarists thought that Nixon's wage and price controls were a mistake.

The point is that monetarism doesn't mean supporting responsible monetary policy; by that criterion everyone is a monetarist, and almost everyone always was. Nor does it mean accepting the fact that monetary policy matters. If monetarism means anything at all, it means believing that a stable money growth rate is the key to a stable economy. And it isn't.

Morning Coffee Videocast: Forecasting Recessions Is a Fool's Game: ECONOMISTS should never forecast changes in long-term interest rates, the next move in the stock market, or whether there is about to be a recession. We have very good theories to explain why all three are more-or-less completely unforecastable.

Morning Coffee Videocast: Nickel and Dimed: USUALLY I am a great fan of Barbara Ehrenreich. But I did not like her book "Nickel and Dimed." I did not like it because of its politics--or, rather, because of its anti-politics, because of its political passivity...

Morning Coffee Videocast: Nickel and Dimed: USUALLY I am a great fan of Barbara Ehrenreich. But I did not like her book "Nickel and Dimed." I did not like it because of its politics--or, rather, because of its anti-politics, because of its political passivity...

Morning Coffee Videocast: How Rich Is Fitzwilliam Darcy?: AT the end of Jane Austen's early-nineteenth century novel, "Pride and Prejudice," the hero Fitzwilliam Darcy proposes to the heroine Elizabeth Bennet, and Elizabeth's mother goes berserk...

In anticipation of the 70th anniversary of the bloody Stalinist suppression of the Partido Obrero de Unificación Marxista in the Barcelona May Days, we are--thanks to Jacob Levy--proud to bring you the latest in sectarian Marxist polemics blogging.

First, we have Eric Hobsbawm declaring that George Orwell was a Traitor to Humanity by telling the truth about what he saw in Spain:

Eric Hobsbawm: Writers supported [the Republican cause in] Spain... Hemingway, Malraux, Bernanos and virtually all the notable contemporary young British poets - Auden, Spender, Day Lewis, MacNeice - did. Spain was the experience that was central to their lives between 1936 and 1939.... [P]olemics about the civil war [within the Left]... have never ceased since 1939. This was not so while the war was still continuing, although such incidents as the banning of the dissident Marxist Poum party and the murder of its leader Andrés Nin caused some international protest. Plainly a number of foreign volunteers... were shocked by... the behaviour of the Russians and much else....

And yet, during the war, the doubters remained silent... They did not want to give aid to the enemies of the great cause.... The exception proves the rule: George Orwell's Homage to Catalonia.... Orwell himself admitted after his return from Spain that "a number of people have said to me with varying degrees of frankness that one must not tell the truth about what is happening in Spain and the part played by the Communist Party because to do so would prejudice public opinion against the Spanish government and so aid Franco."... Only in the cold-war era did Orwell cease to be an awkward, marginal figure....

[P]olemics... are legitimate... only if we separate out debate on real issues from the *parti pris* of political sectarianism, cold-war propaganda and pure ignorance.... A serious war conducted by a government requires structure, discipline and a degree of centralisation. What characterises social revolutions like that of [Spain in] 1936 is local initiative, spontaneity, independence of, or even resistance to, higher authority.... In short, what was and remains at issue in these debates is what divided Marx and Bakunin. Polemics about the dissident Marxist Poum are irrelevant.... The conflict between libertarian enthusiasm and disciplined organisation... remains real.... Wars, however flexible the chains of command, cannot be fought, or war economies run, in a libertarian fashion. The Spanish civil war could not have been waged, let alone won, along Orwellian lines....

Moral revulsion against Stalinism and the behaviour of its agents in Spain is justified.... [Y]et... not central to the problem of the civil war. Marx would have had to confront Bakunin even if all on the republican side had been angels.... [A]mong those who fought for the republic as soldiers, most found Marx more relevant than Bakunin...

Second, we have a reply by Stephen Schwartz, whose affection for Eric Hobsbawm is far smaller than mine:

Eric Hobsbawm's Stalinist Homage to Catalonia | Jewcy.com: Eric Hobsbawm... political and pseudo-intellectual legacy of Stalinism... banal but repellent rehash... long-discredited clichés... fundamental lie of Stalinist propaganda, which holds that the Republicans would have won the war if they had submitted to dictation from Moscow....

Hobsbawm... contemptible exercise in pseudo-history... CNT militants in the uprising at Casas Viejas, a rural hamlet in Andalusia, in 1933.... Jerome Mintz... exposed Hobsbawm as a mendacious tourist.... “[H]is account is based primarily on a preconceived evolutionary model of political development rather than on data gathered in field research.” Mintz correctly states, “The model scales labor movements in accord with their progress toward mass parties and central authority... [Hobsbawm] explains how anarchosyndicalists were presumed to act rather than what actually took place... his evolutionary model misled him on virtually every point.”... In Spain today Mintz’s work, based on extensive and serious research and interviews, enjoys high esteem....

Hobsbawm... the Guardian in 2007... attack[s] [George] Orwell, the [Catalonian Anarchist Movement] POUM, and the general legacy of the Spanish revolution....

[T]hree distinct trends appeared on the Republican side [of the Spanish Cvil War]:

1. the Catalan Left, Basque nationalists, and other liberal bourgeois trends who wanted to carry out a Jacobin-style modernization;
2. the proletarian upsurge of the CNT, Socialists, and POUM;
3. the Stalinist conspiracy to create a one-party dictatorship.

Moscow tried to unite 1) with 3) to overcome 2), but 1) and 2) had more in common with each other, and the attempt failed. Stalin, however, succeeded in effectively sabotaging the Republican defense; his discreet 1938 message to Hitler indicating Soviet willingness to withdraw support for the Republic was a crucial step....

The Stalinist view of [Georg] Orwell put forward by... [Hobsbawm] dismisses Homage to Catalonia because it was turned down by a Soviet-lining publisher.... For Hobsbawm, Orwell is not only illegitimate because his book did not sell well, but because he was “an awkward, marginal figure.”... As to the POUM... Hobsbawm.. refers with something approaching disdain to “the murder of its leader Andrés Nin [having] caused some international protest.... Polemics about the dissident Marxist Poum are irrelevant here and, given that party’s small size and marginal role in the civil war, barely significant.”...

Andreu Nin (1892-1937) was not simply... leader of an anti-Stalinist party. He was also a respected Catalan-language journalist and the translator into Catalan of several major Russian works, including Crime and Punishment and Anna Karenina. His versions of these classics are still widely known in Catalonia, and it is mainly because of them that his murder by the Stalinists has never been forgotten.... Nin's assassination was the subject of a prime-time documentary, Operació Nikolai, shown on the Catalan channel TV3 in 1992.... To kill Nin was not the same as it would have been to murder, say, the American Trotskyist Max Shachtman, but would have been more like liquidating John Dos Passos....

The role of the POUM in Catalan history was never marginal... it filled the Marxist political space in the region’s labor movement... its members included most of the original founders of the Spanish Communist party, and it embraced “minority” nationalism, i.e. Catalanism, at a time when such a position was novel in Spain and... almost unknown elsewhere in the Western European left....

Hobsbawm informs us “Wars, however flexible the chains of command, cannot be fought, or war economies run, in a libertarian fashion. The Spanish civil war could not have been waged, let alone won, along Orwellian lines.” Once again, the Stalin-nostalgia betrays his ignorance of Spanish reality.... [T]he militia units generally fought better than the militarized units.... [T]he Stalinist-controlled International Brigades and the militarized Republican soldiery with whom they were coordinated were known for incompetence in battle, desertion, and, in the case of many of the foreigners, their reassignment to special groups ordered by the Russians to kill leftist dissidents, since the Spanish would not carry out such duties....

The Spanish knew so many things that Hobsbawm will never know – and above all, they know that while Orwell’s methods might not have guaranteed the victory of the Spanish Republic, those of Stalin and his admirers assured its defeat.

Bob Solow: "Well, if everything is politically impossible except what we have now, we could have saved a lot of time here..."

