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Monday, April 30, 2007

James Galbraith on the Fed: A Deer in the Headlights

Jamie Galbraith on the Fed, the economic outlook, and inflation targeting:

A deer in the headlights, by James Galbraith, Commentary, UK Guardian: In my last column on the American economy, I asked if worse was soon to come. It was. And it has. First quarter GDP growth has slowed to a 1.3% annual rate. Housing fell by over 17%. Business equipment and software investment also fell. Meanwhile inflation picked up... Again one has to ask: does the Federal Reserve know what it's doing?

At a conference ... at the Levy Economic Institute of Bard College, Fed Governor Ric Mishkin delivered an appraisal. For three years, he noted, real growth had equaled 3.5 percent, only recently slowing to "a more moderate and sustainable pace". And this, he said, is a good thing...

Looking ahead, Mishkin was judiciously upbeat... Of course, Mishkin is obliged to say such things. He would have delivered that speech whether he believed it or not... But reality checked in just one week later. One point three percent isn't moderate; it's slow. ... For the moment, inflation is now running at roughly twice the Fed's notional target.

According to normal practice, when inflation jumps the Fed should tighten, and when growth stumbles it should ease. Hello rock. Hello hard place. What is a central banker to do?

The most likely answer is, freeze. Mishkin's speech prefigures this. He carefully acknowledged every known aspect of the slowdown so far. But he still projects that the economy will, nevertheless, continue to expand at a "moderate and sustainable" pace. This projection, and not current facts, governs the policy stance. ... Deviations below the forecast - such as just occurred - are simply evidence that the future will be stronger, not weaker, than the recent past. Policy should therefore not respond. Thus, the deer in the headlights.

I asked a theoretical question. Mishkin's vision of the economy, I offered, was one of Dantesque darkness: with the pits of hell all around, the flames of inflation licking at our feet, and only the valiant Central Banker as our guide and protector... But suppose, instead, all those fires had gone out twenty-five years ago? Apart from the recent blip, plainly induced by oil prices, we have not actually seen inflation since the early 1980s. How can one tell, I asked, that it hasn't died?

Continue reading "James Galbraith on the Fed: A Deer in the Headlights" »

    Posted by on Monday, April 30, 2007 at 04:05 PM in Economics, Monetary Policy | Permalink  TrackBack (0)  Comments (13)


    Paul Krugman: Another Economic Disconnect

    Why haven't high profits caused an investment boom?:

    Another Economic Disconnect, by Paul Krugman, Commentary, NY Times: Last fall Edward Lazear, the Bush administration’s top economist, explained that what’s good for corporations is good for America. “Profits,” he declared, “provide the incentive for physical capital investment, and physical capital growth contributes to productivity growth. Thus profits are important not only for investors but also for the workers who benefit from the growth in productivity.”

    In other words, ask not for whom the closing bell tolls; it tolls for thee.

    Unfortunately, these days none of what Mr. Lazear said seems to be true. In the Bush years high profits haven’t led to high investment, and rising productivity hasn’t led to rising wages.

    The second of those two disconnects has gotten a lot of attention... The administration and its allies whine that they aren’t getting credit for a great economy, but because wages have been stagnant [since 2001]... the economy feels anything but great to most Americans.

    Less attention, however, has been given to the first disconnect: the failure of high profits to produce an investment boom.

    Since President Bush took office ... rising productivity and stagnant wages — workers are producing more, but they aren’t getting paid more — has led to ... corporate profits more than doubling since 2000. Last year, profits as a share of national income were at the highest level ever recorded.

    You might have expected this gusher of profits, which surely owes something to the Bush administration’s pro-corporate, anti-labor tilt, to produce a corresponding gusher of business investment. But the reality has been more of a trickle. ...

    It’s possible that sluggish business investment reflects lack of confidence in the economic outlook —... that’s understandable given the bursting of the housing bubble...

    But ... there is a more disturbing possibility. Instead of investing in physical capital, many companies are using profits to buy back their own stock. And cynics suggest that the purpose  is to produce a temporary rise in stock prices that increases the value of executives’ stock options, even if it’s against the long-term interests of investors.

    It’s not a far-fetched idea. Researchers at the Federal Reserve have found evidence that ... stock buybacks are strongly influenced by “agency conflicts,” a genteel term for self-dealing by corporate insiders. ...

    Whatever the reasons, we now have an economy with incredibly high profits and surprisingly low investment. This raises some immediate, short-run concerns: with housing still in free fall and consumers ever more stretched, optimistic projections for the economy depend on vigorous growth in business investment. And that doesn’t seem to be happening.

    The bigger issue, however, may be longer term. Mr. Lazear was right about one thing: business investment plays an important role in raising productivity. High investment in equipment and software was one major reason for the productivity takeoff that began in the Clinton era, and continued in the early years of this decade.

    And low investment may be one reason productivity growth has slowed dramatically over the last three years — another development that hasn’t received as much attention as it should.

    In any case, next time someone tells you that any action that might reduce corporate profits a bit — like actually enforcing health and safety regulations or making it easier for workers to organize — will reduce business investment, bear in mind that today’s record profits aren’t being invested. Instead, they’re being used to enrich executives and a few lucky stock owners.

    _________________________
    Previous (4/27) column: Paul Krugman: Gilded Once More
    Next (5/14) column: Paul Krugman: Divided Over Trade

      Posted by on Monday, April 30, 2007 at 12:15 AM in Economics | Permalink  TrackBack (1)  Comments (76)


      Tim Duy's Fed Watch: Fed Poised to Hold Steady

      Tim Duy with a Fed Watch in anticipation of next week's FOMC meeting:

      We are just over a week out from the next FOMC meeting, and there is little reason to believe that the Fed is ready to make a significant shift in policy. Indeed, market participants are looking for the Fed to hold firm throughout the summer. And while the weak GDP report will likely leave monetary policymakers a bit more wary of the downside risks to the forecast, it had enough positive points to leave Fed policy fundamentally unchanged.

      According to the Wall Street Journal, the GDP report suggests that the “worst of the slowdown might be past and giving economists reason to predict faster growth in the months ahead.” In the wake of a paltry 1.3% gain, this sounds like something of a leap of faith, but I can sympathize with four points:

      Continue reading "Tim Duy's Fed Watch: Fed Poised to Hold Steady" »

        Posted by on Monday, April 30, 2007 at 12:09 AM in Economics, Fed Watch, Monetary Policy | Permalink  TrackBack (1)  Comments (9)


        Larry Summers: We Need to Bring Climate Idealism Down to Earth

        Larry Summers begins a series of two columns on approaches to solving the global warming problem. In this column, he looks at potential pitfalls with existing plans as embodied in the Kyoto protocol, and in the next he'll examine other approaches with more attractive features, but which presently have less political momentum:

        We need to bring climate idealism down to earth, by Lawrence Summers, Commentary, Financial Times (free): With the accumulation of scientific evidence and its persuasive presentation to the public, the global warming debate has reached a new stage. ...

        The real question for debate is not whether something should be done – that debate is over among the rational. The crucial question now is what should be done so as to leave our descendants with the highest possible quality of life. ...

        There is a very real danger that the global cap and trade approach ... enshrined in the Kyoto protocol – now favoured by most European governments – could be ineffective or even counterproductive by substituting for more realistic approaches to the problem. Kyoto is now the only game in town for those who do not want to be ostriches with respect to global climate change and so one has to hope for its ultimate success. But it is surely useful to try to be clear about the potential pitfalls...

        Continue reading "Larry Summers: We Need to Bring Climate Idealism Down to Earth" »

          Posted by on Monday, April 30, 2007 at 12:06 AM in Economics, Environment, Policy | Permalink  TrackBack (0)  Comments (21)


          Sunday, April 29, 2007

          Krugman: Distribution and Trade Policy

          Paul Krugman adds a few more thoughts via email related to the recent trade policy discussion (fully covered here):

          Paul Krugman: Another thought or two on distribution and trade policy:

          The problem of losers from trade isn't new, obviously, either as a fact or concept. But if you look at the history of trade policy - say, in Matt Destler's book it's hard to avoid the sense that the issue has gotten bigger and harder. His final chapters have a definite sense both of nostalgia for the good old days and foreboding.

          I'd put it like this: in the old days, when GATT negotiations were mainly with other advanced countries, the groups hurt tended to be highly specific and local - the left-handed widget makers of Northern South Dakota, worried about competition from their counterparts in Upper Lower Swabia. Economists could in good conscience argue that while individual groups were hurt by trade liberalization in their specific sector, the great majority of Americans benefitted from general trade liberalization. And politicians made trade deals by packaging together the interests of exporters, to offset the parochial interests of import-competing industries

          But now we're talking about broad swaths of the population hurt by trade. It's a good bet that almost all US workers with a high school degree or less are hurt by Chinese manufactured exports, at least slightly. You could in principle put together win-win packages - say, trade liberalization together with an increase in the EITC paid for with higher taxes on high-income Americans, who come out winners from trade. But the reality is that we don't make those deals.

          For those who like their jargon, by the way, I'm basically saying that the right model for thinking about this has gone from many-good specific factors to Heckscher-Ohlin.

          I don't have answers to this. The moral case for open markets is their importance to poor countries: America would do OK even in a highly protectionist world, but Bangladesh wouldn't. The domestic politics of trade, however, are now very hard, and getting harder.

          Update: Brad DeLong follows up with his solutions to this problem.

            Posted by on Sunday, April 29, 2007 at 03:06 PM in Economics, International Trade, Monetary Policy | Permalink  TrackBack (0)  Comments (43)


            Credit Slips: Wife Beaters and Bankrupts

            Elizabeth Warren at Credit Slips disagrees with the claim that the stigma attached to bankruptcy has declined over time, and that this explains changes in the number of bankruptcies:

            Wife Beaters and Bankrupts, by Elizabeth Warren: A quarter page advertisement in the New York Times shows a young man and woman laughing, (a boyfriend-girlfriend sort of moment), under the headline "GET THE WHOLE STORY ON HIM, BEFORE IT IS TOO LATE." The advertiser, Intelius, promises to check out two things: 1) Bankruptcy, and 2) Domestic Violence Convictions. 

            At the same time, Katie Porter unearthed the CapitalOne 10-K warning investors that future business might not be so rosy if "social factors" such as "the stigma of personal bankruptcy" decline.

            So there it is: A huge credit card company says it may see spiraling losses if more people decide to abandon all moral conviction, and a background search company reminds America that guys who file bankruptcy and beat women are on par with each other--shoot, maybe they are the same guys.

            Corporate America has a message: bankruptcy is about moral depravity.

            Continue reading "Credit Slips: Wife Beaters and Bankrupts" »

              Posted by on Sunday, April 29, 2007 at 02:27 PM in Economics, Social Insurance | Permalink  TrackBack (0)  Comments (8)


              Was It All in Ohlin?

              Given the recent interest in trade models, let me add this from Paul Krugman who knows a thing or two about this area of economics (I should note that it's a bit theoretical in spots, e.g. see figures 1 and 2, this is not the Krugman you read on the pages of the New York Times. However, even if the details of the graphs and other theoretical points are not completely clear to you, the larger points come through):

              Was It All in Ohlin?, by Paul Krugman, October 1999: Let me begin with an embarrassing admission: until I began working on this paper, I had never actually read Ohlin's Interregional and International Trade. I suppose that my case was not that unusual: modern economists, trained to think in terms of crisp formal models, typically have little patience with the sprawling verbal expositions of a more leisurely epoch. To the extent that we care about intellectual history at all, we tend to rely on translators - on transitional figures like Paul Samuelson, who extracted models from the literary efforts of their predecessors. And let me also admit that reading Ohlin in the original is still not much fun: the MIT-trained economist in me keeps fidgeting impatiently, wondering when he will get to the point - that is, to the kernel of insight that ended up being grist for the mills of later modelers.

              Continue reading "Was It All in Ohlin?" »

                Posted by on Sunday, April 29, 2007 at 12:48 PM in Economics, International Finance, International Trade | Permalink  TrackBack (0)  Comments (4)


                Concern over a Strong Euro

                This article argues there is growing concern in Europe over the consequences of a strong Euro, particularly for export dependent members of the EU, and that this may create difficult problems for the European Central Bank:

                New Euro Record Prompts Quiet Grumbles, by Jurgen Reinhoudt, American.com: The apparent calm after this morning’s all-time high against the dollar masks a growing sense of unease in Europe. Today, as the Euro hits a record high against the dollar, the political complaints were barely audible—in fact, compared to earlier anger over the “low” value of the Euro, politicians have been unusually calm... It’s all too easy, however, to gloss over a significant amount of concern held by European politicians, particularly French and Southern European politicians who are worried over the strength of their export position.

                Continue reading "Concern over a Strong Euro" »

                  Posted by on Sunday, April 29, 2007 at 11:56 AM in Environment, International Finance | Permalink  TrackBack (0)  Comments (4)


                  Saturday, April 28, 2007

                  Birds of a Feather and Bad Economic Weather

                  Spending on social programs tends to fall as racial and ethnic diversity increases:

                  The Divisions That Tighten the Purse Strings, by Eduardo Porter, NY Times: Many Americans are skeptical about government spending on social programs, and they cite a litany of familiar reasons: big government programs aren’t effective, they are vulnerable to waste and abuse, and they run counter to the libertarian, self-reliant spirit of the nation’s founders.

                  But a growing body of research suggests that America’s antipathy toward big government has another, less-often-acknowledged underpinning: the nation’s racial and ethnic diversity.

                  Recent studies ... have found that this mix tends to undermine support for government spending on “public goods” of all types, whether health care, roads or welfare programs for the disadvantaged. ...

                  Continue reading "Birds of a Feather and Bad Economic Weather" »

                    Posted by on Saturday, April 28, 2007 at 08:10 PM in Economics, Social Insurance | Permalink  TrackBack (0)  Comments (28)


                    On the Other Hand . . . . Rodrik versus Mankiw (Others Also Weigh In)

                    Dani Rodrik and Greg Mankiw are debating a couple of issues. (Update: Paul Krugman also comments on this debate, see the first update at the end of the post. Update: See the response from Greg Mankiw and and his follow-up. Update: Tyler Cowen and Kash Mansori add their thoughts. Update: David Altig too. Update: Paul Krugman adds more thoughts. Update: Two more from Dani Rodrik. Update: PGL at Angry Bear follows up. Update: Two more from Alex Tabarrok and Brad Setser)

                    The first is the effect, if any, of globalization of the aggregate price level versus its effects on relative prices (PGL at Angry Bear comments on this as well), and the second is how to present economic results to the public and policymakers. e.g. how much to qualify results when advocating for policies such as free trade. I want to focus more on the second issue, but I'll include both:

                    The debate started with this post by Daniel Drezner:

                    The greatest threat this blog has ever faced, by Daniel Drezner: ...I have to take issue with the central argument of this Rodrik post:

                    Imagine some change in the economy leaves Tom $3 richer and Jerry $2 poorer, and I ask you whether you approve of this change. Few economists, regardless of their political and philosophical orientation, would be able to give a straight answer without asking for more information.... In other words, most of us would care about the manner in which the distributional change occurred--i.e., about procedural fairness....

                    Yet when we teach comparative advantage and explain the gains from trade, we typically overlook this important conclusion. We expect our students to focus on the net gain triangles and disregard the rectangles of redistribution. ...

                    Continue reading "On the Other Hand . . . . Rodrik versus Mankiw (Others Also Weigh In)" »

                      Posted by on Saturday, April 28, 2007 at 10:39 AM in Economics, Income Distribution, International Trade, Politics | Permalink  TrackBack (1)  Comments (26)


                      Does the CBO Report on Income Volatility Undermine Jacob Hacker's "The Great Risk Shift"? No it Doesn't...

