Like European enterprises in the 19th century, US companies have enjoyed
“home field advantage” throughout the 20th century. They dwelt in the most
vibrant economy, drew upon the most mobile and best-educated workforce, enjoyed
the most plentiful sources of capital and sold in the most attractive market for
goods and services. If a company wanted to be significant, it had to win in the
Now we are into the 21st century and it is already clear that home field
advantage is crossing the Pacific. In this century, China and India look to be
the great canvases upon which economic successes will be painted. ...
If Americans and Europeans want to win in the 21st century, we must learn to
play better in away games. As this new world dawns, we are beginning to
experience the dark side of natural selection, the perspective of those selected
against, rather than for. This is Darwin ... wielding the sharp, pointed stick
of failure. Interestingly, it is failure – most dramatically the threat of
extinction – that drives evolution, not success. Successful species do not
mutate: they ... breed until such time as they consume all the free resources in
the ecosystem and only then do they begin to mutate... That time is now.
To accept this challenge is to deal with Darwin. And in spite of US culture’s
somewhat problematic relationship with evolutionary thinking, ... I am
relatively optimistic about America’s ability to step up. I am not so
optimistic, however, about Europe’s prospects. One great obstacle to dealing
with Darwin is the sense of entitlement, and this seems ... to make adaptive
change impossible. France’s youth are convinced they are entitled to well-paying
jobs. Italy’s citizens take it as a matter of national pride that Alitalia
exists, irrespective of its ability to compete. Germany’s unions believe they
are entitled to more, not less, compensation and benefits. The Swedes believe
Darwinism is a scandal that socialist institutions are meant to redeem.
The problem with all the above is simple: Darwin does not care. ... it
rewards what works and penalises what does not. ... We must ... establish
sustainable competitive advantage from within our own ranks. This is still a
work in progress but at least it is a work under way. Denying the need for such
change, or waiting for political institutions to resolve the issue, are all
This is from Stanley Brue's The Evolution of Economic Thought, 5th ed.,
Chapter 19, The Institutionalist School, pgs 407-412. It is a non-technical, easily readable description of some of Galbraith's main contributions to the field of economics:
JOHN KENNETH GALBRAITH
John Kenneth Galbraith (1908-2006) was born in Canada and studied at the
Universities of Toronto and California. His experience has included the post of
chief economist for the American Farm Bureau Federation, high positions with the
U.S. government during World War II, membership on the board of editors of
Fortune magazine, ambassador to India during the Kennedy administration,
professor of economics at Harvard University, and chairman of the Americans for
Democratic Action. Galbraith is also a novelist and an expert on Far Eastern
Taken as a whole, Galbraith's major writings constitute both an attack on
neoclassical economic thought and an analysis of modern capitalism. Nearly all
of the characteristics of the institutionalist school apply to his many works.
To construct the following graphs, I averaged real GDP
growth, quarter to quarter from 1947:Q2 to 2006:Q1 separately by quarter. Thus, in the following graph, the bars show the average growth rate (annualized) for the first quarter, second quarter, and so on. I was
surprised to see that growth typically declines during the year:
A plot of the average pattern since 1947 against the four most recent quarters shows the
pattern is not atypical, but it is exaggerated:
Note: Most recent are 2005:Q2=3.3%, 2005:Q3=4.1%, 2005:Q4=1.6%, 2006:Q1=4.7%, the average values are in the previous graph.
Average real GDP growth over the last four quarters is 3.41%. The average growth rate over all quarters since 1947:2 is 3.36%. Thus, the average growth rate over the last four quarters is average.
Why are you working so many hours? Because you know more than your boss:
Working Into the Night, Pindyck and Rubinfeld (pg. 605): Job market
signaling does not end when one is hired. Even after a few years of employment,
a worker will still know more about his abilities than will the employer. This
is especially true for workers in knowledge-based fields such as engineering,
computer programming, finance, law, management, and consulting. Although an
unusually talented computer programmer, for example, will be more skilled than
his co-workers at writing programs that are efficient and bug-free, it may take
several years before the firm fully recognizes this talent.
Given this asymmetric information, what policy should employers use to decide
promotions and salary increases? Can workers who are unusually talented and
productive signal this fact, and thereby receive earlier promotions larger
Martin Feldstein comments on two chapters of the Economic Report of the President, Chapter 1 on "The Year in Review" and Chapter 6 on "The Capital Account Surplus." Here's
a sample of his comments:
Viewed in this way, the Report’s comment that the increase in
energy prices contributed to the growth of consumer spending (page 28) seems very strange.
Higher energy prices reduced real incomes and that per se depressed real consumer spending.
He finds contradictions in the report such as both increases and decreases in
government spending somehow stimulating economic growth:
The Report’s discussion of the impact of government spending is also
puzzling... The chapter notes first (page 33) how much federal government
purchases and transfers contributed to GDP growth, implicitly assuming no crowding out of other
spending. But it then concludes (page 34) that “Future outlays are projected to shrink
... The shrinking of the Federal Government’s claim on resources should
allow private economic activity more room to grow.”
In discussing Chapter 6 he says:
This chapter provides an unusual but useful approach to discussing the
current international situation... Instead of focusing on
the trade imbalance or the current account deficit, it frames the discussion in
terms of capital flows. ... But there is little discussion of why the large volume of
international saving comes to the United States... Nor is there an
examination of what could eventually end the current account imbalance. Most surprisingly, there is
almost no mention of the dollar exchange rate and its role in shaping the current account
The only way to shrink the U.S. trade deficit ... is a substantial decline of the dollar. ... Although no one can
be sure of just how large such a dollar decline must be, experts ... estimated ... that it would take a trade-weighted dollar
decline of between 20 percent and 40 percent to rebalance the U.S. current
He concludes by disagreeing with the administration's claim that the U.S. cannot solve the trade deficit problem on its own:
[I]t is not correct to assert that “no one country can reduce its external
imbalance through policy action on its own. Instead, reducing external imbalances
requires action by several countries.” ... No action in other
countries is needed for the U.S. to reduce its trade deficit. ... While such policy responses
would be good for the countries involved, they are not a requirement for the U.S. to reduce our
trade deficit. That is up to us.
Here's Feldstein's analysis which is forthcoming
in the Journal of Economic Literature:
John Kenneth Galbraith has, sadly, passed away. This is from the Wall Street Journal:
Economist John Kenneth Galbraith Dies, Associated Press: John Kenneth
Galbraith, the Harvard professor who won world-wide renown as a liberal
economist, backstage politician and witty chronicler of the affluent society,
died on Saturday night, his son said. He was 97. Galbraith died of natural
Poor nations are financing much of the United States' current account
deficit. They are losing money in the process, and as the losses mount, they
will be tempted to do something better with their cash.
What have economists learned about estate taxes? Here's a summary of some of the research on this issue from
Wojciech Kopczuk for the NBER Reporter:
by Wojciech Kopczuk, NBER Reporter: Taxation of estates and inheritances is
one of the most controversial issues in tax policy. While this type of taxation
is viewed by some as an integral part of a system that guarantees equality of
opportunities, others describe it as a "death tax" and argue that it is both
inherently unfair to levy a tax at death and that it is particularly costly to
do so, highlighting its adverse effect on wealth accumulation, discrimination
against savers, negative consequences for the survival of small businesses, and
a multitude of avoidance opportunities.
From an economist's point of view, estate taxation touches on a wide array of
important topics. It is a form of a tax on capital. It is heavily progressive,
with U.S. federal tax rates currently approaching 50 percent and exceeding 70
percent in the past. It is closely tied to the propagation of inequality and the
impact of redistribution. It affects the intergenerational mobility of wealth.
Its impact and its cost depend on the presence and nature of a bequest motive.
How individuals plan for leaving an estate depends also on their acceptance and
attitudes toward their own death, thus providing a natural place for looking for
examples of the importance of psychological considerations. The U.S. estate tax
is nominally a tax on individuals, but its incidence depends on family structure
and interrelationships. The tax has been dubbed a "voluntary tax," highlighting
that tax avoidance and administration issues are also very important.
Mikhail Gorbachev talks about about the relationship
between Chernobyl and changes in the Soviet Union under his leadership:
Turning Point at Chernobyl, by Mikhail Gorbachev, Project Syndicate: The
nuclear meltdown at Chernobyl 20 years ago this month, even more than my launch
of perestroika, was perhaps the real cause of the collapse of the Soviet Union
five years later. Indeed, the Chernobyl catastrophe was an historic turning
point: there was the era before the disaster, and there is the very different
era that has followed. ...
The Chernobyl disaster, more than anything else, opened the possibility of
much greater freedom of expression, to the point that the system as we knew it
could no longer continue. It made absolutely clear how important it was to
continue the policy of glasnost, and I must say that I started to think about
time in terms of pre-Chernobyl and post-Chernobyl.
The price of the Chernobyl catastrophe was overwhelming, not only in human
terms, but also economically. Even today, the legacy of Chernobyl affects the
economies of Russia, Ukraine, and Belarus. Some even suggest that the economic
price for the USSR was so high that it stopped the arms race, as I could not
keep building arms while paying to clean up Chernobyl.
This is wrong. My declaration of January 15, 1986, is well known around the
world. I addressed arms reduction, including nuclear arms, and I proposed that
by the year 2000 no country should have atomic weapons. I personally felt a
moral responsibility to end the arms race. But Chernobyl opened my eyes like
nothing else: it showed the horrible consequences of nuclear power, even when it
is used for non-military purposes. One could now imagine much more clearly what
might happen if a nuclear bomb exploded. According to scientific experts, one
SS-18 rocket could contain a hundred Chernobyls.
Unfortunately, the problem of nuclear arms is still very serious today.
Countries that have them – the members of the so-called “nuclear club” – are in
no hurry to get rid of them. On the contrary, they continue to refine their
arsenals, while countries without nuclear weapons want them, believing that the
nuclear club’s monopoly is a threat to the world peace.
The twentieth anniversary of the Chernobyl catastrophe reminds us that we
should not forget the horrible lesson taught to the world in 1986. We should do
everything in our power to make all nuclear facilities safe and secure. We
should also start seriously working on the production of the alternative sources
of energy. The fact that world leaders now increasingly talk about this
imperative suggests that the lesson of Chernobyl is finally being understood.
Advocates of the new model capitalism, and the globalization project that
goes with it, like to present it as an expression of historical necessity,
rooted in classical economics and embodying irrefutable laws. ... Those who do
not conform to the rules of modern market capitalism, and do not offer the human
sacrifices of lost employment and diminished living standards that the market
demands, will fall by the wayside of history. This is simply untrue, although
most of those who say it undoubtedly believe it.