Hoisted from the Archives. I wrote this back in 1995: Low Marx: A Review of Eric Hobsbawm's Age of Extremes:

Eric Hobsbawm (1994), The Age of Extremes (New York: Vintage: 0679730052) http://www.amazon.com/exec/obidos/asin/0679730052/braddelong00

Planet Hobsbawm

In the beginning was Karl Marx, with his vision of how the Industrial Revolution would transform everything and wash us up on the shores of Utopia. Marx saw the economy as the key to history: every forecast and historical interpretation must be based on the economy's logic of development. Sometimes--as in much of Eric Hobsbawm's previous work on the history of the nineteenth century--this functioned relatively well.

But sometimes it led to very bad results indeed. And when Marx and Engels's writings became sacred texts for a world religion called Communism, things passed beyond the absurd: the belief that the logic of development of the economy was the most important thing about society became entangled in the belief that Joe Stalin was our benevolent master and ever-wise guide.

Now it is over. The red stars of the Soviet Union no longer shine from the tops of the Kremlin towers at night. Radicals still seek Utopia, but they no longer think the road leads through the economy. Instead, they study culture--as if to change the world just by understanding it. It is difficult to see a future in which authors with the intelligence, industriousness, and audience of Eric Hobsbawm are disciples of Karl Marx in anything like the sense that Eric Hobsbawm is a disciple of Marx.

Now Eric Hobsbawm has written a history of the twentieth century, The Age of Extremes. It has by and large received good reviews: Stanley Hoffman in the New York Times Book Review; Eugene Genovese in the New Republic; Edward Said in the London Review of Books. But my reaction to The Age of Extremes was different. It struck me as history gone awry: a sketch of the twentieth century not as it has been lived here on earth but as it might have been lived somewhere else, on some "planet Hobsbawm" that might be found in one of those parallel universes often visited in Star Trek episodes, where what looks familiar at first glance turns out on close examination to be alien indeed.

Let me give an example: the last word of the book is darkness: it ends "one thing is plain. If humanity is to have a recognizable future, it cannot be by prolonging the past or the present. If we try to build the third millennium on that basis, we shall fail. And the price of failure, that is to say, the alternative to a changed society, is darkness." But a decade ago, when Hobsbawm finished an earlier book, Hobsbawm was optimistic: looking forward to a twenty-first century much better than the twentieth if nuclear war were successfully avoided.

What has happened in the past decade that has so darkened his vision of our human future?

The past decade has seen good news along a number of important dimensions: The environment is in better shape: the clean-up of the first world continues; the clean-up of the ex-Communist world has begun; and the third world is more aware of environmental degradation. Progress has been made in creating the international climate to guard against ozone depletion and global warming. Nuclear war is much less likely. China and India, more than one-third the human race, had their best economic growth decades in the 1980s.

In addition, many of the Communist régimes that ruled more than half the human race have fallen. Awful tyrannies have passed into history. Hundreds of millions have a chance for a more normal life--not spending six hours a day waiting in some commodity distribution line, not being spied on by one out of every ten of their eighbors, not seeing one out of every fifteen neighbors killed by the state's bullet, labor camp, or political famine.

Good news on the environment, on the danger of nuclear war, on Asian and Latin American (albeit not African) development, on the spread of democracy, and on the end of tyrannies have been the major developments of the past decade. If you were optimistic about the human future before the mid-1980s, you should be ecstatic today.

Yet Eric Hobsbawm is much gloomier than he was a decade ago.

There is no doubt that his gloominess is due to the end of European Communism. This is not to say that Hobsbawm still worships the post-1917 pre-1991 Soviet Union. The days are gone when he saw directives from Moscow as the logos of History speaking through the Party. He no longer judges "heroic" communists' obedience to Stalin's instructions to undermine Britain's World War II effort against Hitler (before June 22, 1941, that is), or claims "my International right or wrong."

Yet traces remain of the Eric Hobsbawm who was once a fanatic acolyte of the despotically-governed world religion of Communism. Judgments made then remain unexamined, or unsuccessfully reexamined, parts of the structure of his thought. It is as if a star--belief in the world religion of Communism--died, but light emitted before its death continues to reflect off planets and moons. The remains of Hobsbawm's commitment to the religion of World Communism get in the way of his judgment, and twist his vision.

On planet Hobsbawm, for example, the fall of the Soviet Union was a disaster, and the Revolutions of 1989 a defeat for humanity. On planet Hobsbawm, Stalin planned multi-party democracies and mixed economies for Eastern Europe after World War II, and reconsidered only after the United States launched the Cold War. On planet Hobsbawm, Hungarian--collectivized--agriculture is more productive than modern French agriculture.

Perhaps worst of all, on planet Hobsbawm modern democracy is not a good thing: elections are "contests in fiscal perjury" among voters with "no qualifications to express an opinion," that create governments that work only when they "did not have to do much governing." If there is a good word about really existing democracy--as a check upon official paranoia, as way of ensuring that people can lead a quiet life, or as a way of ascertaining the public interest--I missed it.

Cold-War Polemics

Let me briefly note one more belief that is false, but that was once part of the worldview of Stalin's acolytes:

The book has one single substantive sentence about the Korean War: "Shaken by the communist victory in China, the U.S. and its allies (disguised as the United Nations) intervened in Korea in 1950 to prevent the communist régime in the North of that divided country from spreading to the South." (p. 237). Now this simply will not do. It is not fair to tuck Kim Il Sung's army and Stalin's tanks into that little word, "spreading." The only other mention of Kim Il Sung's rule--264 pages later, in a discussion of the arts--calls it a "megalomaniac tyranny."

I find it odd that Hobsbawm chooses to describe North Korea's government by the colorless word "régime" in the context of the Korean War: If Kim Il Sung is a megalomaniac tyrant when talking about the arts, he should also be a megalomaniac tyrant when talking about the Korean War.

And it matters: a war undertaken to stop military conquest by a megalomaniac tyranny is a different thing from a war undertaken to oppose the "spread of a régime."

Hobsbawm's Cold-War polemics would not, by themselves, necessarily greatly harm the book: Readers could speculate whether the change in description of Kim Il Sung's government is Hobsbawm's delieberate and conscious avoidance of any hint that the Cold War might have been a struggle between bad guys and less-bad guys. They would argue over whether the change of Kim Il Sung's government from a "megalomaniac tyranny" to a "régime" as it enters the context of the Cold War is the result of unbreakable habits of doublethink created by decades of Communist Party membership.

But Hobsbawm's past as a Communist acolyte does much more additional damage to his book. It warps its themes. Hobsbawm's history has one major theme that takes up nearly forty percent of available space: Communism as the Tragic Hero of the twentieth century. Too many other aspects of the century are crammed into the corners left over, with the positive aspects of the terrible and glorious twentieth century--the rise of political democracy, the technologically-driven explosion of material wealth, and the creation of social democracy with its mixed economies and welfare states--allowed less than one-tenth of available space.

And this is the wrong focus for anyone's history. The proportions should be reversed.

The fundamental source of the distortion is that, for Eric Hobsbawm, World Communism was the Tragic Hero of the twentieth century. It was born in unfavorable circumstances in a backward agricultural country. Lagging behind historians' judgments, Hobsbawm believes that it by and large succeeded in its historical task of industrialization. And before its death, according to Hobsbawm Communism saved the west and what little there is of good in the twentieth century twice:

The victory of the Soviet Union over Hitler was the achievement of the regime... [of] the October Revolution.... Without [Communism] the Western world today would probably consist (outside the USA) of a set of variations on authoritarian and fascist themes.... It is one of the ironies of this strange century that the most lasting result of the October Revolution... was to save its antagonist, both in war and in peace--that is to say, by providing it with the incentive, fear, to reform itself after the Second World War.

