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present to Milton Friedman is to give a speech saying his advice
on monetary policy was less than optimal. Here's a summary of that part of Poole's speech
from David Wessel followed by Poole's comments related to political influence on Fed policy:
Milton Friedman Wasn’t Right About Everything, by David Wessel, Real-Time
Economics: William Poole, a self-described “card-carrying monetarist” who is
now president of the St. Louis Federal Reserve Bank, says the Fed’s track record
over the past 25 years is better than it would have been had it followed Milton
Friedman’s prescription of maintaining steady growth in the money supply.
“I believe that the Fed’s actual adjustments of its federal funds rate target
have yielded superior outcomes since 1982 to what we would have observed under
steady money growth,” he said in the prepared text of a speech ... to mark the
95th anniversary of the late Milton Friedman’s birth. “I also believe that
advances in knowledge permit us to say with some confidence that these gains are
not just an accident of Alan Greenspan’s special skills and intuition,” Mr.
So what’s the secret? Persuading the public, businesses and the markets that
the Fed won’t let inflation get out of control or, in the jargon of economists,
“anchoring inflationary expectations.”
“Everything Milton argued about money stock control is true,” he added, “but
the effect of inflation expectations on the practice of monetary policy itself
was, I believe, a missing element in the analysis. The economy functions
differently when inflation expectations are firmly anchored. If a central bank
allows expectations to become unanchored, then interest-rate control becomes a
dangerous and potentially destabilizing policy. But should the practice of
monetary policy depend on how well inflation expectations are anchored? I do not
recall Milton discussing this question, perhaps because he believed that the
best way to maintain well-anchored expectations over time was for the central
bank to commit to steady and low money growth under all circumstances.”
Continue reading "Milton, the Money Stock, and an Apolitical Fed" »
Posted by Mark Thoma on Tuesday, July 31, 2007 at 11:43 AM in Economics, Fed Speeches, Monetary Policy |
I hardly ever read Jonah Goldberg's columns, but I scanned
this one and, though there are lots of "maybes" scattered about, I think
he's actually serious. The GOP elites strike again:
Too uninformed to vote?, by Jonah Goldberg, Commentary, LA Times: ...Instead of making it easier to vote, maybe we should be making it harder. Why
not test people about the basic functions of government? Immigrants have to pass
a test to vote; why not all citizens? ... If you threaten to take the vote away
from the certifiably uninformed, voter turnout will almost certainly get a
Voter turnout will get a boost? An increase the price of something does not,
except in the
most unusual of circumstances, cause a "boost" in the quantity demanded.
Thus, increasing the price of voting by requiring people to pass a test will
exclude some people who would have voted otherwise and, since it's unlikely
those who get excluded would be scattered randomly across the population of
voters, this will exclude particular groups of people from the political process.
I don't see why individuals or groups should be excluded from expressing their
preferences in the voting booth over, say, issues such as the war or building a
local school or anything else just because they don't know how many years a senator serves, how cloture works, or
precisely how a bill becomes a law.
If we are going to go this route, why not test for knowledge of the issues too, not just the functions of government? Thus, when a vote on tax issues comes up, if someone like Jonah "Economics
makes my brain itch" Goldberg checks the box that says "tax cuts pay for themselves," then he should not be allowed to vote on that issue. We could apply the same rule in the Senate and House. Can't tell a Sunni from a Shiite? Sit this one out. Don't know the difference between MySpace and YouTube? No votes for you on digital technology issues. The internet is a "series of tubes" you say? You sit down too. Seems like the president should follow the same rules as everyone else, doesn't it? So, for example, if the president can't speak English properly, a word like "nuclear" perhaps, no signing bills in this area until competency has been established. This is, after all, an English speaking country. Vice president too. Shoot someone in the face with a shotgun? That shows a certain lack of competency, so let's leave firearm related legislation to someone else.
I'm not serious of course, we should make it easier to vote, not harder, and we should do our best at education, but I don't understand the desire to make it more difficult for others to participate in the political process.