                      Ever since this CBO report on individual earnings volatility came out, there have been questions raised about whether it undermines Jacob Hacker's work in The Great Risk Shift showing increases in economic insecurity over time. For example, this article by David Leonhardt in the New York Times highlights the CBO results, Greg Mankiw notes the results here, and Tyler Cowen says:

                      Leonhardt agrees with my view that the recent CBO report effectively counters Jacob Hacker on "the great risk shift." Until we see further evidence to the contrary, that thesis belongs in the "simply isn't true" pile.

                      However, the CBO results do not effectively counter Jacob Hacker. By email, Jacob explains why:

                      Jacob Hacker: I have received many questions about the Congressional Budget Office’s (CBO) recent report that finds that individual earnings volatility, while extremely high, has not risen since the 1980s. Although this new research significantly expands what we know about individual earnings volatility, it does not challenge my contention that family income volatility has grown, nor is it at odds with my larger argument that the level of economic risk that families face has risen dramatically.

                      Continue reading "Does the CBO Report on Income Volatility Undermine Jacob Hacker's "The Great Risk Shift"? No it Doesn't..." »

                        Posted by on Saturday, April 28, 2007 at 09:09 AM in Economics, Social Insurance | Permalink  TrackBack (0)  Comments (13)


                        The Origins of a Feminist Economist

                        There are two topics here, discrimination and social safety nets:

                        Business School's first female professor reveals the roots of her feminism, by Michael Peña, Stanford News Service: Given the profound stresses and stereotyping encountered by Professor Myra Strober throughout her life, it's no surprise that she trained her intellectual sights on the field of feminist economics.

                        Continue reading "The Origins of a Feminist Economist" »

                          Posted by on Saturday, April 28, 2007 at 07:53 AM in Economics | Permalink  TrackBack (0)  Comments (7)


                          Friday, April 27, 2007

                          Republicans and the Expiration of Tax Cuts

                          John Berry says if the tax cuts Republicans passed into law expire, they "have only themselves to blame, because the expiration dates were set originally to mislead the public":

                          Congress Wrangles Over Bush's Expiring Tax Cuts, by John M. Berry, Commentary, Bloomberg: The high-stakes revenue wars have begun again, with some Republicans complaining that the Democrats controlling Congress are planning the biggest tax increase in U.S. history. ...

                          [T]he potential tax increases worrying the Republicans will occur ... because many of the tax cuts enacted since President George W. Bush took office six years ago will expire in the next two or three years unless legislation extending them is passed.

                          If that happens, Republicans have only themselves to blame, because the expiration dates were set originally to mislead the public about the amount of revenue loss involved. Of course, from the beginning the plan was to argue that letting the cuts expire would impose tax increases that would harm the economy and cost jobs.

                          Long-term demands on the government -- such as paying Social Security and Medicare benefits to retiring baby boomers -- mean some increases probably are in store. Nevertheless, it's highly likely that many of the tax cuts benefiting low- and moderate- income taxpayers ... will be extended.

                          In the tax debates, the link between tax cuts or tax increases and growth is frequently exaggerated. The impact of either depends on the economic circumstances of the time.

                          Do you recall Rush Limbaugh's offer to bet $1 million that President Bill Clinton's 1994 tax increases would plunge the country into a recession? Didn't happen. ...

                          In 2001, when the bill was being debated, Bush and Republican congressional leaders -- with the help of some Democrats -- played all sorts of games to make the cuts appear smaller when calculating the impact over the next 10 years.

                          Some of the cuts were to be phased in and then eliminated in the 10th year. Perhaps the most egregious give and take was played with the estate tax. Its bite was to be reduced gradually through 2009, then repealed altogether in 2010 and then re- imposed fully in 2011. ...

                          Democrats should challenge Republicans to identify what cuts they would make to social programs in return for making these tax cuts permanent -- not some game this time to hide the full impact of the tax cuts -- but the cuts required to make the tax cuts permanent like they desire. The programs that will need to be sacrificed, not output growth and employment which are not substantially impacted by tax changes of the type and magnitude we are talking about, is what's on the table.

                            Posted by on Friday, April 27, 2007 at 09:54 PM in Budget Deficit, Economics, Politics, Taxes | Permalink  TrackBack (0)  Comments (5)


                            FRB Dallas: The U.S. Budget Deficit’s Uncertain Prospects

                            This Economic Letter from Jason Saving of the Dallas Fed examines potential paths for the budget deficit in coming years:

                            Fiscal Fitness: The U.S. Budget Deficit’s Uncertain Prospects, by Jason L. Saving, Economic Letter, Federal Reserve Bank of Dallas, Vol. 2, No. 4, April 2007: Recent headlines tell us U.S. budget deficits have been shrinking in the past few years, but Washington’s fiscal fitness remains a matter of concern.

                            The International Monetary Fund, for example, has argued that worldwide economic growth will be noticeably weaker in the future if the U.S. doesn’t get its fiscal house in order. In January, Federal Reserve Board Chairman Ben Bernanke told Congress that the U.S. faces an impending fiscal crisis if it fails to address key budget issues.[1]

                            Such warnings call for a sober examination of prospects for the nation’s budget deficits. The most recent proposal envisions eliminating them within six years, but doing so will require lawmakers to overcome several significant obstacles. Other uncertainties emerge from the recently approved pay-as-you-go, or paygo, rules and their effect on potential reforms of the alternative minimum tax (AMT). Both paygo and the AMT play important roles in another major fiscal question—the fate of the 2001 and 2003 tax cuts. Even if we manage to handle these short-term issues, the long-term challenge posed by entitlements is significantly greater, with no easy solutions in sight.

                            The inescapable conclusion is that we face a daunting fiscal situation, one with potentially harmful implications for the U.S. economy.

                            Spending Growth
                            The federal deficit has fallen for three straight years—from a record $412 billion in 2004 to $248 billion in 2006. In February, President Bush released a proposed budget under which red ink would decline to $244 billion this year and $187 billion in 2009. The document projects a surplus of $61 billion in 2012 (Chart 1).

                            Chart 1: Will deficit turn to surplus by 2012?

                            What assumptions underlie these figures—and are they likely to hold? The proposed budget assumes 3 percent real annual growth in gross domestic product (GDP) and 4.8 percent unemployment between now and 2012, figures that aren’t out of line with most forecasts. But it also assumes that real spending growth will be held to 0.4 percent a year, very low by historical standards.

                            Past budgets have been presented with similarly inspiring calls to rein in government spending. If this year’s targets were to be similarly disregarded, what might the deficit picture look like? To answer this question, let’s look at the average annual increase in real federal outlays under the past few administrations (Chart 2).

                            Chart 2: Spending growth has accelerated

                            Real outlays have grown at a 4.6 percent annual rate since President Bush took office in 2001, compared with 2.7 percent under Ronald Reagan and 0.8 percent under Bill Clinton. To some extent, the faster spending growth is expected, given that we are now using the post-Cold War “peace dividend” to fight the war on terrorism. Defense spending has indeed been sharply higher in recent years, but nondefense outlays have also risen more rapidly, growing at a real annual rate of 3.5 percent.

                            Continue reading "FRB Dallas: The U.S. Budget Deficit’s Uncertain Prospects" »

                              Posted by on Friday, April 27, 2007 at 05:04 PM in Budget Deficit, Economics, Monetary Policy, Social Insurance, Social Security | Permalink  TrackBack (1)  Comments (1)


                              Paul Krugman: Gilded Once More

                              Paul Krugman looks at the return of the Gilded Age:

                              Gilded Once More, by Paul Krugman, Commentary, NY Times: One of the distinctive features of the modern American right has been nostalgia for the late 19th century, with its minimal taxation, absence of regulation and reliance on faith-based charity rather than government social programs. Conservatives from Milton Friedman to Grover Norquist have portrayed the Gilded Age as a golden age, dismissing talk of the era’s injustice and cruelty as a left-wing myth.

                              Well, in at least one respect, everything old is new again. Income inequality — which began rising at the same time that modern conservatism began gaining political power — is now fully back to Gilded Age levels.

                              Consider a head-to-head comparison. We know what John D. Rockefeller, the richest man in Gilded Age America, made in 1894, because ... he had to pay income taxes. ... His return declared an income of $1.25 million, almost 7,000 times the average per capita income ... at the time.

                              But that makes him a mere piker by modern standards. Last year, ... James Simons, a hedge fund manager, took home $1.7 billion, more than 38,000 times the average income..., and the top 25 combined made $14 billion. ...

                              The hedge fund billionaires are simply extreme examples of a much bigger phenomenon: every available measure of income concentration shows ... levels of inequality not seen since the 1920s. The new Gilded Age doesn’t feel quite as harsh and unjust as the old Gilded Age — not yet, anyway. But that’s because the effects of inequality are still moderated by progressive income taxes, which fall more heavily on the rich...; by estate taxation, which limits the inheritance of great wealth; and by social insurance programs like Social Security, Medicare and Medicaid, which provide a safety net for the less fortunate.

                              You might have thought that in the face of growing inequality, there would have been a move to reinforce these moderating institutions — to raise taxes on the rich and use the money to strengthen the safety net. ...

                              But... Taxation has become much less progressive: ... average tax rates on the richest 0.01 percent ... have been cut in half since 1970, while taxes on the middle class have risen. In particular, the unearned income of the wealthy — dividends and capital gains — is now taxed at a lower rate than the earned income of most middle-class families. ...

                              Meanwhile, the tax-cut bill Congress passed in 2001 set in motion a complete phaseout of the estate tax. If the Bush administration hadn’t been too clever by half, hiding the true cost of its tax cuts by making the whole package expire at the end of 2010, we’d be well on our way toward becoming a dynastic society.

                              And as for the social insurance programs..., the Bush administration tried to privatize Social Security. If it had succeeded, Medicare would have been next.

                              Of course, the administration’s attempt to undo Social Security was a notable failure. The public, it seems, isn’t eager to return to the days before the New Deal. And the G.O.P.’s defeat in the midterm election has put on hold other plans to restore the good old days.

                              But it’s much too soon to declare the march toward a new Gilded Age over. If history is any guide, one of these days we’ll see the emergence of a new Progressive Era, maybe even a new New Deal. But it may be a long wait.

                              _________________________
                              Previous (4/23) column: Paul Krugman: A Hostage Situation
                              Next (4/30) column: Paul Krugman: Another Economic Disconnect

                                Posted by on Friday, April 27, 2007 at 12:15 AM in Economics, Income Distribution, Politics | Permalink  TrackBack (0)  Comments (50)


                                Has Sarbanes-Oxley Made U.S. Financial Markets Less Competitive?

                                Remember all the noise from Treasury Secretary Paulson and others about how Sarbanes-Oxley financial market regulation is making it difficult for US financial markets to compete with foreign markets? The goal is to ease or eliminate the restrictions which were put into place to protect investors after the Enron scandal. There's new evidence suggesting the claim that this regulation inhibits competiveness is false:

                                Maybe U.S. Markets Are Still Supreme, by Greg Ip, WSJ: In recent months, policy makers and business groups have argued that post-Enron regulatory burdens have made U.S. markets less competitive -- citing as proof the many foreign companies that list their shares in London instead of New York.

                                Now, three academic pioneers in the field are casting doubt on the assertion.

                                In a new study, they conclude there is no evidence the much-criticized 2002 Sarbanes-Oxley Act, which beefed up corporate accounting and financial disclosures, among other things, increased London's appeal to foreign companies at New York's expense...

                                The research also found that investors are still willing to pay a sizable premium for foreign-company shares listed in the U.S., in return for meeting tough U.S. regulatory standards. Foreign-company stocks in London receive no similar premium, they said.

                                The researchers also say the decline in new foreign listings on U.S. stock markets since 2001 isn't due to regulatory overkill. Rather, today there are simply fewer foreign companies that fit the historic profile for listing abroad...

                                Relative to historical patterns, the U.S. attracted more foreign companies since 2001 than would have been predicted, while London attracted slightly fewer.

                                "All of our evidence is consistent with the theory that there is a distinct governance benefit for firms that list on the U.S. exchanges," say the authors, Andrew Karolyi and René Stulz of Ohio State University and Craig Doidge of the University of Toronto. "There is no evidence...this benefit has weakened over time."

                                Experts and policy makers have been arguing over the impact of the post-Enron crackdown for months. Treasury Secretary Henry Paulson ... and others have cited the shrinking number of foreign new-stock offerings and company listings on NYSE Euronext's New York Stock Exchange and Nasdaq Stock Market Inc.'s Nasdaq Stock Market as proof that regulatory burdens and legal risk are driving that activity to competing markets.

                                The Securities and Exchange Commission is moving to loosen Sarbanes-Oxley's internal-auditing guidelines for small companies and recently made it easier for foreign companies to shed SEC oversight. It is also moving to loosen the requirement that U.S.-listed foreign companies use U.S. accounting standards. ...

                                In an interview, Mr. Karolyi said he doesn't question the merits of revisiting the U.S. regulatory burden. But he cautioned against a "rush to judgment. ..." ... He said [the] findings suggest policy makers should be cautious about easing oversight of foreign companies in the U.S.

                                  Posted by on Friday, April 27, 2007 at 12:09 AM in Economics, Financial System, Regulation | Permalink  TrackBack (0)  Comments (7)


                                  Thursday, April 26, 2007

                                  Janet Yellen: The U.S. Economy: Prospects and a Puzzle Revisited

                                  Janet Yellen examines an important question, "Why is the labor market apparently going gangbusters, while growth in real GDP has turned in only a middling performance?":

                                  The U.S. Economy: Prospects and a Puzzle Revisited, By Janet L. Yellen, President and CEO, Federal Reserve Bank of San Francisco: ...Tonight I plan to discuss the prospects for the U.S. economy. I’d like to return to a theme that I discussed in a speech a few months ago and that has been on my mind ever since. It concerns a puzzling economic development. The puzzle, as I put it then, was: Why is the labor market apparently going gangbusters, while growth in real GDP has turned in only a middling performance? The reason I’d like to revisit the puzzle is that, in the intervening period, its mystery has deepened: economic growth has unexpectedly slowed from “middling” to a crawl, while the unemployment rate has actually inched down and employment growth has remained robust.

                                  These and other recent developments have not dramatically changed my mainline forecast for the U.S. economy over the next year or so, but they have significantly increased the risks to the outlook, both for growth and inflation. While I’ve revised down my forecast for economic activity for the first half of 2007, I still expect to see a moderate pace in the second half of the year. At the same time, much of the news pertaining to the first quarter has been disappointing, and has raised the downside risk for growth. I continue to think that inflation is likely to edge down over the year, but, with labor markets appearing to have tightened further, rather than easing as I expected, the upside risks to this outlook have gotten bigger.

                                  Continue reading "Janet Yellen: The U.S. Economy: Prospects and a Puzzle Revisited" »

                                    Posted by on Thursday, April 26, 2007 at 08:10 PM in Environment, Fed Speeches, Monetary Policy, Unemployment | Permalink  TrackBack (0)  Comments (20)


                                    Tenet Rejects Slam Dunk

                                    Kevin Drum:

                                    "Slam Dunk": ....George Tenet says he's pissed off at whoever it was who leaked his "slam dunk" comment to Bob Woodward:

                                    The phrase "slam dunk" didn't refer to whether Saddam Hussein actually had WMDs, says Tenet; the CIA thought he did. He says he was talking about what information could be used to make that case when he uttered those words. "We can put a better case together for a public case. That's what I meant," explains Tenet.

                                    ....He says he doesn't know who leaked it but says there were only a handful of people in the room.

                                    "It's the most despicable thing that ever happened to me," Tenet says. "You don't do this. You don't throw somebody overboard just because it's a deflection. Is that honorable? It's not honorable to me."

                                    Well....color me unconvinced. Given a couple of years to think it over, that's probably the kind of story I'd come up with too, but I think I'd try to make it more believable. Frankly, the table-pounding declaration that something is a "slam dunk" doesn't really sound like the kind of thing you'd say if you were merely agreeing that your PowerPoint presentation could use some sprucing up, does it?