Wharton finance professor Jeremy Siegel says the retirement age will
need to be increased to age 74 if we shut ourselves off from the rest of the
world, but only need rise to age 68 if we fully embed in the global
economy. This is his answer to the question "Will stock and bond markets collapse
as retiring baby boomers start liquidating assets?":
A Boomer Bust?, BusinessWeek Online:My interest in population and stock prices was piqued 8 to 10 years ago. An
expert named Harry Dent used to say that everything about stock movements can be
explained by population. I thought that sounded crazy. But as I gave speeches
around the country, that was the most asked question I got. What happens when
boomers retire and sell their assets? Are there enough people to absorb all that
I believe that over the next 50 years, the aging population is the most critical
issue facing developed world. Life expectancy vs. retirement were 1.6 years
apart in 1950, when they were 69 vs. 67. Today, that gap is 14.5 years. This
trend can't continue.
I'll be curious to hear what you think about this Economic Letter from
the Dallas Fed, particularly this statement:
Oil prices are rising—not because the world is running out of oil but because
the bulk of reserves are in countries where market incentives cannot work fully
or in the hands of monopolists who may be exercising their power by restraining
The claim is that a large factor in expaining high oil prices is lack of economic
freedom which limits the ability of major oil producing countries to
bring supplies to the marketplace. Here's the paper:
In explaining today's high oil prices, many analysts
point to surging demand from China, India and other rapidly industrializing
countries and cyclical growth in U.S. consumption. When added to existing demand
from Europe, Asia and elsewhere, these increases have outstripped any gains in
global production and reduced excess capacity to near zero. The analysts expect
economic development to continue apace in China and India, with their appetites
for oil growing as fast as or faster than their economies.
Are we running out of oil? The question always arises
when oil prices spike. Some experts—including Matthew Simmons, author of
Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy—argue
that world oil production is at or near its peak and prices will just continue
to rise, perhaps toward $200 a barrel or more...
Read His Lips, by Tim Duy: Bernanke & Co. want to pause. They want to pause badly. We were supposed to
have figured it out when the minutes of the last FOMC meeting were released, and
when the point about an imminent pause was reiterated by San Francisco Fed
President Janet Yellen. Financial market participants, however, seemed unwilling
to fully accept that a pause would soon come – at least that is the story told
by the rebound in expectations for a June rate hike
reported by David Altig. So
Bernanke came to the table yet again to
make clear that we should NOT expect the Fed to keep blindly raising rates:
The FOMC will continue to monitor the incoming data closely to assess the
prospects for both growth and inflation. In particular, even if in the
Committee's judgment the risks to its objectives are not entirely balanced, at
some point in the future the Committee may decide to take no action at one or
more meetings in the interest of allowing more time to receive information
relevant to the outlook. Of course, a decision to take no action at a particular
meeting does not preclude actions at subsequent meetings, and the Committee will
not hesitate to act when it determines that doing so is needed to foster the
achievement of the Federal Reserve's mandated objectives.
So much to think about in that little paragraph. But first, a recap of some
central features of the Fed’s expectation of economic activity in the back half
of this year:
A cooling housing market will weaken household’s resolve, or at least
their ability, to sustain the recent pace of consumption expenditures.
Continued job creation and solid investment spending, however, will
cushion the economy from the negative impacts of a housing induced consumption
Strong productivity growth and intense competition will hold inflation and
inflation expectations in check even as the economy edges up against capacity
constraints. The capacity constraints should ease later this year as the
economy slows under the force of point #1 above.
Given that this is how the Fed expects the economy to evolve in the back half
of this year – an expectation based on the lagged effects of monetary tightening
already in place – policymakers want to hold up at 5% to see if this indeed is
how the economy evolves. The trick for the Fed watcher is to determine how
incoming data will affect the Fed’s outlook.
My sense is that market participants (me included) have been somewhat
underestimating the Fed’s resolve to bring policy to at least a plateau (again,
refer to the flip-flopping in the fed funds futures market). For example, recent
inflation data and rising energy prices appear to be having less of an impact on
policy than I might have guessed. In retrospect, the lack of response is not
such a mystery: There is simply nothing that the Fed can do about last month’s
inflation. The point of inflation targeting is not to shift policy for every
move in a lagging indicator. The point is to shift policy in response to changes
in the central bank’s forecast of inflation. For the FOMC, the forecast for
future inflation hinges more on the forecast for demand growth than on the
lagged impacts of past inflation.
In this Wall Street Journal commentary, Martin Feldstein argues that the dollar needs to depreciate, or become
more competitive to use his terminology, and that it is possible for this to
happen without stoking the inflation fires. The two main reasons for hoping the
dollar will decline against other currencies, he says, are to prevent an even
larger and potentially more problematic fall later and more importantly, to
stimulate net exports to ensure continued economic expansion in the face of
decline in other sectors such as housing:
at Home -- and Abroad, by Martin Feldstein, Commentary, Wall Street Journal:
For more than a decade, under Democrats and Republicans, Washington has
emphasized that "a strong dollar is good for America." It's time to change the
message. We need a strong dollar at home and a competitive dollar abroad: i.e.,
an exchange rate that will make American goods more attractive to foreign buyers
and that will cause American consumers and firms to choose American-made goods
and services. The administration has called for such a competitive dollar
relative to the Chinese yuan. But while that bilateral exchange rate is
important, it is responsible for only a fraction of our trade deficit. The
overall international value of the dollar must be more competitive if we want to
shrink our enormous trade imbalance and limit the rise in our debt to the rest
of the world. ...
These two goals -- strong at home, competitive internationally -- are
compatible in practice. With an appropriate monetary policy, we can shift to a
competitive level of the dollar without raising the future rate of inflation.
Consider what happened in the '80s, the last time that the dollar fell sharply.
In April 1985 the dollar began a decline, falling ... a total of 37% by the
beginning of 1988. Although the price of imports rose sharply, the overall
inflation rate did not increase. ... Between 1985 and the start of 1988, while
the dollar fell 37%, the inflation rate averaged only 3.1%. Although a decline
in oil prices contributed to this lower rate of inflation, the core rate of
inflation that excludes energy prices also fell. That's not a guarantee that a
dollar decline now wouldn't raise inflation, but it shows that it is possible...
Paul Krugman looks at the return of cronyism and the consequences of valuing
"loyalty and personal connections over competence":
Crony Fairy, by Paul Krugman, Commentary, NY Times: The U.S. government is
being stalked by an invisible bandit, the Crony Fairy, who visits key agencies
by dead of night, snatches away qualified people and replaces them with
unqualified political appointees. ... That, at least, is how I interpret the
report on responses to Hurricane Katrina that was just released by the Senate
Committee on Homeland Security and Governmental Affairs.
The report points out that the Federal Emergency Management Agency "had been
operating at a more than 15 percent staff-vacancy rate for over a year before
Katrina struck" — that means many of the people who knew what they were doing
had left. ... But the report says nothing about what caused the qualified people to leave
and who appointed unqualified people to take their place. There's no hint that,
say, President Bush might have had any role. So those political appointees must
have been installed by the Crony Fairy.
Rather than trying to fix FEMA, the report calls for replacing it with a new
organization, the National Preparedness and Response Agency. As far as I can
tell, the new agency would have exactly the same responsibilities as FEMA. But
"senior N.P.R.A. officials would be selected from the ranks of professionals
with experience in crisis management." I guess it's impossible to select
qualified people to run FEMA; if you try, the Crony Fairy will spirit them away
and replace them with Michael Brown. ...
O.K., enough sarcasm. Let's talk about the history of FEMA.
In the early 1990's, FEMA's reputation was as bad as it is today. It was a
dumping ground for political cronies, headed by a man whose only apparent
qualification ... was that he was a close friend of the first President Bush's
chief of staff. FEMA's response to Hurricane Andrew in 1992 perfectly
foreshadowed Katrina: the agency took three days to arrive on the scene, and
when it did, it proved utterly incompetent.
Many people thought that FEMA was a lost cause. But Bill Clinton ...
appointed qualified people to lead the agency ... and within a year FEMA's
morale and performance had soared. For the rest of the Clinton years, FEMA was
among the most highly regarded agencies in the federal government.
What happened to that reputation? The answer, of course, is that the second
President Bush returned to his father's practices. Once again, FEMA became a
dumping ground for cronies, and many of the good people who had come in during
the Clinton years left. ...
In other words, the Crony Fairy is named George W. Bush. ... And bear in mind
that Mr. Bush's pattern of cronyism didn't change after Katrina. For example, he
appointed Julie Myers, the inexperienced niece of Gen. Richard Myers, to head
Immigration and Customs Enforcement — an agency that, like FEMA, is supposed to
protect us against terrorism as well as other threats. Even at the C.I.A., the
administration seems more interested in purging Democrats than in improving the
quality of intelligence.
So let's skip the name change for FEMA, O.K.? The United States will regain
effective government if and when it gets a president who cares more about
serving the nation than about rewarding his friends and scoring political
points. That's at least a thousand days away. Meanwhile, don't count on FEMA, or
on any other government agency, to do its job.
This continues the material from Chapter 9 of Krugman and Obstfeld's
International Economics, "The Political Economy of Trade Policy." This
section is on the relationship between trade policy and the distribution of
Income Distribution and Trade Policy
The discussion so far has focused on national welfare arguments for and
against tariff policy. It is appropriate to start there, both because a
distinction between national welfare and the welfare of particular groups helps
to clarify the issues and because the advocates of trade policies usually claim
they will benefit the nation as a whole. When looking at the actual politics of
trade policy, however, it becomes necessary to deal with the reality that there
is no such thing as national welfare; there are only the desires of individuals,
which get more or less imperfectly reflected in the objectives of government.
How do the preferences of individuals get added up to produce the trade
policy we actually see? There is no single, generally accepted answer, but there
has been a growing body of economic analysis that explores models in which
governments are assumed to be trying to maximize political success rather than
an abstract measure of national welfare.