Posted by Mark Thoma on Tuesday, July 31, 2007 at 03:33 AM in Economics, Politics |
thoroughly misleading article designed to scare people about what might
happen to the economy because the Republicans did not have the courage to make the tax cuts
they enacted permanent, GOP Senator John Kyl says:
Failing to extend the tax relief we have passed would result in a de facto
tax hike that could cripple our economy...
But according to a recent
CBO director Peter Orszag said, “The short-term effects of [the 2001 and 2003
tax cuts] in stimulating aggregate demand in the economy have largely dissipated
by now, and the supply-side effects of those policies are uncertain but are
Some of the tax cuts’ provisions “increased incentives for people to work and
save (which can increase growth), but other provisions had no effect on
incentives. In addition, the two tax laws increased the budget deficit, and
doing so tends to reduce economic growth over the medium and long term. At this
point in time (several years after enactment), once those various factors have
been taken into account, the overall impact of the tax legislation on the
economy is likely to be modest”
Thus, despite the scare tactics claiming otherwise, it won't "cripple our
economy" if we allow the Republican's tax policy to be enacted exactly as written. There's simply no evidence that these tax cuts had a substantial impact on saving, investment, and growth.
Kyl also uses careful wording to describe tax cuts and deficit reduction:
The tax relief has helped produce an economy that has generated higher than
expected tax revenues for the federal government. Tax receipts have risen 37
percent over the last three years and are projected to increase another 7
percent this year. These rising tax receipts have, in turn, helped drive down
Though it makes it sound like the tax cuts reduced the deficit without actually saying so, i.e. the
standard Laffer curve nonsense, as I hope you know by now that didn't happen (as
noted above, "the two tax laws increased the budget deficit"). In fact, the
supply-side impact of the tax cuts is estimated to be very small, so small that it generated very little tax revenue. From the CBO report:
the tax cuts’ indirect impact on economic growth, investment and saving and
could affect this year’s budget deficit anywhere from an increase of $3 billion
to a reduction of $14 billion...
The CBO report also points out that "without the tax cuts, the budget would
probably be in surplus this year".
Thus, while there is evidence that leaving the Republican tax legislation exactly as they wrote it and allowing the tax cuts to expire will improve the government's fiscal position, there is no evidence that keeping the Republican tax legislation in place will cripple the economy as claimed.
Posted by Mark Thoma on Tuesday, July 31, 2007 at 12:33 AM in Budget Deficit, Economics, Politics, Taxes |
Posted by Mark Thoma on Tuesday, July 31, 2007 at 12:24 AM in Links |
David Warsh takes a look at Amity Shlaes' The Forgotten Man: A New History
of the Great Depression and finds that it is "an elaborate cautionary
tale..., designed to support a particular interpretation of the present by
selective reference to the past." This is part of a longer review:
Cal?, by David Warsh, Economic Principles: ...Amity Shlaes' The Forgotten
Man: A New History of the Great Depression ... is not fiction, though it
reads almost as smoothly as if it were a novel. But neither is it professional
history. (The author is a veteran journalist and Bloomberg columnist.) Perhaps
it could be thought of as ... an account of various versions of the great event,
the interpretations ventured both by those who lived through it and by those who
sought to manage it and justify their actions to the public.
Probably it is more accurate, though, to describe it as an elaborate
cautionary tale (464 pages), designed to support a particular interpretation of
the present by selective reference to the past.
Continue reading "David Warsh on Amity Shlaes' "The Forgotten Man: A New History of the Great Depression"" »
Posted by Mark Thoma on Monday, July 30, 2007 at 12:15 PM in Economics |
Barry Eichengreen on challenges facing the German economy if it continues to
rely upon manufacturing as an important part of its economic base. Though the focus is on Germany, the message can be applied more broadly:
The German economy: be
careful what you ask for, by Barry Eichengreen, Vox EU: Germans are having a
hard time getting their minds around the fact that their economy is doing
better. I know this because of a seminar in which I participated in Munich this
week to mark the publication of Hans-Werner Sinn’s Can Germany be Saved?