                                    But who knows. Maybe that really is the way Tenet talks. As for his belated discovery that the Bush White House doesn't always behave in honorable ways, all I can say is: I hope Tenet's take on foreign leaders was more insightful than his take on his own boss. The fact that loyalty is a one-way street with Bush the Younger is not exactly the news of the century.

                                    This is the part of the story that I noticed:

                                    Ex-C.I.A. Chief, in Book, Assails Cheney on Iraq, by Scott Shane and Mark Mazzetti, NY Times: George J. Tenet, the former director of central intelligence, has lashed out against Vice President Dick Cheney and other Bush administration officials in a new book, saying they pushed the country to war in Iraq without ever conducting a “serious debate” about whether Saddam Hussein posed an imminent threat to the United States.

                                    The ... book ... is the first detailed account by a member of the president’s inner circle of the Sept. 11, 2001, terrorist attacks, the decision to invade Iraq and the failure to find the unconventional weapons that were a major justification for the war.

                                    “There was never a serious debate that I know of within the administration about the imminence of the Iraqi threat,” Mr. Tenet writes in a devastating judgment that is likely to be debated for many years. Nor, he adds, “was there ever a significant discussion” about the possibility of containing Iraq without an invasion.

                                    But we knew that.

                                      Posted by on Thursday, April 26, 2007 at 08:01 PM in Economics, Iraq and Afghanistan, Politics | Permalink  TrackBack (0)  Comments (24)


                                      Sympathy for the Devil

                                      Alex Massie of The Debatable Land celebrates the publication of Adam Smith's The Theory of Moral Sentiments:

                                      Mr Smith Teaches A Lesson, by alex massie: On this day in 1759 Adam Smith - the greatest of my compatriots - published The Theory of Moral Sentiments, the book he considered his signature accomplishment.

                                      It's all good stuff, of course. But this passage may be particularly worth quoting at length:

                                      Of the manner in which we judge of the propriety or impropriety of the affections of other men by their concord or dissonance with our own

                                      ..With regard to those objects, which affect in a particular manner either ourselves or the person whose sentiments we judge of, it is at once more difficult to preserve this harmony and correspondence, and at the same time, vastly more important. My companion does not naturally look upon the misfortune that has befallen me, or the injury that has been done me, from the same point of view in which I consider them. They affect me much more nearly. We do not view them from the same station, as we do a picture, or a poem, or a system of philosophy, and are, therefore, apt to be very differently affected by them.

                                      Continue reading "Sympathy for the Devil" »

                                        Posted by on Thursday, April 26, 2007 at 11:28 AM in Economics | Permalink  TrackBack (0)  Comments (25)


                                        Workers of the World are Uniting

                                        Unions are going global:

                                        Unions for a Global Economy, by Harold Meyerson, Commentary, Washington Post: The business press has barely noticed and the usual champions of globalization have been mute, but an announcement last week in Ottawa signaled a radical new direction for the globalized economy. The United Steelworkers ... entered into merger negotiations with two of Britain's largest unions (which are merging with each other next month) to create not only the first transatlantic but the first genuinely multinational trade union. ...

                                        All three unions are among their nations' largest; the combined membership, should the merger go through, will total roughly 3 million, making it the planet's largest union.

                                        The story here, however, isn't the number of members but the adaptation of labor to the globalization of capital. The Ottawa declaration broke new ground, but the transnational coordination of unions has been building for more than a decade. The Communications Workers of America has been meeting with telecommunications unions in Europe and elsewhere for years to better deal with common employers. The Service Employees International Union (SEIU) has for the past two years been working with, and helping to fund, security guard and janitorial unions in other nations as ownership of the property service industry has been consolidated into an ever-smaller number of multinationals.

                                        Last November, the SEIU organized 5,300 immigrant workers who clean the office buildings in downtown Houston -- a stunning achievement in the heart of the anti-union South. Stephen Lerner, chief strategist for the SEIU's Justice for Janitors campaign, attributes the success partly to the same consolidation and globalization processes that have generally proved so debilitating to union power. ... The emerging global network of property-service unions staged demonstrations supporting the Houston janitors in Mexico, Moscow, London and Berlin.

                                        The Steelworkers' network of strategic alliances with foreign unions dates to the early '90s. As the production of steel became a global enterprise, the union formed alliances with mining and manufacturing unions in Brazil, South Africa, Australia, Mexico, Germany and Britain. In part, the alliances emerged because these unions shared common employers... The unions share research, discuss common bargaining strategies and support one another during strikes. But the purpose of the proposed merger is broader. ...

                                        Whether or not the merger goes through, the Steelworkers and their British partners have already committed to fund human rights and union rights operations in Colombia (which perennially leads the world in murdered unionists) and parts of Africa. They plan to mount a global campaign to protect employees' retirement benefits, under assault in a growing number of countries from financiers who view workers' financial security as a dispensable commodity.

                                        For years, globalization's champions have attacked unions generally and the Steelworkers in particular for what they claimed were the union's protectionist, parochial and generally retrograde stances. But the union, it turns out, is every bit as internationalist as they. And as unions begin their inevitable transformation into global entities, globalization's cheerleaders must define themselves more clearly. Do they back globalization because it has ... advantaged global investors over ... national unions and governments? Or do they believe that government and workers should go global, too, creating on an international scale the kind of mixed economy that governments and unions created in the decades after World War II -- the only economy in history to produce broadly shared prosperity? In other words, are they really for globalization, or just the return to the laissez-faire, enrich-the-rich world that existed before the New Deal? ...

                                          Posted by on Thursday, April 26, 2007 at 09:29 AM in Economics, Income Distribution, Unemployment | Permalink  TrackBack (0)  Comments (13)


                                          Fractured Televison Tales

                                          Austan Goolsbee explains why broadcast networks have downgraded their programming:

                                          'American Idol' Is the Price We Pay for a Menu of So Many Channels, by Austan Goolsbee, Economic Scene, NY Times: Kinga Tompos, a graduate student at DePaul University, ... was ecstatic. “Sanjaya is gone,” she said. “Finally! I can’t stand him.”

                                          Sanjaya, of course, is Sanjaya Malakar, by wide consensus the worst contestant ever to get into the final rounds of “American Idol.” And for those of you ... who never really got interested in the reality television fad, “American Idol” is a singing contest that runs on Fox. It also happens to be the most popular show on television. ...

                                          I will admit the show is fun... Yet I can seldom get past the question of how we got here — how America lost interest in scripted shows and came to embrace all manner of reality television and its who-sang-what-song, who-ate-what-bug ethos.

                                          Some say it’s just that people now lack the attention span for old-style television or that our tastes have changed. Most insiders point out that reality shows cost much less to make than scripted shows, and, they argue, this is just a profit play by the broadcast networks.

                                          But that does not explain why reality shows did not take over television long ago... Surely the broadcast networks wanted to save money back then, too.

                                          In his book “Switching Channels” ..., Richard E. Caves, the don of entertainment economics and professor emeritus at Harvard, blames (or credits, depending how old you are) cable and satellite providers and the way they have changed the broadcast networks’ incentives to invest in programming.

                                          He points out that such incentives depend on the size of the potential market. The programming is a fixed cost — networks pay for the programs even if nobody watches. If paying an extra $1 million to get a star onto a show, for example, raises every customer’s love of the show by the equivalent of $1, the investment more than pays off if there are 10 million potential viewers. But the $1 million investment would be a terrible flop if there were 10,000 potential viewers.

                                          You can see the mechanism at work in a comparison of the cable networks. The ... bigger the market, the more a cable network spends on programs. Not even counting sports juggernauts like ESPN (whose annual expenses on programming top $3 billion), industry analysts say that the average programming costs at networks with more than 90 million subscribers — networks like Discovery, Nickelodeon or MTV — average more than $250 million a year.

                                          Networks like Bloomberg, Nicktoons, and National Geographic, with 40 million to 50 million subscribers, average less than $35 million in annual programming costs. Fledgling networks with 20 million to 25 million subscribers, like Boomerang, the Sleuth Channel or the Anime Network, average only about $12 million. ...

                                          With the big shift to cable and satellite television (we now watch more cable than broadcast programs), cable networks have had a big incentive to upgrade their product, while the incentive for broadcast networks has moved in the opposite direction.

                                          So the increase in reality programming is not just a matter of broadcasters wanting to save money. It’s that a shrinking potential market gives the networks less incentive to spend money. They can’t recoup it with enough viewers.

                                          Nor is the shift to cable and satellite complete. It continues. And now, more and more people are also turning to the Internet and YouTube instead of broadcast television. So you can see how this ends.

                                          You may be like Kinga Tompos, calling in and voting to give Sanjaya the boot. But remember the economist’s dictum: you don’t know what something costs until you have seen the alternative. Celebrate Sanjaya’s demise all you want. But just wait until you see what’s next.

                                          Update (this is from comments): I thought about saying that this was good - more choice and competition in programming would enhance consumer welfare - but I kept coming up with special cases in my head where that wasn't necessarily true so I didn't make that point (too many qualifications needed to make the assertion). But even so, I still think more choice than that offered by three networks in an oligopoly structure likely enhances welfare.

                                            Posted by on Thursday, April 26, 2007 at 01:29 AM in Economics | Permalink  TrackBack (0)  Comments (19)


                                            Capitalism and Democracy in China

                                            George Will sounds a pessimistic note on the emergence of democracy in China:

                                            Real Change In China?, by George F. Will, Commentary, Washington Post: The phrase "regime change" is associated with the doctrine of preventive war as applied to Iraq. But another sort of regime change has been the crux of U.S. policy toward China through most of the 35 years since President Richard Nixon's opening to that nation in 1972.

                                            Since the Tiananmen Square massacre in 1989, the objective of U.S. policy has been ... the steady subversion of China's repressive regime. The cure for communism is supposed to be commerce with the capitalist world...

                                            The theory, which is more than wishful thinking, is that capitalism ineluctably brings about an ever-broader dispersal of information and decision-making, and requires an ethic of trust and a legal regime of promise-keeping (contracts). Those who subscribe to this theory can take some comfort from China's recent strengthening of protections of private property, which gives a sphere of sovereignty to individuals whose appetite for sovereignty, once whetted, might become a demand for a politics of popular sovereignty.

                                            But suppose this is not so. Suppose James Mann is right to dismiss all this as the Soothing Scenario. In his new book, ... Mann [argues] business and other advocates of the Soothing Scenario use what Mann calls "the lexicon of dismissal" to refute skeptics like him: Skeptics are being "provocative" when they engage in "China bashing" that reflects a "Cold War mentality." But although the theory is that "engagement" with China will change China, Mann wonders: Who is changing whom?

                                            The Soothing Scenario says: Tyranny requires intellectual autarky and the conscription of the public's consciousness, which is impossible now that nations are porous to cellphones and the Internet. But Mann says companies such as Microsoft, Google and Yahoo are cooperating with the government's censorship and security monitoring.

                                            Mann warns against "McDonald's triumphalism," the belief that because the Chinese increasingly eat like us, they are becoming like us. That is related to "the Starbucks fallacy" -- the hope that as the Chinese become accustomed to many choices of coffee, they will demand more political choices.

                                            His most disturbing thesis is that "the newly enriched, Starbucks-sipping, apartment-buying, car-driving denizens" of the large cities that American visitors to China see will be not the vanguard of democracy but the opposition to it. There may be 300 million such denizens, but there are 1 billion mostly rural and very poor Chinese. Will the minority prospering economically under a Leninist regime think majority rule is in their interest?

                                            Mann is rightly disdainful of many meretricious and economically motivated arguments that American elites offer for the Soothing Scenario. In his polemical mood, however, he probably underestimates the autonomous and transformative power of today's commercial culture. ...

                                            I'm more hopeful for China than that. Here's more on this topic:

                                            And, closely related:

                                              Posted by on Thursday, April 26, 2007 at 12:15 AM in China, Economics, Politics | Permalink  TrackBack (0)  Comments (13)


                                              Wednesday, April 25, 2007

                                              Gauging the Success of the Troop Surge

                                              Pardon me while I turn to the war for a moment, I'm hoping someone can explain the logic here. The administration is not counting deaths from car bombings in the Iraqi civilian death counts used to assess whether the surge is working because, as Bush argues, "If the standard of success is no car bombings or suicide bombings, we have just handed those who commit suicide bombings a huge victory."

                                              Let me see if I can give a better justification. I assume they are saying we can't do much about car bombings, so we'll take them as given and only count what we think we can affect. We'll then use changes in the counts for the things we can believe we can control as our measure of success. But as suggested below even those statistics are suspect since most of the decline in deaths the administration cites as evidence the surge is working came before the surge even began. And if a substantial amount of the violence is from car bombings and you are admitting there's nothing you can do to stop them, what is the surge supposed to accomplish?:

                                              U.S. officials exclude car bombs in touting drop in Iraq violence, by Nancy A. Youssef, McClatchy Newspapers: U.S. officials who say there has been a dramatic drop in sectarian violence in Iraq since President Bush began sending more American troops into Baghdad aren't counting one of the main killers of Iraqi civilians.

                                              Continue reading "Gauging the Success of the Troop Surge" »

                                                Posted by on Wednesday, April 25, 2007 at 07:50 PM in Iraq and Afghanistan | Permalink  TrackBack (0)  Comments (63)


                                                Money and Inflation

                                                In light of comments on my post about inflation, e.g. that deficits and supply shocks cannot produce a long-term inflation, etc., let me try to convince you that at least one member of the Fed thinks about inflation exactly as I wrote. This is from chapter 24 of Federal Reserve Governor Frederic S. Mishkin's textbook The Economics of Money, Banking, and Financial Markets (8th ed.), graphs and all. The chapter is called "Money and Inflation":

                                                Meaning of Inflation

                                                You may have noticed that all the empirical evidence on the relationship of money growth and inflation discussed so far looks only at cases in which the price level is continually rising at a rapid rate. It is this definition of inflation that Friedman and other economists use when they make statements such as "Inflation is always and everywhere a monetary phenomenon."

                                                Continue reading "Money and Inflation" »

                                                  Posted by on Wednesday, April 25, 2007 at 05:57 PM in Economics, Inflation, Monetary Policy | Permalink  TrackBack (0)  Comments (27)


                                                  Democrats and Deficits

                                                  Brad Plumer on whether the Democrats should pursue fiscal austerity first and foremost, or whether the deficit should give way in favor of important objectives such as health care, inequality, and addressing climate change:

                                                  Democrats obsess over deficits, by Bradford Plumer, TNR Online: ...For the past six years, Democrats have savaged the Bush-era GOP for running up the national debt with reckless spending. Pelosi has promised that the Democratic Congress will insist on fiscal responsibility. ... But not everyone's thrilled with this return to Clinton-era austerity. Two weeks ago, a handful of liberal policy wonks gathered at an Economic Policy Institute (EPI) forum, titled "Beyond Balanced Budget Mania," to address this very issue. Joseph Stiglitz, the Nobel Prize-winner who once headed up Bill Clinton's Council of Economic Advisers, was invited to give the keynote.... The purpose was to persuade Democrats that they could spend responsibly without sacrificing liberalism at the altar of fiscal rectitude. It's hardly a radical notion. But that doesn't mean it's anywhere near catching on.

                                                  Stiglitz ...[is] using his former insider status in the Clinton administration to try and steer liberals away from "Rubinomics"--the view that Clinton offers an enduring model for Democrats because he followed the advice of Robert Rubin in the early '90s by raising taxes, slashing spending, and bearing down on the deficit in order to gain Wall Street's confidence.

