links for 2008-10-18

• An Example of Economics at Work - Freakonomics
• So which is it? - Richard Green
• Why Krugman got the Nobel Prize: Economics, not polemics - Vox EU
• Venture Capital Investment Down 7 Percent in Third Quarter - NYTimes.com
• Bernanke Is Fighting the Last War - Anna Schwartz
• A stark alternative to TARP - Vox EU
• Obama Campaign Calls For Investigation Into DOJ/McCain Collusion - C and L
• The Financial Meltdown: Causes, Consequences, and Options - Andrew Samwick
• More From Glaeser on Housing Price Supports - Economix
• Churchill’s Dictum and Henry Paulson - Economix
• Whoops! - Credit Slips
• Worm Grunting - A Mystery Solved - NYTimes.com

Comments

[hari]

It's very interesting Prof Dixit is not only saluting Krugman's Nobel achievement in international trade and geography and its influence, but he's unequivocally proud of his own (collegial) contribution to Paul's achievements.

Which brings me to the unlikley source of academic attack on Paul from none other than a business school academic from Virginia - in this blog. Someone who tried to publish a foolish theoretical piece which MT contributed by providing space and time here.

[Bubble]

Anna Schwartz..."If you investigate individually the manias that the market has so dubbed over the years, in every case, it was expansive monetary policy that generated the boom in an asset."

Exactly so. Leveraged (debt based) bubbles are bad for the economy. Monetary policy should never be so loose as to allow them to form. Leveraged bubbles cause far more pain when they pop than they ever did good times (for a few) while they were inflating. Mild deflation during boom times is perfectly acceptable (as long as GDP is expanding).

[anne]

"Mild deflation during boom times is perfectly acceptable (as long as GDP is expanding)."

Sort of like the thinking of Japanese central bankers in 1990, I suppose, but whatever went wrong I wonder?

[anne]

http://online.wsj.com/article/SB122428279231046053.html

October 18, 2008

Bernanke Is Fighting the Last War
By BRIAN M. CARNEY

Today, the banks have a problem on the asset side of their ledgers -- "all these exotic securities that the market does not know how to value."

"Why are they 'toxic'?" [Anna] Schwartz asks. "They're toxic because you cannot sell them, you don't know what they're worth, your balance sheet is not credible and the whole market freezes up. We don't know whom to lend to because we don't know who is sound. So if you could get rid of them, that would be an improvement." The only way to "get rid of them" is to sell them, which is why Ms. Schwartz thought that Treasury Secretary Hank Paulson's original proposal to buy these assets from the banks was "a step in the right direction."

The problem with that idea was, and is, how to price "toxic" assets that nobody wants. And lurking beneath that problem is another, stickier problem: If they are priced at current market levels, selling them would be a recipe for instant insolvency at many institutions. The fears that are locking up the credit markets would be realized, and a number of banks would probably fail.

Ms. Schwartz won't say so, but this is the dirty little secret that led Secretary Paulson to shift from buying bank assets to recapitalizing them directly, as the Treasury did this week. But in doing so, he's shifted from trying to save the banking system to trying to save banks. These are not, Ms. Schwartz argues, the same thing. In fact, by keeping otherwise insolvent banks afloat, the Federal Reserve and the Treasury have actually prolonged the crisis. "They should not be recapitalizing firms that should be shut down." ...

[Precisely what the Wall Street Journal editors along with all Wall Street analysts, so far as I understand, argued through the Japanese financial crisis. The Japanese would never have shut the banks down if only because of the significant job losses that would have occurred.]

[anne]

http://krugman.blogs.nytimes.com/2008/10/18/great-keynes-quote/

October 18, 2008

Great Keynes Quote
By Paul Krugman

The man who knew [Keynes]

John Maynard Keynes is my economic idol, which is why I jumped at the chance to write the intro to the new edition of "The General Theory." * But I’d never heard this quote, ** from today’s Financial Times:

"Words ought to be a little wild, for they are the assaults of thoughts on the unthinking."