There is some here that is true, but much here that is false. There is an enormous and eternal debt for the defeats of Hitler's armies at Stalingrad (1942), Kursk (1943), 2nd Kiev (1944), the Beresina (1944), the Vistula (1945), and Berlin (1945) that collectively broke the back of the Nazi war machine. But this debt owed to Stalin and Stalin's régime? No. It is owed to the people of the Soviet Union.

Before Hitler attacked the Soviet Union, Stalin decimated his army through purges, attacked Finland and adding it to Hitler's allies, and fed the Nazi war machine with raw materials it could not get through the British naval blockade. Had Stalin joined the allies in September 1939, he would have had three allied armies--Polish, French, and British--fighting on the continent of Europe, and a neutral Italy. Add in the role played by the Comintern in gleefully helping to destroy the democratic center that lay between Hitler and Weimar Communists in Germany, add in what Hobsbawm calls "Stalin's... extraordinarily inept interventions into military strategy," and conclude that Stalin made the Soviet people's task in 1941-1945 more difficult.

One of the major themes of twentieth century history must be barbarism and mass murder. This is a century in which perhaps 160 million civilians have been killed by governments--through execution, overwork in prison camps, terror-bombing with no proportional military effect, and mass famine induced as an aim of policy. Perhaps three quarters of these civilians have been killed by their own governments. Thomas Hobbes wrote that people pledged allegiance to governments to protect them from the fear of violent death. In the context of the twentieth century Hobbes was a utopian optimist: governments--Communist governments above all--have been the principal source of violent death.

Hobsbawm's book contains some eloquent passages describing the tyrannies of Stalin and Mao. But they are oddly disconnected from the narrative of the "Age of Catastrophe" that was the first half of this century. For Hobsbawm, this disconnectedness serves a purpose: it allows him to write as if Stalin's Soviet Union was part of the solution in the struggle against tyranny in the twentieth century, rather than a large part of the problem.

As odd--and indefensible--is Hobsbawm's attempt to find roots of what he calls the post-World War II "Golden Age" in the October Revolution. It is even harder to see post-war success--prosperity, democracy, the welfare state, and greater economic equality--as due to World Communism. Hobsbawm wants the October Revolution to have provided "[Capitalism] with the incentive, fear, to reform itself after the Second World War." But "capitalism" is not a live, breathing, intelligent creature that feels fear and thus undertakes to reform itself. Concepts like "capitalism" do not make history. Humans make history--even if not just as they please, but under circumstances dictated by the past.

The post-World War II order in the industrial west was made by the voters who chose the Trumans, the Adenauers, and the Attlees, and who set the parameters of the politically possible within which politicians seeking to maintain public support and provide for the general welfare could operate. A secondary role in making the post-World War II order belongs to the politicians themseles, who drafted, negotiated, and enforced the laws that created the mixed economies, welfare states, and social democracies of the post-World War II industrial and democratic west.

They did a good job.

In the United States, they would have done a better job had Communism not existed; Stalin's presence brooding offstage was not helpful. In western Europe as well, the subservience of national Communists to Stalin meant that social democracy could only assemble majorities by taking several steps to the right, and thus limiting the coverage and scope of the welfare state. In the developing world, countries that adopted the Soviet model did so at an enormous price.

Hobsbawm half-recognizes that he has misused his space. He muses on "the changes in human life... brought about [by economic growth in the twentieth century] all over the globe" and calls them "as profound as they were irreversible." He notes that the twentieth "century marked the end of the seven or eight millennia of human history that began with the invention of agriculture." He concludes that "[c]ompared to this, the history of the confrontation between 'capitalism' and 'socialism'"--the major theme of his book--"will probably seem of more limited historical interest."

Yet he has only eleven pages--257 to 268--for the century's economic revolution, and only two chapters--10 and 11--for the consequences of the end of the ten thousand year era in which most humans worked growing or making things with their bare hands.

Hobsbawm would have served himself and his readers infinitely better if he had cut by three-quarters the space devoted to Communism and its struggles, and devoted it to the central theme of twentieth century history. Call it the "elevator to modernity," the explosion in productivity seen in the economies of the industrial core. A first corollary is the "escalator to modernity": the third world today is far from levels of prosperity found in the industrial core, but for more than three billion people this century has seen the beginnings of the industrial, urban, educational, and communications revolutions. And a second corollary is the triumph of social democracy: the combination of political democracy, the mixed economy, and the welfare state.

The Elevator to Modernity

This year--1995--the U.S. Commerce Department will report that the gross value produced in the United States by the average employed worker is about $56,970. A century ago--1895--historical statistics tell us that the gross value produced, divided by the number of workers, is some $14,150 measured at 1995 prices (and $408 when measured at 1895 prices). The average American worker produces some four times as much as a century ago according to this set of numbers, which roughly answer the question: "What would 1895's production be worth if we had it to sell today?"

But we are most interested in a different question: roughly, how much better is today's economy than that of a century ago in making what humans need and want? And simply valuing last century's goods at today's prices leaves out the important fact that we, today, produce a much wider range and quality of goods than a century ago. Anyone taken back in time to 1895 would feel cramped and harassed by the absence of so many of the goods and services we take for granted: no airplanes, limited telephones, no communications media or compact-disk players, limited prepared foods, no automobiles and no asphalt or concrete roads, no electrically-powered consumer durables.

How much does the expanded range of choice made possible by the inventions--new goods and new categories of goods--of the past century matter? If you try to duplicate in the past the capabilities we have today in the past, you fail. The capability of your compact-disk player--that of listening to, say, Don Giovanni in the evening in your home at whim--could not have been provided two centuries ago at any price.

Let me use Alan Greenspan's guess that the invention of new goods, new kinds of goods, and new features for old goods boosts our true standard of living by one-half to one and one-half percent per year: combining the fourfold multiplication in measured output per worker with the one-fifth decline in hours and the increase in the scope and range of goods and products, America as a society today is at least eight and perhaps as much as twenty-three times as wealthy as America a century ago. The average American today has a "real standard of living" higher than 999 out of every thousand Americans alive in 1895.

Perhaps the nineteenth century saw a doubling of real standards of living in the industrial core. Perhaps there was some progress not just in technology but in standards of living in the previous eighteen centuries of the Christian era--although I would not place high odds that the median Frenchman in the age of Louis XIV had a higher standard of living than the median Athenian at the birth of Christ.

Nevertheless, the difference between economic growth in any previous century and economic growth in the twentieth century is a large enough quantitative to invoke not just one, but several qualitative transformations. It is like the difference between climbing a ramp, and riding up the World Trade Center in an elevator.

Why has the twentieth century been so different from all previous centuries? Market economies have the standard advantages of giving manufacturers and traders every incentive to use resources most efficiently, and which have the additional advantage of providing that "sunset" for relatively inefficient organizations. Enterprises that are relatively inefficient cannot pay their bills, and vanish. This automatic weeding-out of inefficient organizations that fail the test of the market is so lacking where state enterprises draw on the general taxation or money-printing power of the state.

But markets alone do not generate the tenfold multiplication of human productive potential that the twentieth century has seen. Previous mercantile capitalisms, like Classical Athens, Sung dynasty China, Mediterranean Islam circa 1000, northern Italy in the late middle ages, or Augustan Britain have been relatively bright spots in human history. But they are only pale shadows of what we have seen this century.

If I had to lay odds on the necessary additional factors, I would bet on two: first, democracy; second, technological density.

Before our century, a productive mercantile economy was a goose that laid golden eggs--but there was always the temptation to squeeze the goose a little tighter to pay for a slightly greater degree of courtly splendor or a slightly higher military effort on whatever was the current active conquest frontier. History is littered with the corpses of golden geese. The loss of control by a mercantile aristocracy to a military one, or to a despot, meant that the best days of the local mercantile economy were past.

Successful democracy changes the calculus. Courtly splendor and an overmighty military become of less interest and less urgency than keeping real wages, employment, and profits rising--for political parties that are either unlucky to catch an unfavorable wave of the business cycle or unskillful enough to disrupt economic growth vanish rapidly. Economic growth and market institutions certainly coexist with political despotism for a while, but there is good reason to doubt their long-term compatibility.

