Semi-Daily Journal Archive

The Federal Reserve and the Great Depression

2007-03-16T08:10:00.001-07:00

Did the Federal Reserve fall down on the job and fail to do what it could to stem the Great Depression? Yes. Would things have been better if had there been no Federal Reserve at all? Definitely not.

North, Wallis, and Weingast: Economic History Seminar for March 19

2007-03-14T13:11:00.001-07:00

Economics 211 for Monday: Douglass North, John Wallis, and Barry Weingast (2007), "A Conceptual Framework for Interpreting Recorded Human History" (Cambridge: NBER: 12795) http://www.nber.org/papers/w12795.

J. Bradford DeLong (2007), "What Should We Think About When Refounding the International Monetary System?"

2007-03-14T13:09:00.001-07:00

J. Bradford DeLong (2007), "What Should We Think About When Refounding the International Monetary System?" in Richard Samans, Marc Uzan, and Augusto Lopez-Claros, eds., The International Monetary System, the IMF, and the G-20 (London: Palgrave Macmillan: 9780230524958).

History as Tragedy: The Peloponnesian War: Hoisted from the Archives

2007-03-14T12:23:00.001-07:00

Atrios is talking about the Kagan family--Yale historian father Donald and neoconservative hack children Fred and Robert. This reminds me that I wrote something about the (relatively) smart one--father Donald--several years ago, back when we were reading his one-volume Peloponnesian War:

History as Tragedy: The Peloponnesian War: Hoisted from the Archives: The Thirteen-Year-Old got Donald Kagan's (2003) Peloponnesian War (one volume) for Christmas.... [T]he New Yorker's Daniel Mendelsohn [certainly] doesn't think much of it:

Daniel Mendelsohn: Critic at Large: Kagan... informs us that... he wants his work to "meet the needs of readers in the 21st century"... "an uninterrupted account will better allow readers to draw their own conclusions." Uninterrupted, yes, but not unbiased... you tend to come away from his history with an entirely different view of the war than the one you take away from Thucydides....

The only way to do this, unfortunately, is [for Kagan] to flatten Thucydides's presentation of the Peloponnesian War, stripping away the many voices and points of view that [Thucydides] worked so hard to include.... Thucydides tends to be shy about overtly intruding.. not so Kagan. This is most apparent in [Kagan's] revisionist championing of Cleon and other Athenian hawks, whose policies he consistently presents as the only reasonable choice. "It is tempting to blame Cleon for the breaking off of the negotiations," goes a typical bit of rhetorical strong-arming. "But what, realistically, could have been achieved?" Anyone who hasn't read Thucydides will be inclined to agree. [Thucydides's own] explanation of the Athenians' distaste for peace was that "they were greedy for more."

The desire to rehabilitate Cleon inevitably results in a corresponding denigration of the [Athenian] peace party (with its "apparently limitless forbearance") and of the cautious policies recommended first by Pericles and then by Nicias, a figure for whom Kagan has particular disdain. Here Kagan's revisionism borders on being misleading. Nicias had tried to bluff the Athenian Assembly into abandoning the invasion of Sicily, declaring that it would require far greater expense than people realized; but they simply approved the additional ships and troops. This leads Kagan, bizarrely, to characterize the Sicilian Expedition as "the failed stratagem of Nicias." As for the Athenians' massacre of the Melians, Kagan dismisses it as "the outlet they needed for their energy and frustration."

Kagan's perspective on events and personalities at first suggests an admirable desire to see the war with fresh and unsentimental eyes. But after a while it becomes hard not to ascribe his revisionism to plain hawkishness, a distaste for compromise and negotiation when armed conflict is possible. His book represents the Ollie North take on the Peloponnesian War: "If we'd only gone in there with more triremes," he seems to be saying, "we would have won that sucker."

It is certainly the case that I have always found it very strange that Kagan is not much, much more hesitant than he is to dismiss and overturn Thucydides's analytical conclusions and moral judgments. Thucydides, after all, was there. We know next to nothing about the Peloponnesian War that he did not. He knew a great deal about the Peloponnesian War that did not make it into his book. His judgments are based on much more information than we have now, whether he lays out that information in a manner that is to Donald Kagan's liking or not.

Actually, we do know one important, big thing about the Classical Greek world that Thucydides did not know (and that, strangely, Kagan appears not to know). There is a deep, powerful sense in which time was on the side of Athens and its empire. Each decade that the war between Sparta and Athens remained cold rather than hot was a decade for metics and immigrants to the Geek world to think whether they wanted to live in Spartan-allied oligarchies dominated by a closed guild of landowners, or in Athenian-allied places where the (male, citizen) demos ruled and where there was much more growth, commerce, trade, and opportunity.

Each decade that the war between Sparta and Athens remained cold rather than hot was a decade for rich Spartiates to marry the daughters of other rich Spartiates, and for poor Spartiates to find that they could no longer afford the Spartan lifestyle and so drop out of the citizen body--and of the main line of battle. By 350 Sparta could--this is a guess--put only one-fifth as many professional hoplite soldiers into the line of battle as it could have two centuries before. Each decade that the war was postponed was a decade for Athens, its economy, its trade network, and its empire outside of Achaea and Aetolia to grow. A policy of postponing the showdown--even if one of "apparently limitless forbearance"--was a policy of greatly increasing the relative strength of the Athenian side.

But what is most disappointing to Mendelsohn (and most disappointing to me) is that he finds Kagan's Peloponnesian War to be a very different and much less interesting thing than Thucydides's Peloponnesian War (or, I would argue, than the Peloponnesian War wie es eigentlich gewesen). The lessons from Kagan's Peloponnesian War appear to be that war against Bad Guys calls for Harsh Measures and Total Mobilization.

By contrast, Mendelsohn writes, the lessons from Thucydides's Peloponnesian War:

...are no different from the ones that the tragic playwrights teach: that the arrogant self can become the abject Other; that failure to bend, to negotiate, inevitably results in terrible fracture; that, because we are only human, our knowledge is merely knowingness, our vision partial rather than whole, and we must tread carefully in the world...

But let's give Thucydides himself the last word:

[W]ar... proves a rough master that brings most men's characters to a level with their fortunes... the cunning of their enterprises and the atrocity of their reprisals. Words had to change their ordinary meaning.... Reckless audacity came to be considered the courage of a loyal ally; prudent hesitation, specious cowardice; moderation was held to be a cloak for unmanliness; ability to see all sides of a question, inaptness to act on any. Frantic violence became the attribute of manliness; cautious plotting, a justifiable means of self-defence.

The advocate of extreme measures was always trustworthy; his opponent a man to be suspected. To succeed in a plot was to have a shrewd head, to divine a plot a still shrewder; but to try to provide against having to do either was to break up your party and to be afraid of your adversaries.... The fair proposals of an adversary were met with jealous precautions... not with a generous confidence. Revenge also was held of more account than self-preservation. Oaths of reconciliation... only held good so long as no other weapon was at hand; but when opportunity offered, he who first ventured to seize it... thought this perfidious vengeance sweeter than an open one, since... success by treachery won him the palm of superior intelligence....

The leaders in the cities... on the one side with the cry of political equality... on the other of a moderate aristocracy... [recoiled] from no means in their struggles... in their acts of vengeance they went to even greater lengths, not stopping at what justice or the good of the state demanded, but making the party caprice of the moment their only standard.... Thus every form of iniquity took root...

Emmanuel Saez Writes in About American Income Inequality Rising Rapidly in 2005

2007-03-14T11:38:00.001-07:00

He says:

The IRS has released yesterday the preliminary stats for year 2005 which I have used to extend my [and Thomas Piketty's] series [on the top income share by tax return unit] to 2005, posted at: http://elsa.berkeley.edu/~saez/TabFig2005prel.xls

2005 shows a very large increase in income concentration: the top 1% gains 14% in real terms from 2004 while the bottom 99% gains less than 1% (when including capital gains). The [previous] record peak of 2000 is surpassed even though 2005 is less of a high capital gains, high stock option year than 2000. By 2005, it looks like top incomes are showing strongly along all components: wages, business income, dividends, and capital gains.

The striking thing about 2003-2005 is the huge increase at the top with quasi-stagnation below the top 1%. In the late Clinton years, the top gained enormously but at least the bottom was also making progress (something you can see on Fig A2)...

In Praise of Keynes's "Tract on Monetary Reform"

2007-03-14T11:32:00.001-07:00

JOHN Maynard Keynes's "Tract on Monetary Reform" may be his best book. It is certainly his best Monetarist book.

The Muffin Joke Is So Funny!

2007-03-13T16:45:00.001-07:00

Jack Balkin says that the muffin joke is so funny:

Balkinization: Repeat after me: The Muffin Joke is NOT funny: This article [by John Tierney] in the New York Times asserts that the muffin joke is not funny; we only laugh at it because we want to get along with other people in social situations.I disagree. When I first heard the muffin joke, I thought it was very funny. Still do.... The muffin joke is funny because it is self-undermining. The punch line undermines the suspension of disbelief that the joke's narrative presumes. It is kind of like breaching the fourth wall in drama. It's like the line in Dr. Strangelove "You can't fight in here. This is the War Room!" or the Atheist Hymn we came up with in high school: "There is no God, there is no God, He told me so himself"...

I agree: I think the muffin joke is so funny. Why, it is even funny when told by as low-status an individual as John Tierney:

What’s So Funny? Well, Maybe Nothing - New York Times: Plato, Aristotle, Hobbes, Kant, Schopenhauer, Freud and the many theorists who have tried to explain laughter based on the mistaken premise that they’re explaining humor. Occasionally we’re surprised into laughing at something funny, but most laughter has little to do with humor. It’s an instinctual survival tool for social animals, not an intellectual response to wit. It’s not about getting the joke. It’s about getting along....

“Laughter is an honest social signal because it’s hard to fake,” Professor Provine says. “We’re dealing with something powerful, ancient and crude. It’s a kind of behavioral fossil showing the roots that all human beings, maybe all mammals, have in common.”... Professor Panksepp thinks the brain has ancient wiring to produce laughter so that young animals learn to play with one another. The laughter stimulates euphoria circuits in the brain and also reassures the other animals that they’re playing, not fighting. “Primal laughter evolved as a signaling device to highlight readiness for friendly interaction,” Professor Panksepp says. “Sophisticated social animals such as mammals need an emotionally positive mechanism to help create social brains and to weave organisms effectively into the social fabric.”...

Which brings us back to the muffin joke. It was inflicted by social psychologists at Florida State University on undergraduate women.... The women put in the underling position were a lot more likely to laugh at the muffin joke (and others almost as lame) than were women in the control group.... In some cases the woman watching was designated the boss; in other cases she was the underling or a co-worker of the person on the videotape. When the woman watching was the boss, she didn’t laugh much at the muffin joke. But when she was the underling or a co-worker, she laughed much more, even though the joke-teller wasn’t in the room to see her. When you’re low in the status hierarchy, you need all the allies you can find, so apparently you’re primed to chuckle at anything even if it doesn’t do you any immediate good...

Is 1.5 Million Home Foreclosures This Year a Big Number or a Small Number?

2007-03-13T16:42:00.001-07:00

Bob Ivry on the housing bust:

Bob Ivry: Foreclosures May Hit 1.5 Million in U.S. Housing Bust: March 12 (Bloomberg) -- Hold on to your assets. The deepest housing decline in 16 years is about to get worse. As many as 1.5 million more Americans may lose their homes, another 100,000 people in housing-related industries could be fired, and an estimated 100 additional subprime mortgage companies that lend money to people with bad or limited credit may go under, according to realtors, economists, analysts and a Federal Reserve governor....
The spring buying season, when more than half of all U.S. home sales are made, has been so disappointing.... ``The correction will last another year,'' said Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania. ``Fewer people qualifying for mortgages means there will be less borrowers, and that will weigh on demand.''.... [N]ew-home sales have declined 28 percent since September 2005....

The subprime crisis ``has taken the fuel out of the real estate market,'' said Edward Leamer, director of the UCLA Anderson Forecast in Los Angeles. ``The market needs new money in order to appreciate, and all of that money is gone for a very long time. The regulators are not going to allow it to happen again.''

2007-03-13T11:03:00.000-07:00

Henry Gonzales lies to Congress:

Think Progress: Attorney General Alberto Gonzales assured the Senate Judiciary Committee....

GONZALES: And so let me publicly sort of preempt perhaps a question you're going to ask me, and that is: I am fully committed, as the administration's fully committed, to ensure that, with respect to every United States attorney position in this country, we will have a presidentially appointed, Senate-confirmed United States attorney. I think a United States attorney who I view as the leader, law enforcement leader, my representative in the community -- I think he has greater imprimatur of authority, if in fact that person's been confirmed by the Senate.