Presumably that was said in response to someone who called him shrill. ***

* http://www.pkarchive.org/economy/GeneralTheoryKeynesIntro.html

** http://www.ft.com/cms/s/a754a046-9c79-11dd-a42e-000077b07658,Authorised=false.html

*** http://delong.typepad.com/sdj/wherefore_shrillblog.html

[anne]

http://angryarab.blogspot.com/2008/10/obama-in-statement-he-and-other.html

October 17, 2008

"Obama, in a statement he and other senators released during the summer after a trip to Iraq, said they had discussed with Iraqi leaders 'the need to give our troops immunity from Iraqi prosecution so long as they are in Iraq.' " *

* http://ap.google.com/article/ALeqM5iqCzuTOev5OMimqjMx0Dh1MdmmawD93RSSUG1

-- As'ad AbuKhalil

[Always imperialism, always the prerogative of the imperialist.]

[anne]

http://www.nytimes.com/2008/10/18/washington/18military.html?ref=world&pagewanted=print

October 18, 2008

U.S. in Firmer Commitment to Iraq Pullout Date
By THOM SHANKER and STEVEN LEE MYERS

WASHINGTON — A sweeping accord between Iraq and the United States would set the end of 2011 as a concrete date for American withdrawal from Iraq, based on the performance and increasing capacity of the Iraqi security forces, according to a draft of the agreement.

The accord, which the Bush administration has been detailing in a series of briefings for lawmakers and their staffs, reflects several concessions to the Iraqi government. It lists specific dates for American forces to first move out of cities and then to leave Iraq, instead of the vague "aspirational" timelines for reductions of American forces that had been pressed by the Bush administration.

But while giving specific dates, the draft does state that these "date goals" could be changed by mutual agreement, and might be accelerated or delayed depending on the ability of the Iraqis to take over the security mission and on "the conditions."

In a significant breakthrough after months of halting negotiations, the agreement would make private American security companies and other contractors subject to Iraqi justice in criminal cases.

By contrast, American military personnel would be guaranteed immunity from Iraqi law, except in cases of serious or premeditated felonies committed outside their official duties. The United States had pressed for full immunity from Iraqi law for all American troops, while the Iraqis had demanded legal jurisdiction on their territory.

The status of forces agreement has been the subject of intense, complicated negotiations for months, and the Bush administration wants it to be the seal on its war effort in Iraq, providing a basis for a long-term, stable relationship with the new government in Baghdad. The United Nations Security Council resolution that authorizes the American-led mission in Iraq expires Dec. 31.

The administration's negotiators appear to have bowed to Iraqi political sensitivities in ways that would have been unimaginable only months ago — so much so that some members of Congress immediately raised questions about whether President Bush had gone too far.

"It's critical that our dedicated men and women in uniform serving in Iraq have full legal protections and are not subject to criminal prosecution in an Iraqi judicial system that does not meet due process standards," said Senator Carl Levin, Democrat of Michigan, chairman of the Senate Armed Services Committee. "I intend to reserve judgment as to whether the proposed agreement includes safeguards adequate to meet this standard until I have an opportunity for a more complete review." ...

[Then, are we to effectively occupy Iraq till the end of 2011 and possibly indefinitely after; along with continuing occupational immunity?]

[Bubble]

Anne..."Sort of like the thinking of Japanese central bankers in 1990..."

Japan's mistake was their too loose policy in the 1980s. Once the leveraged bubbles are inflated, there is no easy way out. Japan would have been okay if they had not inflated leveraged bubbles in the first place.

[anne]

http://angryarab.blogspot.com/2008/10/british-officials-covered-up-evidence.html

October 17, 2008

"British officials covered up evidence that a Taliban commander killed by special forces in Helmand last year was in fact a Pakistani military officer, according to highly placed Afghan officials." *

* http://www.timesonline.co.uk/tol/news/world/asia/article4926401.ece

-- As'ad AbuKhalil

[anne]

http://angryarab.blogspot.com/2008/10/nato-airstrike-in-helmand-this.html

October 17, 2008

"A Nato airstrike in Helmand this afternoon may have killed as many as 18 women and children, according to local officials in the province." * Is that a bad thing?