But we need "technological density" as well: research and development has to become an industry in itself, rather than an avocation of a few learned gentlemen reading papers before a Royal Society, to maintain the pace of invention and innovation that we now take for granted. Only the confluence of all three, market institutions, political democracy, and high technological density, could generate the economic revolutions of the twentieth century.

This is the proper central theme of twentieth century history: the pace of economic transformation--its causes, its implications for productivity, for the structure of employment, for the use of education, for the value of capital, for society and social order, for cultural events, for politics. This is where a truly Marxist analysis could have been extremely powerful. For if there was ever an age in which changes in the material conditions by which humans produce and reproduce the necessities and conveniences of their life dominate every other sphere of human activity, it is the twentieth century.

The upward jump of productivity and wealth is not confined to the core of the world economy. In 1987, 97 percent of households in Greece, not usually considered one of the world's industrial leaders, owned a television set. In Mexico there was one automobile for every sixteen people, one television for every eight, one telephone for every ten.

On our low estimate of the pace of growth in the twentieth century, some 44 countries today--from South Africa and Estonia to Botswana and Brazil, from Slovenia and South Korea to Japan and Switzerland--are as rich as or richer than the United States was a century ago. And the United States a century ago was a society with a level of wealth previously unseen in world history. On our high estimate of growth, not 44 but 76 countries are wealthier today than the U.S. was at the turn of the cneuty.

The world's distribution of wealth, today, is probably more unequal than at any time in the past: the explosion of wealth in the industrial core carried them far above the four-plus billion below. But when future historians look back at the third world in the second half of the twentieth century, they will say that this was a period in which three billion humans climbed onto the escalator to modernity.

Social Democracy

A second theme of any history of the twentieth century should be the triumph of democracy over a large chunk of the globe, and the consequent arrival of the developed welfare state with its web of support services and social insurance programs.

A look back at human history can be read to suggest that, unless the extraordinary wealth generated by the twentieth century has had some subtle impact on political dynamics, that our current democracies may not survive for even half a millenium. Those writing history four or five centuries from now might live under imperial régimes: emperors whose dynastic titles are based on keeping relative peace, ruling through aristocracies that negotiate semi-consent with the ruled. Imperial aristocracy may be in the future, as it has been in the past, the canonical form of human government.

Nevertheless, just as the Classical experience with semi-democractic and republican forms of government has always been of great interest to Europe's historians and politicians, so our experience with democracy in the industrial west--even if it ultimately ends--will be of as great interest to historians and politicians in the future. As Thucydides, Plutarch, Livy, and Sallust spoke to Niccolo Machiavelli as he tried to preserve the Florentine and to James Madison as he tried to establish the American Republic, so we should try to speak to our possible successors perhaps a millennium hence.

The rise of stable democratic governments has transformed not only how governments work but what they do. The industrial, democratic west has for the past half century been the realm of the social insurance state. Whether called "mixed economy," "social democracy," or "social market economy," the major business of government has become social insurance: progressive tax systems, income support, and benefit provision programs to partially counterbalance the extremes of economic inequality produced by the market distribution of income, and to create countries that are more middle-class societies.

Thus the past fifty years in the industrial, democratic west marks one of the few eras in history in which the distribution of wealth and economic power is to a degree the result of political choice, instead of the distribution of economic power largely determining political organization. Opposing pressures have balanced: populist calls for taking "unearned increment" from the rich balanced by an admiration for entrepreneurs and savers, and a realization that economic life is a positive sum game; compassion toward the poor balanced by resentment of those seen as trying to get something for nothing--even if the something is pitifully small by middle-class standards.

But the political and economic balancing act of social democracy appears possible only if economic growth continues. And the record of the twentieth century is that modern mixed economies are not stable, and require the most delicate management to avoid economic chaos.

Go to Wall Street. Look around. Wall Street is, in a very real sense, the investment planning department of the human race. Power to purchase commodities that owners of property have earmarked for savings flow into Wall Street and, in a complicated social and economic dance, are distributed to enterprisers and bureaucracies seeking permission to invest, develop new enterprises, or expand old ones.

The future becomes visible only slowly: one day at a time. Our technological capabilities, individuals' preferences for spending and saving, and natural resources change very slowly. Thus Wall Street should be a quiet place. Financial prices are the shorthand that Wall Street-considered-as-investment-planning-department uses to assess the desirability of investment projects. They should move glacially, as an extra day's information causes forecasters to revise so very slightly their image of the economy's bottlenecks twenty years down the road.

But this is not how Wall Street works. Today Mexico is fifty percent off--the valuation of all things Mexican, whether the cost of employing a worker, the value of a house, the worth of Mexico's currency, or the long-term profits to be gained from investment in a Mexican enterprise, is today fifty percent less than what it was in the late summer of 1994. If you had wanted to buy insurance against a fall in the peso in the late summer of 1994, you could have done so extremely cheaply. Few saw a peso collapse of the magnitude seen in the winter of 1994-1995 as possible; no one saw it as likely.

What has caused such a change? In part, financiers now believe that they were overoptimistic about the economic future of. In large part, however, financiers concluded that other financiers' downgrading of Mexico meant that Mexico would be starved of capital and short of international means of payment, and that as a result of this shift in mood the Mexican economy would perform more poorly.

This is an old story: a régime that bet a large chunk of its chips on rapid industrial development financed by capital inflow from world financial markets finds itself suddenly subject to a panic. In the United States, 1873 saw British investors lose confidence that American railroads and infrastructure were that day's equivalent of investments in the Pacific Rim. The largest investment house in the United States--that of Jay Cooke, politically well-connected industrial visionary who financed Abraham Lincoln's armies, and whose picture the Treasury Department's antique custodians will not release for me to hang in my office--went bankrupt.

Then there was no International Monetary Fund, no Bank for International Settlements, no Exchange Stabilization Fund, no one willing to guarantee the liquidity of the financial system that had funneled capital to America from Europe. As a result of the collapse of Jay Cooke and Company the City of London sneezed. The U.S. economy caught pneumonia. The share of America's non-agricultural labor force building railroads fell from perhaps one in ten in 1872 to perhaps one in forty by 1877--a seven percentage point boost to non-agricultural sector unemployment from this source alone.

Now we have a keen awareness of what is lost when a crisis of confidence is allowed to lead to the unraveling of a financial network. We have governments and institutions willing to take action. Unlike the United States in the 1870s, Mexico in the 1990s will not undergo anything near to a great depression.

Nevertheless, for at least three centuries capitalist financial markets have been working their erratic will. No one has a preferable alternative to allowing financial markets to do our collective investment planning: Wall Street's vision of where investment capital should be directed is infinitely better than the vision any group of planners. All would agree that financial markets require the most delicate political regulation and management. But it is rare that you find any two agreeing on exactly what form that political regulation and management should take.

There are a number of rules-of-thumb for economic management: Run a government surplus to keep the government's hunger for resources from draining the pool of resources for society's non-governmental investments. Use "automatic stabilizers"--decreases in tax collections and increases in social welfare spending in recessions--to cushion declines in employment and increases in poverty that occur when financial market shifts trigger depressions. Guarantee the safety and soundness of the credit system as a whole in emergencies, even though it rescues many who made overrash bets and provides some encouragement for future overrash. Guarantee not just the domestic but the international credit system.

Governments balance conflicting goals: high investment to boost productivity growth, stable prices so that private economic planning decisions focus on productivity rather than on exploiting quirks in the price-adjustment process, and high employment. The terms of the tradeoff are lousy. Election cycles tend to emphasize short-term as opposed to long-term performance.

And even good macroeconomic management is no guarantee that the average over the business cycle will produce the levels of employment or of income distribution that you want. Structural policies to level out the income distribution and maintain a high average level of employment face their own tradeoffs. Structural labor market policies are expensive; if you try to do them on the cheap you wind up with an unfavorable distribution of income, or a high level of employment; if you commit the appropriate level of resources to education and training, to job search assistance and employment subsidies, you will surely hear complaints--sometimes justified--that taxes are too high to sustain growth and investment.