                                                  Those moves appeared to have helped bring down interest rates in the years that followed and usher in a decade of high economic growth. But, Stiglitz cautions, "One should not think of that as a normal situation." In part, he argues, Clinton and Rubin were blessed with special economic circumstances ... that don't exist today. At present, with the housing market sagging, employment middling, and a possible recession on the horizon, Stiglitz argues that Keynesian-style deficit spending may be a better remedy. In addition, problems such as "growing inequality, the health care crisis... energy and climate change" may require a fair bit of money to address. "If this money is well spent," Stiglitz adds, "it does make sense to do that--even if it led to a greater deficit." It's an old tune that liberal Clintonites such as Robert Reich were humming in the early '90s. But it may sound catchier this time around, given that a growing number of economists are doubting that a Rubin-style policy focus on growth alone can benefit all Americans.

                                                  None of the participants at the EPI event suggest that the Democrats should just go wild and spend, spend, spend ... But Stiglitz points out that the current deficits aren't harmful just because they're deficits; they're harmful because Congress is borrowing money specifically to fund a needless occupation in the Middle East and massive tax cuts for the wealthy that have done little to boost the economy. Whereas deficit hawks tend to worry about ... borrowing... Stiglitz would prefer they ask, "What is it borrowing for?"

                                                  The conventional case against budget deficits is that the government has to borrow private money that could be used more productively elsewhere; as the econ textbooks put it, deficits "crowd out" private investment. But several panelists point out that this takes a too-dismal view of government, which can sometimes invest more usefully than the private sector. ...[P]olicies geared toward early childhood--preschool, child care--pay off massively in the long run. ...[O]utlays for infrastructure and research have historically played a driving role in the U.S. economy, but that such spending has drooped since the Reagan years. While it's satisfying to tweak conservatives by pointing out that Clinton restrained domestic spending more effectively than George W. Bush, such restraint has real costs...

                                                  Of course, the elephant in the room is the long-term budget situation, especially once the Baby Boomers start retiring in about five years and entitlement spending begins to balloon. But,... this "crisis" is fueled entirely by the rapid rise in health care spending--by Medicare and Medicaid. Focusing on drastic cuts to food stamps or Social Security, as entitlement hawks at, say, the Wall Street Journal propose, misses the point. Only an overhaul of the country's health care system ... will alleviate the problem. ...

                                                  To some extent, the party has backed itself into a corner by carping so loudly about the Bush administration's prodigal ways. And, while many hope that ending the Iraq war--which now costs nearly $200 billion per year--will provide a "peace dividend" for future domestic spending, that's probably too optimistic....[O]nce the war ends, most of that money will go toward repairing a military that's at the breaking point (not to mention treatment for wounded vets). That's doubly true so long as Democrats want to expand the Army's strength and avoid cuts to the Pentagon's budget.

                                                  A key question is whether Democrats will continue the posture they adopted through much of the '90s, when, cowed by Newt Gingrich's success, they followed his lead in backing spending cuts and praising deficit-reduction as an end unto itself. ... Perhaps Dems still don't have the votes--or the popular support--to do anything else. But, as Stiglitz notes, "there is a wide agenda facing our society--important priorities that need to be addressed that will require expenditures." Democrats can hardly make that case so long as they obsess about deficits. ...

                                                  Greg Anrig has one response to this. From TPM Cafe:

                                                  On the Same Team, by Greg Anrig, Jr.: The ongoing debate among progressives about where reducing federal deficits should rank on the policy priority list is completely legitimate, but denigrating Clinton’s 1993 budget agreement is wrong-headed and counterproductive. Remember that every last Republican in Congress, along with some blue-dog Democrats, voted against the legislation entirely on the basis that its tax increases would purportedly send the economy into a tailspin, kill jobs, make deficits even worse, destroy investment markets, and a host of other calamities concocted by the fertile minds of Newt Gingrich and Wall Street Journal editorialists.

                                                  Any future Democratic president who attempts to raise revenues, whether for deficit reduction or any of the initiatives on the admirable wish list of the Economic Policy Institute, will be subjected to the same fear-mongering litany. And the most effective response will be to describe how after those alarms were raised in 1993, nothing but good economic news followed. It’s a really bad idea for liberals to help the right out by suggesting that the 1993 budget agreement had nothing to do with the prosperity that followed – especially when it also happens not to be true. ...

                                                  Obviously, no one knows what would have happened had just one more Democrat in either the Senate or the House voted against the 1993 bill. But we do know that every last horror that opponents said would arise from raising taxes did not occur. Just the opposite. That history will be an essential touchstone for future Democratic presidents, regardless of the extent to which they may worry about deficits. So we should be venerating that history, not unjustifiably trashing it.

                                                  I can't argue that an increase in taxes will not have negative consequences for the economy. There are special cases where that is true, but in general increasing taxes will slow the economy. It's true that the effect on the economy will depend on initial conditions so that the costs can be large or small, but the costs will be there.

                                                  It's what you do with the money that matters. What I can argue is that the benefits from using the tax dollars for things such as health care, infrastructure, or other important objectives provides benefits that exceed the costs from increasing taxes, including any reduction in output. Thus, when the economy is in a state where there are highly beneficial government projects waiting in the wings and taxes that can be increased without causing substantial costs, i.e. if the benefits exceed the costs, then deficits should not be an obstacle to putting those projects in place. Focusing solely on the cost side - whether the economy will slow at all as the result of the tax increase - without focusing on the benefits from what is done with the increased tax collections misses an important part of the equation.

                                                  That is why I would oppose deficit reduction for the sake of deficit reduction presently. What are the benefits from decreasing the deficit? There do not appear to be large gains from the usual channel, i.e. from lowered interest rates and less crowding out since interest rates have been insensitive to deficits recently, and there's no evidence that growth would be strongly affected. So it is not clear to me what large economic benefit would result from reducing the deficit, but there may be large costs in terms of the programs we have to give up in the pursuit of fiscal austerity. Thus, reducing the deficit brings no great benefit presently, has large potential costs, and for me is easy to oppose on that basis. And going in the other direction the costs and benefits are reversed. There are lots of beneficial things we could do with more revenue, and though increasing taxes would have costs, it's unlikely those costs would be large enough to offset the expected benefits if we are careful to limit the spending to projects that are expected to produce a high return.

                                                    Posted by on Wednesday, April 25, 2007 at 10:42 AM in Budget Deficit, Economics | Permalink  TrackBack (0)  Comments (37)


                                                    Brains and Wealth - Updated

                                                    According to this research, brains explain income inequality better than they explain wealth inequality. Apparently, smart people ain't so good with saving and stuff:

                                                    A Wealth of Smarts Does Not Guarantee Actual Wealth, SciAm: A new analysis of data from a long-term study shows that you don't have to be smart to be wealthy.

                                                    Just because you are smart doesn't mean you can balance a checkbook, or tackle any of the other tasks that might make you wealthy. A detailed study of 7,000-plus Americans followed since their teen years in the late 1970s reveals that intelligence provides more earning power but not necessarily more accumulated wealth. "The smarter you are, the more income you have," explains economist Jay Zagorsky of Ohio State University... "For wealth, there is no relationship." ... In 2004 a collection of 7,403 30-something baby boomers answered questions about their financial status, including whether they had ever maxed out any of their credit cards, fallen behind in bill payments or declared bankruptcy. ...

                                                    This same group also participated in an IQ test in 1980 as part of their enrollment in the National Longitudinal Survey of Youth. The Armed Services Vocational Aptitude Battery consists of 10 tests, four of which—word knowledge, paragraph comprehension, math knowledge and arithmetic reasoning—the U.S. Department of Defense uses to assess the intelligence of recruits.

                                                    Zagorsky used these intelligence scores and compared them with financial data collected in 2004. For each IQ point, there was a rise in income of between $202 and $616 annually. ... But this higher yearly income did not translate into higher wealth. ... "There are some very smart people who get into financial difficulties," Zagorsky notes. "Even smart people don't save."

                                                    When Zagorsky controlled for variables like race, education, job status and even factors like smoking, the gap between IQ and wealth remained the same. "Why don't smart people do financially better is the next question to answer," he says, adding that he is completing a follow-up study examining the relationship between intelligence and saving rates. And the probability of missing a payment actually increases with IQ score, he notes. Explanations are lacking...

                                                    Here's one potential explanation. IQ tests are bad at measuring whatever intelligence is involved in wealth accumulation and hence have poor predictive ability.

                                                    As someone who was once called into the principle's office in high school to be asked if I'd intentionally screwed up on the IQ test they gave us, I don't much trust the tests. Apparently the test placed me on the borderline of needing special ed even though earlier tests had been much different. (With my history with the principle to that point, it wasn't my first visit to see him, he had good reason to wonder. It was a small school and the average score was affected so they even called my mom to try to get me to admit it, kind of embarrassing in high school.) I did try on the test, so it was puzzling and kind of funny at the time, but I don't think they believed me. Other people tell me they think the test was pretty accurate in my case, but I have less faith in the tests than they do.

                                                    Update:

                                                    The Real Cost of Education, by Kevin Stolarick, Creative Exchange: Education (human capital) solves all our problems, right?  Right??  It increases income, leads to growth, generates innovation, and is the reason cites from New York to Topeka to Seattle chase recent college graduates.  Right??

                                                    So, Charlotta Mellander and I decided to take a look.  Using the new Forbes Billionaires list ..., Charlotta and I took at a look at the education levels of the world's billionaires.  Forbes reports that the average net worth of individuals on the Forbes 400 with a college degree is $2.13 billion.  But, the average net worth of individuals on the Forbes 400 without a college degree is $2.27 billion. ...

                                                    If we look at just the top 50 billionaires (average net worth $19.4 billion), we find that 37% of them do not have a college degree (average net worth $21.3 billion) while 63% of them do (average net worth $18.7 billion).  ...  However, many of the billionaires on Forbes' list are second generation or more.  So, if we consider inherited wealth, what happens to the numbers?

                                                    Of the 24 of the top 50 who inherited their billions, over 71% have a college degree.  Of the 26 who worked for their billions, just under 58% have a college degree, substantially fewer than for all billionaires or those that inherited. ... Those who inherited their money, not only were more likely to get a degree, but it actually benefited them.  Among the 24 in the top 50 inheriting their money, the average net worth is $1.4 billion more if a degree was earned.  Finally, we found a place where the degree pays off -- of course it helps a lot if Sam Walton was your father.

                                                      Posted by on Wednesday, April 25, 2007 at 12:33 AM in Economics, Income Distribution | Permalink  TrackBack (0)  Comments (50)


                                                      Robert Samuelson: Inflation Terminology and the Upside of Recessions

                                                      I'm afraid I am going to have to take issue with Robert Samuelson on both of his main themes. He says:

                                                      The Upside of Recession?, by Robert J. Samuelson, Commentary, Washington Post: It's increasingly clear that much of our standard economic vocabulary needs revising, supplementing or at least explaining. The customary words we use don't fully convey what's happening in the real world. Let me illustrate with two basic economic terms: inflation and recession. There are also larger lessons.

                                                      Start with inflation. ... We all know about oil. Prices are about $60 a barrel. They seem unlikely to return to $28, the 2000 level. The real surprise involves food prices. In the past three months, they've risen at a 7 percent annual rate. We may be seeing the first adverse effects of the ethanol boom. Corn is a main feed grain for poultry, cattle and hogs. Corn is also the main raw material for ethanol... Competition for grain has pushed up corn prices..., almost double a typical level. High feed prices have discouraged meat producers from expanding. The resulting tight meat supplies raise retail prices.

                                                      "Poultry is the best example," says economist Tom Jackson of Global Insight. "In the past 40 years, we almost never have year-to-year decreases in production. In the past few months, we've seen production go down." ...

                                                      So the government's subsidies for corn-based ethanol are worsening inflation, perhaps permanently. ...

                                                      Now switch to recession. ... We've been conditioned to think of recessions as automatically undesirable. The labeling is simplistic.

                                                      Hardly anyone likes what happens in a recession. Unemployment rises, production falls, profits weaken, stocks retreat. But the obvious drawbacks blind us to collateral benefits. Downturns check inflation -- it's harder to increase wages and prices -- and low inflation has proved crucial to long-term prosperity. Downturns also punish and deter wasteful speculation. When people begin to believe that an economic boom won't ever end, they start to take foolish risks. Partly, that explains the high-tech and stock bubbles of the late 1990s and, possibly, the recent housing bubble.

                                                      Some sort of a recession might also reduce the gargantuan U.S. trade deficit... Almost everyone believes that the U.S. and world economies would be healthier if Americans consumed less, imported less, saved more and exported more. The corollary is that Europe, Japan, China and the rest of Asia would rely more on domestic spending -- their own citizens buying more -- and less on exports.

                                                      Ideally, this massive switch would occur silently and smoothly. Realistically, the transition might not be so placid. ... Almost no one wishes for a recession, but the consequences might not be all bad. The larger lessons here involve perceptions. Our regular vocabulary often fails to describe the complexities of a changing economy. We must be alert to new possibilities. Things are not always what they seem.

                                                      Let's start with what he calls inflation. His point was about the language of core versus overall inflation and he tries to question that usage, but as he notes:

                                                      Since the early 1980s, the two indexes (the CPI and the core CPI) have recorded -- despite many monthly differences -- virtually identical increases.

                                                      So he rebuts his own point effectively and I left that part out (though he should be talking about the overall and trimmed mean PCE instead of the CPI and core CPI). The rest of his point is just speculation about core inflation and not worth addressing since I want to move on to his point about economic terminology, in this case his use of the term inflation which isn't technically correct.

                                                      I'll use some hypothetical numbers for illustration. Suppose that when the price of oil is $28, the price level is 100, and also suppose that when the price of oil increases to $60, the price level increases to 120 all else equal (again, these are not intended to be realistic numbers).

                                                      Now, let the spike in oil prices happen quickly, but due to sluggish wage and price adjustment suppose the resulting 20% increase in the price level takes more time, say 2 years. During this two year period, as the price level rises from 100 to 120, inflation will be reported in the news.

                                                      But this is not what economists mean by inflation when they say, for example, that "inflation is always and everywhere a monetary phenomena." To see this, suppose that the change in oil prices and the price level are both instantaneous rather than having the change in the price level drawn out over two years as before. That is, the price level jumps from 100 to 120 instantaneously and stays at the higher level from then on.

                                                      In this case, there is no inflation. Prices were stable before the instantaneous jump in the price level, and prices are stable afterward. From that day forward prices remain at 120 and do not increase any further. There is no inflation.

                                                      When the change in the price level is drawn out over two years it doesn't really change anything except that the change is no longer instantaneous and hence looks like an ongoing inflation. That is, it looks just like (and is easily confused with) the continual rise in prices that occurs with a continual increase in the money supply beyond what is needed to accommodate economic growth. But at some point, after two years in the example here, the price level will stabilize at 120 and after that there will be no further change in prices and no inflation.

                                                      Whether the change is instantaneous or drawn out, it is technically a change in the price level, not inflation, though economists (myself included) are not very careful when they talk about inflation to distinguish changes in prices that reflect drawn out adjustment to factors such as increases in oil prices (which eventually end) and those that arise from excess growth in liquidity (which do not necessarily end).

                                                      Now to Samuelson in particular. First, he calls the change in the price level resulting from a change in the price of oil from $28 to $60 inflation. But as just explained, even if the oil price change causes a drawn out adjustment in the price level that looks just like inflation, the increase in the price level will end once it reaches the higher level and there will be no inflation after that. These kinds of changes where the price of oil moves from one level to another do not cause permanent changes in the inflation rate, only temporary changes during the adjustment period.

                                                      He makes the same mistake with subsidies. It's just not possible that "the government's subsidies for corn-based ethanol are worsening inflation, perhaps permanently" as Samuelson claims. A one time increase in subsidies could change relative prices and fuel a short-term inflation, but it cannot fuel a long-term inflation (but it may not change inflation at all - see point three).

                                                      Second, looking at individual sectors and noting whether their prices or quantities have gone up or down is not how we assess inflation, that is done by looking at aggregate demand. When there is an oil price shock, it will ripple through the economy and cause a general realignment of prices, i.e. general changes in relative prices. Some relative prices will move such that resources are drawn into the sector, while other will move such that resources move away, so you don't learn much from looking at just a few sectors.