* http://www.timesonline.co.uk/tol/news/world/asia/article4957407.ece

-- As'ad AbuKhalil

[anne]

"Japan would have been okay if they had not inflated leveraged bubbles in the first place."

I have no idea what any of this means, of course. Who inflated what and how? Could Japanese inflation have had anything to do with the Plaza Accord of September 1985 in which Japan was pushed by America to radically increase the value of the Yen?

[anne]

http://www.irinnews.org/Report.aspx?ReportId=80971

October 17, 2008

Poor Rains Intensify Human Suffering and Deprivation - Report
By IRIN

NAIROBI - The situation in Somalia has deteriorated into an "unfolding humanitarian disaster" with shocking levels of human suffering and deprivation, the UN Food and Agriculture Organization (FAO) warned.

"Rates of malnutrition in most of southern and central Somalia are above emergency threshold levels of 15 percent and in many areas greater than 20 percent and increasing," said an analysis prepared by FAO's Food Security Analysis Unit (FSAU).

"The number of severely malnourished children is continuing to increase in many urban towns and among internally displaced populations (IDPs)," according to the 2008 Post Gu Analysis Technical Series Report, released on 15 October.

"In the north, where malnutrition rates are normally low and stable, the nutrition situation is also now deteriorating."

Escalating insecurity, it added, had led to killings, violence, human rights abuses, and population displacement. It had also created an economic crisis with a wider, devastating impact on the broader population and humanitarian situation.

"The unfolding humanitarian disaster is widespread and the level of human suffering and deprivation shocking," the FSAU noted. One in six children under the age of five was acutely malnourished, it added.

Over the last seven months, civil insecurity and conflict has steadily worsened, especially in the southern and central regions. The current situation was the worst the country had experienced since the collapse of government in the early 1990s.

Overall, an estimated 3.25 million people or 43 percent of Somalia's total population would need humanitarian assistance until the end of the year - a 77 percent increase in the number of those in need since January.

This number is the result of a growing urban food security crisis, affecting more than 705,000 urban poor, and a deepening rural crisis reflected by a rise in the rural population from 850,000 early this year to almost 1.4m currently.

"In addition, the number of people displaced by conflict is continuing to increase and is now estimated at 870,000," FSAU noted....

[Bubble]

Anne..."...Plaza..."

In the 1920s, the US was pressured into a too loose monetary policy by Britain. It is never a good idea for a nation to inflate domestic bubbles in response to foreign political pressure.

[anne]

Somalia was the increasingly united and peaceful Islamic country we encouraged and supported Ethiopia to invade and occupy in December 2006, but while the government was deposed in mere days the ensuing violence has continued ever since increasingly involving people from one of the poorest of countries in a region of poor countries and involving the region of poor countries as refugees have been driven to Yemen to Kenya to Ethiopia to Eritrea to Somaliland.

[Bubble]

"Who inflated what and how?"

Japan inflated real estate and stock bubbles built on excessive leverage. Home prices were so high that Japanese citizens were taking out 100 year mortgages that their grandchildren were supposed to pay back. The bubble prices could not be supported, so the leverage did tremendous damage when the bubble popped.

[anne]

"It is never a good idea for a nation to inflate domestic bubbles in response to foreign political pressure."

Japan inflated nothing only allowing increased international buying of Yen, nonetheless a serious error that China has not and will not make.

[anne]

"Japan inflated real estate and stock bubbles built on excessive leverage."

I have no possible idea what this means. The Japanese central bank inflated nothing beyond buying Yen as we pushed after 1985, and I have no idea what leverage is being referred to.

[Bubble]

"I have no idea what leverage is being referred to."

Citizens borrowed other people's money to buy stuff with. Many started buying stuff on credit for no other reason than prices were going up, hoping to sell the purchase to someone else for a profit. They borrowed more money than they could pay back, and when prices didn't go up anymore, the loans were not paid back. Few new loans were issued because lenders didn't trust people to pay back anymore.

[anne]

"Citizens borrowed other people's money to buy stuff with."