But in mid-December, an e-mail by Gonzales's chief of staff, D. Kyle Sampson (who resigned yesterday), showed that the Justice Department clearly intended to... appoint U.S. attorneys that would serve until the end of Bush's term [without confirmation]:

There is some risk that we'll lose the authority, but if we don't ever exercise it then what's the point of having it?

Gonzales also told the Senate Judiciary Committee that the Justice Department was "working with home state senators."... But... e-mails show... Justice officials "discussed bypassing the two Democratic senators in Arkansas, who normally would have had input into the appointment."

2007-03-13T10:43:00.000-07:00

Kash writes:

The Street Light: February Jobs Report: [J]ob creation for February. .. was about as expected: "Nonfarm payroll employment continued to trend up (+97,000), and the unemployment rate (4.5 percent) was essentially unchanged in February, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. Employment grew in some service-providing industries but declined sharply in construction. Manufacturing employment continued to trend downward. Average hourly earnings rose by 6 cents, or 0.4 percent, over the month."

The job market has been gradually cooling over the past several months (not that it was ever really hot), and this report is consistent with that trend.... And what parts of the economy are cooling down the most, you wonder?... [T]he construction industry has led the way toward a weaker job market, but nearly all sectors of the economy have seen some slowdown in job creation, with the exception of the government and leisure & hospitality sectors.

Hand-in-hand with weaker job growth comes weak earnings growth by workers, of course. To the $10 per week increase in take-home pay that the average production worker has received since the year 2000, in February they were able to add another $0.30. Unfortunately, that only made up for about half of the fall in average weekly pay that they took home in January.

2007-03-13T10:36:00.000-07:00

Found at Eschaton:

Eschaton: Andrea Mitchell, Hardball just now: "They're going to try to really tamp this down and appeal to the polling which indicates that most people think, in fact, that he should be pardoned. Scooter Libby should be pardoned." CNN poll says 18% support pardon. Ah, modern journalism.

2007-03-13T10:35:00.000-07:00

I'm sorry I missed this: >The Jefferson Memorial Lectures Committee, on behalf of the Graduate Council of the Academic Senate, cordially invites you to a public lecture by: >Elizabeth Warren, Leo Gottlieb Professor of Law, Harvard University: "The Coming Collapse of the Middle Class: Higher Risks, Lower Rewards, and a Shrinking Safety Net" Thursday, March 8, 2007 – 4:10 p.m. International House Auditorium, 2299 Piedmont Avenue, Berkeley >The lectures are free and open to the public. No tickets are required. For information, please visit our web site at , or contact us by phone at 510.643.7413, or by e-mail at lectures@berkeley.edu

2007-03-13T10:33:00.000-07:00

Time to get more systematic about multimedia, and set up my video and audio RSS feeds:

Morning Coffee Video Podcasts: http://rss.mac.com/jbdelong/iWeb/Brad%20DeLong%27s%20iWeb/Morning%20Coffee%20Video%20Podcasts/rss.xml

Coffee and Tea Audio Podcasts: http://rss.mac.com/jbdelong/iWeb/Brad%20DeLong%27s%20iWeb/Coffee%20and%20Tea%20Audio%20Podcasts/rss.xml

2007-03-13T10:26:00.000-07:00

Morning Coffee Videocast: Cuba--The Dictatorship of the Castro Brothers: MANY praise Cuba for having such a high level of social development for a country whose economy is in such sad shape. But back in 1957 Cuba was a developed, not an underdeveloped country--it ought today to look like Italy, Spain, Portugal, or Puerto Rico, and it doesn't. Thanks to the dictatorship of the Castro brothers.

2007-03-12T17:28:00.000-07:00

J. Bradford DeLong (2007), "Right from the Start? What Milton Friedman Can Teach Progressives," Democracy: A Journal of Ideas 4 (Spring). (A review of Lanny Ebenstein (2007) Milton Friedman: A Biography (Palgrave Macmillan • 272 pages • $27.95

2007-03-12T12:07:00.000-07:00

Morning Coffee Videocast: My Allergic Reaction to Noam Chomsky: HERE at Berkeley, I'm often asked why I have such an allergic reaction to Noam Chomsky. Here's one of many reasons, but I think it alone is sufficient...

2007-03-11T19:20:00.000-07:00

A high of 80F today in Berkeley. Strada at College and Bancroft didn't turn on its heat lamps until after dark. The first sunbathers of the year appeared.

I remember the... second time I ever went to London. It was the last weekend in May. We got there, and it was 65F or so at the high, with scattered clouds, and people were sunbathing in Russell Square. "Why are they doing this?" I wondered. "Don't they know the weather will be much better for sunbathing in a month?"

I was wrong. It wasn't. That was the best weekend of the summer.

2007-03-11T18:58:00.000-07:00

I can think of seven wedges between the national net savings-investment rate as estimated by the National Income and Product Accounts and statistical estimates of the change in total measured household net worth:

There is a gap between the rate of return on the average investment made in a year and the cost of capital, which means that $1 of savings on average produces more than $1 of value.
The NIPA may well understate corporate savings and investment by counting a bunch of investments in organizational form as corporate operating expenses.
All of us free-ride on technological research and development, reaping where we do not sow and profiting where we do not save and invest.
Shifts in the distribution of income away from labor and toward capital increase measured household net worth--which includes the increased expected future profits from capital--but not true household net worth--which also includes the decreased expected future wages of labor.
Declines in interest rates make the future more valuable relative to the present and so raise measured household net worth today--which is measured in today's dollars--without any outward shift in the true consumption-possibilities frontier.
Government deficits that raise the debt lower national savings but not measured household net worth.
Good news about the future produces windfall gains and bad news windfall losses which alter this year's household net worth without telling us much about over-all long-run accumulation trends.

I was sitting on the right end of an nine-person panel at the New School Friday morning http://www.cepa.newschool.edu/events/events_schwartz-lecture.htm#webcast. Bob Solow was sitting on the left end--Solow, Shapiro, Schwartz, Rohatyn, Kudlow, Kerrey, Kosterlitz, Hormats, DeLong. Bob Solow expressed concern and worry over the declines in the U.S. savings rate over the past generation. Larry Kudlow, in the middle of the panel, aggressively launched into a rant--about how the NIPA savings rate was wrong, about how the right savings rate was the change in household net worth, about how there was no potential problem with America saving too little, that the economy was strong, and that that day's employment report had been wonderful, and that Paul Krugman had predicted nine out of the last zero recessions, et cetera, et cetera, et cetera.

What is one to do? You watch a guy--Bob Solow--one of the smartest and most thoughtful people I know, having his intellectual impact neutralized by a guy--Kudlow--who really isn't in the intellectual inquiry business anymore. Kudlow clearly has not thought through the biases and gaps in the household net worth number: if he had, there is no way he could say what he is saying.

On paper, in print, on the screen, one can point out that the employment report was anemic--it was not a bloodletting by any means, but it was a bit disappointing. On paper, in print, on the screen, one can say that there is reason to worry about the decline in housing demand and the possibility that it might trigger a recession. On paper, in print, on the screen one can say that reasons (4), (5), and (6) pushing up measured household net worth are reasons to discount that statistic as misleading because they do not reflect any true increase in appropriately-defined wealth, that any increase in household net worth caused by (7) is a transitory phenomenon that tells us little about permanent saving and accumulation patterns, that (1) and (2) affect the level but not the trends of saving, and do not speak to Solow's worry about the savings-investment rate's decline, and thus that only reason (3)--the effects of the now decade-long computer-and-communications real investment boom on our total wealth--provides a reason to even begin to think about whether Bob Solow's worries about declining savings as measured by the NIPA are at all overblown.

But there are ninety minutes for a panel with nine people on it. To the audience it looks like two cocksure economists who disagree for incomprehensible reasons. And my ten minute share will come too late to try to referee Solow-Kudlow in any fair, balanced, and effective way.

It's an un-discourse situation: Kudlow doesn't acknowledge--may not know--the flaws in his chosen statistic. And I can't help wonder what Kudlow would be saying if a Democrat were president.

It's an intellectual Gresham's Law in action...

What can I do? I can blog about it.

2007-03-11T12:55:00.000-07:00

IF they had any shame, they would have long since fled from their high seats in the temple of our civilization and taken up lives of anonymous service to others.

2007-03-11T12:50:00.000-07:00

JEFF Faux and I are talking past each other because we disagree on what the world we live in is like...

2007-03-11T11:32:00.000-07:00

He takes on Alan Wolfe:

Open University: [Wolfe's essay] is, as as I wrote at the time, "friend-enemy politics posing as an opposition to it. It is Wolfe who sees [the 2004] election as an apocalyptic contest between liberal democracy and its opponents rather than a competition between two legitimately opposed parties in an ongoing contestatory system."... The essay compares unlikes to unlikes in the service of equating liberalism to nice intellectual approaches and conservatism to thuggishness: "Schmitt had an explanation for why conservative talk-show hosts like Bill O'Reilly fight for their ideas with much more aggressive self-certainty than, say, a hopeless liberal like Alan Wolfe." (I have an explanation, too: it rests on the distinction between talk-show hosts and thoughtful academics.)...

It's popular in the blogosphere to trot out the other side's most obnoxious and venomous and extreme spokespeople (Pat Robertson! Noam Chomsky! Ward Churchill! R.J. Rushdoony! Ann Coulter! Al Sharpton!) as a substitute for debate.... But a one-sided list of bad actors can't be used as evidence in an evaluation of which side has worse actors....

Here at OU Alan has been busy warning people against what he takes to be the censorious impulse involved in suggestions of anti-Semitism (regardless of underlying merit). [Karl] Schmitt was a Nazi. Throwing around claims like "conservatives have absorbed Schmitt's conception of politics much more thoroughly than liberals" seems to me at least as... uninviting of further discussion... as some of the claims that he's suggested illegitimately manifest a desire to censor....

I'm no conservative, but I found the claim that liberals do, and conservatives do not, care about process over outcomes, about precedent, about the boundedness of state power and the autonomy of society, and about engaging with their opponents as legitimate participants in debate very offputting. Linking that claim up with Schmitt made it all the worse.

My problem is that in America today I don't see many conservatives. I see plenty of Bush-apologists. But I don't see very many people who think that the traditions we have inherited deserve respect because they are our traditions. People who advance such arguments--that "women should be discriminated against" and "homosexuals should be beaten up" and "abortion should be banned" and "couples in movies should always have three feet on the floor" because that is the way things have been--always seem to stop short when the traditions that we have inherited are things like "workers should be unionized" or "taxes should be progressive" or "people should be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures" or that those "quaint Geneva conventions" are the law of the land.

As Max Weber said, the materialist interpretation of history is not a streetcar that you can get on and off where you wish. Similarly, one would think that a conservative philosophical orientation is not something to be applied to support those past institutions and practices you like and to be ignored when past institutions and practices are things you don't like. But it is.

In fact, in practice, it always has. A conservative philosophical orientation has always been a streetcar to get you to where you already knew you wanted to go.

When Edmund Burke in his Reflections on the Revolution in France makes the argument that Britons should respect the organic political tradition of English liberty that has been inherited from the past, he whispers under his breath that the only reason we should respect the Wisdom of the Ancestors is that in this particular case Burke thinks that the Ancestors--not his personal ancestors, note--were wise.

Whenever Burke thought that the inherited political traditions were not wise, the fact that they were the inherited Wisdom of the Ancestors cut no ice with him at all. It was one of the traditions and institutions of Englishmen that they would conquer, torture, and rob wogs whenever and wherever they were strong enough to do so. That tradition cut no ice with Edmund Burke when he was trying to prosecute Warren Hastings. It was one of the traditions and institutions of Englishmen that all power flowed to Westminster. That tradition cut no ice with Burke when he was arguing for conciliation with and a devolution of power to the American colonists. It was one of the traditions and institutions of Englishmen that Ireland was to be plundered and looted for the benefit of upwardly-mobile English peers-to-be. That tradition, too, cut no ice with Burke.

Even in Reflections on the Revolution in France, Burke doesn't argue that Frenchmen should build on their own political traditions--the traditions of Richelieu and Louis XIV, that is. He argues--well, let's let him talk:

Burke: Reflections on the Revolution in France: We [in Britain] procure reverence to our civil institutions on the principle upon which nature teaches us to revere individual men; on account of their age; and on account of those from whom they are descended.... You [in France] might, if you pleased, have profited of our example, and have given to your recovered freedom a correspondent dignity. Your privileges, though discontinued, were not lost to memory. Your constitution... suffered waste and dilapidation; but you possessed in some parts the walls, and in all the foundations, of a noble and venerable castle. You might have repaired those walls; you might have built on those old foundations. ... In your old [E]states [General] you possessed that variety of parts corresponding with the various descriptions of which your community was happily composed; you had all that combination, and all that opposition of interests, you had that action and counteraction which, in the natural and in the political world, from the reciprocal struggle of discordant powers, draws out the harmony of the universe.... Through that diversity of members and interests, general liberty had as many securities as there were separate views.... [B]y pressing down the whole by the weight of a real monarchy, the separate parts would have been prevented from warping and starting from their allotted places.

