The Federal Reserve and the Great Depression

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

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?"

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

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

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"

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!

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?

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.''

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."

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.

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.

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

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

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.

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