                                                      The distributional consequences and potential hardships for lower income households from changing relative prices are certainly worthy of our attention. But learning that the demand for corn is up and the production of chicken is down doesn't necessarily inform us about what is happening to the average of all prices in the economy (and there are, of course, many other confounding factors that affect sectoral relationships). Again, to assess pressures on prices generally you look at the aggregate level - i.e. how aggregate demand and aggregate supply are affected and how they are likely to move in the future. Now it is true that, all else equal, an increase in the price of oil will increase the price level, but you don't look (or need to look) at the price of chicken to figure that out.

                                                      Third, subsidies to ethanol do not necessarily increase aggregate demand (and hence inflation) as Samuelson claims, the subsidies have to be paid for somehow and that reduces demand in other areas. They could be paid through deficit spending and the new spending would affect aggregate demand, but in any case it's the aggregate effect that matters and it's not necessarily the case that subsidies increase demand.

                                                      More generally, a long-term, 10 or 20 year inflation cannot be driven by increases in government spending and cuts in taxes (which includes increased subsidies). The increase in government spending that would be required to fuel such an increase in aggregate demand and inflation would eventually eat up all of GDP, and the tax cuts that would be required would quickly run into a lower bound, zero in the limiting case, and after that there could be no further stimulus and prices would stabilize. Long-run inflations are driven by increases in the money supply because the money supply, unlike increasing government spending or decreasing taxes, can be increased pretty much without bound and hence sustained in the long-run if a government decides to permanently turn up the printing presses. [Update: More on inflation here.]

                                                      Okay, next let's turn to the silliness about the virtues of recessions. Samuelson says:

                                                      We've been conditioned to think of recessions as automatically undesirable. The labeling is simplistic.

                                                      It's not the labeling that is simplistic here. He also says there are hidden virtues to recessions:

                                                      Hardly anyone likes what happens in a recession. Unemployment rises, production falls, profits weaken, stocks retreat. But the obvious drawbacks blind us to collateral benefits.

                                                      And one of the main benefits he cites is that it punishes speculators for taking too much risk, i.e. that:

                                                      Downturns ... punish and deter wasteful speculation.

                                                      This is what Krugman calls the Hangover Theory. I've posted this before, but it applies again:

                                                      Powerful as these seductions may be, they must be resisted--for the hangover theory is disastrously wrongheaded. ... The many variants of the hangover theory all go something like this: In the beginning, an investment boom gets out of hand. Maybe excessive money creation or reckless bank lending drives it, maybe it is simply a matter of irrational exuberance on the part of entrepreneurs. Whatever the reason, all that investment leads to the creation of too much capacity--of factories that cannot find markets, of office buildings that cannot find tenants. Since construction projects take time to complete, however, the boom can proceed for a while before its unsoundness becomes apparent. Eventually, however, reality strikes--investors go bust and investment spending collapses. The result is a slump whose depth is in proportion to the previous excesses. Moreover, that slump is part of the necessary healing process...

                                                      Sounds just like Samuelson's description of punishment for the excesses that caused the high-tech and housing booms, and the subsequent healing process:

                                                      Downturns check inflation ... and low inflation has proved crucial to long-term prosperity. Downturns also punish and deter wasteful speculation. When people begin to believe that an economic boom won't ever end, they start to take foolish risks. Partly, that explains the high-tech and stock bubbles of the late 1990s and, possibly, the recent housing bubble. Some sort of a recession might ... reduce the gargantuan U.S. trade deficit... Almost everyone believes that the U.S. and world economies would be healthier if Americans consumed less, imported less, saved more and exported more.

                                                      So what's wrong with this? Back to Krugman:

                                                      Except for that last bit about the virtues of recessions, this is not a bad story about investment cycles. Anyone who has watched the ups and downs of, say, Boston's real estate market over the past 20 years can tell you that episodes in which over-optimism and overbuilding are followed by a bleary-eyed morning after are very much a part of real life.

                                                      But ... nobody has managed to explain why bad investments in the past require the unemployment of good workers in the present. Yet the theory has powerful emotional appeal. Usually that appeal is strongest for conservatives... But moderates and liberals are not immune to the theory's seductive charms--especially when it gives them a chance to lecture others on their failings. ...

                                                      The point is that Samuelson implies unemployment is the necessary cost of attaining this virtue of reigning in speculators, curing the trade deficit, lowering inflation, and so on. But why do workers have to pay this cost through higher unemployment? Why shouldn't the government step in and stimulate employment and the use of idle capacity rather than having the idle workers watch the idle capital creatively rot and destruct? We can build new capital while the old capital is still operating, there is no requirement that old capital be destroyed before new capital can be "creatively constructed." There is simply no need to let workers pay the costs of punishing and deterring wasteful speculation, let the speculators pay those costs themselves.

                                                      Samuelson says in his first sentence that:

                                                      It's increasingly clear that much of our standard economic vocabulary needs revising, supplementing or at least explaining.

                                                      And he's right. He's made a pretty good case that there's confusion about these basic economic terms.

                                                        Posted by on Wednesday, April 25, 2007 at 12:15 AM in Economics, Press, Unemployment | Permalink  TrackBack (0)  Comments (21)


                                                        Tuesday, April 24, 2007

                                                        Health Care: The U.S. versus Canada, France, Britain, Germany, and the VHA

                                                        Two on health care from Ezra Klein. The first looks at how well the U.S. stacks up against other countries:

                                                        The Health of Nations, by Ezra Klein, The American Prospect Magazine: Here's how Canada, France, Britain, Germany, and our own Veterans Health Administration manage to cover everybody at less cost and with better care than we do...

                                                        And the second, which came out after he wrote the above, is a comparison of Canada, which is "often considered a fairly mediocre system," to the U.S.:

                                                        Canada vs. America, by Ezra Klein: ...[A] new study was released today comparing care outcomes in the US and Canada. ... [O]f the 38 studies examined, 14 showed clear advantaged for Canadian patients, five suggested US care was superior, and the remainder were mixed. The studies showing the Canadian systems superiority found effects both on income -- low-income Americans with breast or prostate cancer do much worse than low-income Canadians with the same conditions -- and care effectiveness. For conditions like kidney failure or cystic fibrosis, Canadian care was simply better. You can pick through the tables with all the results here.

                                                        It's not that the data shows unbelievable advantages for Canada, to be sure. As the authors conclude, "although Canadian outcomes were more often superior to US outcomes than the reverse, neither the United States nor Canada can claim hegemony in terms of quality of medical care and the resultant patient-important outcomes." The question raised is slightly different: How can we possibly countenance a system that costs twice as much as the Canadian system but delivers slightly worse care? Even assuming diminishing returns, our expenditures should result in care outcomes at least 20% or 30% better than Canada's. Instead, they're about 5% worse, but cost around 187%. Does it sound like we're getting a good deal?

                                                          Posted by on Tuesday, April 24, 2007 at 04:59 PM in Economics, Health Care | Permalink  TrackBack (0)  Comments (71)


                                                          George McGovern Says Dick Cheney "Twisted My Views and Those of My Party Beyond Recognition"

                                                          Brad DeLong and PGL have both highlighted George McGovern's sharp response to vice president Cheney's recent speech in which he said, among other things:

                                                          Thirty-five years ago, the standard-bearer for the Democrats, of course, was Senator George McGovern, who campaigned on a far-left platform of heavy taxation, a greatly expanded role for government in the daily lives of Americans, and a major retreat from America's commitments in the Cold War.

                                                          I'm not sure that quote fully conveys Cheney's attack on McGovern and Democrats, but, in any case, George McGovern responded with:

                                                          Vice President Dick Cheney recently attacked my 1972 presidential platform and contended that today's Democratic Party has reverted to the views I advocated in 1972. In a sense, this is a compliment, both to me and the Democratic Party. Cheney intended no such compliment. Instead, he twisted my views and those of my party beyond recognition. ...

                                                          Cheney said that today's Democrats have adopted my platform from the 1972 presidential race and that, in doing so, they will raise taxes. But my platform offered a balanced budget. I proposed nothing new without a carefully defined way of paying for it. By contrast, Cheney and his team have run the national debt to an all-time high.

                                                          He also said that the McGovern way is to surrender in Iraq and leave the U.S. exposed to new dangers. The truth is that I oppose the Iraq war, just as I opposed the Vietnam War, because these two conflicts have weakened the U.S. and diminished our standing in the world and our national security.

                                                          In the war of my youth, World War II, I volunteered for military service at the age of 19 and flew 35 combat missions, winning the Distinguished Flying Cross as the pilot of a B-24 bomber. By contrast, in the war of his youth, the Vietnam War, Cheney got five deferments and has never seen a day of combat — a record matched by President Bush.

                                                          Cheney charged that today's Democrats don't appreciate the terrorist danger when they move to end U.S. involvement in the Iraq war. The fact is that Bush and Cheney misled the public when they implied that Iraq was involved in the terrorist attacks of 9/11. Iraq had nothing to do with the attacks. That was the work of Osama bin Laden and his Al Qaeda team. Cheney and Bush blew the effort to trap Bin Laden in Afghanistan by their sluggish and inept response after the 9/11 attacks. They then foolishly sent U.S. forces into Iraq...

                                                          There is one more point about 1972 for Cheney's consideration. ... I won the Democratic presidential nomination. I then lost the general election to President Nixon. ... But lest Cheney has forgotten, a few months after the election, investigations by the Senate and an impeachment proceeding in the House forced Nixon to become the only president in American history to resign the presidency in disgrace.

                                                          Who was the real loser of '72?

                                                          The vice president spoke with contempt of my '72 campaign, but he might do well to recall that I began that effort with these words: "I make one pledge above all others — to seek and speak the truth." ... I never broke my pledge to speak the truth. ... In contrast, Cheney and Bush have repeatedly lied to the American people.

                                                          It is my firm belief that the Cheney-Bush team has committed offenses that are worse than those that drove Nixon, Vice President Spiro Agnew and Atty. Gen. John Mitchell from office after 1972. Indeed, as their repeated violations of the Constitution and federal statutes, as well as their repudiation of international law, come under increased consideration, I expect to see Cheney and Bush forced to resign their offices before 2008 is over.

                                                          Aside from a growing list of impeachable offenses, the vice president has demonstrated his ignorance of foreign policy by attacking House Speaker Nancy Pelosi for visiting Syria. Apparently he thinks it is wrong to visit important Middle East states that sometimes disagree with us. Isn't it generally agreed that Nixon's greatest achievement was talking to the Chinese Communist leaders, which opened the door to that nation? And wasn't President Reagan's greatest achievement talking with Soviet leader Mikhail Gorbachev until the two men worked out an end to the Cold War? Does Cheney believe that it's better to go to war rather than talk with countries with which we have differences? ...

                                                          There's more, but let's augment this by going back to 1972 and seeing what George McGovern actually said. This is from McGovern's acceptance speech for the Democratic nomination for president given on July 14, 1972. I'll let you judge whether Cheney's portrayal of those views as dangerous and reckless is accurate. Though the focus at the beginning is on the war, the speech also talks about jobs, housing, single-payer health care, welfare reform, tax reform, and other issues:

                                                          George McGovern Acceptance Speech, July 14th, 1972, Miami Beach, FL: ...This is the time for truth, not falsehood. In a Democratic nation, no one likes to say that his inspiration came from secret arrangements by closed doors, but in the sense that is how my candidacy began. I am here as your candidate tonight in large part because during four administrations of both parties, a terrible war has been chartered behind closed doors.

                                                          I want those doors opened and I want that war closed. And I make these pledges above all others: the doors of government will be opened, and that war will be closed. Truth is a habit of integrity, not a strategy of politics, and if we nurture the habit of truth in this campaign, we will continue to be truthful once we are in the White House.

                                                          Let us say to Americans, as Woodrow Wilson said in his first campaign of 1912, “Let me inside the government and I will tell you what is going on there.” Wilson believed, and I believe, that the destiny of America is always safer in the hands of the people then in the conference rooms of any elite.

                                                          So let us give our – let us give your country the chance to elect a Government that will seek and speak the truth, for this is the time for the truth in the life of this country.

                                                          Continue reading "George McGovern Says Dick Cheney "Twisted My Views and Those of My Party Beyond Recognition"" »

                                                            Posted by on Tuesday, April 24, 2007 at 04:08 PM in Economics, Politics, Taxes | Permalink  TrackBack (0)  Comments (14)


                                                            The Price of Oil and Yeltsin's Legacy

                                                            Martin Wolf says a fall in oil prices is needed to complete the reforms that began under Boris Yeltsin:

                                                            How Russia slipped on the road to Yeltsin’s new era, by Martin Wolf, Commentary, Financial Times: ...[Boris] Yeltsin was the most democratic ruler Russia has ever possessed. Yet what is emerging under his successor is not the vibrant democracy that many hoped for. Yeltsin’s legacy is as mixed as was his turbulent nature.

                                                            Yeltsin was among a small number of leaders who have transformed the world. ... Yeltsin’s courage and charisma brought to an end both the party and the Soviet Union itself.

                                                            His enemies will never forgive him for his role in ending the party, the state and the Russian empire in 1991. But those who lived most of their lives in the shadow of the cold war will always be grateful to him. The sight of him standing heroically against the attempted coup of August 1991 is unforgettable. It was the end of a ghastly era of human history, in which despotism went almost beyond the limits of the imagination. ...

                                                            Inevitably, reform of Russia ... proved ... difficult... Yeltsin ... never fully understood what a democracy or a market economy was. How could he have done so? But, to his eternal credit, he did tolerate free speech, he did allow the former republics of the Soviet Union to go their own way, he did give sporadic support to the reformers, he did go ahead with the presidential election in 1996 and, not least, he did leave office peacefully. Moreover, notwithstanding all the mistakes he made, he did begin the move to the market. He was neither a civilised intellectual nor a sophisticated statesman, but, by Russia’s dreadful standards, he was little short of a miracle.

                                                            Continue reading "The Price of Oil and Yeltsin's Legacy" »

                                                              Posted by on Tuesday, April 24, 2007 at 12:52 PM in Economics | Permalink  TrackBack (0)  Comments (5)


                                                              Robert Shiller: The Taming of 'Speculative Capitalism'

                                                              Robert Shiller says Nicolas Sarkozy has wrong-headed ideas about how to insulate workers from the consequences of globalization:

                                                              The taming of 'speculative capitalism', by Robert Shiller, Project Syndicate: Nicolas Sarkozy, ...[a] contender in the French presidential election, recently lashed out against what he called "speculative capitalism," and says he wants to "moralize the financial zone" created by the euro. What does Sarkozy mean by "speculative capitalism?" Something immoral, apparently, but what? The term has rarely been used before, and seems to be redundant. After all, capitalism is practically a synonym for speculation, isn't it?

                                                              Sarkozy is expressing a wave of sentiment that is neither unique to his party nor to France. At stake with his comments are emerging ideas and attitudes that will inform the 21st century economy. So we should think hard about what "speculative capitalism" means.

                                                              Sarkozy has called free trade "a policy of naivete," and wants to take ... steps that would stand in the way of economic globalization. ... Protecting France from speculative capitalism seems to mean interfering with free trade to protect local jobs.

                                                              To be sure, Sarkozy is right to note the enormous risks that workers and their communities face in this rapidly globalizing world. But ... this ... should not mean protecting existing jobs come what may. ...

                                                              Concerns about free trade similar to Sarkozy's are gaining strength around the world. In an article last year in ... Foreign Affairs, Alan Blinder, a former adviser to President Bill Clinton and vice chair of the U.S. Federal Reserve Board, argued that the process of globalization has the potential to cause massive job loss in the future. Given that electronic communications technology has a powerful potential to replace employees with others who are thousands of miles away, we may now be seeing only the beginning of this process.