OMG! Imagine all those Japanese, who save like crazy by the way, imagine all those Japanese, like, shopping. I could be wrong in general, of course, but I sure remember how little the Japanese I knew even used credit cards.

[anne]

http://krugman.blogs.nytimes.com/2008/10/18/we-are-all-dead/

October 18, 2008

We are all dead
By Paul Krugman

President Bush, this morning: *

"In the long run, the American people can have confidence that our economy will bounce back."

John Maynard Keynes:

"But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again."

* http://www.whitehouse.gov/news/releases/2008/10/20081018.html

** http://www.j-bradford-delong.net/Economists/keynes.html

[anne]

http://www.pkarchive.org/crises/depression.html

1923

Tract on Monetary Reform
John Maynard Keynes

But this long run is a misleading guide to current affairs. In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again....

[Bubble]

"...used credit cards..."

Not credit cards, mortgages.

[anne]

http://angryarab.blogspot.com/2008/10/i-learn-more-about-us-politics-from.html

October 18, 2008

I learn more about US politics from the Economist magazine than I learn from American newspapers. Last week, the Economist had an intelligent analysis of the foreign policies of Obama and McCain. The conclusion of the article was that their policies are not that far apart. Today, in my local newspaper, I read that they are "worlds apart" in foreign policies. But the LA Times agreed with the Economist.

* http://www.latimes.com/news/printedition/asection/la-na-fornpol26-2008sep26,0,7242507.story

-- As'ad AbuKhalil

[Precisely so.]

[anne]

http://angryarab.blogspot.com/2008/10/less-than-week-after-washington-post.html

October 18, 2008

"Less than a week after the Washington Post reported that the Department of Defense will pay private contractors $300 million over the next three years to 'produce news stories, entertainment programs and public service advertisements for the Iraqi media in an effort to "engage and inspire" the local population to support U.S. objectives and the Iraqi government,' Virginia Sen. Jim Webb wrote a strongly worded letter to Defense Secretary Robert Gates. 'I have serious reservations about the need for this expenditure in today's political and economic environment,' he wrote. 'Consequently, I am asking that you put these contracts on hold until the Armed Services Committee and the next administration can review the entire issue of U.S. propaganda efforts inside Iraq.' " *

* http://www.alternet.org/waroniraq/103345/private_military_contractors_writing_the_news_the_pentagon%27s_propaganda_at_its_worst/

-- As'ad AbuKhalil

[anne]

http://www.nytimes.com/2008/10/19/world/asia/19zardari.html?hp&pagewanted=print

October 19, 2008

Rebuffed by China, Pakistan May Seek I.M.F. Aid
By JANE PERLEZ

Accepting an economic rescue package from the I.M.F. would be seen as a humiliating step for the government.

[Wait, I thought we are aiding Pakistan at least so far as aid involves waging what the British press have termed increasingly a civil war against Pashtun Pakistanis. Wrong type of aid?]

[anne]

That Obama and McCain are remarkably close in foreign policy has been distressingly obvious since the nominations were respectively gained, but rather than challenge Obama to actually distinguish and differentiate foreign policy supporters are content to criticize McCain, mainly on temperament, masking the closeness. So, whether as immediately became obvious on Latin America or the Middle East where the only nuance is just how much, how fast of a surge is needed in Afghanistan, the prospect foreign policy change is gone.

Poor, poor Afghanistan-Pakistan.

[anne]

http://www.nytimes.com/2008/10/18/science/21wormgrunting.html?ref=science&pagewanted=print

October 18, 2008

Worm Grunting: A Mystery Solved
By HENRY FOUNTAIN

It may not rank as one of the great scientific mysteries of all time, but the riddle of worm grunting has been solved, apparently.

Worm grunting, also known as worm fiddling or charming, involves driving a wooden stake into the ground and rubbing the top of it with a leaf spring or other flat piece of steel to make a grunting or snoring noise. Done in the right place under the right conditions, the result will be hundreds earthworms appearing on the surface of the ground. Worm grunting is practiced in parts of the southeast to obtain fish bait.