This isn't about economics, at least not directly, but it's a serious treatment of an important and timely topic. This is Guillaume Parmentier, "director of the French Centre on the United States (CFE) at the Institut Français des Relations Internationales" on how western powers should deal with Iran and its nuclear ambitions:
The Fed is continuing to communicate
the meaning of a pause in rate hikes should it occur, indicating that the Fed is
looking to pause once incoming data on expected growth and inflation support
such a move. Repeating
what Tim Duy said in a recent Fed Watch:
Greg Mankiw has an idea to solve the political impasse on the budget deficit:
Greg Mankiw's Blog: A Comeback for Pigou?: In the past few days, I have run
across a couple of articles (here and here), admittedly in relatively minor places, arguing for
higher Pigovian taxes, such as a tax on gasoline or a tax on carbon. ... Pigovian taxes both produce government revenue and correct a
market failure arising from an externality like pollution. I have long thought
that Pigovian taxes are underused.
How about this for a political
The Democrats say they want more environmental protection.
The Republicans say they want to make permanent the recent cuts in income,
dividend, and estate taxes. Everyone says they want a smaller budget deficit. We
can achieve all of these objectives by agreeing to higher Pigovian taxes, such
as taxes on gasoline or carbon. The Republicans concede that government revenue
will be higher than it is under the President's proposed budget, and the
Democrats concede that the President's tax cuts on income, dividends, and
estates will be permanent.
Please don't post a comment saying how
politically naive this is. I know it is. But I bet I could convince a majority
of the American Economic Association to sign on!
It depends. These taxes are a good idea in isolation since they solve market
failure problems, so if we get to ignore political realities there is no need to
trade one tax for another, Pigovian taxes can be imposed on their own merits. So
yes, I will sign on to correct market failures through the imposition of
But if I am forced to trade these taxes for other policy changes that I do
not agree with on both efficiency and equity grounds, then the details of the
tradeoff become important. What size changes are we talking about? Would it be better to use the revenues to, say, offset the negative consequence of pollution rather than to reduce other taxes? In addition,
the difficulty for me comes with being asked to trade a Pigovian tax that both
Republicans and Democrats can agree, or ought to agree is needed on efficiency
grounds for policies that Democrats disagree with. In such a trade, it's hard to
see what Republicans have given up. Are Republicans opposed to efficient
In Industrial Organization, which is not my main area, there is a concept
known as tying. Tying is any requirement that two products be purchased in some combination. Pure bundling, e.g. textbooks and study
guides, is one form of tying, but it is a more general concept than that. For
example, a customer may be asked to purchase a second product, often through a
specific contract, that a first product is useless without. A copy machine
contract could require the use of a particular brand of paper or that the machine be serviced by their personnel. An automobile
owner could be required to purchase a particular brand of parts, oil
etc. or have the warranty voided. In other cases products are designed to thwart
interchangeability, e.g. vacuum cleaner replacement bags with unique sizes, so tying can be accomplished through a variety of means.
Without getting into the specifics, tying can be used to price discriminate,
protect a monopoly (e.g. require PC users to use a particular software such as
IE), or to protect goodwill, i.e. if a customer is allowed to use inferior
parts, the product may gain a reputation of inferiority. A copy machine fed low grade paper might jam often dmaging its reputation for reliability.
Courts do not always allow tying arrangements, but they are not always
illegal either. The issue in this New York Times Economic Scene column by Austan Goolsbee of
the University of Chicago is tying between iTunes and iPods. Is there an
argument that the economic benefits of tying exceed the economic costs so that
tying should be allowed? The focus here is on the ability of tying contracts to
grant market power as a means of encouraging innovation, much the same as the
argument for patents, and the goodwill argument that untying the two would lead
to code leaks that would allow hackers to break the security features and
denigrate the product:
War, France Has Met the Enemy. Perhaps It Is France, by Austan Goolsbee,
Economic Scene, Ny Times: The French take pride in their revolutions, which
are usually hard to miss — mass uprisings, heads rolling and such. So, with the
scent of tear gas in the air this past month from the giant protests against a
youth labor law, it was easy to overlook the French National Assembly's approval
of a bill that would require Apple Computer to crack open the software codes of
its iTunes music store and let the files work on players other than the iPod.
While seemingly minor, the move is actually rather startling and has left many
experts wondering (as ever): What has possessed the French? ...
The move may signify a willingness to question the patents, copyrights and
trade secrets of other successful products as well, like electronics,
pharmaceuticals, even fast food. Might we soon see a French legislator demanding
to know if it is fair that customers of the French fast-food chain Quick cannot
get its signature burger, Le Giant, with McDonald's special sauce? ... French
politicians have abandoned one of the guiding principles of antitrust economics:
penalize companies that harm consumers, not the ones that succeed by building
Antitrust authorities normally follow well-established procedures when
considering such moves. They weigh the loss to consumers of not being able to
play iTunes songs on other players against the damage that forcing iTunes to
open might have on innovation. France's own Competition Council did a similar
analysis in 2004 and ruled that Apple's refusal to share the iTunes codes did
not harm consumers. The legislature paid no mind to such analysis and seems not
to have considered innovation at all. Therein lies the danger.
Apple largely created the online market for legal music. The record labels'
own attempts flopped embarrassingly. Until iTunes, virtually no one paid for
online music. Since then, iTunes has sold more than one billion songs. Its
success comes largely from two crucial innovations.
First, Apple's music store is simple and works extremely well with the iPod.
Find the music. Click "Buy It." Drag the files onto the iPod icon. That's it.
... Further, iTunes keeps getting better. Apple has added video capability,
celebrity play lists, exclusive music, the ability to convert home movies into
iPod format, and many other features — all free.
Second, iTunes has lots of music. Largely because of the innovative iTunes
FairPlay copy protection and digital rights management software, Apple persuaded
major record labels to let them sell much of their best content online. The
combination of simplicity and variety proved a huge winner.
If the French gave away the codes, Apple would lose much of its rationale for
improving iTunes. ... it continues to add free features to iTunes because it
helps sell iPods. Opening the codes threatens that link. Apple would need to pay
for iTunes features with profits from iTunes itself. ... Innovation would slow.
Even worse, sharing the codes could make it easier for hackers to unravel
Apple's FairPlay software. Without strong copy protection, labels would not
supply as much new music. Indeed, Apple argues that sharing the codes could make
the pirates' job easy enough to wipe out the legal market. ...
Sharing the iTunes codes would undermine the two innovations that Apple used
to create the online market for legal music in the first place. With France
accounting for only 5 percent of iTunes sales, Apple would probably shut down
iTunes in France rather than give up the codes. ... Before declaring pre-emptive
war on iTunes, however, perhaps the French would do best to remember a lesson
from 1789. Sometimes the very people calling for revolution are the ones who end
up losing their heads.
When we last heard from Ken Rogoff, he was worried about being replaced
someday by robots programmed with artificial intelligence, "pocket professors" as he called them. In his latest
installment for Project Syndicate, he urges developing countries to begin using their accumulated reserves to make much needed investments in infrastructure. Because risks have diminished over time, these reserves can be used to build
a foundation for sustained future growth instead of being placed in Treasury Bills as a hedge against risk:
A Time to
Build, by Kenneth Rogoff, Project Syndicate: ...With today’s global economy
in the middle of a sustained and increasingly balanced expansion, ... should
governments, especially those that are endlessly building up dollar reserves,
... start thinking about how to build up their roads, bridges, ports, electric
grids, and other infrastructure? Has the time come to start laying the
groundwork to sustain future growth, especially in poorer regions that have not
yet shared in today’s prosperity?
Don’t get me wrong, I am not arguing for fiscal profligacy. But the balance
of risks has shifted over the past few years. ... and sound economic policy is
just as much about capitalizing on good times as avoiding bad ones. Economic
gurus at places like the World Bank have developed a ridiculously long list of
steps that countries should take to raise their growth rates (the so-called
“extended Washington Consensus”). Like maintaining good health, it is not enough
to concentrate on a single component. But if there is one area where obvious
opportunities exist, and where policy can really make a difference, it would
have to be infrastructure investment.
India’s infrastructure problems are legendary, with airports and railroads
that are comically inadequate. However, aside from a few countries – including
China, of course, but also Spain – low infrastructure spending is epidemic. Even
the United States has infrastructure that is hobbled by neglect, with collapsing
bridges and a dangerously overburdened electrical grid. Land-rich Brazil, too,
is a case study in the consequences of under-investment. ... Russia, despite
Siberia’s massive oil and gas riches, isn’t even investing enough to support
healthy growth in its energy industries, much less human development in the
country’s impoverished areas (including hapless Siberia).
True, government infrastructure spending is often wasted. My hometown of
Boston recently managed to spend an astounding $15 billion dollars to move a few
highways underground. And that so-called “Big Dig” looks like a model of
efficiency next to many of Japan’s infamous bridges to nowhere.
But there are ways to waste less. Transparency in procurement works wonders.
So, too, does private sector involvement. The Nobel laureate economist William
Vickrey argued tirelessly in favor of privately financed toll roads. Private
oversight can often produce better and more efficient construction, and, in
theory, toll roads help alleviate traffic congestion. (Ironically, Vickery died
while sitting in a traffic jam.) Even China, which has added more than 50,000
kilometers of roads and dozens of airports over the past five years, makes use
of private financing.
True, countries that have not cleaned up their fiscal act, such as India,
must not recklessly plunge ahead ... without counterbalancing reforms to ensure
sustainability. Fiscal prudence and stable inflation rates are cornerstones of
today’s relatively healthy global economic environment. But for countries that
have scope to invest more, particularly those that are holding a surfeit of
precious development dollars in idle US Treasury bills, the time may be ripe to
reassess the balance of risks.
The IMF is absolutely right to remind ministers each April of downside risks.
Countries’ need for better infrastructure is no license to throw prudence out
the window. But when the world’s finance ministers ... also need to look at the
I think this is a good idea as well. Speaking of the IMF, Anne Krueger will be stepping down as deputy managing
director in August. Ken Rogoff is rumored to be on the shortlist of candidates
to replace her:
US reviews shortlist for IMF job, by Krishna Guha, Financial Times: The US
is reviewing a shortlist of candidates to succeed Anne Krueger, who yesterday
announced she would be stepping down as first deputy managing director of the
International Monetary Fund in August. ... The process of finding a successor to
Ms Krueger ... is well advanced. John Lipsky, vice-chairman of JPMorgan
investment bank, and Ken Rogoff, a professor of economics at Harvard university
who was once director of research at the IMF, are understood to be on the
shortlist, along with at least one other highly rated candidate...
...the past decade has seen the least volatile output growth of any decade since
1950. Does this refute the argument that the rise of finance threatens greater
economic instability? Such a conclusion would be too complacent. Stable economic
conditions themselves encourage greater risk-taking. Financial innovation may
have thickened the financial elastic. But it is becoming more and more tightly
stretched. Who can be confident that it will not snap?