Moreover, the entire system can lose forward motion completely. It is possible to mismanage a capitalist economy so badly as to bring a halt to essentially all economic growth. Consider Argentina, on a par with France and ahead of Italy in GDP per worker, agricultural productivity, and some areas of industry in 1950. Yet Argentina today may have no higher a standard of living than it had in the aftermath of World War II.

Given the importance of the issue, for the world economic system is more fragile than anyone would wish and has gone completely off its rails once in this century, government management of the business cycle and the economy would seem worth an extended and thoughtful treatment. It should, say, receive more space than a discussion of the policy dilemmas facing Soviet planners trying to build authoritarian socialism-in-one-country in the 1920s and 1930s.

But Hobsbawm is not equipped to provide such a treatment, and shows no sign of wishing to equip himself. Perhaps I feel the flatness and ineptness of his narrative more because of my own particular training. But I would have expected at least a little curiosity about, say, why the Great Depression was so much larger than any previous or subsequent depression. It was more than three times as deep and more than twice as long as any other. Yet all Hobsbawm has to say to account for the Greatness of the Depression is to chant words--speculation, over-production, credit boom--that have equal force applied to earlier and later recessions and depressions, of one-tenth the size of the Great Depression.

Conclusion

Eric Hobsbawm might complain that I have been unfair: that my real gripe is that I wish that he had written another, different book. He might say that I want a Book Written for the Ages, that reflects what historians in future centuries will find of greatest interest. And he is right, I do. By contrast, he might say, his book is "written by a twentieth-century writer for late-twentieth-century readers," to whom "the history of the confrontation between capitalism' andsocialism'...[s]ocial revolutions, the Cold War, the nature, limits, and fatal flaws of `really existing socialism' and its breakdown" are worth discussing at length. He is writing for readers who take the central theme of twentieth century history to be the tragical-heroic course of World Communism.

But the tragical-heroic course of World Communism is simply not the central theme of twentieth century history. For what audience is Hobsbawm writing his book? To what "late twentieth century readers" can we recommend The Age of Extremes as covering the pieces of twentieth century history they want and need to learn?

For new students seeking a genuine overview, the flaws, euphemisms, and silences arising from Hobsbawm's past political commitments are too mischievous. Hobsbawm's past political commitments lead him to believe both that (a) Kim Il Sung was a megalomaniac tyrant, and that (b) U.S. intervention to stop his extending his empire by conquest was a backward step for humanity. You cannot understand the twentieth century without finding an answer to the question of how as keen-eyed an analyst as Eric Hobsbawm can have held both these beliefs--without apparent strain--for more than forty years.

Yet Hobsbawm's book is constructed as if he wants to make it as hard as possible for a new student to figure out that this is an important question to ask.

For informed and experienced students seeking an overview of how the twentieth century changed the world, its focus is awry. Forty percent of space on the world religion of Communism and ten percent on the triple successes of social democracy--material prosperity, political democracy, and successful creation of middle-class societies--is the wrong balance. Ten percent on the world religion of Communism and forty percent on social democracy would be infinitely preferable

For students of Communism who believe that on balance it--a social movement that has, after all, contributed two of the twentieth century's three members of the I-killed-thirty-million club (Hitler, Mao, and Stalin), and at least four members of the I-killed-one-million club (Kim Il Sung, Pol Pot, Vladimir Lenin, Mengistu)--was not one of the brighter lights on humanity's tree of good ideas, the book will be profitable. But it will be profitable as an index of the impact decades of doublethink can leave on a good mind, as well as as an interpretation of history.

How many potential readers are left?

Has Bernard Lewis always been this stupid, and did I just not notice?

Washington Wire - WSJ.com: Bernard Lewis drew a standing ovation from a packed house of conservative luminaries Wednesday night in a lecture that described Muslim migration to Europe as an Islamic attack on the West and defended the Crusades as “a late, limited and successful imitation of the jihad” that spread Islam across much of the globe. Lewis gave the nearly hour-long speech at the annual black-tie dinner of the American Enterprise Institute after receiving the group’s Irving Kristol Award. Among the attendees were Vice President Dick Cheney, Supreme Court Justice Clarence Thomas, former United Nations Ambassador John Bolton and ex-Pentagon official Richard Perle. Notably absent was I. Lewis “Scooter” Libby....

The 90-year-old Lewis, seen by some as the intellectual godfather behind the administration’s decision to invade Iraq, warned in his lecture that the West — particularly Europe — was losing its fervor and conviction in the face of an epochal challenge from the Islamic world. The Islamic world, he said, was now attacking the West using two tactics: terrorism and migration....

Lewis, author of “The Arabs in History” and “Islam and the West”, among many other books, also gave a ringing endorsement for the ill-fated Crusades, which spanned two centuries starting in 1095, when various European armies tried to regain the “Holy Land” for Christendom. –Neil King Jr.

The better judgment on the crusades was given by a much smarter and wiser man, the late Steven Runciman:

A History of the Crusades: Volume III: The Kingdom of Acre and the Later Crusades (Cambridge: Cambridge University Press: 0521347726): Seen in the perspective of history, the whole Crusading movement was a vast fiasco.... The Crusades had nothing to do with... access to the stored up learning of the Muslim world..... [I]t was Sicily rather than the lands of Outremer that provided a meeting place for Arab, Greek, and Western culture.... The Crusades were not the only cause for the decline of the Muslim world... [but] the intrusive Frankish state was a festering sore that the Muslims could never forget. As long as it distracted them, they could never wholly concentrate on other problems.

But the real harm done by the Crusades was subtler... the effect of the Holy War on the spirit of Islam. Any religion that is based on an exclusive Revelation is bound to show some contempt for the unbeliever. But Islam was not intolerant in its early days.... The Holy War begun by the Franks ruined these good relations. The savage intolerance shown by the Crusaders was answered by growing intolerance among the Muslims.... By the time of the Mamelukes, the Muslims were as narrow as the Franks.... The Muslims enclosed themselves behind the curtain of their faith; and an intolerant faith is incapable of progress.

The harm done by the Crusades to Islam was small in comparison with that done by them to Eastern Christendom...

The Economist's Free Exchange:

Trailing the truth | Free exchange | Economist.com: [P]pundits are almost never punished for being wildly wrong about something. Nor are they rewarded for being right about something—along with 7,000 other pundits. For journalists, a prediction pays off only if it is both right, and unusual. This gives them an incentive to take unnecessary risks, making somewhat outlandish predictions on the off chance that they will be right. Those pundits who "got Iraq right" or "predicted the tech bubble collapse" are feted with speaking engagements and special television appearances, while those who made sensible-but-dull arguments labour in obscurity...

So to argue in 1998, 1999, and 2000 that the NASDAQ would continue rising was a "sensible-but-dull argument"? So to argue in 2003 that a grossly undermanned occupation of Iraq would go smoothly was a "sensible-but-dull" argument? There is something very wrong here.

---

P.S.: A decade ago, from Robert Waldmann and Tilman Ehrbeck: "Why Are Professional Forecasters Biased? Agency Vs. Behavioral Explanations," Quarterly Journal of Economics vol. 111 pp 21-40 (February 1996). http://ideas.repec.org/a/tpr/qjecon/v111y1996i1p21-40.html

Has Bernard Lewis always been this stupid, and did I just not notice?

Washington Wire - WSJ.com: Bernard Lewis drew a standing ovation from a packed house of conservative luminaries Wednesday night in a lecture that described Muslim migration to Europe as an Islamic attack on the West and defended the Crusades as “a late, limited and successful imitation of the jihad” that spread Islam across much of the globe. Lewis gave the nearly hour-long speech at the annual black-tie dinner of the American Enterprise Institute after receiving the group’s Irving Kristol Award. Among the attendees were Vice President Dick Cheney, Supreme Court Justice Clarence Thomas, former United Nations Ambassador John Bolton and ex-Pentagon official Richard Perle. Notably absent was I. Lewis “Scooter” Libby....