The mystery has been why the vibrations should cause worms to come to the surface. Kenneth C. Catania of Vanderbilt University has provided an answer: worm grunting mimics the sound of a predator, the eastern American mole, causing the worms to flee topside.

Dr. Catania is a neuroscientist who studies the senses, particularly the exquisite touch sense of the star-nosed mole. In work on moles, though, "there are a lot of little side tendrils of interesting ecology that goes on," he said. "This is one of those."

Dr. Catania worked with a worm-grunting couple, Gary and Audrey Revell, who own a bait shop in the Florida Panhandle. He found that the eastern American mole was endemic to the area, and that the moles consumed large quantities of worms. He also measured the frequencies of the vibrations as they dig and move around in the soil. The frequencies of worm grunting, while not a precise match, "reasonably overlapped" with those created by the moles, he said. His findings are published in the online open-access journal PLoS ONE.

He tested other hypotheses, including the idea that rather than mimicking moles, the vibrations match those caused by heavy rain hitting soil. Some worm species are known to surface after a downpour, but Dr. Catania found that the species he was studying was largely unaffected by rain.

Over all, Dr. Catania said, the work suggests that the worms are responding to what are perceived to be moles. And it's a very strong response. "They come out of the soil as if they are running," he said. "That is, if an earthworm could run."

[hari]

A bit of random thought on Hindu Kush and Pakistan.

*Zardari/Pres of Pak - just visited (first time!) China's leadership to secure funds for Pak's survival and more. Final declaration of the official visit didn't mentioned Pak is facing bankruptcy(!) but a lot of different bilateral trade and investment projects were signed/sealed, including two nuclear energy/electricity plants from China (since India got same approved by Bush/Congress). Zardari returned home with satisfaction and reportedly promised the public he'll visit China every three months! US is likely to face political constraints dealing with Pak, me thinks, as China's hand (power) get further strengthened now.

*Afghanistan - current (US) assessment of on-going domestic insurrection and Taliban power is working against Nato forces - which are rapidly increasing in firepower. Germany just this week approved extension of its forces in Hindu Kush. However, Spiegel and other critical press/media are seriously q's military intervention (uner Nato flag!) to protect failed policy of US/Pentagon in the region.

[Barkley Rosser]

hari,

Avinash Dixit is a class act. I know him and have had private communication with him complimenting him on this very mattter.

Needless to say you do not consider me one, and probably you are correct. However, I shall point out that neither you nor anybody else has countered the points I have made on this matter, other than in your case to question my knowledge (incorrectly) and to disparage where I am located professionally, as if that has anything to do with the accuracy or lack thereof of what I have had to say on this matter, which I see no reason to withdraw.

Again, I remind one and all that despite my critical remarks I have said the Krugman deserved the Nobel Prize, and alone, even if it may appear that I am disputing that.

[anne]

Hari:

A bit of random thought on Hindu Kush and Pakistan.

*Zardari/Pres of Pakistan - just visited (first time!) China's leadership to secure funds for Pak's survival and more. Final declaration of the official visit didn't mentioned Pak is facing bankruptcy(!) but a lot of different bilateral trade and investment projects were signed/sealed, including two nuclear energy/electricity plants from China (since India got same approved by Bush/Congress). Zardari returned home with satisfaction and reportedly promised the public he'll visit China every three months! US is likely to face political constraints dealing with Pak, me thinks, as China's hand (power) get further strengthened now.

[Curiously European reports were that Pakistan was successful in gaining what support was asked for from China, while the New York Times suggests otherwise. I noticed this immediately and thought the Times report wrong in failing to understand what Zadari was after, but I need to understand more. The guess is that Zadari has to show a need for America and was purposely only asking part of what may be needed by Pakistan presently from China.]

[anne]

Were I Pakistan's President, I would be playing off China and America for aid, as once the Soviet Union and America were played off. China would much enjoy the game.

[anne]

Avinash Dixit's supposed tribute to Paul Krugman was to me little enough tribute, rather an excuse to show just how lacking in shrillness a real scientist ought to be though I have happily known some real shrill real scientists.

[KThomas]

Careful, anne. It's no game.