For those of you either opposed to or in favor of free trade, I thought I would
try to help the debate along by looking at the welfare and political arguments for and against
open borders. This material is from Chapter 9 of Krugman and Obstfeld's
International Economics, "The Political Economy of Trade Policy." For
example, after talking about the advantages of free trade, the chapter states:
economists often argue that deviations from free trade reduce national welfare,
there are, in fact, some theoretical grounds for believing that activist trade
policies can sometimes increase the welfare of the nation as a whole. ... We need to realize that economic theory does not provide a dogmatic defense
of free trade, something that it is often accused of doing.
Another reason for presenting this material is to give a better sense of how economists approach these questions and present them in undergraduate classes, and to show that we may not be as closed-minded on the trade issue as many of you assume. Here are some arguments for and against free trade:
Chapter 9 The Political Economy of Trade Policy
In 1981 the United States asked Japan to limit its exports of autos to the
United States. This raised the prices of imported cars and forced U.S. consumers
to buy domestic autos they clearly did not like as much. While Japan was willing
to accommodate the U.S. government on this point, it was unwilling to do so on
another - a request that Japan eliminate import quotas on beef and citrus
products - quotas that forced Japanese consumers to buy incredibly expensive
domestic products instead of cheap imports from the United States. The
governments of both countries were thus determined to pursue policies that,
according to the cost-benefit analysis developed in Chapter 8, produced more
costs than benefits. Clearly, government policies reflect objectives that go
beyond simple measures of cost and benefit.
In this chapter we examine some of the reasons governments either should not
or, at any rate, do not base their policy on economists' cost-benefit
I don't lose much sleep worrying over France's future, I assume France will
find its way when it's ready to do so and there are plenty of other things to
keep me awake at night. But France is a passionate subject for many people as a
symbol of the
choice some countries make to trade equity and security for efficiency, or as a symbol of some other great battle of ideas,
and pessimism exists about France's future in some quarters.
Is the assumption that France will find its way warranted? Here's an analysis
of Frances ability and desire to to roll with the punches. The author, Raphaël
Hadas-Lebel, "is a member of the Conseil d’Etat and Professor at the Institut
d'études politiques in Paris":
France Unreformable?, by Raphaël Hadas-Lebel, Project Syndicate: It all
begun a year ago with the French “No” in the referendum on the European
Constitution. It continued last fall with the wave of violence in the suburbs.
Now, France has again brought itself ... attention with weeks of street
demonstrations against the “contract of first employment” (CFE) proposed ... to
address high youth unemployment.
These three sets of events, different as they are, together illustrate
several deep-seated characteristics of social life in France. First, France has
found it difficult to adjust to the demands of globalization. Beyond ordinary
dissatisfaction with economic problems, the failed referendum in May 2005
expressed the rejection by an important part of the French electorate of ... the
primacy of economic competition.
In a similar vein, last fall’s explosion of violence in the suburbs reflected
the frustrations of ... young people facing the grim prospects that a modern
economy offers to those who lack proper training and education. The young are
also at the center of the most recent protests, but this time, the disaffected
include all strata of French youth, including university graduates. ... [T]hey
... refus[e] to accept a precarious life outside the French model of job
security that their parents enjoyed in the context of a profoundly different
There is something very French about all this..., the need for greater
labor-market flexibility seems to have been accepted more easily in most other
countries. In Spain, under a socialist government, roughly one-third of wage
earners are working on temporary contracts; the percentage is even higher for
the young. In Italy, greater employment flexibility was introduced ... in 1997,
and further strengthened ...[in] 2003.
In Germany too, the coalition agreement ... includes a provision that extends
from six months to two years the trial period during which an employee can be
dismissed without explanation ... In all these European countries, the new
employment laws seem to be accepted as inevitable.
In France, by contrast, the statist tradition – which, as Tocqueville so
aptly observed, harks back to the Ancien Régime, and which is equally shared
today by both the Gaullist and socialist ideologies – is strongly linked to a
marked distaste toward the strictures of economic liberalism. Since the French
Revolution, the imperative of equality has often triumphed over the concern for
liberty. As a result, the French are enamored with the welfare state in all its
Not even the obvious failures of the French social model in today’s
environment ... have diminished its public prestige. It would be much more
logical to take inspiration instead from the Scandinavian model of “flexisecurity,”
So is France unreformable? Certainly not. The country has been transformed
profoundly in the recent decades. Whether it is the breakup of public
monopolies, such as electricity, gas, telecommunications, and even the post
office, or ... pension reform, France has changed much more than is commonly
believed. This is particularly true with respect to French companies, which have
remarkably adapted to ... international competition.
But much remains to be done: the entire educational system, up through the
university level, requires serious reform, and many taboos regarding employment
rules, social security, and the functioning of the state must be questioned.
What the experience with the CFE shows is not that reform is impossible, but
that it cannot be unilaterally imposed. Time must be taken for explanation,
consultation, and negotiation. In a society like France, marked by uncertainty
about the future and in great need of having its self-confidence restored, the
time taken to build consensus and create legitimacy for further reforms will
certainly be well spent.
A few simple facts indicate otherwise. First, there is a world market for
oil. What matters in determining the price of oil is how much oil is supplied in
the world, not how much is supplied in the United States. ... One million
barrels is less than 1.2 percent of world oil supply. That is not trivial, but
it will not hugely affect the world price of oil.
The second point follows directly from the first. Iraq’s average oil output
is approximately 1 million barrels a day less than it was before the war. ...
the same amount that drilling in the refuge might have increased it.
The third point is that the oil in the Refuge is a temporary fix. According
to the Energy Information Agency, it would take approximately 10 years to reach
the peak production of 1 million barrels a day. This peak production would
continue for approximately 10 years, and then it would trail back down to zero
over roughly 10 years. This means that if we had begun drilling in the Refuge
the day Clinton took office in 1993, then we would have hit peak production just
over three years ago, and we would begin to see a decline in output beginning in
2013. This is not exactly long-term energy security.
Of course, there is plenty that Clinton can be blamed for regarding energy
policy. For example, if he had introduced mileage standards that increased
average mileage by just 10 percent, this would save the country 1 million
barrels a day of oil consumption ...
The NY Times also comments on the president's remarks:
How Not to
Cure an Addiction, Editorial, NY Times: During his State of the Union speech
last January, President Bush correctly diagnosed America's oil consumption as an
addiction. Unfortunately, Mr. Bush is balking at taking the steps to cure the
Yesterday, the president told an audience ... that he would try to lower
gasoline prices by increasing the supply of oil ... His plan is to refrain from
topping off the nation's Strategic Petroleum Reserve, but it ... is nearly full
already, so skipping a few deposits won't appreciably affect supply or prices.
Mr. Bush's other recommendations were similarly off point. For instance, he
acknowledged that higher prices reflected global demand. But he offered no
strategy to combat demand-driven price rises. The obvious solution, to increase
fuel efficiency standards for ordinary cars, was not mentioned. ...
The president made no mention of the Iraq war, which pushes up prices by
reinforcing the market's anxiety over political upheaval in oil-producing areas.
But he did make another pitch for drilling in protected Alaskan wilderness.
The alternative energy technologies Mr. Bush emphasized — biofuels, hybrids,
hydrogen power — are important and promising. What's missing is a plan to get us
from here to there...
Despite critics' dismissal of the White House moves, the actions --
particularly relaxing clean-fuel standards -- could affect prices, oil
Update: Maybe Dean Baker had an impact:
Reader: TPM Reader PON finds this exchange from White House National
Economic Council Director Al Hubbard's
briefing yesterday on the president's 'Four Point Energy Plan' ...
Q Just to follow up, though, on one element of that point. The
President made the point that had ANWR been approved ten years ago, you'd get
about a million barrels a day. Had the Iraq production resumed to the level that
had been projected before the war, how much would that contribute today? DIRECTOR HUBBARD: I actually don't know the precise answer to that.
What's really most important, though, is that we've become less reliable on
overseas sources of crude oil and other sources of energy, and more reliant on
energy from within our 50 states [sic].
Q You have no estimate, though, about what Iraqi production could be? DIRECTOR HUBBARD: I do not have it. MR. HENNESSEY: We can get back to you. DIRECTOR HUBBARD: Yes, we
can get back to you with that, or --
Q That would be useful. I mean, just -- obviously, since the President
has chosen one interesting example in ANWR, the Iraq one would be an interesting
one to compare it to, whether that would be more or less than a billion -- a
million a day. DIRECTOR HUBBARD: Yes, we will have to get back to you on that.
We must be past the onset of diminishing returns to learning anything
new about the economics of immigration, but there still seems to be more
interest in this topic than I would have guessed and there's always more to learn. This Dallas Fed article
follows up Pia Orrenius's
commentary in the WSJ and emphasizes issues such as the economic effects of guest workers and the the economic distinction between legal and illegal immigration that haven't been emphasized in recent posts:
Q: What can you tell us about the size of the immigrant population in the
Immigrants make up about 12 percent of the overall population, which means about
36 million foreign-born live in the United States. The commonly accepted
estimate for the undocumented portion of the foreign-born population is 11
million. Immigrants come from all parts of the world, but we’ve seen big changes
in their origins. In the 1950s and 1960s, 75 percent of immigrants were from
Europe. Today, about 75 percent are from Latin America and Asia. Inflows are
also much larger today, with 1 million to 2 million newcomers entering each
I think Brad Setser makes good points. The people most opposed to
globalization due to the uncertainties it poses for their futures
got very little reassurance from Chinese president Hu's trip to the U.S. that things would
change, and as importantly, little sense that there is any effort underway in
domestic policy circles to address such problems. The only reference to this issue in the White House's five point recovery plan is to beef up the U.S.-Mexico border patrol with agents on ATVs.
There is some good news for some workers. The courts have forced the Labor Department to extend Trade Adjustment Assistance to service
workers, something they have resisted. Daniel Drezner
has the report. The court case was about displaced computer programmers
and it is puzzling why this change was resisted when it would appear to
helpful politically. My understanding is that the Trade Adjustment
Assistance program is underutilized, so overuse does not seem to be the
Here are Brad's comments:
Bad optics, by Brad
Setser, RGE Monitor: Many have noted that the White House botched the
stagecraft of Hu's not-quite-a state visit. ... But focusing narrowly on the
staging of the not-quite-a state visit I think misses a much bigger point. The
"optics" or "visuals" of the entire trip were terrible, and the rhetoric not
I'll start with China. Hu seemed to spend his entire trip with China's
friends in corporate America. The leader of the world's most profitable property
company (China's communist party) started out his trip with a visit to America's
richest man, and promised to make him even richer (by paying for his software).