                                                              Blinder is absolutely right that the problem could get worse. Deniers of the problem -- such as economist Jagdish Baghwati -- cannot prove that the worst will not happen. We ought to prepare for the possibility of massive turmoil in our economies in coming years, even if we cannot prove that it will happen, just as we should take steps against global warming, even if some scientists doubt that it is a problem.

                                                              According to Blinder, governments should encourage education for jobs that are harder to outsource overseas. He wants the government to subsidize ... jobs ... which cannot be delivered over the Internet...

                                                              Subsidies, of course, interfere with free trade. But Blinder's solution appears to be a creative new idea, and one may think of legitimate justifications for the government to interfere with free markets this way. His idea certainly is more focused and theoretically sound than Sarkozy's plans to protect existing jobs. In fact, Blinder's proposal is only one of many possible government policies aimed at dealing with the Internet-age turmoil in the market for jobs and livelihoods.

                                                              Capitalist institutions include risk-management schemes that provide insurance, hedging and diversification. Government can promote the democratization of such institutions so that they protect people from the very risks that they are worrying most about. Such possibilities include livelihood insurance, home equity insurance, income-linked loans, and GDP-linked and home-price-linked securities.

                                                              Moreover, government can make our social insurance ... more incentive-compatible and better at managing risks -- and not just the risks of the extreme losers -- by, say, launching inequality-indexation of the tax system. And governments should improve our information infrastructure, so that financial contracts can better capture the outcomes of economic risks.

                                                              So Sarkozy shouldn't be lashing out against "speculative capitalism." On the contrary, he should be asking how capitalism can be developed even further, with new institutions in finance and insurance to deal with the very important problem that his campaign has highlighted.

                                                                Posted by on Tuesday, April 24, 2007 at 12:24 AM in Economics, International Trade, Social Insurance, Technology | Permalink  TrackBack (1)  Comments (27)


                                                                Monday, April 23, 2007

                                                                A Bargain at Any Price

                                                                Atrios on the Social Security report released today:

                                                                "Fixing" Social Security, Atrios: In the summary overview we have this:

                                                                Social Security could be brought into actuarial balance over the next 75 years in various ways, including an immediate increase of 16 percent in payroll tax revenues or an immediate reduction in benefits of 13 percent or some combination of the two.

                                                                Roughly, this would require increasing both the employee and employer share of the tax from 6.2% to 7.05% (there might be some employment/wage impacts of such a change so this is a rough take).

                                                                A small price to pay to ensure Robert Samuelson never writes another column.

                                                                And it's not even clear that we'll have to pay that.

                                                                Kash at The Street Light has more on the report, including some graphs I left out, but the basic message is that little has changed, though both trust funds are now expected to last an additional year:

                                                                Social Security and Medicare Outlook, by Kash: Today the 2007 reports on the Social Security and Medicare programs were released. For a summary, see the Status of the Social Security and Medicare Programs.

                                                                One of the most interesting things about the report is the contrast between the status of the two programs. From the summary:

                                                                The financial condition of the Social Security and Medicare programs remains problematic; we believe their currently projected long run growth rates are not sustainable under current financing arrangements.

                                                                Social Security

                                                                Projected OASDI tax income will begin to fall short of outlays in 2017, and will be sufficient to finance only 75 percent of scheduled annual benefits in 2041, when the combined OASDI Trust Fund is projected to be exhausted. Social Security could be brought into actuarial balance over the next 75 years in various ways, including an immediate increase of 16 percent in payroll tax revenues or an immediate reduction in benefits of 13 percent or some combination of the two.

                                                                Medicare

                                                                As we reported last year, Medicare's financial difficulties come sooner-and are much more severe-than those confronting Social Security. While both programs face demographic challenges, the impact is greater for Medicare because health care costs increase at older ages.

                                                                ...The projected 75-year actuarial deficit in the Hospital Insurance (HI) Trust Fund is now 3.55 percent of taxable payroll, up slightly from 3.51 percent in last year's report... The projected date of HI Trust Fund exhaustion is 2019, one year later than in last year's report... The program could be brought into actuarial balance over the next 75 years by an immediate 122 percent increase in the payroll tax, or an immediate 51 percent reduction in program outlays or some combination of the two.

                                                                Yes, you read that correctly. The SS program will only be able to cover about three-fourths of its expenses by the year 2041; the Medicare program will reach almost the same point in 2019. Fixing the SS shortfall would require a 16 percent increase in payroll taxes; fixing the Medicare shortfall would require a 122 percent increase in payroll taxes. ...

                                                                But given the enormous variation in the outcomes one gets depending on the assumptions one makes, the main point I take from this is not to get too worked up about these long run projections - there's a good chance that they could be substantially wrong, and the problem really could just go away on its own.

                                                                The Social Security problem, that is. With Medicare, there are virtually no reasonable assumptions that one can make that make the problem go away.

                                                                Finally, it's worth noting one last interesting detail. From the summary ... President Bush must, by law, propose legislation that at least attempts to address the Medicare problem with his next budget, next January. So after six years of ignoring the problem (and in fact making it far worse, thanks to the prescription drug benefit he championed without thinking about how to pay for it), Bush must finally go on record with how he thinks the problem should be solved.

                                                                  Posted by on Monday, April 23, 2007 at 08:36 PM in Economics, Social Security | Permalink  TrackBack (0)  Comments (17)


                                                                  Infant Deaths and Obesity

                                                                  Brad DeLong posts the dismal statistics about the increasing infant death rate in the South in recent years. When I read the article, I was struck by how much of the blame for the rise in infant mortality was placed on obesity and hence, I thought, on the individuals themselves for making bad food choices. For example, the article says:

                                                                  In Turnabout, Infant Deaths Climb in South - New York Times: ...[I]n what health experts call an ominous portent, ... the [infant] death rate has risen in Mississippi and several other states.

                                                                  The setbacks have raised questions about the impact of cuts in welfare and Medicaid and of poor access to doctors, and, many doctors say, the growing epidemics of obesity, diabetes and hypertension among potential mothers, some of whom tip the scales here at 300 to 400 pounds. ...

                                                                  Doctors who treat poor women say they are not surprised by the reversal. “I think the rise is real, and it’s going to get worse,” said Dr. Bouldin Marley, an obstetrician at a private clinic in Clarksdale since 1979. “The mothers in general, black or white, are not as healthy,” Dr. Marley said, calling obesity and its complications a main culprit.

                                                                  Continue reading "Infant Deaths and Obesity" »

                                                                    Posted by on Monday, April 23, 2007 at 03:32 PM in Economics, Social Insurance | Permalink  TrackBack (0)  Comments (60)


                                                                    Paul Krugman: A Hostage Situation

                                                                    Paul Krugman explains why "Confronting Mr. Bush on Iraq has become a patriotic duty":

                                                                    A Hostage Situation, by Paul Krugman, Commentary, NY Times [Update: full column]: There are two ways to describe the confrontation between Congress and the Bush administration over funding for the Iraq surge. You can pretend that it’s a normal political dispute. Or you can see it for what it really is: a hostage situation, in which a beleaguered President Bush, barricaded in the White House, is threatening dire consequences for innocent bystanders — the troops — if his demands aren’t met.

                                                                    If this were a normal political dispute, Democrats in Congress would clearly hold the upper hand: by a huge margin, Americans say they want a timetable for withdrawal, and by a large margin they also say they trust Congress, not Mr. Bush, to do a better job...

                                                                    But this isn’t a normal political dispute. Mr. Bush isn’t really trying to win the argument on the merits. He’s just betting that the people outside the barricade care more than he does about the fate of those innocent bystanders.

                                                                    What’s at stake ... is the latest Iraq “supplemental.” Since the beginning, the administration has refused to put funding for the war in its regular budgets. Instead, it keeps saying, in effect: “Whoops! Whaddya know, we’re running out of money. Give us another $87 billion.” ...

                                                                    What I haven’t seen sufficiently emphasized, however, is the disdain this practice shows for the welfare of the troops, whom the administration puts in harm’s way without first ensuring that they’ll have the necessary resources.

                                                                    As long as a G.O.P.-controlled Congress could be counted on to rubber-stamp the administration’s requests, you could say that this wasn’t a real problem, ... just part of its usual reliance on fiscal smoke and mirrors. But this time Mr. Bush decided to surge additional troops into Iraq after an election in which the public overwhelmingly rejected his war — and then dared Congress to deny him the necessary funds. As I said, it’s an act of hostage-taking.

                                                                    Actually, it’s even worse than that. According to reports, the final version of the funding bill ... won’t even set a hard deadline for withdrawal..., only an “advisory,” nonbinding date. Yet Mr. Bush plans to veto the bill all the same — and will then accuse Congress of failing to support the troops.

                                                                    The whole situation brings to mind what Abraham Lincoln said ... in 1860, about secessionists who blamed the critics of slavery for the looming civil war: “A highwayman holds a pistol to my ear, and mutters through his teeth, ‘Stand and deliver, or I shall kill you, and then you will be a murderer!’ ”

                                                                    So how should Congress respond to Mr. Bush’s threats? ... Confronting Mr. Bush on Iraq has become a patriotic duty.

                                                                    The fact is that Mr. Bush’s refusal to face up to the failure of his Iraq adventure, his apparent determination to spend the rest of his term in denial, has become a clear and present danger to national security. Thanks to the demands of the Iraq war, we’re already a superpower without a strategic reserve, unable to respond to crises that might erupt elsewhere in the world. And more and more military experts warn that repeated deployments in Iraq — now extended to 15 months — are breaking the back of our volunteer military.

                                                                    If nothing is done to wind down this war during the 21 months — 21 months! — Mr. Bush has left, the damage may be irreparable.

                                                                    _________________________
                                                                    Previous (4/20) column: Paul Krugman: The Plot Against Medicare
                                                                    Next (4/27) column: Paul Krugman: Gilded Once More

                                                                      Posted by on Monday, April 23, 2007 at 12:15 AM in Economics, Iraq and Afghanistan, Politics | Permalink  TrackBack (0)  Comments (73)


                                                                      William Poole: Changing World Demographics and Trade Imbalances

                                                                      William Poole has a perspective that differs from most on global imbalances and the low personal saving rate in the U.S. After briefly reviewing seven explanations for global imbalances and differences in cross-country saving rates, he concludes there's little to worry about since most of it can be explained by the life-cycle hypothesis combined with demographic differences between countries. In fact, he will argue that "to a large extent, the current situation is not fundamentally an imbalance but rather a condition that is conducive to coping with the major demographic changes that are occurring throughout the world." I agree demographics is part of the explanation, but I'm not convinced it is as important as he has concluded, particularly if it means we become complacent about the potential for a sudden rebalancing of global accounts:

                                                                      Changing World Demographics and Trade Imbalances, by William Poole, President, Federal Reserve Bank of St. Louis: ...The world economy is characterized by three highly unusual conditions. First, the capital flow into the United States from the rest of the world and accompanying rest-of-world current account surplus—the U.S. current account deficit—is very large and persistent. Second, the U.S. personal saving rate has been falling and past year became negative for the first time since 1933. Third, high-income countries are just now beginning a demographic transition in which the fraction of retired persons in the total population will rise to levels never before experienced. The idea I will explore with you is that these three conditions are connected; the first two, I believe, are to a considerable extent a consequence of the third.

                                                                      Today’s topic on the connection between demographic changes and trade balances certainly is important. My analysis combines demographic and economics facts with economic theory to provide some insights into the connections between demographic changes and international trade. ... I especially want to highlight my unease with using the term “imbalances” to characterize the current situation. That term almost begs for a policy response—how can policymakers allow imbalances to persist? Unfortunately, policy responses could well involve damaging protectionist measures. I will argue that, to a large extent, the current situation is not fundamentally an imbalance but rather a condition that is conducive to coping with the major demographic changes that are occurring throughout the world...

                                                                      Current Account Balances: Facts and Explanations Large and persistent current account surpluses and deficits are common in the global economy today, as illustrated in Figure 1 [note: in text links are to originals]. Since early 1998, the U.S. current account has trended downward, a fact that has attracted much attention not only in the United States but also throughout the world. As a share of U.S. GDP, the U.S. current account deficit has increased from roughly 2 percent to a level exceeding 6.5 percent in 2006. ... It is clear that today’s U.S. current account deficit substantially exceeds any other such deficits during the second half of the last century.

                                                                      Fig142307

                                                                      The United States, however, is not the only country with a current account deficit that is a relatively large share of its gross domestic product. In fact, certain European nations fit such a description. Figure 2 ... shows this ratio for the European Union and for selected European countries, some of which have current account deficits relative to GDP larger than the United States. For example, both Spain and Portugal have current account deficits that are close to 10 percent of GDP.

                                                                      Continue reading "William Poole: Changing World Demographics and Trade Imbalances" »

                                                                        Posted by on Monday, April 23, 2007 at 12:06 AM in Economics, Fed Speeches, International Finance, Saving | Permalink  TrackBack (0)  Comments (9)


                                                                        Sunday, April 22, 2007

                                                                        We'll Be Ready This Time, Won't We?

                                                                        I haven't done a lot on the war here, but this seems notable [on second thought, I guess Paul Krugman's columns have addressed this topic once or twice]. From theGarance.com, news that the president's unwillingness to discuss withdrawal from Iraq is making it difficult to plan effectively for such a contingency. Thus, we might get caught, yet again, with a less that fully developed alternative if everything doesn't proceed according to the president's troop surge plan:

                                                                        A Disorderly Withdrawal: Brad Plumer points to a National Journal story about the lack of planning for disengagement from Iraq:

                                                                        in all probability, the United States is going to draw down some or most of its troops from Iraq sooner or later, regardless of whether the surge ends up pacifying Baghdad or not (likely not). Military experts all agree that pulling out could end up being the most difficult and treacherous phase of the entire war. But the Pentagon can’t really plan for withdrawal because the president doesn’t want to discuss it.

                                                                        That is, indeed, a frightening scenario.

                                                                        Here's a bit more from the National Review article on the need to start such planning early, i.e. the necessity for troop safety to come before politics and for the planning to have already started:

                                                                        Continue reading "We'll Be Ready This Time, Won't We?" »

                                                                          Posted by on Sunday, April 22, 2007 at 05:42 PM in Economics, Iraq and Afghanistan, Politics | Permalink  TrackBack (0)  Comments (20)


                                                                          Unnaturally Good?

                                                                          Where does goodness come from? Why do we help other people?:

                                                                          Is Goodness Natural?, by Lee Alan Dugatkin, Project Syndicate: It is hard to imagine that anyone thinks of goodness as a problem, but Charles Darwin did. The little worker bees that sacrificed themselves to protect their hives – the ultimate example of animal goodness – kept Darwin up at night.

                                                                          Given Darwin’s ideas about evolution natural selection were correct (and, of course, they were and are), then this sort of altruism should be extraordinarily rare in nature. If increased reproduction is the ultimate end all and be all of evolution by natural selection, then altruists should disappear – and fast. But they don’t disappear, and Darwin was so puzzled by this that he spoke of altruism as a problem that could prove fatal to his whole theory of evolution.

                                                                          Then a solution ... hit Darwin... Worker bees weren’t helping just any old bunch of bees; they were protecting ... blood relatives. ... So even though the little worker bees may have been giving up their lives, by doing so they were potentially saving hundreds of blood relatives. In modern parlance, we’d say that ...[by] helping your blood relatives, you are indirectly promoting the reproduction of copies of your own genes...

                                                                          Darwin wasn’t the only scientist who was fascinated with the question of the evolution of goodness. In fact, his good friend and colleague, Thomas Henry Huxley ... got himself into quite a heated argument over whether blood kinship could or could not explain altruism.