The 90-year-old Lewis, seen by some as the intellectual godfather behind the administration’s decision to invade Iraq, warned in his lecture that the West — particularly Europe — was losing its fervor and conviction in the face of an epochal challenge from the Islamic world. The Islamic world, he said, was now attacking the West using two tactics: terrorism and migration....

Lewis, author of “The Arabs in History” and “Islam and the West”, among many other books, also gave a ringing endorsement for the ill-fated Crusades, which spanned two centuries starting in 1095, when various European armies tried to regain the “Holy Land” for Christendom. –Neil King Jr.

The better judgment on the crusades was given by a much smarter and wiser man, the late Steven Runciman:

A History of the Crusades: Volume III: The Kingdom of Acre and the Later Crusades (Cambridge: Cambridge University Press: 0521347726): Seen in the perspective of history, the whole Crusading movement was a vast fiasco.... The Crusades had nothing to do with... access to the stored up learning of the Muslim world..... [I]t was Sicily rather than the lands of Outremer that provided a meeting place for Arab, Greek, and Western culture.... The Crusades were not the only cause for the decline of the Muslim world... [but] the intrusive Frankish state was a festering sore that the Muslims could never forget. As long as it distracted them, they could never wholly concentrate on other problems.

But the real harm done by the Crusades was subtler... the effect of the Holy War on the spirit of Islam. Any religion that is based on an exclusive Revelation is bound to show some contempt for the unbeliever. But Islam was not intolerant in its early days.... The Holy War begun by the Franks ruined these good relations. The savage intolerance shown by the Crusaders was answered by growing intolerance among the Muslims.... By the time of the Mamelukes, the Muslims were as narrow as the Franks.... The Muslims enclosed themselves behind the curtain of their faith; and an intolerant faith is incapable of progress.

The harm done by the Crusades to Islam was small in comparison with that done by them to Eastern Christendom...

The organizers say:

The New School Weekly Observer: SCHWARTZ PANEL: IS THE SKY FALLING? CHALLENGING CONVENTIONAL ECONOMIC WISDOM: Conventional wisdom suggests that the deficits are too high, personal savings rates are too low, federal government spending is out of control, and too much of our debt is held by foreign governments. But do we know with any confidence when these imbalances become unsustainable? The New School and the Schwartz Center for Economic Policy Analysis present a panel discussion on Friday, March 9, 8:30 a.m.–12:00 p.m., at the Theresa Lang Community and Student Center, 55 West 13th Street, 2nd floor. Admission is free, but reservations are required by calling 212.229.5901 x4911 or emailing cepa@newschool.edu.

The panel will be moderated by Bob Kerrey and includes: Brad DeLong, UC Berkeley; Robert Hormats, Goldman Sachs; Julie Kosterlitz, National Journal; Larry Kudlow, host of CNBC's "Kudlow & Company" ; Bernard Schwartz, BLS Investments;Dr. Robert J. Shapiro, Sonecon; Robert Solow, MIT, and; Felix Rohatyn, Rohatyn Associates.

• 9:00-9:30 a.m. Welcome and opening comments by Bob Kerrey
• 9:30-11:00 a.m Roundtable discussion moderated by Bob Kerrey.
• 11:00-11:30 a.m. Moderated Audience Q & A (Bob Kerrey)
• 11:30-Noon Summing Up (Bob Kerrey)

The webcast can be reached from: http://www.cepa.newschool.edu/events/events_schwartz-lecture.htm#webcast

My view: are current global imbalances "sustainable". Probably not. Will they be unwound without catastrophe? Probably. Can we tell with certainty when global imbalances become unsustainable? No. As Damon Runyon liked to put it, nothing in the real world is better than 3-to-1.

Today Michael Barone has finally had enough of the Bushies:

Michael Barone: The emerging scandal surrounding the dismissals of eight former U.S. attorneys should signify to American voters the depth, breadth, and permeation of corruption in the Bush administration. When a U.S. senator (to wit, Pete Domenici, a New Mexico Republican) feels free to call a prosecutor at home and hang up on him for resisting political pressure in the course of executing his prosecutorial duties, the line between politics and law enforcement has been so thoroughly violated that it no longer exists....

Domenici would not have made that call had either a Democrat or a law-abiding Republican been in the White House. He would not have had the temerity to throw his weight around to such an outrageous extent. What's going on in Washington is not sufficiently removed from the routine doings of a tawdry Third World dictatorship to give any American comfort.

To realize how much of a shift this is, you have to recognize that Michael Barone has as long as I can remember been the hackiest of the Republican hacks--the man who will always defend the Republican office-holder, no matter how incompetent, disconnected from reality, mendacious, or malevolent. Witness this example, a catch by Daniel Gross, chosen at random from the 40 or so in my files:

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

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

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

That's where Michael Barone is coming from.

So, Michael, our rulers whom you worked so hard to help elect and reelect are now like "a tawdry Third World dictatorship," our president is not "law abiding," and "the line between politics and law enforcement has been so thoroughly violated that it no longer exists." So what do we do about it? Are you just for wringing your hands, Michael, or are you for impeachment?

Don't they realize what they are doing to their own reputations?

Dan Froomkin on Fred Hiatt and company:a

Dan Froomkin - Some Explaining to Do - washingtonpost.com: Washington's media elites have been against this case from the beginning, seeing Fitzgerald and Wilson as unwelcome interlopers threatening the cozy relationship between the city's top political journalists and their sources. So perhaps today's Washington Post editorial shouldn't come as a surprise. And yet it does.

The Post's editorial grudgingly acknowledges that "Mr. Libby's conviction should send a message to this and future administrations about the dangers of attempting to block official investigations." But, making assertions that aren't supported by facts that have been reported by its own news operation and others, the editorial concludes that the guilty verdict is, of all things, a vindication of the White House and an indictment of the prosecutor. "The trial has provided convincing evidence that there was no conspiracy to punish Mr. Wilson by leaking Ms. Plame's identity -- and no evidence that she was, in fact, covert," it says. "It would have been sensible for Mr. Fitzgerald to end his investigation after learning about Mr. Armitage. Instead, like many Washington special prosecutors before him, he pressed on, pursuing every tangent in the case. In so doing he unnecessarily subjected numerous journalists to the ordeal of having to disclose confidential sources or face imprisonment"...

In the very same edition of the print Washington Post as Fred Hiatt we have Dana Milbank:

Dana Milbank - Free-Fall for the Fall Guy - washingtonpost.com: The cloud over the White House grew darker... when juror Denis Collins, standing in front of the same microphone, spoke of the "tremendous amount of sympathy" jurors had for the man they convicted.... "[I]t seemed like he was . . . the fall guy."... Witnesses made it plain that at least three other administration officials had joined Libby in leaking the identity of undercover CIA officer Valerie Plame, including top Bush strategist Karl Rove and former White House press secretary Ari Fleischer (whom jurors dubbed "Slick Willie")....

25 photographers, 15 camera crews and dozens of reporter... chase[d] Libby back into the courthouse. "Are you willing to go to prison to protect Vice President Cheney?" shouted NBC's David Shuster. "Do you expect a pardon?" another reporter called out....

Fitzgerald... declined to join in the carnival. "The results are actually sad.... It's sad that we had a situation where a high-level official... obstructed justice and lied under oath." Did he feel vindicated? "It's not the verdict that justifies the investigation, it's the facts," he demurred...

The gap between the story assumed by editorialist Fred Hiatt and the one reported by newsist Dana Milbank is wider than I have ever seen before within any press organization save the Wall Street Journal itself.