And the China's top real estate baron proceeded to spend many more hours
cavorting with the corporate titans (See this
article) who are the biggest beneficiaries of
America's new gilded age.
China likes to reward its American friends. But rewarding those already
"winning" from the US-Chinese relationship isn't going to help those who are not
sharing in the benefits created of the current China trade. The alliance between
Chinese bureaucratic capitalists, American CEOs and Wall Street bond traders
betting on the continuation of Bretton Woods two leaves a lot of folks out.
Yes, American consumers benefit from cheap Chinese goods. ... China cuts both
ways for low-income consumers. Real wage growth for most Americans has stalled;
median real compensation growth hasn't kept up with productivity growth. Yes,
American homeowners benefit from rising home prices, in part because of cheap
Chinese financing. But not all parts of America shared equally in the
windfall... And more importantly, rising home prices don't help those who don't
(yet) have homes. They actually are worse off.
I recently saw a graph showing the widening discrepancy between urban and
rural income in China. Both are growing... I suspect if you did a similar graph
plotting the compensation of the median US manufacturing worker in Ohio against
the median wage of a US CEO over time (See
Martin Wolf today) or the median compensation (including bonus) of a Wall
Street prop bond trader since 2001 the discrepancy would be even more striking.
... the plot with median wages in the service sector, it wouldn't look much
But directionally, China's unwillingness to reap the rewards of its own
productivity growth through a real appreciation of the currency ((see
Menzie Chinn's graph - China may not be formally outside the confidence
interval, but the RMB sure looks undervalued to me) isn't helping. ... And
talking primarily to the "haves" and "have mores" isn't going to defuse the US
political debate over trade with China - particularly if the have-mores don't do
more to help those on the losing end of the China trade. ...
Martin Wolf asks an important question, why haven't wages kept up with
productivity? The work he references has been posted here at one time or
another (cites to two papers are at the end), so this may not be news to some of you, but it does a good job of
summarizing work on the problem of rising inequality. He also gives three
reasons why you should care about this issue even if you are non-egalitarian:
A new gilded age,
by Martin Wolf, Financial Times: Between 1997 and 2001, the top 10 per cent of US earners received
49 per cent of the growth in aggregate real wages and salaries, while the top 1
per cent received an astonishing 24 per cent. Meanwhile, the bottom 50 per cent
received less than 13 per cent. Why is this happening? And should
non-egalitarians care? The data I have cited come from a remarkable paper from two economists at Northwestern University. The authors ask a simple, but telling, question: if
the US economy is becoming more productive, why have most of its citizens not
become better off?
Speaking to the International Monetary Fund, Snow repeated the U.S. position
that ratcheting down big imbalances in trade and capital flows "cannot be
anything other than a shared responsibility" because no one country caused them.
Interestingly, this assertion is much less nuanced than the Treasury
Occasional Paper on the subject... That study
cited point estimates for the response of the current account to GDP ratio to a
a budget balance to GDP ratio ranging from 0.1 (Erceg et al.) to 0.44 (IMF).
Since the study also cited the 0.13 coefficient
Chinn and Prasad (2003), it seems only natural to discuss what
Hiro Ito and I have discovered in our updating of these estimates ... in a forthcoming
revision of our paper
here. The updated point estimate is 0.20 -- for a pooled panel cross section
regression... Our fixed effects regression estimates for different sets of countries is
The critical estimate for this discussion is the industrial country point
estimate of 0.40. The estimate is significantly different from zero at the 10% ... level. Why is this point estimate so different from the
pooled panel-time series estimate? The biggest impact likely arises from
allowing each individual country to have a different constant, something ruled
out in the pooled OLS procedure...
Is the pooled estimator appropriate? It depends upon the question one is
asking. If one wants to know ... the average response for an
industrial country's current account balance to changes in the budget balance,
assuming a high degree of homogeneity across the countries, then this is the
correct number. If, on the other hand, one is interested primarily in how the
United States behaves, ... then
the fixed effects estimate is more relevant. ... I
would assert the empirical evidence -- as opposed to calibration-based
results -- is on the side of effects greater than 0.2. ...
As I have noted
elsewhere, when the coefficient is 0.4 (remarkably close to the OECD's
Interlink model, and similar to that in other estimated macroeconometric
models), 0.4 means that a 6% percentage point swing in the budget balance --
like the one that took place after 2001 -- would result in a 2.4 percentage
point swing in the current account balance. Not enough to eliminate the deficit,
but certainly enough to make a substantial impact.
Menzie Chinn critiques the Bush administration's latest Snow job ... Menzie, however, is kind, relative to what the Washington Post did to John Snow. It got medieval on him, by putting this headline atop his argument: "Don't Blame Just Us."
Did you see Josh Bolten's five-point White House "recovery
plan"? This is from
Time Magazine. Part of the plan is to brag more about the economy. I'll let you make up your mind about whether this will work:
1 DEPLOY GUNS AND BADGES. This is an unabashed play to members of the
conservative base who are worried about illegal immigration. Under the banner of
homeland security, the White House plans to seek more funding for an extremely
visible enforcement crackdown at the Mexican border, including a beefed-up force
of agents patrolling on all-terrain vehicles (ATVs). "It'll be more guys with
guns and badges," said a proponent of the plan. "Think of the visuals. The
President can go down and meet with the new recruits. He can go down to the
border and meet with a bunch of guys and go ride around on an ATV." ...
2 MAKE WALL STREET HAPPY. In an effort to curry favor with dispirited
Bush backers in the investment world, the Administration will focus on two tax
measures already in the legislative pipeline--extensions of the rate cuts for
stock dividends and capital gains. "We need all these financial TV shows to be
talking about how great the economy is..." said a presidential adviser. "This is
very popular with investors, and a lot of Republicans are investors."
3 BRAG MORE. White House officials who track coverage of Bush in media
markets around the country said he garnered his best publicity in months from a
tour to promote enrollment in Medicare's new prescription-drug plan. So they are
planning a more focused and consistent effort to talk about the program's
successes after months of press reports on start-up difficulties. Bolten's plan
also calls for more happy talk about the economy. ... to trumpet the lofty stock
market and stable inflation and interest rates. They also plan to highlight any
glimmer of success in Iraq...
4 RECLAIM SECURITY CREDIBILITY. This is the riskiest, and potentially
most consequential, element of the plan... Presidential advisers believe that by
putting pressure on Iran, Bush may be able to rehabilitate himself on national
security, a core strength that has been compromised by a discouraging outlook in
Iraq. "In the face of the Iranian menace, the Democrats will lose," said a
Republican frequently consulted by the White House. ...
5 COURT THE PRESS. Bolten ... believes the White House can work more
astutely with journalists to make its case to the public, and he recognizes that
the President has paid a price for the inclination of some on his staff to treat
them dismissively or high-handedly. His first move ... was to offer the press
secretary job to Tony Snow of Fox News radio and television, a former newspaper
editorial writer and onetime host of Fox News Sunday who served George H.W. Bush
as speechwriting director. Snow ... is the bona fide outsider that Republican
allies have long prescribed for Bushworld and would bring irreverence to a place
that hasn't seen a lot of fun lately. ...
The Strategic Reserve is an insurance policy meant for a sudden disruption of
our energy supply or for war. Strategic Reserve should not be used as an attempt
to drive down oil prices right before an election. It should not be used for
short-term political gain at the cost of long-term national security.
Today, Bush did precisely what he criticized President Clinton for
five-and-a-half years ago. WSJ report: "Bush moved to temporarily halt deposits to the nation's strategic petroleum
reserve to make more oil available for consumers and relieve pressure on pump
If you haven't batted the evidence on immigration around enough yet, here's a
little more from Pia Orrenius of the Federal Reserve Bank of Dallas. She was a
member of the President's Council of Economic Advisers from 2004-2005 and supports a relatively open door policy:
of Immigration, by Pia Orrenius, Commentary, WSJ: ...The stereotype of the
hard-working immigrant still rings true in our country. Male immigrants have
labor force participation rates of 81%, exceeding U.S.-born men's participation
rate of 72%. Illegal immigrant men have even higher participation rates --
around 94%... Immigrants have contributed more than half of U.S. labor force
growth in the past decade as a result of high immigration rates and their desire
to work. ... Economists have noted time and again that the effect of immigration on
natives' wages is small.
It would be fair to say that I don't always agree with John Tierney, but today I do:
Potheads and Sudafed, by John Tierney, Commentary, NY Times: ...Washington's
latest prescription for patients in pain is the statement issued last week by
the Food and Drug Administration on the supposed evils of medical marijuana. ...
Republican narcs on Capitol Hill, in the White House and at the Drug Enforcement
Administration ... [have] been engaged in a long-running war to get the F.D.A.
to abandon some of its quaint principles, like the notion that it's not fair to
deny a useful drug to patients just because a few criminals might abuse it. The
agency has also dared to suggest that there should be a division of labor when
it comes to drugs: scientists and doctors should figure out which ones work for
patients, and narcotics agents should catch people who break drug laws. ...
This month, pharmacists across the country are being forced to lock up
another menace to society: cold medicine. Allergy and cold remedies containing
pseudoephedrine, a chemical that can illegally be used to make meth, must now be
locked behind the counter under a provision in the new Patriot Act. Don't ask
what meth has to do with the war on terror. Not even the most ardent drug
warriors have been able to establish an Osama-Sudafed link.
The F.D.A. opposed these restrictions for pharmacies because they'll drive up
health care costs and effectively prevent medicine from reaching huge numbers of
people ... These costs are undeniable, but it's unclear that there are any net
benefits. In states that previously enacted their own restrictions, the police
report that meth users simply switched from making their own to buying imported
drugs that were stronger — and more expensive, so meth users commit more crimes
to pay for their habit.
The Sudafed law gives you a preview of what's in store if Representative
Frank Wolf, a Virginia Republican, succeeds in giving the D.E.A. a role in
deciding which new drugs get approved. ...[T]he F.D.A.'s biggest fear is that
Congress will let the drug police veto new medications. ... Officially, the
D.E.A. says it wants patients to get the best medicine. But ... scientists
trying to study medical marijuana ... can't get the high-quality marijuana they
need because the D.E.A. won't allow it to be grown. ...[A]s long as researchers
can't study marijuana, they can't come up with evidence that it's effective. And
as long as there's no conclusive evidence that medical marijuana works, the
D.E.A. and its allies on Capitol Hill can go on blindly fighting it. ...