You had all these advantages in your antient [E]states [General].... If the last generations of your country appeared without much lustre in your eyes, you might have passed them by, and derived your claims from a more early race of ancestors. Under a pious predilection for those ancestors, your imaginations would have realized in them a standard of virtue and wisdom.... Respecting your forefathers, you would have been taught to respect yourselves. You would not have chosen to consider the French as... a nation of low-born servile wretches until the emancipating year of 1789.... [Y]ou would not have been content to be represented as a gang of Maroon slaves, suddenly broke loose from the house of bondage....

Would it not... have been wiser to have you thought... a generous and gallant nation, long misled... by... fidelity, honour, and loyalty... that you were not enslaved through any illiberal or servile disposition... [but] by a principle of public spirit, and that it was your country you worshipped, in the person of your king? Had you made it to be understood... that you were resolved to resume your ancient [liberties,] privileges[, and immunities]... you would have given new examples of wisdom to the world. You would have rendered the cause of liberty venerable in the eyes of every worthy mind in every nation. You would have shamed despotism from the earth...

Burke's argument is not that France in 1789 should have followed its ancestral traditions. Burke's argument is, instead, that France in 1789 should have dug into its past until it found a moment when institutions were better than in 1788, and drawn upon that usable past in order to buttress the present revolutionary moment. This isn't an intellectual argument about how to decide what institutions are good. It is a practical-political argument about how to create good institutions and then buttress and secure them by making them facts on the ground.

What are good institutions? Burke sounds like Madison: checks-and-balances, separation of powers, rights of the subject, limitations on the state. Burke's views on what good institutions are are Enlightenment views--that branch of the Enlightenment that took people as they are and politics as a science, that is, rather than the branch that took people as Rousseau hoped they might someday be and politics as the striking of an oppositional pose. Because he finds that the English past is usable as a support for his Enlightenment-driven views, Burke makes conservative arguments in Reflections. But whenever conservative arguments lead where Burke doesn't want to go--to Richelieu or Louis XIV or the plunder of Ireland or the Star Chamber or Warren Hastings or imperial centralization--Burke doesn't make them. England's inheritance of institutions and practices is to be respected wherever it supports Burke's conception of properly-ordered liberty, and ignored wherever it does not.

You see, for all that Alan Wolfe is an intolerant wolf in tolerant sheep's clothing in his attack on conservatives for being intolerant, Alan Wolfe is right. Conservativism is at its base a form of intellectual thuggishness: a hitting-one's-adversary-on-the-head with the blackjack of tradition when doing so seems likely to gain one a momentary rhetorical advantage. That warped it at its origin, and warps it today.

2007-03-11T09:41:00.000-07:00

From "Open Mind": Milton Friedman makes the case for limited government.

2007-03-11T09:10:00.000-07:00

Morning Coffee Videocast: The Five Factions of the Republican Party: AND why no honest policy can keep all five of them on board and win elections in America today...

2007-03-11T08:48:00.000-07:00

I hope there's space for it to sustain itself:

Democracy Journal Mission Page: The mission of Democracy is to build a vibrant and vital progressivism for the twenty-first century that builds on the movement's proud history, is true to its central values, and is relevant to present times. Democracy will publish on a quarterly basis and serve as a place where ideas can be developed and important debates can be spurred.... [W]e seek breakthrough thinking on the concepts and approaches that respond to the central transformations of our time: the breakdown of the ladder of upward mobility; the promise and problems of an information-based, globalized economy; new national security threats which cross old boundaries and defy old assumptions from jihadist terrorism and nuclear proliferation to climate change, pandemics, and poverty; and a society where people work and live in new and different ways.
Progressives have been at their best when we are both rigorous in looking at the world as it is and vigorous in introducing creative approaches to remake the world as we believe it should be. Democracy is not interested in either reiterating the conventional wisdom or maintaining unity around outdated orthodoxies. We see our role as upsetting tired assumptions, moving past outdated and obsolete divisions, and stretching the envelope of what is accepted by and of progressives.

2007-03-10T21:03:00.000-08:00

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...

2007-03-10T20:31:00.000-08:00

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.

2007-03-10T20:09:00.000-08:00

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.

2007-03-10T16:18:00.000-08:00

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.

2007-03-10T16:07:00.000-08:00

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...

2007-03-10T16:05:00.000-08:00

2007-03-10T16:02:00.000-08:00

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...

2007-03-10T11:38:00.000-08:00

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]:

the Catalan Left, Basque nationalists, and other liberal bourgeois trends who wanted to carry out a Jacobin-style modernization;

the proletarian upsurge of the CNT, Socialists, and POUM;

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.

2007-03-09T21:37:00.000-08:00

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

2007-03-09T04:33:00.000-08:00

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?

2007-03-09T04:11:00.000-08:00

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...

2007-03-08T15:53:00.000-08:00

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

2007-03-08T15:32:00.000-08:00

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...

2007-03-08T14:06:00.000-08:00

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.

2007-03-08T13:44:00.000-08:00

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?

2007-03-07T14:16:00.000-08:00

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.

2007-03-07T07:18:00.000-08:00

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?

2007-03-07T07:17:00.000-08:00

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?

2007-03-06T18:20:00.000-08:00

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...

2007-03-06T15:13:00.000-08:00

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:

Those who fear the foreign enemy--which used to be the Communists, and are now the Muslims.
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,
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.
Those who want low taxes because they think the government is inherently inefficient and wastes its money.
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.

2007-03-06T15:09:00.001-08:00

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.

2007-03-06T15:09:00.000-08:00

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.

2007-03-06T15:08:00.000-08:00

The state of Cuba is really depressing:

Let's Get Even More Depressed About Cuba: Just because people begin their papers with quotes from Ludwig von Mises does not automatically mean that they are wrong:

http://lanic.utexas.edu/la/cb/cuba/asce/cuba8/30smith.pdf http://lanic.utexas.edu/project/asce/pdfs/volume12/perezlopez.pdf

The hideously depressing thing is that Cuba under Battista--Cuba in 1957--was a developed country. Cuba in 1957 had lower infant mortality than France, Belgium, West Germany, Israel, Japan, Austria, Italy, Spain, and Portugal. Cuba in 1957 had doctors and nurses: as many doctors and nurses per capita as the Netherlands, and more than Britain or Finland. Cuba in 1957 had as many vehicles per capita as Uruguay, Italy, or Portugal. Cuba in 1957 had 45 TVs per 1000 people--fifth highest in the world. Cuba today has fewer telephones per capita than it had TVs in 1957.

You take a look at the standard Human Development Indicator variables--GDP per capita, infant mortality, education--and you try to throw together an HDI for Cuba in the late 1950s, and you come out in the range of Japan, Ireland, Italy, Spain, Israel. Today? Today the UN puts Cuba's HDI in the range of Lithuania, Trinidad, and Mexico. (And Carmelo Mesa-Lago thinks the UN's calculations are seriously flawed: that Cuba's right HDI peers today are places like China, Tunisia, Iran, and South Africa.)

Thus I don't understand lefties who talk about the achievements of the Cuban Revolution: "...to have better health care, housing, education, and general social relations than virtually all other comparably developed countries." Yes, Cuba today has a GDP per capita level roughly that of--is "comparably developed"--Bolivia or Honduras or Zimbabwe, but given where Cuba was in 1957 we ought to be talking about how it is as developed as Italy or Spain.

2007-03-06T11:29:00.000-08:00

http://www.widgetbox.com/widget/grasping-reality-with-both-hands-brad-delongs-s

2007-03-06T06:45:00.001-08:00

Impeach these liars. Impeach them now:

The Washington Monthly: FUN WITH CHARTS....Yesterday I put up a post about the Bush administration's latest version of the United States Climate Action Report. The chart I posted showed that Bush was proposing policies that would reduce greenhouse gas emissions only slightly.

However, sharp reader Linda L. points out that I was actually giving Bush too much credit. (I know, I know....) On the right are both of the charts the New York Times published to illustrate the report, not just one of them. Notice anything odd?

Sure you do! The "reduced" line in the chart on the right is exactly the same as the "business as usual" line in the original DOE chart on the left. Bush's proposals don't actually reduce emissions at all. He just created a higher line out of whole cloth and labeled it "business as usual" so that his line would look lower.

They never cease to amaze, do they?

2007-03-06T06:45:00.000-08:00

State Department Policy Planning Study 23:

Max Sawicky Has Been Duped!: Archive Entry From Brad DeLong's Webjournal: The well-meaning and honorable but naive and somewhat gullible Max Sawicky has been duped. He trots out http://maxspeak.org/gm/archives/00000406.html a paragraph from George F. Kennan's 1948 Policy Planning Study 23:

Furthermore, we have about 50% of the world's wealth but only 6.3% of its population. This disparity is particularly great as between ourselves and the peoples of Asia. In this situation, we cannot fail to be the object of envy and resentment. Our real task in the coming period is to devise a pattern of relationships which will permit us to maintain this position of disparity without positive detriment to our national security. To do so, we will have to dispense with all sentimentality and day-dreaming; and our attention will have to be concentrated everywhere on our immediate national objectives. We need not deceive ourselves that we can afford today the luxury of altruism and world-benefaction...

and calls it:

...a confession of original sin in U.S. foreign policy, from 1948 to the present. (It is from a memo that was originally classified.) In this light, both 'our' (i.e., the State's) motives and our deeds become problematic, don't they?

But those who have led the Rt. Hon. Mr. Sawicky to this quotation have carefully kept him from seeing it in its context.

If you look at all of Policy Planning Study 23--or even at section VII: Far East--and think what was going on in Asia in February 1948, when the document was written, it rapidly becomes clear that "sentimentality and day-dreaming" means "placing a high value on the alliance the U.S. had with Chiang Kaishek," and "altruism and world-benefaction" means "sending U.S. troops to China to die and U.S. atom bombs to China to go BOOM! in an attempt to stop the forward march of Mao Zedong's People's Liberation Army."

Those who have led the Rt. Hon. Mr. Sawicky to this quote intend for him--intend for you--to believe that Kennan's call for the rejection of "sentimentality and day-dreaming... altruism and world-benefaction" was a call for U.S. imperial domination over Asia.

It wasn't.

It was a call for the U.S. to withdraw, militarily and diplomatically, from Asia; to base its security on the Philippines and Japan; and to leave Asia to the Asians. For, as Kennan had written much earlier in Policy Planning Study 23, " ...The use of U S. regular armed force to oppose the efforts of indigenous communist elements within foreign countries must generally be considered as a risky and profitless undertaking, apt to do more harm than good."

You can argue that Kennan was wrong in seeking a withdrawal of U.S. influence from continental Asia in 1948. You can't--honestly--argue that Kennan was advocating a policy of forceful imperialist world domination.

How is it that a paragraph in which Kennan argues for the withdrawal of U.S. power from continental Asia is being trotted out as a clarion call for the establishment of forceful and malevolent U.S. imperial domination?

I leave that as an exercise for the reader.

But do go and read all of Policy Planning Study 23's section on Asia:

VII. Far East

My main impression with regard to the position of this Government with regard to the Far East is that we are greatly over-extended in our whole thinking about what we can accomplish, and should try to accomplish, in that area. This applies, unfortunately, to the people in our country as well as to the Government.

It is urgently necessary that we recognize our own limitations as a moral and ideological force among the Asiatic peoples.

Our political philosophy and our patterns for living have very little applicability to masses of people in Asia. They may be all right for us, with our highly developed political traditions running back into the centuries and with our peculiarly favorable geographic position; but they are simply not practical or helpful, today, for most of the people in Asia.

This being the case, we must be very careful when we speak of exercising “leadership” in Asia. We are deceiving ourselves and others when we pretend to have the answers to the problems which agitate many of these Asiatic peoples.

Furthermore, we have about 50% of the world's wealth but only 6.3% of its population. This disparity is particularly great as between ourselves and the peoples of Asia. In this situation, we cannot fail to be the object of envy and resentment. Our real task in the coming period is to devise a pattern of relationships which will permit us to maintain this position of disparity without positive detriment to our national security. To do so, we will have to dispense with all sentimentality and day-dreaming; and our attention will have to be concentrated everywhere on our immediate national objectives. We need not deceive ourselves that we can afford today the luxury of altruism and world-benefaction.