Howard Fineman writes some truth:

Fineman: Libby verdict really about Iraq, Cheney: The ramifications of the stunning, vehement verdict in the Scooter Libby trial - that he lied, repeatedly, big time - are... about how and why we went to war in Iraq, and about how Vice President Dick Cheney got us there.... [T]he last thing the [Bush] administration needed was renewed focus on the genesis of the war.... Joe Wilson and Valerie Plame will be back, wanting to know – with good justification – what (and whom) Libby was lying to protect. Why were Cheney and Libby so frantic.... But the biggest burden will fall on Cheney himself... in no legal jeopardy. Unless Libby, facing serious jail time (and he might well be, given the breadth of the verdict), decides to change his story and tell us something about Cheney we don’t know...

And Steve Soto has changed my mind about the Washington Post as we now know it. I used to think it couldn't last ten years. Now I think it's unlikely to last five:

Steve Soto: let's take a walk down memory lane and see what those bastions of the Fourth Estate, the Washington Post, have said about the Libby case.

Judy Miller should not be in jail. I think the judge and the special prosecutor in this alleged CIA leak case made a mistake. It's really vital to have confidential sources. I think Judy Miller is doing the right thing. And I think she should be freed and they should reconsider this. --Bob Woodward, July 13, 2005.

Now, there are a couple of things that I think are true. First of all, this began not as somebody launching a smear campaign that it actually -- when the story comes out, I'm quite confident we're going to find out that it started kind of as gossip, as chatter, and that somebody learned that Joe Wilson's wife had worked at the CIA and helped him get this job going to Niger to see if there was an Iraq/Niger uranium deal. --Bob Woodward, October 27, 2005

I have written almost nothing about the Wilson-Plame case, because it seemed overblown to me from the start. Wilson's claim in a New York Times op-ed about his memo on the supposed Iraqi purchase of uranium yellowcake from Niger; the Robert D. Novak column naming Plame as the person who had recommended Wilson to check up on the reported sale; the call for a special prosecutor and the lengthy interrogation that led to the jailing of Judith Miller of the New York Times and the deposition of several other reporters; and, finally, the indictment of Lewis "Scooter" Libby, Vice President Cheney's chief of staff -- all of this struck me as being a tempest in a teapot. --David Broder, September 7, 2006

It follows that one of the most sensational charges leveled against the Bush White House -- that it orchestrated the leak of Ms. Plame's identity to ruin her career and thus punish Mr. Wilson -- is untrue. The partisan clamor that followed the raising of that allegation by Mr. Wilson in the summer of 2003 led to the appointment of a special prosecutor, a costly and prolonged investigation, and the indictment of Vice President Cheney's chief of staff, I. Lewis "Scooter" Libby, on charges of perjury. All of that might have been avoided had Mr. Armitage's identity been known three years ago. Nevertheless, it now appears that the person most responsible for the end of Ms. Plame's CIA career is Mr. Wilson. Mr. Wilson chose to go public with an explosive charge, claiming -- falsely, as it turned out -- that he had debunked reports of Iraqi uranium-shopping in Niger and that his report had circulated to senior administration officials. He ought to have expected that both those officials and journalists such as Mr. Novak would ask why a retired ambassador would have been sent on such a mission and that the answer would point to his wife. He diverted responsibility from himself and his false charges by claiming that President Bush's closest aides had engaged in an illegal conspiracy. It's unfortunate that so many people took him seriously. --Washington Post editorial, September 1, 2006

What good is a free press when the elite think more of cocktail weenies than they do about scrutinizing government?

Howard Fineman writes some truth:

Fineman: Libby verdict really about Iraq, Cheney: The ramifications of the stunning, vehement verdict in the Scooter Libby trial - that he lied, repeatedly, big time - are... about how and why we went to war in Iraq, and about how Vice President Dick Cheney got us there.... [T]he last thing the [Bush] administration needed was renewed focus on the genesis of the war.... Joe Wilson and Valerie Plame will be back, wanting to know – with good justification – what (and whom) Libby was lying to protect. Why were Cheney and Libby so frantic.... But the biggest burden will fall on Cheney himself... in no legal jeopardy. Unless Libby, facing serious jail time (and he might well be, given the breadth of the verdict), decides to change his story and tell us something about Cheney we don’t know...

And Steve Soto has changed my mind about the Washington Post as we now know it. I used to think it couldn't last ten years. Now I think it's unlikely to last five:

Steve Soto: let's take a walk down memory lane and see what those bastions of the Fourth Estate, the Washington Post, have said about the Libby case.

Judy Miller should not be in jail. I think the judge and the special prosecutor in this alleged CIA leak case made a mistake. It's really vital to have confidential sources. I think Judy Miller is doing the right thing. And I think she should be freed and they should reconsider this. --Bob Woodward, July 13, 2005.

Now, there are a couple of things that I think are true. First of all, this began not as somebody launching a smear campaign that it actually -- when the story comes out, I'm quite confident we're going to find out that it started kind of as gossip, as chatter, and that somebody learned that Joe Wilson's wife had worked at the CIA and helped him get this job going to Niger to see if there was an Iraq/Niger uranium deal. --Bob Woodward, October 27, 2005

I have written almost nothing about the Wilson-Plame case, because it seemed overblown to me from the start. Wilson's claim in a New York Times op-ed about his memo on the supposed Iraqi purchase of uranium yellowcake from Niger; the Robert D. Novak column naming Plame as the person who had recommended Wilson to check up on the reported sale; the call for a special prosecutor and the lengthy interrogation that led to the jailing of Judith Miller of the New York Times and the deposition of several other reporters; and, finally, the indictment of Lewis "Scooter" Libby, Vice President Cheney's chief of staff -- all of this struck me as being a tempest in a teapot. --David Broder, September 7, 2006

It follows that one of the most sensational charges leveled against the Bush White House -- that it orchestrated the leak of Ms. Plame's identity to ruin her career and thus punish Mr. Wilson -- is untrue. The partisan clamor that followed the raising of that allegation by Mr. Wilson in the summer of 2003 led to the appointment of a special prosecutor, a costly and prolonged investigation, and the indictment of Vice President Cheney's chief of staff, I. Lewis "Scooter" Libby, on charges of perjury. All of that might have been avoided had Mr. Armitage's identity been known three years ago. Nevertheless, it now appears that the person most responsible for the end of Ms. Plame's CIA career is Mr. Wilson. Mr. Wilson chose to go public with an explosive charge, claiming -- falsely, as it turned out -- that he had debunked reports of Iraqi uranium-shopping in Niger and that his report had circulated to senior administration officials. He ought to have expected that both those officials and journalists such as Mr. Novak would ask why a retired ambassador would have been sent on such a mission and that the answer would point to his wife. He diverted responsibility from himself and his false charges by claiming that President Bush's closest aides had engaged in an illegal conspiracy. It's unfortunate that so many people took him seriously. --Washington Post editorial, September 1, 2006

What good is a free press when the elite think more of cocktail weenies than they do about scrutinizing government?

Gavin Kennedy writes:

Adam Smith's Lost Legacy: Adam Smith's Long Agenda for Public Works and Public Institutions: Adam Smith mentioned many examples of "public works and public institutions," corresponding to a substantial expenditure of tax payer's taxation, far greater than is normally supposed by fast readers.... "[G]ood road[s], bridges, navigable canals, harbours, &c.... Turning to the public institutions, the agenda was even bigger... private co-partneries and Royal Charter joint stock companies, institutions under which companies exercised their functions, regulated by laws. It has a long section of the institutions for the education of youth, bringing into the frame the education of children through to university. To carry our Smith's recommendations would involve schools in every parish, plus teaching staff, and reform of the universities on the Glasgow model... public health measures... a long discourse on religious reform... the expense of government, no mean loose change operation in any country. What was the prerogative of sovereigns became the "dignity of governments" and, as a necessary public institution, its buildings and furnishings were appropriate charges on the public purse. Gus should look a little closer at Book V to counter-act his impressions as they stand at present. But congratulations for actually reading the book...