– and my own book, The European Economy Since 1945.
Professor Sinn’s book has actually gone through eleven editions, which in and
of itself tells us something about the economy’s survival capacity. But the
professor has not changed his hyper-pessimistic views. Growth in Germany has
lagged growth in the EU for more than a decade, and there are no reasons for
thinking that this will change.
Continue reading "Barry Eichengreen: The German Economy: Be Careful What You Ask For" »
Posted by Mark Thoma on Monday, July 30, 2007 at 12:06 PM in Economics |
Paul Krugman wonders what sort of philosophy allows health care to be denied
Immoral Philosophy, by Paul Krugman, Commentary, NY Times [Update: full column]: ...Congressional
Democrats, with support from many Republicans, are trying to expand [the State
Children’s Health Insurance Program (Schip)], which already provides essential
medical care to millions of children, to cover millions of additional children
who ... lack health insurance.
But President Bush says that access to care is no problem — “After all, you
just go to an emergency room” — and, with the support of the Republican
Congressional leadership, he’s declared that he’ll veto any Schip expansion on
It must be about philosophy, because it surely isn’t about cost. One of the
plans ... would cost less over the next five years than we’ll spend in Iraq in
the next four months. And it would be fully paid for by an increase in tobacco
The House plan, which would cover more children ... offsets Schip costs by
reducing subsidies to Medicare Advantage — a privatization scheme that ... costs
taxpayers 12 percent more per beneficiary than traditional Medicare.
Strange to say, however, the administration, although determined to prevent
any expansion of children’s health care, is also dead set against any cut in
Medicare Advantage payments.
So what kind of philosophy says that it’s O.K. to subsidize insurance
companies, but not to provide health care to children?
Well, here’s what Mr. Bush said...: “They’re going to increase the number of
folks eligible through Schip; some want to lower the age for Medicare. And then
all of a sudden, you begin to see a ... a strategy ... to get more people to be
a part of a federalization of health care.”
Now, why should Mr. Bush fear that insuring uninsured children would lead to
a further “federalization” of health care...? It’s not because he thinks the
plans wouldn’t work. It’s because he’s afraid that they would ...[and] that
voters, having seen how the government can help children, would ask why it can’t
do the same for adults.
And there you have the core of Mr. Bush’s philosophy. He wants the public to
believe that government is always the problem... But it’s hard to convince
people ... when they see it doing good things. So his philosophy says that the
government must be prevented from solving problems, even if it can. In fact, the
more good a proposed government program would do, the more fiercely it must be
This sounds like a caricature, but it isn’t. ...[T]his good-is-bad philosophy
has always been at the core of Republican opposition... Thus back in 1994,
William Kristol warned against passage of the Clinton health care plan “in any
form,” because “its success would signal the rebirth of centralized
welfare-state policy at the very moment that such policy is being perceived as a
failure in other areas.”
But it has taken the fight over children’s health insurance to bring the
perversity of this philosophy fully into view. ...[D]enying basic health care to
children whose parents lack the means to pay for it, simply because you’re
afraid that success in insuring children might put big government in a good
light, is just morally wrong.
And the public understands that. According to a recent ... poll, 9 in 10
Americans — including 83 percent of self-identified Republicans — support an
expansion of the children’s health insurance program.
There is, it seems, more basic decency in the hearts of Americans than is
dreamt of in Mr. Bush’s philosophy.