For these reasons, we must observe great restraint in our attitude toward the Far Eastern areas. The peoples of Asia and of the Pacific area are going to go ahead, whatever we do, with the development of their political forms and mutual interrelationships in their own way. This process cannot be a liberal or peaceful one. The greatest of the Asiatic peoples—the Chinese and the Indians—have not yet even made a beginning at the solution of the basic demographic problem involved in the relationship between their food supply and their birth rate. Until they find some solution to this problem, further hunger, distress, and violence are inevitable. All of the Asiatic peoples are faced with the necessity for evolving new forms of life to conform to the impact of modern technology. This process of adaptation will also be long and violent. It is not only possible, but probable, that in the course of this process many peoples will fall, for varying periods, under the influence of Moscow, whose ideology has a greater lure for such peoples, and probably greater reality, than anything we could oppose to it. All this, too, is probably unavoidable; and we could not hope to combat it without the diversion of a far greater portion of our national effort than our people would ever willingly concede to such a purpose.

In the face of this situation we would be better off to dispense now with a number of the concepts which have underlined our thinking with regard to the Far East. We should dispense with the aspiration to “be liked” or to be regarded as the repository of a high-minded international altruism. We should stop putting ourselves in the position of being our brothers' keeper and refrain from offering moral and ideological advice. We should cease to talk about vague and—-for the Far East—-unreal objectives such as human rights, the raising of the living standards, and democratization. The day is not far off when we are going to have to deal in straight power concepts. The less we are then hampered by idealistic slogans, the better.

We should recognize that our influence in the Far Eastern area in the coming period is going to be primarily military and economic. We should make a careful study to see what parts of the Pacific and Far Eastern world are absolutely vital to our security, and we should concentrate our policy on seeing to it that those areas remain in hands which we can control or rely on. It is my own guess, on the basis of such study as we have given the problem so far, that Japan and the Philippines will be found to be the corner-stones of such a Pacific security system and if we can contrive to retain effective control over these areas there can be no serious threat to our security from the East within our time.

Only when we have assured this first objective, can we allow ourselves the luxury of going farther afield in our thinking and our planning.

If these basic concepts are accepted, then our objectives for the immediate coming period should be:

(a) to liquidate as rapidly as possible our unsound commitments in China and to recover, vis-à-vis that country, a position of detachment and freedom of action;

(b) to devise policies with respect to Japan which assure the security of those islands from communist penetration and domination as well as from Soviet military attack, and which will permit the economic potential of that country to become again an important force in the Far East, responsive to the interests of peace and stability in the Pacific area; and

(c) to shape our relationship to the Philippines in such a way as to permit the Philippine Government a continued independence in all internal affairs but to preserve the archipelago as a bulwark of U.S. security in that area.

Of these three objectives, the one relating to Japan is the one where there is the greatest need for immediate attention on the part of our Government and the greatest possibility for immediate action. It should therefore be made the focal point of our policy for the Far East in the coming period...

2007-03-06T06:06:00.000-08:00

Fearless Financial Markets? For Project Syndicate: http://www.project-syndicate.org/commentary/delong56

A number of thoughtful observers -- like Citigroup's Robert Rubin, Harvard's Larry Summers, and The Financial Times's Martin Wolf -- have expressed puzzlement in recent months about financial markets' perceptions of risk. While markets have judged today's world -- especially the dollar and securities linked to it -- to have low risk when viewed in historical perspective, geopolitical risks in fact appear to be large. Wolf, for example, argues that financial markets have adopted a head-in-the-sand focus on the "long run of small gains," ignoring the "occasional calamity" in advance, while losses will be attributed after the fact to "unforeseeable bad luck."

But if an investor today did wish to insure against geopolitical catastrophe, how would he or she do so? In the generation before World War I, the safe assets were thought to be the debt of governments tied to the gold standard, which supposedly offered protection against the inflationary populist viruses that afflicted countries like Mexico, France, or the United States. But investors in British government debt faced huge losses when Britain's commitment to World War I produced inflation, and investors in Czarist bonds papered their bathrooms with them after the October Revolution.

After the inflations of World War I, a prudent investor might have thought gold -- easily assessable, portable, and real -- an attractive asset. But gold is stagnant, while capital is productive. In any case, American gold holders found their wealth involuntarily transformed into paper dollars by the Roosevelt administration at the nadir of the Great Depression. Following World War II, investments in the US seemed safer than any alternative. But, in the 1970's, investors in American stocks and long-term bonds lost half their principal, and even investors in short-term American debt were down by 20% in real terms by the end of the decade.

Investors fearing geopolitical catastrophe might cope to some degree by raising their consumption spending. But there is a limit to this option. Those who fear geopolitical catastrophe will sell assets, putting downward pressure on their value, only if there are other, safer assets that they see that they can buy. As Harvard's Robert Barro has recently pointed out, fear of a general or unpredictable catastrophe -- even one that spares a subset of assets that cannot be specified in advance -- will not affect relative asset prices, because investors have no motive to sell or buy any particular asset.

According to Barro, the consequences of enhanced fear of a general or unpredictable catastrophe depend on how it affects the global pool of savings. Fear as much as institutional blockages may be the source of what is either a global savings glut or a global investment shortfall, depending on how you view it. If people are risk-averse enough that increased fear of the future causes them to save more, rising global uncertainty will raise bond and stock prices, and lower interest rates and dividend and earnings yields. Creating new assets for investors to hold costs resources, and the greater the demand for such assets the higher the marginal cost of creating them.

This may be the situation that the world financial system is in now. The principal fear, at least in the circles in which I move, is of a sudden unwinding of "global imbalances": a rapid and destabilizing end to America's very large trade deficit and to Asia's very large trade surplus.

In such a global financial crisis, if the Federal Reserve accommodates inflation and accelerates devaluation in order to prevent collapsing employment in formerly foreign capital-financed sectors from spiraling into a depression, American debt will be among the worst affected assets? But if the Fed refuses to accommodate inflation produced by a dollar collapse and accepts a depression in the belief that the long-run benefits of maintaining its credibility as a guarantor of price stability will come before we are all dead, American equities will suffer. Chinese property values and manufacturing assets would also be vulnerable, as the US abandons its role as importer of last resort and China's coastal-export development strategy turns out to be a dead end.

Don't get me wrong: somewhat more than half my brain agrees with Rubin, Summers, Wolf, and company. The principal risk I see today is that being borne by investors in dollar-denominated debt -- and I don't believe they are charging a fair price for what they are doing. But a quarter of my brain wonders how investors should attempt to insure against the lowest tail of the economic-political distribution, and that quarter of my brain cannot see which way somebody hoping to insure against that risk should jump.

2007-03-05T21:17:00.000-08:00

Spencer Ackerman:

toohotfortnr: Since at least 2004, Iraq-style tactics -- suicide bombings, recorded kidnappings and executions, and in particular improvised explosive devices -- have been trickling into Afghanistan, to the point where some observers have feared the "Iraqification" of that country. It's not something to be sanguine about, as today's suicide bombing outside of Bagram demonstrates. But according to a new Jonestown Foundation analysis by Brian Glyn Williams and Cathy Young, there's something of a silver lining: suicide bombings are indeed up -- as of late February, there have already been 21 suicide bombings in 2007; that's nearly as many as in all of 2005 -- but they're ... not killing many people. Astoundingly, of the 21 attacks carried out this year, in 16 cases the only fatality has been the suicide bomber himself. In the 17th case, the suicide bomber succeeded in killing himself and one policeman. In two other cases, the suicide bomber was arrested or shot. This translates to 19 Taliban suicide bombers for one Afghan policeman, hardly an inspiring kill ratio for would-be-suicide bombers.

In most of these cases, the suicide bombers attacked foreign convoys on foot or in cars and were unable to inflict casualties on their targets. Typically, the suicide bombers' explosives went off prematurely or their bombs failed to kill coalition troops driving in heavily armored vehicles. In only three of the 21 cases for 2007 were there notable fatalities. In the first successful case, a suicide bomber killed two Afghan policemen and eight civilians (Camp Salerno, Khost, January 23). In the second case, three policemen were killed (Zherai District, Khost, February 4). In the third case, the February 27 attack on Bagram Air Base while Cheney was visiting, the bomber succeeded in killing 15-23 people (including two to three coalition soldiers).

Such numbers hardly compare to Iraq where suicide bombers often carry out synchronized attacks that regularly kill anywhere from 60 to 130 people. Such uninspiring statistics beg the question: what are Afghanistan's suicide bombers doing wrong?

Williams and Young studied 158 suicide attacks since 2001 and found an answer. While Iraqi suicide bombers target civilians and soft targets in order to sow destabilization and provoke/respond to sectarian violence, nearly all Taliban suicide bombings -- and in Afghanistan, resistance to the presence of foreign forces and the Karzai government is overwhelmingly Taliban -- are focused on Afghan or U.S./NATO security forces. The two researchers assess that unlike the Iraqi insurgents, al-Qaeda or Shiite militias, the Taliban has to cleave the population away from the Karzai government, but in the process must "avoid losing the battle for the hearts and minds of the Afghan people by needlessly killing civilians."

The trouble is that it works. Members of the International Security Assistance Force have in some cases balked at taking up operations in suicide-bomb-heavy territory. Worse still, Williams and Young find that freaked-out ISAF forces have responded by upping their tolerance for collateral damage. Little is more provocative in Afghanistan than civilian deaths at foreign hands; in that sense, the Taliban gambit does show some success.

Consider what you've got here: a localized insurgency that needs to deny Karzai and his allies control of Afghanistan and finds that even ineffective suicide bombing can have some utility as a deterrent force. Yet it remains a force with limited potential for growth among the civilian population and it's fearful of inflicting civilian casualties. Basically, this is about as favorable terrain for counterterrorism as ever there is (saying that while recognizing that no counterterrorism campaign is really favorable). Here's where you want to put Petraeus and his COIN wise men.

2007-03-05T12:37:00.000-08:00

Ulrike Malmendier, "Law and Economics at the Origin," is coming to the Economic History Seminar today to talk about law and economics in the late Roman Republic:

Cicero mentions the three most important taxes that were contracted out [to the publicans] in De Imp. Cn. Pomp. 6.15 [On the [Grant of Proconsular] Authority to Cnaeus Pompeius]: the port tax (portorium), the "tenth" of the harvest... including grain (decuma), and the grazing fee (scriptura). The inheritance tax (vicesima hereditatium*) was also contracted out but played a subsidiary role...

2007-03-04T13:37:00.000-08:00

Jamie Galbraith:

The Econoclast: [I]ncome inequality... using tax data recorded by county... declined quite sharply after 2000. Why? Because it tracks, with uncanny precision over more than 30 years, the nasdaq stock index. After declining in the early 1970s, both indices rose almost steadily until they reached an all-time peak in 2000; both fell thereafter. In other words, income inequality in the United States has been driven by capital gains and stock options, mostly in the tech sector. This is what separates that mysterious top .01 of 1 percent from the rest of us: They're the people who run Google, Oracle, and eBay.

County data confirm this: The big income winners in the late 1990s were concentrated in just four counties--Santa Clara, San Francisco, and San Mateo in California (all in the environs of Silicon Valley), and King County in Washington (Microsoft)%u2014as well as in Manhattan, the home of the bankers who made it happen. Take the big tech counties out, and the rise in inequality between counties in the late 1990s disappears. And, of course, while these counties were big winners through 2000, they became the big losers in the Bush Bust.

Though the tech bust reduced inequality in America, it doesn't follow that only rich places lost out, still less that only poorer places gained. In fact, there was one group of counties that did exceptionally well in the first four Bush years. Guess what? They're concentrated around Washington, D.C. Of the top 10 gainers from 2000 to 2004, three are Washington neighbors (Fairfax, Montgomery, and Baltimore), and one is D.C. itself. Among the top 35 gainers, there are five more counties in the immediate vicinity. Conversely, none of the top 50 losers are near the capital.

This should remind us that the Democrats under Clinton fostered a private-sector investment boom, fueled by technological optimism and foreign money. In economic terms, Al Gore really did invent the Internet, in a way; his cheerleading (and Clinton's, and Greenspan's) steered money into that nascent boom.... [T]he tech boom was also good for most of the rest of us: We had nearly full employment, rising wages and productivity, and little inflation; we also got a lot of fiber-optic cable, cheap phone calls, and fast video games.

Bush inherited a bust. He fought it by cutting taxes, with a strong tilt toward the rich; together with low interest rates, this fostered a vast housing boom, now deflating. Much of that housing was high-end, as any visitor to the posher suburbs can tell. And though it was stronger in some places than others, it was widely diffused. Was this the right use of resources? Not in my book. But all that construction did keep the economy going when it might otherwise have tanked.