[anne]

There is something wrong with the New York Times report on Pakistan's need for aid and supposed refusal by China. The amount supposedly being asked for is minor, a fraction of the military aid America gives to Pakistan, and there is daily fighting by America in and about Pakistan and supposedly fighting by Pakistan on America's behalf.

We will insure Pakistan gets what aid is further requested. Zadari is simply being tough a tough negotiator. China would not refuse Pakistan, but we might be quite displeased with too, too close a Chinese relationship.

[anne]

Beyond the Republican Administration, Barack Obama has continually emphasized a militarist commitment to Afghanistan-Pakistan and the Democratic leadership will follow along. Pakistan will receive any aid necessary for President Zadari's purposes, which we will consider our purposes. Zadari knows this, and the Chinese know, and Republicans will follow along or lead no matter the coming Administration as was made clear when Zadari came to the United Nations a few weeks ago.

Pakistan is far more critical from an American strategic (imperial) perspective than Afghanistan.

[hari]

Recall Zardari was *Mr 10%* when his martyred wife was PM. I reported Swiss Bank released his bank deposits worth US$60M!
They had been blocked under orders from Muscharaf/ex-Pres.

[anne]

http://online.wsj.com/article/SB122315505846605217.html?mod=special_page_campaign2008_mostpop

October 6, 2008

McCain Plans Federal Health Cuts: Medicare, Medicaid Spending Would Be Reduced to Offset Proposed Tax Credit
By LAURA MECKLER

John McCain would pay for his health plan with major reductions to Medicare and Medicaid, a top aide said, in a move that independent analysts estimate could result in cuts of $1.3 trillion over 10 years to the government programs....

[The Wall Street Journal story was false:
http://www.nytimes.com/2008/10/19/us/politics/19health.html?ref=politics&pagewanted=print]

[anne]

http://www.nytimes.com/2008/10/19/us/politics/19health.html?ref=politics&pagewanted=print

October 19, 2008

Obama Attacks McCain on Health Care and Medicare, in Some Ways Inaccurately
By KEVIN SACK

In a coordinated air and ground attack, Senator Barack Obama is charging that his Republican rival for the presidency, Senator John McCain, would make $882 billion in “drastic cuts to Medicare” in order to pay for his health care proposal.

That assertion, which could resonate among elderly voters in crucial swing states like Florida, is being angrily disputed by the McCain campaign. Mr. McCain’s top domestic policy adviser, Douglas Holtz-Eakin, said Friday that the Democrat’s latest assault on the McCain health plan constituted the “worst and most sustained distortion of policy in this entire campaign.”

In fact, the Obama campaign’s new television advertisement, which Mr. Obama reinforced on the stump in Virginia on Friday and again in Missouri on Saturday, does mischaracterize Mr. McCain’s plan by stitching together vague language from a news report with back-of-the-envelope calculations by a partisan policy group.

The Obama Medicare advertisement asserts that the McCain plan would require “cuts in benefits, eligibility or both.” In his speech, Mr. Obama added that “it would mean a cut of more than 20 percent in Medicare benefits next year.” He added: “If you count on Medicare, it would mean fewer places to get care, and less freedom to choose your own doctors. You’ll pay more for your drugs, receive fewer services and get lower quality care.”

But Mr. McCain has not suggested cutting Medicare benefits, though it is always possible he may find it necessary to make his plan pay for itself. Rather, Mr. Holtz-Eakin said Friday that Mr. McCain would fill any budget hole in the plan through a variety of changes that would largely leave benefit levels untouched. And he pointed out that Mr. Obama supports many of the same changes.

Among the cost-saving measures listed by Mr. Holtz-Eakin in a conference call with reporters were accelerating the computerization of health records, eliminating fraudulent Medicare claims, requiring high-income beneficiaries to pay more for pharmaceuticals, speeding the use of generic drugs and eliminating government subsidies for private Medicare Advantage plans. He also spoke, as Mr. Obama often does, of saving money through more effective treatment of chronic diseases and reconfiguring the Medicare payment system to emphasize prevention and primary care....