Locking up crack and meth dealers is popular, but voters take a different
view of cancer patients who swear by marijuana. Medical marijuana has been
approved in referendums in four states that went red in 2004: Nevada, Montana,
Colorado and Alaska. For G.O.P. voters fed up with their party's current
big-government philosophy, the latest medical treatment from Washington's narcs
is one more reason to stay home this November.
I thought it would be useful to post an example of Paul
Krugman's academic work so you can see what is behind his NY Times column and get a better sense of how economists approach
This is a preliminary paper by Krugman (mentioned in his Money Talks column) that he presented at a seminar at Princeton examining
whether there will be a dollar crises and if so, how it will affect the economy. It's fairly low tech mathematically compared to most papers in economics and that's one reason I chose it. Here's the Summary and Conclusions explaining what the paper does followed by
the entire paper:
Concerns about a dollar crisis can be divided into two
questions: Will there be a plunge in the dollar? Will this plunge have nasty
The answer to the first question depends on whether there is
investor myopia, a failure to take into account the requirement that the dollar
eventually fall enough to stabilize U.S. external debt at a feasible level.
Although it’s always dangerous to second guess markets, the data do seem to
suggest such myopia... The various rationales and rationalizations for the U.S.
current account deficit that have been advanced in recent years don’t seem to
help us avoid the conclusion that investors aren’t taking the need for future
dollar decline into account. So it seems likely that there will be a Wile E.
Coyote moment when investors realize that the dollar’s value doesn’t make sense,
and that value plunges.
The case for believing that a dollar plunge will do great harm
is much less secure. In the medium run, the economy can trade off lower domestic
demand, mainly the result of a fall in real housing prices, for higher next
exports, the result of dollar depreciation. Any economic contraction in the
short run will be the result of differences in adjustment speeds, with the fall
in domestic demand outpacing the rise in net exports. The United States in 2006
isn’t Argentina in 2001: although there is a very good case that the dollar will
decline sharply, nothing in the data points to an Argentine-style economic
implosion when that happens. Still, this probably won’t be fun.
Here's the paper in its entirety (it's longer than a typical post, the original, linked as a pdf, is 33 pages):
4 - Trends in Corporate Governance:
Sir Geoffrey Owen will answer readers’ questions on the latest developments in
European corporate governance, on convergence and divergence trends across
countries, on changes in the role of shareholders, and on the comparison between
corporate governance in Europe and the United States.
Would you like to ask a question?
Tim Keese, Frankfurt, Germany: Income on foreign investments is
accumulative, isn't it? Americans are receiving income on investments in foreign
countries made decades ago, and the U.S. current account deficit is relatively
new — meaning returns to foreign investors would naturally be lower, but still
growing. You have to look at total investments, not just current ones. Or am I
missing something here?
Paul Krugman: We've been running a current account deficit
consistently since about 1980. And back in the day, when the U.S. ran surpluses,
they were small compared with the size of the economy. On the other hand, the
deficits since 1999 have been huge. By any measure, we're deep in the red now
(the official figures say that our net debt is close to $3 trillion) — unless
you believe that the current account deficits of recent years are a statistical
Jan Beckedorff, Bethesda, Md.: Please follow up with scenarios of what
may happen when the chickens do come home to roost. What will be warning signs?
How to defend savings and assets for those not in the wealth class? ...
Paul Krugman: The chickens-home-to-roost scenario is actually the hard
part, because we have no experience with a country this big and this rich being
this deep in deficit. One thing is clear, though: it's really bad for housing.
Donna Middlehurst, Chevy Chase, Md.: I'd like to see a companion
analysis of the issue of why we're not paying for those budget deficits yet ...
Republicans screamed for so many years about the evils of deficit spending.
They're strangely silent, but there's also no rattling of the windows to signal
an approaching hurricane....
Alan Soffin, Doylestown, Penn.: ...You just sketched in the trade
deficit as a standing condition, but this reader is not sated. How did we get
here? What forces or ideas generated this predicament? Even a hint or two would
Paul Krugman: I and many other economists are working on that! What seems
to have happened is a mixture of several causes. Developing countries in Asia
starting building up their dollar reserves after the 1997-1998 crisis; this
helped cause low interest rates in the U.S., which started a housing bubble,
which led to a sharp decline in U.S. saving, reinforced by the budget deficit,
and so on. I'll try to write more about it in the near future; let's see what my
Princeton colleagues have to say in today's seminar.
Fred Roper, Spencer, Okla.: ...The United States ... has a net surplus in trade in services, the last time
I checked. Therefore, the U.S. has a negative in the trade in goods, but a
surplus in trade in services and investments. What is the net result of the
three put together? ... I would think that with the income the U.S. generates
from services and investments that the trade deficit does not tell the whole
story of what creates wealth for a country.
Paul Krugman: Last year, the U.S. did run a surplus in services, but
it was only $57 billion, compared with a deficit in goods of $780 billion. And
we also ran a substantial deficit in "unilateral transfers," which includes
things like money that immigrant workers send home. The current account deficit,
which includes all of this (and the income from US companies abroad, too) was
$805 billion. Sorry, there's no comfort in the broader numbers.
For those who want to look at the numbers for themselves, a couple of
Paul Krugman sifts through the clues regarding the causes and potential
consequences of our growing trade deficit. When the clues are assembled and
evaluated, the crime appears bigger and more problematic than first reported:
That's more or less what's going on right now among international finance
experts. The crime in question is the U.S. trade deficit, which ... reached an
amazing $805 billion last year. The mystery is how we've been able to run huge
deficits ... with so few visible adverse consequences. And the future of the
U.S. economy depends on which of two proposed solutions to the mystery is right.
Here's the puzzle: the trade deficit means that America is ... spending far
more than it earns. ... To pay for the excess of imports over exports, the
United States has ... borrowed more than $3 trillion just since 1999.
By rights, then, the investment income ... that Americans pay to foreigners
should be a lot larger than the investment income foreigners pay to Americans.
But according to official statistics, the United States still has a slightly
positive balance on investment income.
How is this possible? The answer, almost certainly, is that there's something
wrong with the numbers. ... But depending on ... what's wrong, the U.S. economy
either has hidden strengths, or it's in even worse shape than it seems.
In one corner are economists who think the official statistics miss invisible
U.S. exports ... of intangibles like knowledge and brand-name recognition, which
allow U.S. companies to earn high rates of return on their foreign investments.
Proponents ... claim that if we counted [this] ..."dark matter," much of the
U.S. trade deficit would disappear. ... But ... U.S. companies operating abroad
don't, in fact, seem to earn especially high rates of return.
Why, then, doesn't the United States seem to be paying a price for all its
borrowing? Because according to the official data, foreign companies operating
in the United States are remarkably unprofitable, earning an average return of
only 2.2 percent a year.
There's something wrong with this picture. As Daniel Gros of the Center for
European Policy Studies puts it, it's hard to believe that foreigners would
continue investing in the United States "if they were really being constantly
taken to the cleaners."
In a new paper, Mr. Gros argues — compellingly, in my view — that ... foreign
companies are understating the profits of their U.S. subsidiaries, probably to
avoid taxes, and that official data are ... failing to pick up foreign profits
that are reinvested in U.S. operations.
If Mr. Gros is right, the true position of the U.S. economy isn't as bad as
you think — it's worse. The true trade deficit ... isn't $800 billion — it's
more than $900 billion. And America's foreign debt ... is at least $1 trillion
bigger than the official numbers say.
Of course, optimists have a comeback: if things are really that bad, why are
so many foreign investors still buying U.S. bonds? ... But I have two words for
those who place their faith in the judgment of investors...: Nasdaq 5,000.
Right now, forensic analysis seems to say that the U.S. trade position is
worse, not better, than it looks. And the answer to the question, "Why haven't
we paid a price for our trade deficit?" is, just you wait.
I need a Raise to Buy Gasoline, by Tim Duy: Well, maybe I don’t really need a raise just yet. I live about 4 miles from
the office, and a tank of gas lasts me about three weeks of typical in-town
driving. And the Department chair would probably just tell me to ride my bike,
or use the free bus pass. So, while I may not be seriously looking for a raise
just yet, I am willing to bet that most households are starting to get a bit
more uneasy than myself. These high gas prices are looking more and more like a
permanent situation, not just a temporary blip. Consequently, households will
rethink their expectations. Should they seek higher wages to compensate for
energy inflation (in addition, of course, to wages gains for rising
productivity), or accept a reduced standard of living?
The latter choice, of course, will make households unhappy. And they don’t
want to be unhappy. They would prefer that the economy remains strong enough
squeeze employers for those extra wages before higher energy costs, not to
mention the lagged impact of monetary tightening, become enough of a drain on
economic activity, reducing their bargaining power. The race is on, and therein
lays the policy dilemma for the Fed. Will the economy slow enough to offset the
inflationary impact of higher energy prices in the back half of this year?
The expectation of Bernanke & Co., at least last Tuesday, was that the
economy would ease back toward potential for the remainder of this year,
reducing inflationary pressures. This was made
clear in the minutes of the last meeting:
Most members thought that the end of the tightening process was likely to be
near, and some expressed concerns about the dangers of tightening too much,
given the lags in the effects of policy.
Given the amount of tightening already in the system, most are becoming
uneasy with blindly hiking away, especially considering the emerging evidence of
a housing slowdown. Still, they recognize a need to
hold inflation expectations in check, and that means a clear willingness to hike
rates should inflationary pressures heighten unexpectedly. As
I said last week,
however, market participants were misinterpreting this vigilance for rate hike
guarantees. The minutes disabused traders of that notion:
Several members were concerned that market participants might not fully
appreciate the extent to which future policy action will depend on incoming
economic data, especially when an end to the tightening process seems likely to
be near. Some members expressed concern that retention of the phrase "some
further policy firming may be needed to keep the risks...roughly in balance"
could be misconstrued as suggesting that the Committee thought that several
further tightening steps were likely to be necessary.
San Francisco Fed President Janet Yellen reiterated that theme with a speech
the same day as the minutes were released. Most importantly, she provided us
with her null hypothesis:
First, real GDP growth currently appears to be quite strong, but there is
good reason to expect it to slow to around its potential rate as the year
progresses. If it does, the degree of slack should remain within range of full
employment and have little effect on inflation going forward. Although inflation
is in the upper portion of my comfort zone, it appears to be well contained at
present, and my best guess for the future is that it will remain well
contained…Moreover, this desirable trajectory appears to be within reach at a
time when the Fed's key policy interest rate—the federal funds rate—is close to
a neutral stance, one that neither stimulates the economy nor restrains it.