Bush's other big policy was to increase government spending, above all on the military. Who profits? Private contractors, consultants, Beltway bandits. And the epicenter was Washington and its suburbs, home to not only the Pentagon, the cia, and the National Security Agency but also, not coincidentally, defense contractors such as Lockheed Martin and General Dynamics.

Too bad for Bush: Most people don't live in the Beltway Bubble--but they can easily see the gap that separates them from those who do. It paints a grim picture that, under Bush, the government and housing are the key growth sectors since 2000. It's even worse that the capital region was the only major geographic center to show concentrated gains...

2007-03-03T20:21:00.000-08:00

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Yet all these are invisible to Barbara Ehrenreich

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

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

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

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

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

2007-03-03T16:06:00.000-08:00

Daniel Gross quotes Christie Romer:

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

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

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

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

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

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

However, it is still the case that:

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

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

2007-03-03T14:58:00.000-08:00

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2007-03-03T07:11:00.000-08:00

Painted by Giuseppe Pellizza da Volpedo in 1901.

2007-03-01T21:16:00.000-08:00

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

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

2007-03-01T17:12:00.000-08:00

Jeff Faux writes:

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

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

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

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

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

I don't think we live in that world.

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

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

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

2007-03-01T17:11:00.000-08:00

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

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

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

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

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

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

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

2007-03-01T13:20:00.000-08:00

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

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

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

Here are the best of the comments:

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

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

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

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

From Auden's "Letter to Lord Byron":

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

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

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

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

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

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

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

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

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

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

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

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

Here's the original again:

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

The mother of the bride-to-be says:

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

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

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

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

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

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

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

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

2007-03-01T11:53:00.000-08:00

Hoisted From the Archives: How rich is Fitzwilliam Darcy?

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

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

The mother of the bride-to-be says:

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

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

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

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

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

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

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

Original comments in the extended post.

2007-03-01T11:52:00.000-08:00

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

Or is it very right to do so?

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

2007-02-28T22:04:00.000-08:00

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

2007-02-28T11:15:00.000-08:00

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

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

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

I was going to hit three points:

The Great Moderation:

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

Productivity and Its Contents

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

Factor Shares and the Strength of the Labor Market:

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

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

2007-02-28T10:41:00.000-08:00

Today in journamalism:

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

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

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

2007-02-28T10:37:00.000-08:00

Jeff Bater on the day's news:

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

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

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

2007-02-28T10:32:00.000-08:00

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

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

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

Readings:

J. Bradford DeLong (1997), "America's Peacetime Inflation: The 1970s," in Christina Romer and David Romer. eds., Reducing Inflation: Motivation and Strategy (Chicago: University of Chicago Press) http://www.j-bradford-delong.net/pdf_files/Peacetime_Inflation.pdf.
William Nordhaus (2004), "A Retrospective on the 1970s Productivity Slowdown" http://mirror.nber.org/cgi-bin/sendWP.cgi/311459297/w10950.pdf.
Olivier Blanchard "European Unemployment: The Evolution of Facts and Ideas," unpublished manuscript, MIT (October 2005), http://www.nber.org/papers/w11750
Richard Ericson, "The Classical Soviet-Type Economy: Nature of the System and Implications for Reform," Journal of Economic Perspectives 5 (Fall 1991), pp. 11-28, http://uclibs.org/PID/1011.
J. Bradford DeLong and Barry J. Eichengreen (2001), "Between Meltdown and Moral Hazard: Clinton Administration International Monetary and Financial Policy" http://www.j-bradford-delong.net/Econ_Articles/CIEP/CIEP_revision06102001.PDF

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

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

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

2007-02-27T15:51:00.000-08:00

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

2007-02-27T15:50:00.000-08:00

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

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

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

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

[...]

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

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

2007-02-27T15:41:00.000-08:00

He reminds us of Tom Friedman past:

The Poor Man: [A]t long last, someone in a respectable publication has pointed out that Glenn Reynolds is completely insane.... [Reynolds's] comment...--that the government should be murdering Iranian scientists and religious leaders, because we have been continuously at war with them for thirty years--was a bit blunt, but wasn't really unrepresentative of his views.
Why should this be getting attention all of a sudden? Fans of his oeuvre could probably think of a handful of crazier comments right off the top of their head--in fact, I immediately thought of that time in 2003 when Prof. Christmas opined that, seeing as we were already at war with France and all, we should probably start some nice proxy wars [against France] in Africa....
[Reynolds] was riffing on Thomas L. F------ Friedman, September 2003, NY Times:

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

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

2007-02-27T15:21:00.000-08:00

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

Why Mexico is Not Enough | TPMCafe: It's the oddest thing that progressives demand higher wages for workers in the developing world and we get accused of wanting to keep them impoverished-- a neat trick by folks like Brad, admittedly. But here's the deal we should all want. Chinese workers should be able to demand higher wages to the point THEY WANT; if those WORKERS decide that trading off lowering wages for higher employment in the global economy is what they want, so be it. But right now, they are settling for low wages based on the decisions of Chinese and allied US CORPORATIONS and GOVERNMENT decisions.
So here's the global deal we should demand. Full trading rights for countries that honor the basic free speech rights of their workers to collectively organize. No trade rights for countries that don't. This isn't an argument for shutting down trade with China; it's a demand that they give free speech rights to their own employees as a condition of trade....
The question is not do We WANT Chinese workers to be poor and barefoot; the question is whether we are willing to fight seriously and consistently for them to have a voice to say what THEY WANT?

2007-02-27T15:20:00.000-08:00

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

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

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

Jeff Faux writes back:

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

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

There aren't many commissars-turned-capitalists.

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

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

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

2007-02-27T15:15:00.001-08:00

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

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

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

Jeff Faux writes back:

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

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

There aren't many commissars-turned-capitalists.

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

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

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

2007-02-27T15:15:00.000-08:00

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

A Question for Jeff Faux... | TPMCafe:
Jeff Faux is... confused, to put it politely. He opens:

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

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

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

[...]

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

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

2007-02-27T14:05:00.000-08:00

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

The last one is my favorite: it shows, in one picture, the seasonal cycle, the business cycle, and the long-term trend in American labor force participation coming from demography and feminism.

Comparing that figure with the one immediately above it shows the extraordinary year-to-year regularity of the seasonal cycle: you could set your watch by it. And the one above that shows the deceleration of productivity growth from 1960-1995 and the acceleration since then. And the one above that provides an interesting look at the Great Moderation of the American business cycle since 1984: recessions come less frequently, and when they do come they involve a smaller increase in economic slack than 1974-75 or 1979-82.

2007-02-27T11:01:00.000-08:00

Not a good macroeconomic sign. If we still had the manufacturing-based economy of the 1960s, we would now be in a recession. As it is...

Today's Markets - WSJ.com: Early Tuesday, the Commerce Department said January durable-goods orders fell 7.8% to a seasonally adjusted $203.90 billion. The decline in orders surprised economists, who expected a 3.2% drop. Timothy Rogers, chief economist at Briefing.com, pointed to a decrease in capital-goods orders, "the bread and butter of the manufacturing side," as an area of particular concern. "I think it's just a mid-cycle stall," he added. "The fundamentals are still strong."

If I were the Federal Reserve, I'd be a-cuttin interest rates next meeting...

2007-02-26T19:59:00.000-08:00

Ezra Klein on labor unions:

Ezra Klein: A System of Checks and Balances (Working People Only): Steven Greenhouse has a very peculiarly written story (why isn't the bill named or described till halfway through?) on the coming clash over the Employee Free Choice Act.... Democrats can't break a Senate filibuster or overturn the promised presidential veto. Remarkable how our legislature found it so easy to heighten the obstacles for declaring bankruptcy but seems totally stymied when aiding workers who want to join a union....

Towards the end of the article we get back into the debate over whether card check -- wherein workers simply sign cards to join the union -- is a legitimate process, or if, by denying the employer a distinct NLRB vote it can intimidate and sabotage, it exposes workers to union intimidation. Happily, there's actually data.... [T]he Eagleton Research Center and Rutgers University surveyed workers to see how they compared.

22% of workers surveyed said management "coerced them a great deal" during union elections. 6% said unions did the same. During the NLRB election, 46% of workers complained of management pressure. During card check elections, 14% complained of union pressure. Workers in NLRB elections were twice as likely as workers in card check elections to report that management coerced them to oppose -- and even in card-check elections, 23% of workers complained of management coercion, more than complained of union coercion! Workers in NLRB elections were more than 53% as likely to report that management threatened to eliminate their jobs.

Even more interesting, fewer workers in card check campaigns said coworkers pressured them to join the union (17% to 22%). Workers in card check elections were more than twice as likely to report the employer took a neutral stance and let the workers decide. But, rather hilariously, anti-union Labor Secretary Elaine Chao concludes that, "a worker's right to a secret ballot election is an intrinsic right in our democracy that should not be legislated away at the behest of special interest groups." A worker's right to organize, conversely, can be swiftly sacrificed atop the altar of business interests.

2007-02-26T19:29:00.000-08:00

Rui Pedro Esteves (2007), "Between Imperialism and Capitalism: European Capital Exports Before 1914"

Abstract: An original database of German capital exports comparable to Stone's (1993) data for British was compiled for 1883-1913. Three classes of variables were tested as determinants of capital flows: political conditions in recipient countries, long-term growth prospects, and institutional characteristics. German capital flows responded to long-term growth prospects as much as British flows. This conclusion is robust after controlling for political affiliation. It suggests that the sharp distinction in the literature between "developmental" and "revenue" finance is probably a figment of the previous absence of detailed data on non-British capital exports.

2007-02-26T15:22:00.000-08:00

Yes, because of David Broder, Glenn Greenwald is shrill:

Glenn Greenwald - Salon: Following up on the posts here about David Broder's most recent column -- in which he proclaimed that "President Bush is poised for a political comeback" and heaped all sorts of praise on the President -- the Post's Dan Froomkin highlights why Broder's columns are so significant and, more importantly, how they are used by an appreciative White House (see "Broder Speaks" section): Say what you will about Washington Post reporter and columnist David S. Broder, but he is the dean of the Washington press corps and his columns are often an accurate reflection of the temperament of Washington's top political reporters....

The White House press office was so delighted with Broder's column that it sent it out to the entire White House press corps this morning at 6:44 a.m., under the heading: "In Case You Missed It. Compare that fact to Broder's denial, during last week's " online chat," that he has helped to "prop up" the Bush presidency. Broder boasted: "You will find no one in the White House or on the Republican side of the House or Senate who thinks I have been propping up the Bush presidency." How about the White House official excitedly disseminating Broder's column?

There are invariably commenters and e-mailers who insist that these Beltway pundits can be ignored because they have no real following and nobody listens to them. It may be true that there are relatively few members of the public who listen directly to David Broder, but the shallow tripe he churns out is read -- and respected -- by most Beltway media elites, whose views are shaped by people like Broder and whose media coverage and mindset is as well.

2007-02-26T14:36:00.000-08:00

Stan Collender writes:

http://nationaljournal.com/members/buzz/2007/budget/022707.htm: Like many Washington-based analysts, I generally believe that every word I utter not only is quotable but should be quoted. That's why this time of year is usually so ego fulfilling: the submission of the president's budget to Congress generally means I get calls from lots of people who want to hear what I have to say. That didn't happen this year.... At first I thought it was me.... I assumed that... I was over the hill....

But two days after the president's budget had been sent to Congress, at an informal monthly breakfast of budget analysts I've been attending for more than two decades, I found out that virtually everyone else who is usually quoted heavily this time of year also wasn't getting called. Because of this, the breakfast partly turned into a support group.... It was therapeutic....

It turns out that the reason for this change is actually quite simple: most major media outlets have decided that the budget is not much of a story this year and are not covering it....

On one hand, this is hard to understand. How is it possible that the federal budget -- with spending and revenues that are both nearly equal to one-fifth of the U.S. economy -- is not a significant story that deserves daily in-depth coverage?....

On the other hand, the lack of interest in the Bush FY08 budget and the overall federal budget debate is completely understandable.... Few people believe that there is anything Congress will be able to do to get George Bush to negotiate on budget issues....

Then, of course, there's the elephant that's always in the room in Washington these days: Iraq. The only thing that has been able to push that off the front pages is Anna Nicole Smith and Britney Spears and, no matter how much we might like it to be otherwise, the federal budget will never able to compete with that type of story.... Finally, the news coverage is far different than it used to be. Not only have the pages and minutes devoted to reporting and analysis generally decreased, but the audience has greatly changed as well.

I called several media friends.... The Washington bureau chief of a major financial outlet told me that he's not covering the budget... because he doesn't think much will happen. A senior Washington correspondent for a major daily newspaper told me she can't get anyone in the White House to talk in a meaningful way.... A producer of a Sunday talk show said that they were planning to cover Iraq and the 2008 election all the time from now on.