[anne]

http://www.nytimes.com/2008/10/19/us/politics/19health.html?ref=politics&pagewanted=print

October 19, 2008

Obama Attacks McCain on Health Care and Medicare, in Some Ways Inaccurately
By KEVIN SACK

This month, a Wall Street Journal article reported that Mr. Holtz-Eakin said any budgetary hole would be filled with reductions to Medicare and Medicaid, without providing much detail. The next day, the Center for American Progress Action Fund, which is led by John D. Podesta, who was a chief of staff to President Bill Clinton, issued a report asserting that a proportional cut would mean eliminating $882 billion from Medicare and $419 billion from Medicaid. *

* http://online.wsj.com/article/SB122315505846605217.html?mod=special_page_campaign2008_mostpop

[Julio]

"Words ought to be a little wild, for they are the assaults of thoughts on the unthinking."

Anne,
Have you taken to commenting on your own style ;-)?

[anne]

http://krugman.blogs.nytimes.com/2008/10/18/james-galbraith-lets-loose/

October 18, 2008

James Galbraith Lets Loose
By Paul Krugman

An amazing debate at National Journal. The journal asked, is there room for fiscal stimulus to respond to the crisis caused by the mortgage mess. David Walker, who’s been preaching the need to rein in entitlements, treated the crisis as a chance to push his favorite line:

"My concern is, when will Washington wake up and start doing something to defuse the potential 'super sub-prime crisis' associated with the federal government’s deteriorating finances and imprudent fiscal path?"

And Jamie let loose:

"What is Mr. Walker’s approach to subprime crisis today? His comment above makes his approach clear. It is to use the crisis as a rhetorical springboard, in order to divert the conversation back to what he calls the 'super sub-prime crisis associated with the federal government’s deteriorating finances…'

"But the fact is, the subprime crisis is real. The collapse of interbank lending is real. The collapsing stock market is real. The disintegration of the financial system is real. The collapse of the housing sector is real. The credit crunch and the recession are real. You can see this in the interest rate spreads and in the credit that is unavailable at any price.

"Mr. Walker’s 'super subprime crisis' of the federal government is not real. It is a pure figment of the imagination. It is something Mr. Walker sees in his mind’s eye. He sees it in his budget projections. He sees it in his balance sheets, which are the oddest balance sheets I’ve ever seen, because they have all liabilities and no assets."

Read the whole thing. *

Go, Jamie, go! We don’t have an entitlement crisis — we have a health care crisis, one of whose manifestations is high projected costs for Medicare and Medicaid. And the way Walker tried to hijack the financial crisis on behalf of a benefit-cutting agenda deserves every bit of withering scorn you can muster.

* http://economy.nationaljournal.com/2008/10/is-there-room-for-fiscal-stimu.php#1152033

[Barkley Rosser]

anne,

Given that Krugman received the prize for applying a model developed by Avinash Dixit and Joseph Stiglitz to international trade and location theory, for which Dixit has not received the prize (although Stiglitz received it some years ago, with Akerlof and Spence, for asymmetric information, not this paper), I would say that Dixit's comments were very complimentary and appropriate. Again, Avinash Dixit is a genuine class act (unlike me).

I am probably not going to make any further comments on this matter, unless, of course, hari somehow decides to make yet another inappropriate and inane comment, I do wish to set the record very straight here on how my remarks have been received, and again, why I made them.

The hard fact is, and I am repeating, that I published a very critical review in 1996 of Krugman's book in which he laid out his arguments about new economic geography and made some of his clearly incorrect statements. I knew that lots of people had read that review, as I have received many compliments on it over the years, and zero negative commentary or refutations. I made some overly strong statements in it I have not repeated anywhere during this commentary on various blogs, but I had the facts right, and I knew somebody would quote some of my old remarks on the blogosphere when Krugman got the prize. That has indeed happened. So, I felt I should make clear my position publicly, and I have in several places.