She also explains how incoming data will affect the path of policy:
This phrase—"policy will be data dependent"—is all the rage right now in
policy circles, but I think it's worth a moment to clarify what I mean when I
use it. To me, it means that we should interpret the implications of incoming
data for our forecast and evaluate whether resulting changes in the
forecast call for a change in the policy path.
In other words, data should be read as to whether or not it changes the Fed’s
view of output or inflation in the second half of this year.
But, the best laid plans of mice and men are so often unraveled by those
small details. OK, perhaps not that small – markets were whipsawed by an
ugly CPI report for March. FOMC hawks
probably said a collective “I told you so.” For a minute by minute look at the
fed funds action last week, you
absolutely need to head to macroblog.
Maybe inflation isn’t under control after all?
The CPI report itself, in my opinion, put the June rate hike back in play.
And the surging oil prices further raises the stakes. I can confidently say that
neither event was expected by the Fed. If they were expected, Yellen would not
have gone out of her way to reinforce the minutes. All things considered, I
would not be surprised to see upcoming Fedspeak sound more hawkish than the
most recent minutes. And if the next CPI report supports the contention that the
inflation is on a higher potential than previously thought, we will move from
“possibility” to “probability” on a June rate hike.
The case for a June hike will be further supported if consumer spending looks
to be holding steady, rather than easing back as the FOMC expects. The fate of
consumer spending, however, depends on the path of income growth. Recall the
close correlation between real personal consumption expenditures growth and real
disposable income growth:
The two sharp deviations between the growth rates, in
1999-2000 and from roughly January 2005 onward, reflected the impact of rising
energy costs. Arguably, households saw these episodes as temporary phenomena.
Rather than adjusting spending growth downward, they held maintained spending
patterns and drew down the saving rate (these periods often reflect the two
sharp slides in saving rates).
Presumably, with saving rates hovering just south of zero and higher interest
rates putting pressure on the ability/willingness to borrow, households will be
looking to resolve this gap by adjusting spending downward (which makes them
unhappy), or seeking additional wage compensation. The Fed appears to be
expecting the former, that households will pull spending growth back in line
with income growth. Alternatively, and just as well, that the gap closes due to
productivity induced income growth.
But buying stuff is fun! And what good is a real wage increase if it can’t be
matched by a real spending increase? Saving is boring. These, of course, are
just alternative ways to reiterate that betting against the consumer is a
dangerous play. Given that “resource utilization” gaps have closed, workers may
be more eager to seek higher wages in the face of rising energy costs than we
have seen in the last few years.
This latter scenario is not what the Fed is expecting, of course. Again, if
they were expecting it, they would not be so eager to announce the end of the
rate hike cycle is near. But the CPI report, with its jump in core inflation,
and the fresh gains in energy prices will reinforce the positions of the FOMC’s
more hawkish members while challenging the doves to revisit their outlook for
the second half of the year.
Does Fox news affect voting behavior? In August Alan
Krueger, writing in his New York Times Economic Scene column, said:
A new study by Stefano DellaVigna ... and Ethan Kaplan ... ask[s] whether the
advent of the Fox News Channel ... affected voter behavior. They found that Fox
had no detectable effect on which party people voted for, or whether they voted
at all. … Thus, the introduction of Fox news did not appear to have increased
the percentage of people voting for the Republican presidential candidate. A
similar finding emerged for Congressional and senatorial elections...
But Chris Dillow at Stumbling and Mumbling
finds an updated version of the paper that comes to a different conclusion.
Chris says "I find this new NBER paper depressing." Here's the
abstract of the paper (an earlier version is included below for comaprison):
Here's an interesting paper by Edward Glaeser and Bryce Ward on myths and realities
regarding changing political geography over time in the U.S. and the validity of the "red state/blue state" paradigm:
In this essay, we revisit America’s
political geography and ask what is true and false about the “red state/blue
state” framework. We begin by identifying five myths associated with this
framework: 1) America is divided into two politically homogenous regions; 2) The
two parties are more spatially segregated than in the past; 3) America’s
political geography is more stable than in the past; 4) America’s cultural
divisions are increasing and 5) America is becoming more politically polarized.
But despite the myths surrounding the red state/blue state
paradigm, there are two important truths captured by this framework. America is
a country with remarkable geographic diversity in its habits and beliefs. People
in different states have wildly different views about religion, homosexuality,
AIDS, military policy and wildly different consumption patterns. The
distribution of states along all dimensions is continuous, not bimodal.... Moreover, America’s
ideological diversity is not particularly new. ... The extent and permanence of cultural
divisions across space is one of America’s most remarkable features. While
spatial sorting on the basis of income or tastes may seem natural to most
economists, the remarkable spatial heterogeneity of beliefs – political and
otherwise – presents more of a challenge to the standard Bayesian models of
belief formation. For example, in the April 2004, CBS/New York Times poll,
twenty-three percent of respondents in Oregon, Washington and California thought
that Saddam Hussein was personally involved in the September 11, 2001, attacks.
Forty-seven percent of respondents in Texas, Oklahoma and Arkansas had that
view. In the 1987-2003 PEW Values surveys, 56 percent of Mississippi residents
think that AIDS is God’s punishment for immoral sexual behavior. Only 16 percent
of Rhode Island residents share that view.
Using state and county level regressions, we explore a number of
different hypotheses about the long run historical causes of differences in
beliefs over space. We find little support these cultural differences represent
long-standing differences in religiosity or the legacy of slavery.
Instead, our regressions support the idea that Blue State culture reflects
primarily the legacy of different ethnicities working together at high
densities: the most important historical explanatory variables are the share of
the labor force in manufacturing in 1920 and the share of the population that
was foreign born in 1920 strongly predict liberal beliefs and voting for John
The second important truth captured by the red state/blue state
framework is that political parties and politicians have had an increasing
tendency to divide on cultural and religious issues rather than on economic
differences. Again, in historical perspective, cultural politics is not unusual.
In the late 19th
century, “Rum, Romanism and rebellion” were the core
issues that determined the Republican Party. The true aberration was the
midtwentieth century era of economic politics...
Here are a few graphs and tables from the paper (click on figures for larger pop-ups):
Why is it that after politicians are elected the value of stock in companies
they control rises? What are people expecting will happen?:
Are Rich Politicians Selfless Politicians? by Daniel Altman, Economic View, NY
Times: ...Mara Faccio, an assistant professor of management at Vanderbilt
University, looked at the cases of 109 capitalists and entrepreneurs who were
elected to political office in 47 countries. She chose politicians in two
categories: those who owned at least 10 percent of the shares of a publicly
traded company (which many economists consider a controlling interest), and
those who had been chief executive, president or vice president of such a
In a paper published in March in The American Economic Review, Ms. Faccio
reported that the politicians' companies experienced a 2.3 percent increase in
their share prices, on average, around the time of their electoral victories. If
a politician entered the executive branch of government, the effect was larger —
up to a 12 percent lift for companies associated with new presidents, prime
ministers and other top officials. "The results suggest that the politician is
acting in the interest of the company," Ms. Faccio said in an interview by
telephone. "And the effects were much larger in countries with high corruption."
There could be a celebrity effect. If I own a restaurant and become
president, maybe more people want to eat there and profits rise. But the
variation across countries according to corruption suggests other forces are at
The paper lists "preferential
treatment by government owned enterprises (such as banks or raw material
producers), lighter taxation, preferential treatment in competition for
government contracts, relaxed regulatory oversight of the company in question or
stiffer regulatory oversight of its rivals, and many other forms" as potential
reasons for the change in the value of the stock. The NY Times article also discusses
whether wealthier politicians are more independent but does not reach any definitive conclusions.
...inflation is a monetary phenomenon that occurs exclusive of economic
This is wrong. When money grows at the rate of economic growth, all else
equal, it is not inflationary. The reason is
simple. Money is needed for transactions. As the economy grows, we buy more
stuff so we demand more money. Supplying money to meet that extra demand is not
inflationary - the money supply can grow at the rate of output growth without
inflation. See Nouriel Roubini and David Backus and their derivation of the equation (inflation = money growth - output growth) and discussion of Friedman's money growth rule for more. It is true that an increase in money growth increases inflation one to one if output growth is unaffected and I think this is what Tamny has in mind. But as Roubini and Backus note:
As Milton Friedman put it: "Inflation is always
and everywhere a monetary phenomena." It's only after you think about
that sentence for a while that you realize it's not as informative as it
I don't particularly care for Tamny's analysis
either where it is argued that globalization makes measures of capacity
utilization and unemployment irrelevant for monetary policy decisions. The article does not
distinguish between excess domestic capacity, e.g. restarting an existing
factory in the U.S., and building a new factory in in the U.S. or a foreign
country. In one case, production can be brought online fairly quickly, in the
other there are substantial time lags. There is really no thought given to
concepts of the short, medium, and long run and how that might differentially
affect inflationary pressures, e.g.:
Domestically, it has to be remembered that as opposed to being static,
capacity is ever changing. Be it through the expansion of existing plants, the
introduction of robotics, or innovation that expands output from existing
facilities, capacity is a fluid concept that should not be measured in terms
of the here and now. ...
Regarding capacity utilization and assumptions about U.S. companies
reaching arbitrary limits, it should be remembered that ... U.S. companies ...
access the world for capacity, making any domestic capacity measures
When there is excess demand and there is no
excess capacity remaining, the fact that factories can be built, expanded, or
modernized either in the U.S. or in foreign countries does not mean there will
be no upward pressure on prices in the interim and the Fed needs to account for
this as it sets policy.
If there is instantly accessible excess world capacity, it would be true that
excess demand would not be inflationary, but that isn't the case. There aren't
modern but idle factories in China and India or other countries that can be
opened instantly once firms serving U.S. markets begin to affected by capacity
constraints. It takes time to move or start production offshore and in the
meantime, excess demand will be reconciled by rising prices. Even if there are
idle foreign factories, supply chains to the U.S. are not as easy to restart as
for domestic firms with excess capacity. So, while unskilled labor is abundant
in the world:
Indeed, with the continued penetration of 100 million-plus workers from the
former Soviet Union, China, and India into the labor force, the notion of
coming labor shortages seems pretty farfetched. ... The developed economies of
the world will surely access these additions to the labor force, making the
point about tight labor markets in any one part of the world moot.