At least it's not me.

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

2007-02-26T14:19:00.000-08:00

From Greg Ip's February 26 article. Changes in actual inflation no longer fed through to changes in expected inflation--at least not yet. This makes the Federal Reserve's life much easier. And there is no sign that static inflation expectations have been disrupted by the replacement of Alan Greenspan by Ben Bernanke

2007-02-26T14:16:00.000-08:00

Traders! Read the second page of the statistical release before you press the button!

Meredith Beechey (who once made the mistake of writing an equation with a pure rate of time preference in front of George Akerlof--a red flag to a bull) and Jonathan Wright have details:

FRB: FEDS paper 2007-5: "Rounding and the Impact of News: A Simple Test of Market Rationality":

Abstract: Certain prominent scheduled macroeconomic news releases contain a rounded number on the first page of the release that is widely cited by newswires and the press, and a more precise number in the text of the release. The whole release comes out at once. We propose a simple test of whether markets are paying attention to the rounded or unrounded numbers by studying the high-frequency market reaction to such news announcements. In the case of inflation releases, we find evidence that markets systematically ignore some of the information in the unrounded number. This is most pronounced for core CPI, a prominent release for which the rounding in the headline number is large relative to the information content of the release.

Keywords: News Announcements, Rounding, Market Efficiency, Rational Inattention

2007-02-26T10:01:00.000-08:00

Traders! Read the second page of the statistical release before you press the button!

Meredith Beechey (who once made the mistake of writing an equation with a pure rate of time preference in front of George Akerlof--a red flag to a bull) and Jonathan Wright have details:

FRB: FEDS paper 2007-5: "Rounding and the Impact of News: A Simple Test of Market Rationality":

Abstract: Certain prominent scheduled macroeconomic news releases contain a rounded number on the first page of the release that is widely cited by newswires and the press, and a more precise number in the text of the release. The whole release comes out at once. We propose a simple test of whether markets are paying attention to the rounded or unrounded numbers by studying the high-frequency market reaction to such news announcements. In the case of inflation releases, we find evidence that markets systematically ignore some of the information in the unrounded number. This is most pronounced for core CPI, a prominent release for which the rounding in the headline number is large relative to the information content of the release.

Keywords: News Announcements, Rounding, Market Efficiency, Rational Inattention

2007-02-25T19:32:00.000-08:00

Bandwagon of http://ridethebandwagon.com/ estimated that the average iTunes user had some 30 to 60GB of stuff:

What does unlimited mean? - bandwagongroupie | Google Groups: Terence Pua: Based on survey data (months before launch), our research showed that most iTunes users have about 30 to 60GB...

Bandwagon of http://ridethebandwagon.com/ thought that if their average customer had some 39 to 60GB of stuff to back up, they could make money selling dynamic backup services for $99 a year.

But if you have 5GB of stuff, will you pay $100 a year to back it up when $100 will buy you two Western Digital 80GB hard drives? No.

What kind of people will spend $99 a year for dynamic backup services? Terence Pua found out:

However, in a little more than 24 hours after we opened the doors, unlimited means people have as much as 2TB of iTunes stuff! That is an outlier for sure but many people have over 100GB. As you know, we are currently using Amazon S3*, who charges $0.15/GB/month. We charge $99/year for Bandwagon. At that price, people who have over 55GB become a loss to us (and that's not including the bandwidth costs at $0.20/GB).

It's simple arithmetic that if we don't cover costs, we can't stay in business to serve your needs.... We'd like to have a fruitful community-based discussion to help us come up with a more long term pricing/model...

But they are getting some nice publicity out of this.

2007-02-24T21:29:00.000-08:00

Time to start compiling a list of what I think is my best work...

Academic Papers:

http://www.nber.org/papers/W1686 "Is Increased Price Flexibility Stabilizing?"
http://www.j-bradford-delong.net/pdf_files/Baumol_Convergence.pdf "Productivity Growth, Convergence, and Welfare".
http://www.j-bradford-delong.net/pdf_files/Noise_Traders_Main.pdf "Noise Trader Risk in Financial Markets".
http://www.j-bradford-delong.net/pdf_files/QJE_Equipment.pdf "Equipment Investment and Economic Growth".
http://www.j-bradford-delong.net/pdf_files/Princes.pdf "Princes and Merchants: European City Growth Before the Industrial Revolution".
http://www.j-bradford-delong.net/movable_type/archives/000635.html "Why Does the Stock Market Fluctuate?"
http://www.j-bradford-delong.net/pdf_files/Keynesianism_Pennsylvania.pdf "Keynesianism, Pennsylvania-Avenue Style".
http://www.j-bradford-delong.net/pdf_files/Peacetime_Inflation.pdf "America's Peacetime Inflation: The 1970s".
http://www.j-bradford-delong.net/movable_type/2003_archives/000121.html "American Fiscal Policy in the Shadow of the Great Depression".
http://www.j-bradford-delong.net/movable_type/archives/000757.html "Review of Robert Skidelsky (2000), John Maynard Keynes, volume 3, Fighting for Britain".
http://www.j-bradford-delong.net/Econ_Articles/CIEP/CIEP_revision06102001.PDF "Between Meltdown and Moral Hazard: Clinton Administration International Monetary and Financial Policy".
http://www.j-bradford-delong.net/Econ_Articles/macro_annual/delong_macro_annual_05.pdf "Productivity Growth in the 2000s".
http://www.j-bradford-delong.net/movable_type/BDK-BPEA.pdf "Asset Returns and Economic Growth."

2007-02-24T21:20:00.000-08:00

The euro has risen further than I had realized since late 2000--albeit not since its start in 1999.

2007-02-24T13:35:00.000-08:00

I Know I Said Israel's Government Was Blind to Reality, But This Is Ridiculous! Is there any way Israeli defense minister Amir Peretz is keeping his job after this?

2007-02-23T16:14:00.000-08:00

Jim Hamilton finds out that he, in his capacity as a San Diego County taxpayer, was an unwilling and unwitting investor in Amaranth:

Econbrowser: San Diego County pension fund: I have been developing concerns about the possibility that hedge fund investment flows have become a destabilizing force in world financial markets. Following the maxim "think globally, act locally," I decided to take a look at how the behavior of our local pension funds may be one small part of that phenomenom. And I have some recommendations to make on behalf of San Diego County residents and the world at large.

There are any number of financial instruments that would allow you to construct an investment portfolio that could show high returns with limited variability for many years in a row, even though the investment strategy could actually involve enormous risk or even negative expected returns.... Such financial instruments could be particularly problematic given a potential conflict between the incentives facing an individual pension fund manager and the best interests of the future retirees whose assets he or she is managing. If the manager can turn in well-above-market returns five years in a row, the manager is likely to be spectacularly rewarded over that period....

When I heard about the disastrously irresponsible investments made by the Amaranth hedge fund, my first reaction was, who would be so stupid to have put up the margin requirements for such a scheme? The answer turned out to be found in my own backyard-- the San Diego County Employees Retirement Association apparently donated over a hundred million dollars to this worthy cause.

I took a look at the 2006 SDCERA Annual Report to try to find out what was really going on. If you only look at the "summary of retirement portfolio by manager/asset type" on page 54, all appears healthy. Two billion dollars, or 27% of their $7.3 billion portfolio, were reported to have been held in the form of domestic equity, split among a dozen different large, diversified equity funds. There's another 25% in international equity, 26% in fixed income, and 10% for real estate and "alternative equity". There are some other categories such as "commodity swaps" and "overlay" that worry me a little, but these don't amount to that much of the total. So where do you squeeze a couple hundred million for Amaranth in there?

The really interesting stuff is to be found on page 55, which is labeled "summary of derivative financial instruments." Here Amaranth is included as one of a dozen entries in a group of "alpha engine managers." The total market value of these alpha engine managers comes to $1.5 billion, which would amount to 20% of SDCERA's net assets....

But as far as I'm aware, there's no place you can go to find an audited statement of the assets and liabilities of these "alpha fund managers", so there's no way to verify exactly what the nature and magnitude of the risk is that's being palmed off on the county. We have only the word of the county fund managers that they're doing something smart. They in turn are likely basing their own confidence primarily on the word of the alpha fund managers. At least in the case of Amaranth, we know how much that word is worth, and it ain't $233,830,268.

And that's just the San Diego County pension fund. The pension fund of the city of San Diego is an even more gruesome story, which perhaps I should take up another time...

2007-02-22T17:43:00.000-08:00

2007-02-22T16:32:00.000-08:00

Tyler Cowen reports:

Marginal Revolution: Four new economics journals: The [American Economic] Association will publish four new quarterly refereed journals starting in 2009 that, together, cover the fields of economics...

AEJ: Macroeconomics: macroeconomics; monetary economics; international finance; aggregate aspects of development; economic growth; finance; and comparative economic systems. Editor: Olivier Blanchard.

AEJ: Microeconomics: microeconomic theory; corporate finance; industrial organization; micro theory aspects of economic development; and micro aspects of international economics. Editor: Andrew Postlewaite.

AEJ: Economic Policy: public economics; urban and regional economics; public policy aspects of health, education, and welfare; law and economics; economic regulation; and environmental and natural resource economics. Editor: Esther Duflo.

AEJ: Applied Economics: labor; demography; empirical micro development; and health, education, and welfare economics. Editor: Alan Auerbach.

Then I think Tyler becomes confused:

Overall I consider this bad news. It expands the career-making power of one professional association and the editors it nominates. It further encourages overspecialization, and discourages general interest research. It discourages research in the area of whichever journal becomes the weak sister of the four. It makes it harder for an individual piece to stand out as important.

By the time these journals hit the street, it is unlikely that their paper versions will play much of a role at all in deciding what people read--big screens will be too big with too many pixels and printers too fast. What these journals will do is guarantee that Olivier, Andrew, Esther, or Alan is sitting on top of a refereeing process that finds that these papers are interesting. How valuable this signal is depends on how good the editors are at managing referees and how good the editors' tastes are. Certainly AEJ: Macroeconomics and AEJ: Applied Economics will significantly add to my utility. (I don't know Andrew Poslewaite at all, and so don't know how good his taste is, and I have no idea how good a manager Esther will turn out to be.)

Tyler muses further:

The real issue is why articles should be bundled into journals at all...

It used to be a combination of limited economies of scale in distribution and a filtering-signalling mechanism. Now it's overwhelmingly the filtering-signalling mechanism.

2007-02-22T15:39:00.000-08:00

A Dialogue

John of Salisbury: I see that Brad DeLong is getting smacked down from the left and from the right.

Thrasymakhos: Something that would make the world a better place if it happened more often, but about what, exactly?

John of Salisbury: Well, DeLong wrote down an off-the-cuff list of ten "constitutional moments" when American judges had changed the law. Fourth on his list is:

The post-Civil War empowering of corporations with exorbitant privileges of citizenship and limited liability at the expense of government regulators and creditors.

Justinian: And?

Edward Coke: Nathan Newman accused him of Amnesia on the Death of Reconstruction--when the Grant administration was trying to suppress the anti-Negro terrorist insurgency in the U.S. South in the 1870s, the Supreme Court betrayed it and broke the legal tools it was using. Because the Supreme Court threw its weight onto the scales, Newman argues, the terrorists won.

Thrasymakhos: And what does DeLong say?

John of Salisbury: He wimps out. Something about the Supreme Court being a bit player--the main actors being executive and legislative.

Thrasymakhos: But the Supreme Court was active?

John of Salisbury: Very.

Thrasymakhos: Seems like Nathan has a fair point.

Justinian: And what else?

John of Salisbury: This is interesting. I can't claim to fully understand it. From the right, Stephen Bainbridge cheered on by Glenn Reynolds, takes aim at DeLong's example number 4:

I assume that DeLong's talking about the post-Civil war cases [like Santa Clara County v. Southern Pacific Railroad Company].... Congress substituted the word "person" for the word "citizen" [in the text of the Fourteenth Amendment] precisely so that the provisions so affected would protect not just natural persons but also legal persons, such as corporations, from oppressive legislation.... (Admittedly... the legislative history is not uncontroverted.)...

The... cases establishing the corporation as a legal person with constitutional rights were (a) required by the legislative history of the 14th amendment and (b) made good policy sense. Hence, my conclusion that's you're "wrong" was intended to suggest that # 4 doesn't belong on your list. It was also intended to suggest that your rehetorical claim that the post-Civil War cases provided corporations with "exorbitant" privileges was, frankly, over the top. I should have thought that was apparent...

Justinian: I don't understand. Is Bainbridge defending the ruling of the Supreme Court in Santa Clara County v. Southern Pacific Railroad Company because the Court had a choice as to how to rule and chose the just result--the one that made "good policy sense"--or because the Court had no choice as to how to rule, being contrained by the plain meaning of the text?