Now, hari, you are the only person to criticize me for doing so, although you have not provided any actual substantive arguments or facts, unless you think that the fact that I am located in a "business college in Virginia" (which is true) is somehow relevant to all this (I happen to hold a chaired professorship there, have well over 100 publications, and edit a fairly well known journal, among other things, and just got back from a conference in Italy two weeks ago that honored me for my life work).

The closest thing to another critical comment anywhere has been a comment Mark Thoma put on my recent posting on Econospeak where I complained about Krugman not posting my comment on his blog, which has still not appeared there. Mark pointed out that there can be a lag in comments appearing, which after two days I do not think is an issue anymore, and also that Krugman may not be controlling what is posted, which I accept as a possiblyvalid point. Other than that, Mark has not criticized the content of any my arguments, although I suspect that he is sort of uncomfortable with them and would have preferred that I kept my trap shut.

Otherwise, there have been a number of people on several blogs who cited my remarks, especially those that appeared on Marginal Revolution, which as we all know is a very widely read blog, with all the people doing so praising what I had to say as providing useful information not widely known. Nobody had anything like your attitude, hari, although I understand that you are quite annoyed with me, given that I have pointed out on a number of occasions that you have been inaccurate about various things you have written here.

Finally, I am about to leave Toronto to go home where I have just attended a conference. One of those attending was an economic geographer who is in a geography department. He had seen my comments and praised me to the skies, expressing how frustrated he and a lot of his colleagues have been over the years at Krugman's claims about his role in the "new economic geography," even as many of them welcomed the heightened attention that he brought to the field with all his self-publicizing about his accomplishments. This individual had also read my book review sometime in the past, and liked it very much.

Anyway, that is how most of the world views what I have had to say on this, those who have seen what I have had to say, although I suspect that most will not see my remarks and that Krugman will once again get away with his exaggerated claims, now reinforced by the Swedish Bank Prize committee that does not seem to be aware of all the relevant literature.

[anne]

I have no possible complaint with your interesting critiques, and was only critical for of the Dixit tone that even Stiglitz has used in suggesting that Krugman has been "over the top." Krugman has been completely judicious, but writes well enough to be noticed widely as Molly Ivins was widely noticed which draws immense discomfort to those folks who are ever so gentle or pretend so.

Krugman has been a superb political economist, shocking as the thought of such a creature may be to some.

[anne]

"I have no possible complaint with Barkley Rosser's interesting and helpful critiques," and that bears emphasizing.

[Barkley Rosser]

Thanks, anne.

BTW, I have not criticized Krugman at all for his op ed pieces, way more often than not agreeing with them. However, I am reasonably well convinced, along with Dixit, that indeed Tore Ellingsen of the committee meant it when he said that while the committee was aware of Krugman's role as a public commentator, that had nothing to do one way or the other with his getting the prize, which is as it should be, despite the perfervid comments by many conservatives, although very few conservative economists.

Again, quite a few pro-free market conservatives have gotten the prize in recent years, with Edward Prescott writing a column in the WSJ strongly praising Bush's fiscal policies and calling for yet more supply side tax cuts after he got his two years for real business cycle modeling.

[Barkley Rosser]

Since I have let hari goad me into egomaniacal bragging, I might as well provide website where any of you who are curious can see about the conference honoring me, which was actually three weeks ago. There is a link there to a three minute piece that appeared on Italian TV, where you can see me lecturing "volcanically," as the TV announcer put it, but not hear me. The man being interviewed, a conference coorganizer, named Gian-Italo Bischi praised me for my analysis of bubbles and crashes in my 1991 book, where I was the first to mathematically model the pattern of a peak followed by a period of financial distress, which Mark Thoma has posted on here. That happens to be the same book in which I reviewed the literature on nonlinear dynamics in urban and regional models that covers all those papers prior to Krugman's that he has never cited.

Anyway, the link is
http://www.econ.uniurb.it/bischi/MDEF2008.html.

The conference was on Dynamic Modeling in Economics and Finance (in Italian, Modelli Dinamici in Economia e Finanza). One of those participating was Frank Westerhoff, whose model of the effects of a Tobin tax on financial markets was praised in a column in the New York Times shortly after that. He showed those results in his talk at the conference.