Matthew Yglesias writes:

Matthew Yglesias / proudly eponymous since 2002: Ross Douthat mostly says everything that needs to be said, but let me just state it very clearly--the idea that Ronald Reagan's charisma and sunny disposition won landslide victories for Barry Goldwater's substantive views on the size and scope of government is false. Very false.

Reagan was, famously, the political beneficiary of a backlash against the liberalism of the 1960s and 1970s... against programs that didn't exist during Barry Goldwater's 1964 campaign. It was only after Goldwater lost that "welfare as we knew it," Medicare, Medicaid, major federal involvement in education, federal environmental policy, federal consumer safety regulations, affirmative action, etc. came into exist. Reagan's political mobilization was aimed at a subset of this post-Goldwater flowering of big government. He didn't tilt against Medicare, by far the biggest Great Society program. And he certainly didn't campaign for the repeal of the New Deal (indeed, he repeatedly explicitly disavowed any intention of doing so).

The Goldwater-Reagan similarity is that they both led "conservative" factions of the GOP against "accommodationist" factions. But between 1964 and 1976 the country experienced a massive policy revolution that shifted the status quo way, way, way to the left.... Reagan... shift[ed] the conservative movement to the left--to acceptance of a federal responsibility for retirement security and quality education, to acceptance of the Civil Rights Act (opposition to which was, of course, Goldwater's only reliable vote-getter in '64), and to acceptance of popular middle class entitlement programs.

I agree with the substance of what Matt writes--with the proviso that many American conservatives today do not dare campaign on but still do believe in the elimination of the New Deal, believe in Dark Satanic Millian conservatism, that people can be moral only if they are fearful, insecure, and scared. But I disagree with his claim of agreement with Ross Douthat. For Ross Douthat says more, and I believe goes astray.

What Douthat writes is:

The American Scene: Heilbrunn... [writes:] "Tanner evokes a lost conservative golden age that stretched from Barry Goldwater to Ronald Reagan.... Reagan, Tanner suggests, was a paragon of fiscal restraint.... Reagan's successes, though, were quickly frittered away by his pallid successor, George H. W. Bush... "a man of no discernible ideology, who allowed government to begin growing again."... Tanner fingers neoconservatives like Irving Kristol who he thinks have always been dangerously complacent about accepting the existence of the welfare state.... Of course, something else happened after the Irving Kristols of the world joined the conservative movement--namely, conservatives started winning elections. The idea that the Right should talk more about reforming the welfare state than about abolishing it outright will never find favor at the Cato Institute, but it's been the basis for every successful national conservative campaign of the last twenty-five years...."

It wasn't just that the Gipper didn't fight hard to eliminate the welfare state while in office, as Heilbrunn notes; he didn't even really campaign on true-blue Goldwaterite themes, however much he may have believed in them.... [H]e governed as he spoke - as an Irving Kristol conservative, not a Michael Tanner libertarian. The same was true in 1994. Nostalgic small-government purists have convinced themselves that the Contract with America was a document of Goldwater-style libertarianism; in reality, it was a distillation of neoconservative politics, a laundry list of ideas to make government work better.... The Gingrich revolutionaries... were... a pragmatic rather than ideological conservatism, targeted explicitly to voters who wanted to keep the welfare state.... When they turned to a direct assault on the M2E2 cluster (Medicare, Medicaid, Education and the Environment), they were outflanked by Bill Clinton at every turn.

The inconvenient truth, for writers like Tanner, is that anti-welfare state libertarianism remains enormously unpopular with American voters, and so fiscal libertarianism can only have a place at the political table if it weds itself to something like an Irving Kristol-style neoconservatism.... [T]he marriage of libertarianism and neoconservatism... is still the best deal that libertarians are likely to get, so long as they care more about the size and scope of government than they do about lifestyle politics. If they want to leave the GOP coalition and throw in with the party of statism over stem-cell research and gay marriage, fair enough - but they shouldn't tell themselves fairy tales about the political history of the last thirty years along the way...

I disagree with Matt. I don't think Ross Douthat accurately depicts the movement of which he is a part. There are, I think, five factions in it:

1. Those who fear the foreign enemy--which used to be the Communists, and are now the Muslims.
2. Those who don't especially fear the foreigners, but think that the drumbeat can be useful for other purposes--to distract attention from rising income inequality or destructive domestic government programs or simply to hold on to power--who found it convenient to play up the fear of the foreigners, and now find it convenient to play up the fear of the Muslims,
3. Those who fear the domestic enemy--which used to be Jews and Blacks, and is now a bizarre combination of homosexuals, a ghetto-bound underclass, Mexicans living here, Hollywood actors, and George Soros.
4. Those who want low taxes because they think the government is inherently inefficient and wastes its money.
5. Those who want low taxes because they are too rich to value anything the government does other than protect their property.

Now you can't satisfy all five of these factions and win elections in America with an honest policy. A mighty war arsenal is expensive, and must be financed either by high taxes (thus losing factions 4 and 5) or by a full-fledged assault on the social insurance programs (thus losing elections). You can stage a phony war--say that the threat from abroad is mighty but that there is no need to spend money defending against that (and to some degree Bush has tried this strategy)--but then you lose faction 1.

The... um... "genius" of the neoconservatives was to wield these factions together with a dishonest policy: tax cuts that are claimed to raise revenue. This allows for a mighty military to defend against the foreign foe of the day without either alienating the fiscal conservatives or having to cut back the great social insurance programs. That the policy was dishonest was said openly and loudly in the public square by Irving Kristol back in 1995:

http://delong.typepad.com/pdf/20061226_Kristol_American_Conservatism.pdf: Among the core social scientists around The Public Interest [in the late 1970s] there were no economists.... This explains my own rather cavalier attitude toward the budget deficit and other monetary or fiscal problems. The task, as I saw it, was to create a new majority, which evidently would mean a conservative majority, which came to mean, in turn, a Republican majority - so political effectiveness was the priority, not the accounting deficiencies of government...

Without this fundamentally dishonest policy move, the whole thing falls apart.

The question is what an honest libertarian, or even an honest human being of any intellectual complexion, is doing in such company.

The cost of welfare reform may not have been small after all. Bradford Plumer:

Bradford Plumer: Poverty? Not a Problem: So the reporters at McClatchy... pulled out a stunning statistic: "Nearly 16 million Americans are living in deep or severe poverty"--a category that includes individuals making less than $5,080 a year, and families of four bringing in less than $9,903 a year. That number, by the way, has been growing rapidly since 2000.... I found this bit near the end quite striking:

The Census Bureau's Survey of Income and Program Participation shows that, in a given month, only 10 percent of severely poor Americans received Temporary Assistance for Needy Families in 2003--the latest year available--and that only 36 percent received food stamps.

Many could have exhausted their eligibility for welfare or decided that the new program requirements were too onerous. But the low participation rates are troubling because the worst byproducts of poverty, such as higher crime and violence rates and poor health, nutrition and educational outcomes, are worse for those in deep poverty. I doubt those are the only reasons for the low participation rates. As David K. Shipler reported in The Working Poor, welfare agencies spend a great deal of effort dissuading people from applying for assistance. They'll ask single mothers who come in a few perfunctory questions and then--illegally--refuse to give them an application. Or they'll design "Kafkaesque labyrinths of paperwork" that turn any attempt to obtain benefits into a full-time job. Anything to ease pressure on state budgets.

In his first term Bill Clinton--a long-time former governor--still largely thought that policies that he would have liked when he was a governor were good policies, thus his enthusiasm for delegating responsibility for what used to be AFDC to the states. But not all governors and not all state legislators are as well-intentioned as the national government.

This morning's news release:

Economic Indicators.gov: New orders for manufactured goods in January, down following two consecutive monthly increases, decreased $22.9 billion or 5.6 percent to $383.1 billion, the U.S. Census Bureau reported today. This followed a 2.6 percent December increase. Shipments, down following three consecutive monthlyincreases, decreased $4.6 billion or 1.2 percent to $391.2 billion. This followed a 1.3 percent December increase.