                                                                          Huxley’s opponent was Prince Peter Kropotkin, ex-page to the Czar of Russia, naturalist, and arguably the most famous anarchist of the nineteenth century. Huxley argued that all goodness could be traced to blood kinship, while Kropotkin argued that goodness and blood kinship were completely divorced from one another - one had nothing to do with the each other. Of course, neither was right, but it would take almost a hundred years before a shy, reserved, and brilliant British biologist named William D. Hamilton would settle all the arguments ... by coming up with a simple, but elegant mathematical equation. ...

                                                                          Hamilton ... began by defining three terms: the genetic relatedness between individuals (labeled r), the cost of an act of goodness (c), and the benefit that a recipient obtained when someone was nice to him or her (b). Using some beautiful mathematics, in the early 1960’s Hamilton discovered that altruism and blood kinship are not linked by an all- or- nothing relationship.

                                                                          Continue reading "Unnaturally Good?" »

                                                                            Posted by on Sunday, April 22, 2007 at 03:33 PM in Economics | Permalink  TrackBack (0)  Comments (55)


                                                                            What is Neoliberalism?

                                                                            Ezra Klein on neoliberalism followed by parts of "A Neoliberal's Manifesto":

                                                                            A Neoliberal Education. An interview by Ezra Klein, Washington Monthly: In his March 11 column, David Brooks of the New York Times declared that neoliberalism is dead. ... Good riddance, was more or less the swift response from a host of liberal bloggers, such as the American Prospect’s Ezra Klein. “Substantively, [neoliberalism] didn’t move the country very far forward at all,” he wrote ..., associating neoliberalism with Rubinomics and the “glittering vision” of NAFTA’s backers. Neoliberalism’s lasting legacy, he went on to say, “will be the elevation of counterintuitive argumentation and sardonic detachment in the press corps.”

                                                                            This characterization somewhat dismayed the Washington Monthly’s editor in chief, Paul Glastris, because neoliberalism is a subject close to the magazine’s historical heart. The term ... was coined by the magazine’s founder, Charles Peters, in the late 1970s, and many of the ideology’s founding disciples were the young editors who worked at the magazine in the 1970s and 1980s, including Taylor Branch, Nicholas Lemann, James Fallows, Mickey Kaus, and Jonathan Alter. Later, Katherine Boo and James Bennet came along, as did Jon Meacham and Jason DeParle. In an effort to persuade the liberal blogosphere that neoliberalism is not, in fact, synonymous with pro-market, K Street–friendly centrism, we republished Peters’s 1983 article, “A Neoliberal’s Manifesto,” online, and asked Ezra Klein to read it. Recently, Klein sat down with Peters ... to discuss neoliberalism’s past, present, and future.

                                                                            Continue reading "What is Neoliberalism?" »

                                                                              Posted by on Sunday, April 22, 2007 at 12:00 PM in Economics, Politics | Permalink  TrackBack (0)  Comments (15)


                                                                              Inka Economics

                                                                              On a whim, I don't know why, I typed "Inca economics" into Google (okay, I was procrastinating). After poking around some, I came across this. The purpose of the paper is to measure network characteristics of the Inca empire and test hypotheses about organization, but I've focused on the parts of the larger effort describing the economic relationships. I included one of the figures to help visualize the descriptions. So, for anyone who might also feel like reading about Inka economics, in particular the network relationships that were involved and how they may have been used to maintain political power, here's some of the paper [Update: I wonder if there is a debate in ethnohistory over whether to use Inca or Inka similar to the debate in economic orthography over whether to use heteroscedasticity or (the correct) heteroskedasticity?]:

                                                                              A Network Analysis of Inka Roads, Administrative Centers, and Storage Facilities, by David Jenkins, University of Arizona, Ethnohistory 48.4 (2001) 655-687: ... Staple Finance and Wealth Finance The Inka in the early fifteenth century were a chiefdom or perhaps an anomalous early state (Bauer 1992) of about twenty thousand people with a fairly simple social organization based on kinship ties and ruling hereditary chiefs. Initially their territory was limited, centered on what would become the city of Cuzco. Over the course of a hundred years, from about 1430 until the Spanish arrived in 1532, the Inka dramatically expanded their empire, incorporating by political maneuvering and outright conquest some eighty distinct polities into the Inka state. These conquered groups included other expansive empires, such as the highly socially stratified Chimu on the north coast, as well as small-scale states, chiefdoms, tribes, and autonomous communities scattered throughout the highlands.1

                                                                              Continue reading "Inka Economics" »

                                                                                Posted by on Sunday, April 22, 2007 at 12:15 AM in Economics | Permalink  TrackBack (0)  Comments (9)


                                                                                Saturday, April 21, 2007

                                                                                Jeffrey Sachs: The Millennium Development Goals: Broken Promises

                                                                                Earlier today I posted William Easterly's comments about Paul Wolfowitz and the World Bank and though it wasn't the focus of his remarks, he managed to make clear his disapproval of the Millennium Development Project and implicitly (or more explicitly) Jeffrey Sachs. Thus, I should let Jeffrey Sachs respond. Here's an account of the extent to which the  promises made in support of the Millennium Development Goals have, or have not, been fulfilled:

                                                                                The Millennium Development Goals: Broken promises, by Jeffrey D. Sachs, Project Syndicate: The Millennium Development Goals are the world's agreed goals to cut poverty, hunger, and disease. Established in 2000, their targets were to be met by 2015. We are now at the halfway point. So far, ... the rich G-8 countries are reneging on their part of the bargain.

                                                                                Cynicism abounds here. At the G-8 Gleneagles Summit in 2005, member countries pledged to double aid to Africa by 2010. Soon after the summit, I was invited to a small, high-level meeting to discuss the summit's follow-up. I asked for a spreadsheet showing the year-by-year planned increases, and the allocation of those planned increases...

                                                                                The response I received was chilling. "There will be no spreadsheets. The US has insisted on no spreadsheets." The point was clear. Though the G-8 had made a clear promise, there was no plan on how to fulfill it; indeed, there were clear instructions that there would be no such plan.

                                                                                Continue reading "Jeffrey Sachs: The Millennium Development Goals: Broken Promises" »

                                                                                  Posted by on Saturday, April 21, 2007 at 03:21 PM in Economics, Politics | Permalink  TrackBack (0)  Comments (10)


                                                                                  William Easterly: The World Bank is "Facing the Gravest Crisis in Its Six-Decades-Old History"

                                                                                  William Easterly is no fan of Paul Wolfowitz, and it goes far beyond recent revelations involving Wolfowitz and his companion:

                                                                                  Does He Hear the World's Poor? Don't Bank on It, by William Easterly, Commentary, Washington Post: Pity Paul Wolfowitz: Every time he tries regime change, he triggers an insurrection.

                                                                                  The latest revolt was launched by World Bank staffers and Western aid leaders in response to the revelation that Wolfowitz -- who had made a crusade against corruption the hallmark of his bumpy tenure as president of the World Bank -- may have awarded his companion a $60,000 pay increase. A staff that had always hated working for the intellectual architect of the Iraq war was now quite literally shouting for his resignation, and Wolfowitz was left wandering the corridors of the bank looking for a Green Zone in which to hide.

                                                                                  The root cause of his debacle at the bank was pretty much the same as the reason for the fiasco in Iraq: intellectual hubris at the top that disdained the messy realities at the bottom. He imagined it would be as easy to clean up the pathologies of foreign aid as he had thought it would be to create democracy in the Middle East.

                                                                                  Continue reading "William Easterly: The World Bank is "Facing the Gravest Crisis in Its Six-Decades-Old History"" »

                                                                                    Posted by on Saturday, April 21, 2007 at 11:02 AM in Economics, Politics | Permalink  TrackBack (0)  Comments (36)


                                                                                    Friday, April 20, 2007

                                                                                    What Caused the Great Inflation?

                                                                                    Recently, we've had quite a bit of discussion about the types of models and policies used by monetary and fiscal authorities during the 1960s and 1970s (see the bottom of this post for links to the entire discussion), and the debate that follows between Allan Meltzer and Christina Romer on the causes of the Great Inflation of the 1960s and 1970s discusses these issues in some detail (e.g., see Table 1 for a brief summary of the policy frameworks used in various eras).

                                                                                    The debate begins with an article by Meltzer from the Federal Reserve Bank of St. Louis Review called "Origins of the Great Inflation." Here's the abstract from Meltzer's paper:

                                                                                    The Great Inflation from 1965 to 1984 is the climactic monetary event of the last part of the 20th century. This paper analyzes why it started and why it continued for many years. Like others, it attributes the start of inflation to analytic errors, particularly the widespread acceptance of the simple Keynesian model with its implication that monetary and fiscal policy should be coordinated. In practice, that meant that the Federal Reserve financed a large part of the fiscal deficit. This paper gives a large role to political decision-making. Continuation of inflation depended on political choices, analytic errors, and the entrenched belief that inflation would continue.

                                                                                    Christina Romer, however, had some problems with the paper's central thesis that politics is crucial to understanding the Great Inflation of the 1960s and 1970s. Here's her defense of the "Ideas Hypothesis" that "both monetary and fiscal policymakers were constrained or driven by the misguided economic framework of the time"  [Update: Brad DeLong comments briefly, PGL at Angry Bear has a detailed follow-up]:

                                                                                    In Defense of the Ideas Hypothesis, by Christina Romer, Commentary, FRB St. Louis Review, March/April 2005: The Great Inflation of the late 1960s and 1970s was surely one of the defining moments of postwar economic history. After more than a decade of stable prices and relatively steady real growth, the United States, and indeed the world economy, embarked on a path of steadily rising inflation. By the end of the 1970s, inflation had reached levels unheard of in peacetime. Understanding the origins of the Great Inflation is a crucial task for modern economists and policymakers. Only by understanding how we went so far astray in the 1960s and 1970s can we be confident of avoiding the same fate in the future.

                                                                                    In his paper, Allan Meltzer provides his usual mix of probing insight and detailed narrative history. Meltzer makes several arguments about the factors giving rise to the Great Inflation. Some of them I agree with; some of them I do not. But, as is always true of his work, I learned a great deal.

                                                                                    Meltzer’s key theme is that politics were crucial. The Great Inflation began and continued largely because monetary policymakers felt constrained to accommodate expansionary fiscal actions. More generally, monetary policymakers felt they needed to support the administration’s and Congress’s desire for low unemployment above all else. Added to this main idea, Meltzer stresses the impact of operating procedures. The need to maintain an “even-keel” during debt issues and an excessively short-run focus in monetary policymaking made concerted anti-inflation policy difficult.

                                                                                    There is surely truth in Meltzer’s politics hypothesis, especially for the late 1960s. But overall, I feel that Meltzer’s analysis is too narrow. I believe that his painstaking analysis of the day-to-day details of policymaking has caused him to fail to stress the more fundamental determinants of policy mistakes in this era. In the 1960s and 1970s, it was not that the Federal Reserve was narrowly constrained by fiscal policy. Rather, both monetary and fiscal policymakers were constrained or driven by the misguided economic framework of the time.

                                                                                    Continue reading "What Caused the Great Inflation?" »

                                                                                      Posted by on Friday, April 20, 2007 at 03:21 PM in Economics, Inflation, Monetary Policy, Politics | Permalink  TrackBack (0)  Comments (75)


                                                                                      The Economist: "It Seems That Those Whom the Gods Wish to Punish They First Make Neocons"

                                                                                      The Economist describes the fall of the neocons:

                                                                                      Sidelined by reality, The Economist: The American legal system has rediscovered the virtue of one of the most ancient forms of punishment—public humiliation. Prostitutes' “Johns” can now have their names aired on television. Mail thieves can find themselves wearing a sandwichboard giving full details of their crime. ...

                                                                                      And neoconservatives? These too, it seems, are now being subjected to a grand exercise in public humiliation. Paul Wolfowitz is hanging on to his job at the World Bank by his fingernails. Lewis “Scooter” Libby, a Wolfowitz protégé, is facing prison; Douglas Feith, who worked with Mr Wolfowitz at the Pentagon, is an “untouchable” who is floating around the margins of academia.

                                                                                      As for their patrons, Donald Rumsfeld, Mr Wolfowitz's patron, was sacked from the Pentagon amid accusations that he had lost the Republicans their majority. Dick Cheney is so unpopular that he has provoked protests even at Brigham Young University... Conrad Black, one of the movement's most generous sugar daddies, is on trial for fraud. It seems that those whom the gods wish to punish they first make neocons.

                                                                                      Not all the neocons have been humiliated quite as badly... Many of them—including Richard Perle ... and David Frum, the man who co-coined the phrase “axis of evil”—are safely on board the starship American Enterprise Institute. Charles Krauthammer and Bill Kristol are as ubiquitous as ever in the media... Robert Kagan is ... writing an ambitious history of American foreign policy.

                                                                                      And neoconservativism is not entirely finished as a political force. George Bush rejected the Baker-Hamilton report ... in favour of the neocon-designed “surge”. Elliott Abrams is a deputy at the National Security Council. Mr Cheney is proving no more destructible than Lord Voldemort. John McCain is blowing loudly on the neocon trumpet; Rudy Giuliani, having flirted with “realists”, has decided to stick with neocon foreign-policy advisers.

                                                                                      But the movement's implosion is nevertheless astonishing. One neocon sums up the prevailing mood in the movement. The neocons are a “laughing stock”. Their “embrace of power” has been “a disaster”. ... The “surge” is a desperate response to failure. ...

                                                                                      The neocons are being relentlessly marginalised in Washington. ... They are also being marginalised—or at least slapped down a bit—within the conservative movement. .... Realists dislike them for their destabilising foreign policy. Small-government types dislike them for their indifference to government spending. Libertarians dislike them for their preoccupation with using the state to impose virtue. Neoconservatism could well return to where it started—the intellectual property of a handful of families called Kristol, Podhoretz and Kagan.

                                                                                      Why does the movement seem so discredited? Partly for practical reasons. They misread intelligence about WMD and links between al-Qaeda and Saddam (though some still believe in both notions). They bungled the war in Iraq. They had little real experience of either the Arab world or soldiering. Many of them were even poor managers. Gary Schmitt, a fellow neocon, complained of Mr Feith that he “can't manage anything... General Tommy Franks describes him as the “dumbest fucking guy on the planet”.

                                                                                      Betraying the founders

                                                                                      But, more important, neocons have been discredited for ideological reasons. Most of the recent mistakes can be traced back not just to flawed execution but to flawed thinking. The neocons argued that democracy might be an antidote to the Middle East's problems: but democracy proved too delicate a plant. They claimed that the assertion of American power might wipe out “Vietnam syndrome”: but it has ended up making America more reluctant to intervene abroad. They talked about linking American power with American ideals: but it turned out, at Abu Ghraib and Guantánamo, that power can corrupt those ideals.

                                                                                      The tragedy of neoconservatism is that the movement began as a critique of the arrogance of power. Early neocons warned that government schemes to improve the world might well end up making it worse. They also argued that social engineers are always plagued by the law of unintended consequences. The neocons have not only messed up American foreign policy by forgetting their founders' insights. They may also have put a stake through the heart of their own movement.

                                                                                      Let's hope so.

                                                                                      Update: Brad DeLong says the last two paragraphs are "false and stupid" as he corrects the record.

                                                                                        Posted by on Friday, April 20, 2007 at 03:03 PM in Economics, Politics | Permalink  TrackBack (0)  Comments (37)


                                                                                        Paul Krugman: The Plot Against Medicare

                                                                                        Paul Krugman says the plot against Medicare is moving forward, aided and abetted by some surprising allies:

                                                                                        The Plot Against Medicare, by Paul Krugman, Commentary, NY Times: The plot against Social Security failed: President Bush’s attempt to privatize the system crashed and burned when the public realized what he was up to. But the plot against Medicare is faring better: the stealth privatization embedded in the Medicare Modernization Act, which Congress literally passed in the dead of night back in 2003, is proceeding apace.

                                                                                        Worse yet, the forces behind privatization not only continue to have the G.O.P. in their pocket, but they have also been finding useful idiots within the newly powerful Democratic coalition. ... There’s no nice way to say it: the NAACP and the League of United Latin American Citizens have become patsies for the insurance industry.