Thrasymakhos: Neither.

Justinian: Neither?

Thrasymakhos: Neither. Notice that Bainbridge claims not that the Court was constrained by the meaning of the text, but by the legislative history of the amendment. He can't claim that the text requires his interpretation: it doesn't. And notice that Bainbridge cannot claim that justice alone--the fact that this interpretation would make "good policy sense"--is sufficient to justify his interpretation. That would mean that good judges are "activists" because they can make choices, and Bainbridge is certain that good judges aren't activists.

Edward Coke: No, that's not it at all. What good judges do is that they understand the law at a deeper level than other people. They see more clearly than others what the law always meant--but what their predecessors were too blurry-eyed to see.

Thrasymakhos: But the Fourteenth Amendment was then only sixteen years old.

Edward Coke: But the real Constitution--the Constitution that is true justice--had always included a Fourteenth Amendment. The drafters in 1787 had simply failed to see that it did. The life of the law, after all, is reason. The law that is written down is simply crystalized reason itself, to the extent that we can understand and follow it. So it had to be the case that true justice required and the properly-interpreted Fourteenth Amendment required that corporations be persons with the right to the equal protection of the laws. Anything else would be unreasonable.

John of Salisbury: Are you Edward Coke or G.F.W. Hegel?

Justinian: But this "required"? How can claims made about legislative history that are "not uncontroverted" "require" anything?

Edward Coke: Got me.

Justinian: How does this Fourteenth Amendment read?

Edward Coke: Like this:

Section. 1. All persons born or naturalized in the United States and subject to the jurisdiction thereof, are citizens.... No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States; nor shall any State deprive any person of life, liberty, or property, without due process of law; nor deny to any person within its jurisdiction the equal protection of the laws.

Section. 2. Representatives shall be apportioned... counting the whole number of persons in each State....

Justinian: So if you have more corporations in your state, you get more representatives in the legislature?

John of Salisbury: No, no, no! "Persons" in Section 2 refers only to human beings...

Edward Coke: And "persons" at the start of Section 1 refers only to human beings...

John of Salisbury: Only "persons" at the end of Section 1 refers to legal persons, i.e. corporations, as well as human beings...

Justinian: If anybody had tried to place such a strained interpretation on one of my laws...

John of Salisbury: Yes. Justices Hugo Black and William O. Douglas had things to say about Bainbridge's "required":

Wheeling Steel Corporation v. Glander , 337 U.S. 562 (1949): Mr. Justice DOUGLAS, with whom Mr. Justice BLACK concurs, dissenting.

It has been implicit in all of our decisions since 1886 that a corporation is a 'person' within the meaning of the Equal Protection Clause of the Fourteenth Amendment. Santa Clara Co. v. South. Pacific R. Co.... [I]t wrote no opinion on the point.... There was no history, logic, or reason given to support that view.... The Fourteenth Amendment became a part of the Constitution in 1868. In 1871... Mr. Justice Woods (then Circuit Judge) held that 'person' as there used did not include a corporation.... [I]n 1873. Mr. Justice Miller... adverted to events 'almost too recent to be called history' to show that the purpose of the Amendment was to protect human rights--primarily the rights of a race which had just won its freedom....

[W]hat was clear to these earlier judges was apparently plain to the people who voted to make the Fourteenth Amendment a part of our Constitution.... There was no suggestion in [the amendment's] submission that it was designed to put negroes and corporations into one class and so dilute the police power of the States over corporate affairs....

[H]ow strained a construction it is of the Fourteenth Amendment so to hold.... It requires distortion to read 'person' as meaning one thing, then another within the same clause and from clause to clause....

History has gone the other way..... But now that the question is squarely presented I can only conclude that the Santa Clara case was wrong and should be overruled...

Edward Coke: And things get worse. If you look in Justice John Marshall Harlan's opinion in Santa Clara Co. v. South. Pacific R. Co. you see no holding that a corporation is a "person." The Court does not reach the question:

Santa Clara County v. Southern Pacific Railroad Company: The special grounds of defense by each of the defendants were: (1) That its road... a... franchise... derived from the United States, cannot, without their consent, be subjected to state taxation. (2) That the provisions of the constitution and laws of California... are in violation of the fourteenth amendment... denying to it the equal protection of the laws....

Mr. Justice FIELD overruled the first of the special defenses... but sustained the second.... The propositions embodied in the conclusions reached in the circuit court... belong to a class which this court should not decide unless their determination is essential.... [If not,] there will be no occasion to consider the grave questions of constitutional law....

[T]he court below might have given judgment... upon the ground that the assessment... included property... the state board was without jurisdiction to assess.... As the judgment can be sustained upon this ground, it is not necessary to consider any other questions...

Justinian: So Harlan writes explicitly that the Supreme Court is not deciding this question, and people like Bainbridge assert that the Supreme Court did decide the question?

Edward Coke: Yep.

Justinian: Wow.

[Pause]

Justinian: But Bainbridge talks about the legislative history. He says the legislative history requires his reading of the Fourteenth Amendment.

John of Salisbury: Now we get to the interesting case of Roscoe Conkling. Roscoe Conkling claimed that the drafters of the Fourteenth Amendment had used the word "persons" in the equal protection clause so that subsequent courts could use it to protect corporations from legislatures--and that the drafters had kept this secret throughout the ratification process, and that he was only now in 1882 revealing the true meaning of what the states had ratified.

Justinian: Under what theory of ratification is a Court "required" to adopt a secret meaning of a law--a meaning unknown to those who adopted it?

Edward Coke: Got me.

Justinian: If Roscoe Conkling had written an extra clause on the original of the Amendment text in invisible ink, and the Amendment had then been ratified, would Bainbridge say that the invisible ink text was a valid part of the Constitution?

Edward Coke: Got me.

Justinian: Is Bainbridge serious when he writes that this claim by Conkling "requires" that judges adopt Conkling's reading of the Fourteenth Amendment?

Edward Coke: Apparently.

Thrasymakhos: It gets worse: Conkling appears to have misquoted his own diary, and to have done so deliberately: Howard Jay Graham (1938) "The 'Conspiracy Theory' of the Fourteenth Amendment," Yale Law Journal.

Justinian: Your modern jurisprudents appear to be a scurvy lot.

Edward Coke: I cannot disagree.

John of Salisbury: It's your fault.

Edward Coke: My fault?!

John of Salisbury: Yes. You started this practice of pretending that what judges wanted to do was in fact what precedent demanded that they must do. You with your "Great Charter" business--the rights of Englishmen against arbitrary arrest dating back to 1215. If anybody had shown up before Queen Elizabeth I demanding that someone she held in the Tower be released because of the "Great Charter"--well you, you as her Speaker blocked a proposed reaffirmation of it, didn't you? But you wanted to curb the power of a Scottish-born king, and pretending that Magna Carta had always been good law since 1215, and that it had always applied not just to barons with knights in the field but to all crown subjects was just the tool you needed. Modern lawyers have a nasty habit of making false claims about the past--that such and such a reading is "required" because of the past--in the hope that their claims will be true about the future. And it's your fault.

Justinian: I'm still stuck at this "required by the legislative history" business...

Thrasymakhos: It doesn't make "sense." It's not supposed to make sense. It's simply a way of avoiding admitting that the post-Civil War Supreme Court made choices about how American corporate law was to develop, and those choices could have gone different ways...

2007-02-22T15:33:00.000-08:00

Louis Uchitelle:

Nafta Should Have Stopped Illegal Immigration, Right? - New York Times: THE North American Free Trade Agreement, enacted by Congress 14 years ago, held out an alluring promise: the agreement would reduce illegal immigration from Mexico. Mexicans, the argument went, would enjoy the prosperity and employment that the trade agreement would undoubtedly generate--and not feel the need to cross the border into the United States. But today the number of illegal migrants has only continued to rise....

When Nafta finally became a reality, on Jan. 1, 1994, American investment flooded into Mexico, mostly to finance factories that manufacture automobiles, appliances, TV sets, apparel and the like. The expectation was that the Mexican government would do its part by investing billions of dollars in roads, schooling, sanitation, housing and other needs to accommodate the new factories as they spread through the country.

It was more than an expectation. Many Mexican officials in the government of President Carlos Salinas de Gortari assured the Clinton administration that the investment would take place, and believed it themselves, said Gary Hufbauer.... But "it just did not happen," he said. Absent that investment, foreign factories congregated in the north, within 300 miles of the American border, where some infrastructure already existed. "Monterrey is quite good," Mr. Hufbauer said, "but in a lot of other cities the infrastructure is terrible, not even enough running water or electricity in poor neighborhoods. People get temporary jobs, but that is all."

Meanwhile, Mexican manufacturers, once protected by tariffs on a host of products, were driven out of business as less expensive, higher quality merchandise flowed into the country. Later, China, with its even-cheaper labor, added to the pressure, luring away manufacturers and jobs.... [T]otal manufacturing employment in Mexico declined to 3.5 million by 2004 from a high of 4.1 million in 2000, according to a calculation of Robert A. Blecker, an American University economist.

As relatively well-paying jobs disappeared, Mexico's average wage for production workers, already low, fell further behind the average hourly pay of production workers in the United States, and Mexicans responded by migrating. "The main thing that would have stemmed the flow of people across the border was a rapid increase in wages in Mexico," said Dani Rodrik, an economist and trade specialist at Harvard's John F. Kennedy School of Government. "And that certainly has not happened."...

A financial crisis also dashed expectations. One expectation was that the Mexican economy, driven by Nafta, would grow rapidly, generating jobs and keeping Mexicans home. The peso crisis of 1994-95, however, provoked a steep recession, and while there was some big growth later, the average annual growth rate over Nafta's lifetime has been less than 3 percent....

"We underestimated Mexico's deficits in physical and human infrastructure," said J. Bradford DeLong, an economist at the University of California, Berkeley, and a Treasury official in the Clinton administration. But, he says, without Nafta the migration would have been even greater. For instance, he says, there would not have been as much investment in the north of the country....

The European Union, in contrast, assumes little about government spending on the part of economically weaker nations joining it. The union itself has hugely subsidized the improved services needed by entering countries like Portugal, Spain, Greece and Poland, rather than leave financing to the relatively meager resources of entering countries. The money is used not only for public investment, Mr. Rodrik noted, but also to subsidize companies setting up operations in the new countries and to support government budgets. "I am not saying Nafta was a bad agreement," Mr. Rodrik said."But more than a trade agreement is required for countries to converge economically. And Nafta has been viewed as a shortcut to convergence without having to do all the other stuff."

2007-02-22T15:28:00.000-08:00

Jim Hamilton worries about Saudi oil production cuts. He writes:

Econbrowser: Saudi oil production cuts: The Wall Street Journal's assumption that these production cuts represent a deliberate effort by the Saudis to stabilize the price is a reasonable one to make. But one problem with that hypothesis is that the trajectory followed by prices really doesn't jibe with the story....

[T]he cuts in Saudi production began in October 2005, when oil was selling for $62 a barrel, and those cuts continued as oil rose to a new high over $75 last summer.

For that matter, the Saudi production numbers themselves don't look to me like they're under the precise control of anybody. Up through the first half of 2005, the Saudis hit 9.5 mbd or 9.6 mbd month after month. I interpreted the stability of those numbers as signaling that the Saudis could hit any target they wanted, and they happened to be picking 9.5 or 9.6. By contrast, the erratic path since is much harder to view as the outcome of some careful manipulations.

We do know that concomitant with this decrease in Saudi production has been a huge increase in the effort they're making to find and produce new oil, as evidenced by the number of oil rigs the Saudis are employing....

We also know that the decrease in production has coincided with a deterioration in the quality of oil that the Saudis are trying to sell and develop....

There's some fascinating speculation as to what this all means.... The first possibility is that the Saudis could still pump 10 mbd or more today if they wanted to, but they are cutting back production and exploring like mad because they put an extremely high value on having 2-3 mbd of excess capacity... because it puts them in an incredibly powerful negotiating position... the ability at any time to flood the market could be used at an opportune moment to undercut expensive alternatives such as oil sands that require an oil price over $50.

The second and more natural interpretation is even more disturbing: the mighty Ghawar oil field is already in decline, and the Saudis don't want anyone to know.

Now this would be a simple enough hypothesis for anyone to test, if the Saudis published field-by-field numbers for production and water cut. But instead, those numbers are a closely guarded secret, leaving people like me simply to guess as to what the truth might be.

But, if you'll indulge me in a bit of cloak-and-daggerism, there are others who must know. This data cannot be something that would be that difficult for American or Russian intelligence operatives to collect...