Just having lots of labor isn't enough. Labor must have the proper skills for
the particular production activity undertaken and the factories, management,
etc. all have to planned and put into place before production is possible. In
the meantime, prices must rise to temper excess demand.
It may be true that the long-run response of the world economy to excess
demand is faster than it once was due to globalization and that may affect the
degree to which the Fed will want to tighten to avoid inflation as measured by a
standard medium run target. But adjustment is by no means instantaneous - it
still takes substantial time to alter the global mix of production. Thus, even
with globalization, inflation can arise in response to excess demand in the
short and medium runs as the global economy responds to
the demand shock, and measures of domestic capacity utilization and
unemployment remain important signals for monetary policy makers regarding
the existence of potential inflationary pressures.
This Economic Letter from the San Francisco Fed uses the Beveridge
curve relating vacancy and unemployment rates to examine how the efficiency of job matching has changed through time.
finds that "...the speed and effectiveness of the job-matching process
deteriorated in the 1970s through the early 1980s and then improved" with the
onset of the great moderation in the mid-1980s due, perhaps, to a decline in the
geographic mismatch of jobs and workers1:
Job Matching: Evidence from the Beveridge Curve,
by Rob Valletta and Jaclyn Hodges,
Economic Letter, San Francisco Fed: Conditions in labor markets are largely reflected in the number of jobs
employers want to fill (job vacancies) and the number of people seeking jobs
(the unemployed). Over the business cycle, for example, job vacancy rates and
unemployment rates generally exhibit negative co-movement, with high vacancies
and low unemployment when the economy is growing and vice versa when the economy
is contracting. Beyond that short-run relationship, ... positive
co-movement of the vacancy and unemployment series over longer time periods
reflects changes in the speed and effectiveness of job matching.... When the job-matching process is slow, perhaps due to
changes in the amount of necessary job reallocation across geographic regions or
industries, both unemployment and vacancies can coexist at high levels,
representing underutilized labor resources.
This Economic Letter examines the evidence on long-term shifts in
the speed and efficiency of job matching in U.S. labor markets by using the
so-called Beveridge curve. The Beveridge curve is an empirical measure of the
relationship between the job vacancy rate and the unemployment rate. Changes in
the job-matching process suggested by movements in the Beveridge curve ... have not been extensively
analyzed... In this Economic Letter, we utilize new data from the
U.S. Bureau of Labor Statistics (BLS) to construct a long-term vacancy series
and corresponding estimates of the Beveridge curve. We find that declining
dispersion of economic growth across geographic regions helps explain
improvements in the job-matching process since the mid-1980s and reinforces
existing depictions of improved performance of the U.S. aggregate labor market
in the 1990s (for example, Katz and Krueger 1999).
Forming the empirical Beveridge curve
1 displays the U.S. Beveridge curve based on the ... vacancy rate series and
age-adjusted unemployment rate series for selected periods between 1960 and
The Beveridge curves in this figure exhibit a typical counterclockwise
adjustment pattern around recessions (1960-61, 1981-82, and 2001), as vacancies
rise more quickly than unemployment falls during the recovery phase. The outward
shift in the Beveridge curve between the periods 1960-69 and 1979-85, as
identified by Abraham (1987), is clearly evident, as is a substantial inward
shift between 1979-85 and 2000-05. This pattern suggests that the speed and
effectiveness of the job-matching process deteriorated in the 1970s through the
early 1980s and then improved.
One leading explanation for these movements in the Beveridge curve is changes
in the dispersion of employment growth across regions.
The intelligent designers were really good at hiding signs of their
participation in creation. To throw us off track, they left all sorts of clues
making it appear incontrovertible that humans had evolved over millions years:
Evolution's case evolves, by Ann Gibbons, Commentary, LA Times: It's been a
tough month for creationists. On April 6, evolutionary biologists announced the
discovery of a fossil of Tiktaalik roseae, a giant fish whose fins were evolving
into limbs when it died 375 million years ago. This scaly creature of the sea
was in transition to becoming a land animal, the discoverers wrote in Nature.
A day later, molecular biologists reported in Science that they had traced
the origin of a key stress hormone, found in humans and all vertebrates, back
450 million years to a primitive gene that arose before animals emerged from
oceans onto land.
Both teams of scientists stressed that their findings contradicted
creationists — and demonstrated how small, incremental steps over millions of
years could indeed produce complex life... But even as they were touting their
results as yet another validation of Charles Darwin's theory of evolution,
biochemist Michael Behe, a leading advocate of "intelligent design," dismissed
the hormone discovery as "piddling."
As if in response to Behe's challenge, paleoanthropologists raised the stakes
last week ... In the journal Nature, a team of researchers ... found an
"intermediate" member of the human family that they say unambiguously fills the
gap in the fossil record between two early types of human ancestors.
Australopithecus anamensis was a creature the size of an orangutan that walked
upright in the Rift Valley of eastern Africa about 4 million years ago...
The team found the species in a mile-deep stack of sediment in northeastern
Ethiopia, which has become the Comstock Lode of human evolution. Across 11
separate layers, researchers unearthed several types of early human ancestors,
with the anamensis bones sandwiched between layers containing two other species
— Australopithecus afarensis, the species whose most famous member was the
diminutive skeleton Lucy that lived 3.2 million years ago; and the
4.4-million-year-old Ardipithecus ramidus. ...When researchers compared the
teeth and bones of these various human ancestors, they saw a clear path from
primitive to modern. ...
I don't know anything about Susan Schwab, the administration's choice to
replace Rob Portman as U.S. trade representative, but the New York Times has a
for those trade talks, Editorial, The New York Times: A good U.S. trade
representative needs two things. As the quarterback of America's efforts to
break down trade barriers, he or she must command respect abroad. Robert
Zoellick and Charlene Barshefsky did well on that count when holding down the
The other important quality is access to the president. If other countries
know that the U.S. trade representative has the political ear of the president
and the often cranky Congress, they are more likely to bargain in good faith...
Mickey Kantor was a close political pal of President Bill Clinton, which helped
make up for the fact that he came to the job without much trade experience.
Ditto for Rob Portman, the job's present occupant.
Decent U.S. trade representatives can make do with one of the two qualities.
... Susan Schwab, the woman Bush has nominated to succeed Portman, has neither
asset. That lack does not bode well for the crucial trade talks that are now
under way at the WTO.
Schwab is a competent technocrat. She spent some time in academia, and was on
the staff of John Danforth when he was a Missouri senator. She joined the Bush
administration last year as a deputy at the trade office. She doesn't have
Portman's congressional credentials, or Kantor's access to the president. Nor
does she have Barshefsky's trade reputation or Zoellick's international clout.
She takes the job at a time when global trade talks to reduce agricultural
subsidies are floundering. Her appointment has given Peter Mandelson, the
European Union trade chief who looks for every excuse he can find to avoid
ending Europe's odious farm subsidies, the perfect out: He can blame his
paralysis on America for changing quarterbacks in the middle of the game. In the
end, the most important byproduct of Bush's much-discussed White House shake-up
may be the torpedoing of any real progress in these critical trade negotiations.
This commentary explains that bribery by publishers of scandal sheets is nothing new. It also suggests that if you are going to bribe people by threatening to publish scandalous stories
about them, be sure to mind your manners:
York's school for scandal sheets, by Mark Caldwell, Commentary, IHT: A lot
has been said lately about Jared Paul Stern, the contributor to The New York
Post's Page Six gossip column who is accused of trying to extract $100,000 or so
from a billionaire. Something that hasn't been mentioned, though, is how
relatively puny his alleged misdeeds are when considered against the history of
New York journalism. ...
Consider the 1840s, when New Yorkers buried their noses in a series of
short-lived scandal sheets with names like The Weekly Rake. Their items were
juicy, and their intentions were purely larcenous. An example from an 1842 Rake:
"Is there a man in town that requested another to shave his legs? Why did he
make such a strange request??"
This wouldn't make news today, but it did then, and The Rake was after more
than dirt. "We have received a detail of the whole affair," the item continued.
"Shall we publish it??" Bald-faced blackmail, surely, ... clearly intended to
propel the victim posthaste on his hairless legs to the office, cash in hand.
Then there's Colonel William d'Alton Mann... In 1891, after fighting at
Gettysburg, ... he moved to New York and took over a weekly, Town Topics. With
all the excess of the Gilded-Age robber baron, he turned it into a scandal sheet
of a brazenness never equaled since.
Mann built a network of paid spies - disgruntled servants, musicians who
played at balls for the rich and famous. They bore tales of flea infestations at
the Metropolitan Opera; drunken dowagers; a young Alice Roosevelt drinking and
listening to dirty jokes.
Sometimes names were included, but for truly awful revelations, Mann
concocted a new kind of item. It reported binges, adulteries and brawls in
lavish detail, but without identifying the participants. Then, immediately
following, a short item announced a harmless wedding, a dinner or a seasonal
move to the country - naming the participants in the outrage just reported.
This delighted readers in the know, fended off libel prosecutions - and
enabled Mann to engineer a huge blackmail scheme. Whenever something
particularly explosive sailed over the transom, he dispatched an agent, who
confronted the guilty with proof of their misdeeds and gave them a choice: Mann
wouldn't publish the article if they paid in cash, bought ads in Town Topics or
invested in its junk stock.
The humiliation wasn't over, though. Paid off, Mann replaced the canceled
takedown with coverage so boot-lickingly adulatory as to be tantamount to a
public receipt for hush money. ... Mann acquired a Manhattan brownstone, a
mansion in New Jersey, and an island in the Adirondacks (the best that Stern's
critics have been able to dig up thus far is a nice wardrobe and a
modest-looking house in the Catskills). The New York elite loathed Mann...
Nothing could stop him, it seemed, until he ran up against the young Emily
Post, years before she became the nation's etiquette doyenne. Post's husband,
Edwin, had a chorus girl as his mistress. When Mann's inevitable agent showed up
to apply the screws, Edwin apparently decided Emily was scarier than the
colonel, and told her the truth.
Unfazed, she sent him to the district attorney, who set up a sting and
arrested the agent... The ensuing press frenzy lasted nearly a
year, ending in a sensational 1906 perjury trial, throughout which the colonel
remained coolly defiant.
Acquitted, Mann went back to a somewhat chastened Town Topics. His trial was
a watershed; blackmail and extortion became an occasional sideline rather than
the gossip industry's raison d'etre. Even the great tabloid wars of the 1920s
and 30s, between The Daily News and Hearst's Daily Mirror, observed rules of
decorum at which Mann in his heyday would have sneered. ...