                                                                                        To appreciate what’s going on, you need to know what has been happening to Medicare... The 2003 Medicare legislation created Part D, the drug benefit for seniors... Medicare, Part D isn’t provided directly by the government..., you can get it only through a private ... insurance company. At the same time, the bill sharply increased payments to Medicare Advantage plans, which also funnel Medicare funds through insurance companies.

                                                                                        As a result, Medicare — originally a system in which the government paid people’s medical bills — is becoming, instead, a system in which the government pays the insurance industry to provide coverage. And a lot of the money never makes it to the people Medicare is supposed to help.

                                                                                        In the case of the drug benefit, the private drug plans add an extra, costly layer of bureaucracy. Worse..., they have much less ability to bargain for lower drug prices than government programs like Medicaid and the Veterans Health Administration. ...

                                                                                        Meanwhile, those Medicare Advantage plans cost taxpayers 12 percent more per recipient than standard Medicare. In the next five years that subsidy will cost more than ... it would cost to provide all children ... with health insurance. ...

                                                                                        With the Democratic victory..., you might have expected these things to change. But the political news over the last few days has been grim.

                                                                                        First, the Senate failed to end debate on a bill — in effect, killing it — that would have allowed Medicare to negotiate over drug prices. ...[I]n spite of overwhelming public support..., 42 senators, all Republicans, voted no...

                                                                                        If we can’t even establish the principle of negotiation, a true repair of the damage done in 2003 ... seems politically far out of reach.

                                                                                        At the same time, attempts to rein in those Medicare Advantage payments seem to be running aground. Everyone knew that reducing payments would be politically tough. What comes as a bitter surprise is the fact that minority advocacy groups are now part of the problem, with both the NAACP and the League of United Latin American Citizens sending letters to Congressional leaders opposing plans to scale back the subsidy.

                                                                                        What seems to have happened is that both groups have been taken in by insurance industry disinformation, which falsely claims that minorities benefit disproportionately from this subsidy. It’s a claim that has been thoroughly debunked...— but apparently the truth isn’t getting through.

                                                                                        Public opinion is strongly in favor of universal health care, and for good reason: fear of losing health insurance has become a constant anxiety of the middle class. Yet even as we talk about guaranteeing insurance to all, privatization is undermining Medicare — and people who should know better are aiding and abetting the process.

                                                                                        _________________________
                                                                                        Previous (4/16) column: Paul Krugman: Way Off base
                                                                                        Next (4/23) column: Paul Krugman: A Hostage Situation

                                                                                          Posted by on Friday, April 20, 2007 at 12:15 AM in Economics, Health Care, Politics | Permalink  TrackBack (1)  Comments (67)


                                                                                          Keeping the Public Fully and Honestly Informed

                                                                                          James Hansen, one of the leaders in raising awareness about global warming, has five recommendations for solving the problem including a call to reduce the gap between what the scientific community understands and what the public and policy-makers are led to believe:

                                                                                          Why We Can't Wait, by James Hansen, The Nation: There's a huge gap between what is understood about global warming by the relevant scientific community and what is known ... by ... the public and policy-makers. We've had, in the past thirty years, one degree Fahrenheit of global warming. But there's another one degree Fahrenheit in the pipeline due to gases that are already in the atmosphere. And there's another one degree Fahrenheit in the pipeline because of the energy infrastructure now in place--for example, power plants and vehicles that we're not going to take off the road even if we decide ... to address this problem.

                                                                                          The Energy Department says that we're going to continue to put more and more CO2 in the atmosphere each year--not just additional CO2 but more than we put in the year before. If we do..., even for another ten years, it guarantees that we will have dramatic climate changes...

                                                                                          I've arrived at five recommendations for what should be done to address the problem. If Congress were to follow these recommendations, we could solve the problem. ...

                                                                                          First, there should be a moratorium on building any more coal-fired power plants until we have the technology to capture and sequester the CO2. That technology is probably five or ten years away. It will become clear over the next ten years that coal-fired power plants that do not capture and sequester CO2 are going to have to be bulldozed. ...

                                                                                          Second, and this is the hard recommendation that no politician seems willing to stand up and say is necessary: The only way we are going to prevent having an amount of CO2 that is far beyond the dangerous level is by putting a price on emissions. ...

                                                                                          But a price on carbon emissions is not enough, which brings us to the third recommendation: We need energy-efficiency standards. That's been proven time and again. ...

                                                                                          The fourth recommendation--and this is probably the easiest one--involves the question of ice-sheet stability. ... The concern is that it's a very nonlinear process that could accelerate. ... [T]his problem with the stability of ice sheets is so critical that it really should be looked at by a panel of our best scientists. Congress should ask the National Academy of Sciences to do a study ... The National Academy of Sciences was established by Abraham Lincoln for just this sort of purpose, and there's no reason we shouldn't use it that way.

                                                                                          The final recommendation concerns how we have gotten into this situation in which there is a gap between what the relevant scientific community understands and what the public and policy-makers know. A fundamental premise of democracy is that the public is informed and that they're honestly informed. There are at least two major ways in which this is not happening. One of them is that the public affairs offices of the science agencies are staffed at the headquarters level by political appointees. ...

                                                                                          Another matter is Congressional testimony. I don't think the Framers of the Constitution expected that when a government employee--a technical government employee--reports to Congress, his testimony would have to be approved and edited by the White House first. But that is the way it works now. And frankly, I'm afraid it works that way whether it's a Democratic administration or a Republican one.

                                                                                          These problems are worse now than I've seen in my thirty years in government. But they're not new. I don't know anything in our Constitution that says that the executive branch should filter scientific information going to Congressional committees. Reform of communication practices is needed if our government is to function the way our Founders intended it to work.

                                                                                          The global warming problem has brought into focus an overall problem: the pervasive influence of special interests on the functioning of our government and on communications with the public. It seems to me that it will be difficult to solve the global warming problem until we have effective campaign finance reform, so that special interests no longer have such a big influence on policy-makers.

                                                                                            Posted by on Friday, April 20, 2007 at 12:06 AM in Economics, Environment, Politics, Science | Permalink  TrackBack (0)  Comments (20)


                                                                                            Thursday, April 19, 2007

                                                                                            Thomas Palley: The Case Against Inflation Targeting

                                                                                            I favor inflation targeting, or at least lean strongly in that direction. Thomas Palley does not, and he is by no means alone. Here are his reasons for opposing inflation targets. My rebuttal follows:

                                                                                            The Case Against Inflation Targeting, by Thomas Palley: A few months ago the Federal Reserve seemed to be inexorably moving toward adopting an inflation targeting policy regime. Fed Chairman Ben Bernanke is known to support such a framework having co-authored several articles and books on the subject. Moreover, his institutional hand had been strengthened by Frederic Mishkin’s appointment as Vice-Chairman of the Fed, Mishkin being one of Bernanke’s co-authors.

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                                                                                              Posted by on Thursday, April 19, 2007 at 11:11 AM in Economics, Inflation, Monetary Policy | Permalink  TrackBack (0)  Comments (67)


                                                                                              Kenneth Rogoff: Time for Change at the World Bank

                                                                                              Kenneth Rogoff wants changes in the selection process for the leadership at the World Bank and the International Monetary Fund:

                                                                                              The World Bank at bay, by Kenneth Rogoff, Commentary, Project Syndicate: Will World Bank president Paul Wolfowitz's troubles finally catalyse real change at the World Bank? Will there finally be an end to the archaic practice by which the president of the United States unilaterally appoints the head of the world's most important development agency?

                                                                                              Facing an extraordinary rebuke from the Bank's ministerial oversight committee and open revolt from his professional staff, Wolfowitz has faint hope of limping through the last three years of his term. ... At a time when the Bank has been emphasising high governance standards as the key to development, the recent revelation[s] ... have dealt a serious blow to the Bank's credibility.

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                                                                                                Posted by on Thursday, April 19, 2007 at 11:10 AM in Economics, International Finance, International Trade, Politics | Permalink  TrackBack (1)  Comments (8)


                                                                                                Inflation Threat Alert: Blue (Guarded)

                                                                                                Kash Mansori takes a look at recent trends in inflation, but first, a few reminders from our Asset Value Security Department (formerly the Federal Reserve):

                                                                                                Recommended Activities

                                                                                                • All Americans should continue to be vigilant, take notice of their transactions, and report suspicious price increases to local authorities immediately.
                                                                                                • Everyone should establish an inflation preparedness kit and inflation plan for themselves and their family, and stay informed about what to do during an inflation.
                                                                                                • Learn more about preparedness at www.inflationready.gov

                                                                                                The Color-Coded Inflation Threat Level System

                                                                                                Warn41907This is used to communicate with businesses and the public at-large through a threat-based, color-coded system so that protective measures can be implemented to reduce the likelihood or impact of inflation. Raising the threat condition has economic, physical, and psychological effects on the nation; so, the Inflation Threat Advisory System can place specific geographic regions or industry sectors on a higher alert status than other regions or industries, based on specific information about the threat of nominal price increases.

                                                                                                This system was established in Asset Value Security Presidential Directive 1.

                                                                                                Here's Kash with the threat assessment:

                                                                                                Inflation Update, by Kash Mansori: Some new data on inflation has been released by the government over the past week, including new data on the PPI and the CPI. This gives us a good chance to update our inflation picture.

                                                                                                The chart below shows inflation as measured by the CPI and PPI, including both the measures that capture all goods and services in each category as well as those measures that exclude food and energy prices (the "core" rate).

                                                                                                The rise in energy prices over the past couple of months shows up in the upward movement in the overall price indexes for consumers and businesses. But, unlike some, I am not worried about which way inflation is headed. After a bit of a surge in non-energy inflation during the second half of 2006, those inflation measures have moderated and remain comfortably in the neighborhood of 2%.

                                                                                                While the rate of core inflation doesn't give us a complete picture about how the purchasing power of the dollar is changing, it does tell us a lot about how strong inflation pressures are throughout the non-energy economy. The verdict seems to be that they remain quite moderate.

                                                                                                  Posted by on Thursday, April 19, 2007 at 02:04 AM in Economics, Inflation | Permalink  TrackBack (0)  Comments (27)


                                                                                                  What's Love Got to Do with It? The Forces Driving Marriage and Divorce

                                                                                                  How have the costs and benefits of marriage changed over time and what explains the changes? Tyler Cowen fills us in:

                                                                                                  Matrimony Has Its Benefits, and Divorce Has a Lot to Do With That, by Tyler Cowen, Economic Scene, NY Times: Divorce seems an unusual topic for economists, but decisions to end a marriage weigh costs and benefits and thus reflect economic reasoning. Justin Wolfers and Betsey Stevenson ... at the University of Pennsylvania have led the creation of new studies, which are surveyed in their working paper “Marriage and Divorce: Changes and Their Driving Forces.”

                                                                                                  The evidence suggests that married people — especially married men — are better off than the unmarried. But this doesn’t mean that everyone should marry, or that no one should divorce. ...

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                                                                                                    Posted by on Thursday, April 19, 2007 at 12:48 AM in Economics | Permalink  TrackBack (0)  Comments (8)


                                                                                                    A Taste of Russian Democracy

                                                                                                    Turning to politics, or rather politicization, Jonathan Chait explains why we should worry about recent events involving the Justice Department:

                                                                                                    Kremlin justice in the U.S., by Jonathan Chait, Commentary, LA Times: As Atty. Gen. Alberto R. Gonzales takes to Capitol Hill to testify today, it's worth keeping in mind what this whole imbroglio is really about. It's not about whether Gonzales and his minions lied to Congress and the public. (They did, repeatedly.) It's not even about whether the Justice Department improperly fired federal prosecutors. (It did, of course.) It's about whether the Bush administration sought to subvert democracy by turning the federal judicial system into a weapon of the ruling party.

                                                                                                    Many people think of democracy as free elections, some other basic rights (like free speech) and not much more. But really, that's only the beginning. There are plenty of countries that have free and fair elections and yet are clearly not democratic because their ruling parties have a permanent, immovable hammerlock on power.

                                                                                                    One key thing that separates strong democracies (such as the United States) from weak democracies (such as Russia) is that the latter use the police power of the state as a tool of the ruling party. Russian President Vladimir V. Putin doesn't mind throwing his enemies in jail or sending out the police to break up protests.

                                                                                                    I realize that the United States is not becoming Russia. But isn't this behavior, in a sense, what the Bush administration stands accused of? If true, it's an incredibly serious violation.

                                                                                                    The prosecutor scandal first surfaced in New Mexico, where Republican officials and the Bush administration repeatedly pressured the U.S. attorney to bring electoral fraud charges against Democrats before the election. The prosecutor, David Iglesias, refused and, suspiciously, was subsequently fired. ...

                                                                                                    In Wisconsin last year, ... a federal prosecutor indicted an appointee of a Democratic governor on a charge so spurious that a federal appeals court unanimously threw out the conviction this month, calling the evidence "beyond thin." But the conviction, and the appearance of corruption, played a major role in November's gubernatorial race. The U.S. attorney in Wisconsin who brought this flimsy case had originally been targeted for dismissal by the Bush administration but was later removed from the list of those to be fired.

                                                                                                    Communications professors Donald Shields and John Cragan have found that, since Bush took office, U.S. attorneys have investigated or indicted 298 Democratic officeholders and only 67 Republicans. This massive disparity, which I have not seen any Republican even try to explain, is deeply suspicious.

                                                                                                    And there are other ways in which Republicans have tried to use the legal system to win partisan disputes. In 2003, Texas Democrats fled the state to try to thwart a highly partisan Republican redistricting plan. GOP leaders sent state troopers to bring them back, and a state police officer even sought the aid of the Department of Homeland Security to track the plane carrying the Democrats. In 2004, Democrats in the House Ways and Means Committee left a hearing to hold their own caucus elsewhere in the Capitol. Republican Bill Thomas of Bakersfield, then the chairman of the committee, ordered the Capitol police to break up the meeting. ...

                                                                                                    It would be very easy to overreact to all these things and conclude that our democracy is imperiled or that Republicans are wannabe Putins. But almost nobody seems to be overreacting.

                                                                                                    Most people are under-reacting. Allowing the security apparatus of the state to help tilt elections is an extremely grave precedent. When the line of acceptable behavior can be moved without much protest, it often can be moved further the next time.

                                                                                                    No, we're not becoming Russia. But becoming just a little bit like Russia still ought to be considered a major scandal.

                                                                                                    Here's a little more from the WSJ Washington Wire:

                                                                                                    Letter Accuses Justice Officials of ‘Politicization’, by Evan Perez, WSJ Washington Wire: Multiple miscues by Attorney General Alberto Gonzales and his staff have helped fuel the U.S. attorney firings controversy. But just in case congressional investigators probing the dismissals need more dirt, a letter purported to be from “concerned” Justice employees is offering help.

                                                                                                    The letter signed, “A Group of Concerned Department of Justice Employees,” and addressed to the Democratic chairmen of the House of Senate Judiciary committees, cheers the panels’ investigation of the firings and suggests they look into other allegations of “politicization” of the department. ...

                                                                                                    Rep. John Conyers, the Michigan Democrat who heads the House Judiciary panel and whose office released the letter, said...: “I take any accusations of undue politicization of career staff seriously…These new accusations are clearly something we will want to consider.”

                                                                                                    The letter dated April 9 begins: “Many of us in the Department of Justice have been watching with admiration as you expose the overly political firing of United States Attorneys and hope that you can help in returning our beloved Department to its role of establishing justice in the United States.

                                                                                                    “We are equally concerned, however, about the politicizing of the non-political ranks of Justice employees, offices which are consistently and methodically being eroded by partisan politics.”...

                                                                                                      Posted by on Thursday, April 19, 2007 at 12:45 AM in Politics | Permalink  TrackBack (0)  Comments (30)