2007-02-22T15:22:00.000-08:00

Alan Blinder on "offshoring":

Offshoring and Inequality | TPMCafe: By Ganesh Sitaraman: You probably didn’t notice Princeton economist Alan Blinder’s testimony to the Joint Economic Committee a few weeks ago, but Blinder has peered into the future and identified a crisis that’s just waiting to explode. It’s called offshoring – the movement of jobs or business processes to other countries. So far offshoring has only touched a few areas – manufacturing notable among them--but Blinder thinks that up to 29% of American jobs are offshorable, including many service-industy jobs. Even if only half those jobs go overseas, that’s a crisis of epic proportions....

[T]he dividing line between jobs that are deliverable electronically (and thus are threatened by offshoring) and those that are not does not correspond to traditional distinctions between high-end and low-end work.

The added danger of offshoring is compounded by the rising inequality America has seen since the 1970s. Earnings from work for less-skilled and less-educated workers can't keep up with earnings of the elites in society. These troubles, caused by the market, not by government, have in the last few years been “piled on by enacting tax cuts for the rich while either permitting or causing large holes to emerge in the social safety net.” So when your job is offshored, you’ll be worse off because of the recent erosion of the nation's social and economic safety programs....

Blinder offers two solutions:

First, we need to repair and extend the social safety net for displaced workers. This includes unemployment insurance, trade adjustment assistance, job retraining, the minimum wage, the EITC, universal health insurance, and pension portability--plus other, newer ideas like wage loss insurance.

Second, we must take steps to ensure that our labor force and our businesses supply and demand the types of skills and jobs that are going to remain in America rather than move offshore. Among other things, that may require substantial changes in our educational system—all the way from kindergarten through college.

2007-02-22T10:50:00.000-08:00

The final paper for Econ 210a: Introduction to Economic History will be due Friday March 23, 2007, at 5:00 PM...

2007-02-21T14:49:00.000-08:00

Ezra Klein is disappointed:

Ezra Klein: The End of Romney?: While we're on the subject of 2008, I just don't see how Mitt Romney survives this video....

That's not a qualified defense of choice. It's a full-throated, self-righteous defense of his long-standing, totally immutable belief that women should be able to control their reproductive health. And this isn't from 1993, it's 2002 -- post-9/11, still in the Bush-era. Such a total transformation on such a high-profile issue within five or so years just isn't very credible. Either he was lying then, is lying now, or lacks any convictions to lie about at all. But that video, juxtaposed with his current statements on abortion, will create an ad easily able to sink his candidacy...

2007-02-21T11:51:00.000-08:00

Econ 210a: February 21: Question: The Inflation of the 1970s John Maynard Keynes said, near the end of his life, that the problem of controlling inflation while maintaining full employment was fundamentally a political and not an economic question. Did the 1970s in the developed world prove him right, or prove him wrong?

2007-02-21T11:46:00.000-08:00

John Holbo is turning The Valve's discussion of Daphne Patai and Will Corral's Theory's Empire into a book: Framing Theory's Empire (West Lafayette, IN: Parlor Press).

God, my contribution is good!

I do need, however, to make an abject and public apology to Adam Kotsko for using him as a straw man. If I were writing it over, I would prefer to change things like:

What work can you do with statements like...

to things like:

Let me try to help Adam and company by putting some personal experiential meat, sinew, and skin on their dry theoretical bones...

Over at The Valve, they are talking about the book Theory's Empire--and thus about the damage done by "Critical Theory" and its spawn on the American humanities over the past generation. But most of it is all too... theoretical.¹ What work can you do with statements like:

"Derrida is... the greatest and most exciting thinker of the 20th century.... Derrida is in many respects... very conservative... one must start from that conservatism in order to measure the ways in which he is radical... can seem highly radical to thinkers who are attempting to graft Derrida into a tradition... in which many of Derrida’s key reference points have historically been marginal.... How much does that affect the way you read a sentence where someone asks to have a button undone? Probably not much..."
"This polarizing, personalizing rhetoric indicates that social constructionism has an institutional basis, not a philosophical, moral, or political one. It tramples on philosophical distinctions and practices an immoral mode of debate. Though it declares a political goal for criticism, it is not a political stance.... Herein lies the secret of constructionism’s success... it is the school of thought most congenial to current professional workplace conditions of scholars in the humanities."
"I liked theory, even when I felt I didn't have the faintest idea what was going on, because if nothing else you could sense the energy behind it.."
"The older philosophical critics, Jameson suggests, lacked Hegelian seriousness: in place of an aggressive commitment to the consequences of their premises, they were 'content' to 'simply' muse about literature 'in an occasional way'.... His sinecured dilettanti mass-produced 'curiosities of an existential or phenomenological criticism, or a Hegelian or a gestalt or indeed a Freudian criticism.' Burke, Empson et al. avoided indenture in the Curiosity Trade, Jameson argues, by processing literature in accordance with a personal interpretive ethos, one resonant with a nonsystemized theory nonetheless compulsively applied in a rage for symmetry. Jameson’s notion of a virtuoso critic (of the good camp) can be summed up thus: a thinker of original temperament but suitable Hegelian seriousness whose passion for patterns generates interesting reading of literary works. His notion of a virtouso critic (of the bad): calicified mind, learned but unoriginal and philosophically fickle, whose passions for other people’s patterns generates predictable readings of literary works..."
"I apologize for Heidegger’s highly convoluted and neologistic prose. (I imagine that some readers are already thinking, 'come back, Derrida, all is forgiven').... In Heidegger’s reading, we could say that the discovery of Neptune in 1846 could plausibly be described, from a strictly human vantage point, as the 'invention' of Neptune.... [B]efore we began to look for it, the planet 'Neptune' simply did not exist in any human consciousness.... And yet once humans had invented... Neptune, they understood [it]... as [a thing]... not susceptible to mere human invention..."
"[It] takes the already deeply problematic arguments and style of the dominant superstars like Spivak, Prakash and Bhabha and operationalizes it as yeoman-level banality"

There is a certain bloodlessness here: the dry bones hop about and clatter, but there is no flesh on them: much too little is said about how High Critical Theory changed--for good and for ill--how "we" "read" "our" "texts".²

So let me get down and dirty: in the boiler room, at the contact point, before the mast. Let me recount the two months--November and December 1981--that I spent enthralled by the High Critical Theory of Michel Foucault.

By day I would rise late, eat a strange late breakfast of scrambled eggs mixed with cottage cheese (a kind of breakfast which I ate only from November 1981 through January 1982, never before, and never since), and then walk across the Charles River footbridge to the Kress Collection of the History of Economic Thought in Baker Library. I would read. I would hasten out into the lobby where I was allowed pens and take notes. I would go back in and read some more. I would hasten out into the lobby. After dinner I would sit in my room, either staring at the wall wondering what my thesis was going to be about or reading secondary works on the history of economic thought, hoping to spot a hole that I could fill with something sorta original.

It was Associate Professor of Social Studies Michael Donnelly's fault. He knew I was trying to write an undergradute thesis about the British Classical Economists and how they understood the economy of their time. He gave me a book by Keith Tribe, Land, Labour, and Economic Discourse. And Tribe had read and been hypnotized by Foucault--specifically The Order of Things and _The Archaeology of Knowledge. I began to read Keith Tribe. He said very strange things. He said that the Wealth of Nations that economists read was not the Wealth of Nations that Adam Smith wrote. The Wealth of Nations that economists read was made up of two books: Book I on markets and Book II on capital. The Wealth of Nations that Adam Smith wrote was made up of five books: Book I on the "system of natural liberty," Book II on accumulation and the profits of stock, Book III on the economic history of Europe and why the empirical history of its economic development had diverged from its natural history, Book IV on the mercantile and physiocratic systems of political economy, and Book V on the proper management of the affairs of the public household by the statesman.

The Wealth of Nations, Tribe said, could not be a book of economics because a book of economics had to be about the economy. And there was no such thing as the economy in 1776 for a book of economics to be about. What was there? There was the undifferentiated stuff of the mixed social-cultural-political-trading system that governed production and distribution: material life. There was the study of the management of public finances. This was conceived in a manner analogous to the domestic-economic management of household finances. Just as--to Robert Filmer and others--the King was the father of the people, so the King's household--which became the state--had to be properly and prudently managed.

In the words of James Steuart, who wrote his Principles of Political Oeconomy nine years before the Wealth of Nations, in 1767: "Oeconomy, in general, is the art of providing for all the wants of a family, with prudence and frugality. What oeconomy is in a family, political oeconomy is in a state." It is managing affairs to make the people prosperous and the tax collections ample by governing "in such a manner as naturally to create the reciprocal relations and dependencies between [inhabitants], so as to make their several interests lead them to supply one another with their reciprocal wants."

There wasn't, Tribe argued, an economy that an economist could write a book of economics about until the 1820s or so.

Strip Tribe's (and Foucault's) arguments of their rhetoric of apparent contradiction and you can understand that within the mystical shell there is a rational kernel. It is--or, at least, I read them as--an injunction to analyze a school of thought in more-or-less the following way:

Read not just one or two important books, but a whole bunch of books that talk to our past each other and use the same or similar vocabulary in order to identify the school you will look at.
Strip your mind of what they must be talking about, and look with fresh eyes on what they are talking about.
Examine what rhetorical, conceptual, and intellectual moves are common within the examples you have of this "discursive formation."
Think hard about what rhetorical, conceptual, and intellectual moves you would think you would find in these books--but don't.
Think hard about what rhetorical, conceptual, and intellectual moves you do not expect to find prominently in these books--but that you nevertheless do find.
Present to the world, in as clear and straightforward a way as you can, what this particular form of discourse was--what it thought the world was like, what it saw as important, what its particular blindnesses were, what its particular sharp points of insight were.
Do not, ever, grade a discursive formation of the past by how much it falls away from the ideas of the bien-pensant of today. The past is another country.

And I became convinced that Tribe and Foucault were right. It was, indeed, only with Ricardo that the operation of what we now say is the economy--the production, exchange, and distribution of goods and services all mediated through market exchange--was seen as something that was important enough, or separate enough, or coherent enough to be something that it made sense to write books about, and, indeed, something that it made sense to be an expert in. David Ricardo was a political economist. Adam Smith was a moral philosopher. To try--as somebody like Joseph Schumpeter was--to grade Adam Smith as if he were engaged in the same intellectual project as Schumpeter was somewhat absurd.

Tribe applied this methodology to Adam Smith, his predecessors, contemporaries, and successors. What they were doing, before Ricardo, was Political Oeconomy--writing manuals of tactics and policy as advice to statesmen, although manuals restricted to what Adam Smith would have called (did call) a subclass of police: how to keep public order and create public prosperity. Hence for Adam Smith Book V of Wealth of Nations is the payoff: it tells British statesmen what they ought to do in order to make the nation prosperous, their tax coffers full, and thus the state well-funded. Book IV is a necessary prequel to Book V: it tells the statesmen in the audience why the advice that they are being given by others in other books of Political Oeconomy--by Mercantilists and Physiocrats. Book III is another necessary prequel: it teaches statesmen about the economic history of Europe and how political oeconomy of various kinds has been practiced in the past.

But Tribe's (and Foucault's) methodology collapses when we work back to Books II and I of the Wealth of Nations. For Adam Smith is not the prisoner of the discursive formation of Political Oeconomy. He is not the simple bearer of currents of thought and ideas that he recombines as other authors do in more-or-less standard and repeated ways. Adam Smith is a genius. He is the prophet and the master of a new discipline. He is the founder of economics.

Adam Smith is the founder of economics because he has a great and extraordinary insight: that the competitive market system is a remarkably powerful social calculating and organizing mechanism, and that the sophisticated division of labor to which a competitive market system backed up by secure and honest enforcement of property rights give rise is the key to the wealth of nations. Some others before had had this insight in part: Richard Cantillon writing of how once you have specified demands the market does by itself all the heavy lifting that a central planner would need to do; Bernard de Mandeville that dextrous management by a statesman can use the power of private greed to produce the benefit of public utility. But it is Smith who sees what the power of the "system of natural liberty" that is the market could be--and who follows the argument through to the conclusion that it forever upsets and overturns the previous intellectual moves made in and conclusions reached by the discursive formation of Political Oeconomy.

And once I had worked my way through to this conclusion, I could start to write my own thesis. I had broken the thralldom. Foucault's ideas of "discourse" and "archaeology" were not my masters, but my tools. And as I wrote it became very clear to me that between David Ricardo and even the later John Stuart Mill the discursive formation that was Classical Economics did not produce anybody like Adam Smith. There was nobody who made the intellectual leap--produced the epistemological break--that Smith had done that shattered Political Oeconomy and enabled the birth of Classical Economics. I could write my thesis about how the British Classical Economists never understood the Industrial Revolution that they were living through.

--J. Bradford DeLong, B.A. in Social Studies summa cum laude, June 1982.