Previous (7/27) column:
Paul Krugman: The Sum of Some Fears
Next (8/3) column: Paul Krugman: A Test for Democrats
Posted by Mark Thoma on Monday, July 30, 2007 at 12:33 AM in Economics, Health Care, Policy, Politics |
Posted by Mark Thoma on Monday, July 30, 2007 at 12:24 AM in Links |
Larry Summers argues there is reason to be concerned about how the sovereign
wealth funds. i.e. the build-up of foreign reserves and other assets in the
hands of developing countries, might be used:
Funds that shake capitalist logic, by Lawrence Summers, Commentary, Financial
- I think]: For some time now, the large flow of capital from the developing
to the industrialised world has been the principal irony of the international
financial system. ... Indeed, Morgan Stanley has estimated ... that there is now
close to $2,500bn in [sovereign wealth funds] SWFs and that this figure will
increase to $5,000bn by 2010 and $12,000bn by 2015.
Inevitably, and appropriately, countries possessed of publicly held foreign
assets far in excess of anything needed to respond to financial contingencies
feel pressure to deploy them strategically or at least to earn higher returns
than those available in US Treasury bills or their foreign equivalents. ...
[A] crucial question for the global financial system ... is how these funds
will be invested. The question is profound and goes to the nature of global
capitalism. A signal event of the past quarter-century has been the sharp
decline in ... government-owned companies. Yet governments are now accumulating
various kinds of stakes in what were once purely private companies through their
cross-border investment activities. ...
To date most of the official commentary on the issue of SWFs has been framed
in terms of traditional arguments about cross-border capital flows. US and UK
officials have raised concerns that focus only on ... reciprocity and
transparency and on ... national security questions. Others, particularly in
continental Europe, have been less positive and have emphasised nationalist
considerations about the benefits of local ownership and control.
What has received less attention are the particular risks associated with
ownership by government-controlled entities, particularly ... direct
investments. The logic of the capitalist system depends on shareholders causing
companies to ... maximise the value of their shares. It is far from obvious that
this will ... be the only motivation of governments as shareholders. They may
want to see their national companies compete effectively, or to extract
technology or to achieve influence.
We have seen the degree of concern over News Corp’s attempt to buy The Wall
Street Journal. How differently should one feel about a direct investment stake
of a foreign government in a media or publishing company?
Apart from ... what foreign stakes would mean for companies, there is the
additional question of what they might mean for host governments. What about the
day when a country joins some “coalition of the willing” and asks the US
president to support a tax break for a company in which it has invested? Or when
a decision has to be made about whether to bail out a company, much of whose
debt is held by an ally...?
All of these risks would be greatly mitigated if SWFs invested through
intermediary asset managers, as is the case with most institutional pools of
capital such as endowments and pension funds. ...
To the extent that SWFs pursue different approaches from other large pools of
capital, the reasons have to be examined. The most plausible reasons – the
pursuit of objectives other than maximising risk-adjusted returns and the
ability to use government status to increase returns – are also most suspect
from the viewpoint of the global system.
None of this is to propose policy. That can come only after the investment
policies of SWFs have been much more extensively debated and many details have
been clarified. But it is to register a cautionary note... Governments are very
different from other economic actors. Their investments should be governed by
rules designed with that reality very clearly in mind.
Posted by Mark Thoma on Monday, July 30, 2007 at 12:15 AM in Economics, Financial System, Policy |
Was Malthus right?:
Worry about bread, not oil, by Niall Ferguson, Commentary, telegraph.co.uk [via]:
...Thomas Malthus ... published his Essay on the Principle of Population. [in
1798]... Malthus's key insight was simple but devastating. "Population, when
unchecked, increases in a geometrical ratio," he observed. But "subsistence
increases only in an arithmetical ratio." In other words, humanity can increase
like the number sequence 1, 2, 4, 8, 16, whereas our food supply can increase no
faster than the number sequence 1, 2, 3, 4, 5. We are, quite simply, much better
at reproducing ourselves than feeding ourselves.
Malthus concluded from this inexorable divergence between population and food
supply that there must be "a strong and constantly operating check on
population". This would take two forms: "misery" (famines and epidemics) and
"vice", by which he meant not only alcohol abuse but also contraception and
abortion (he was, after all, an ordained Anglican minister).
"The vices of mankind are active and able ministers of depopulation," wrote
Malthus in an especially doleful passage... "They are the precursors in the
great army of destruction; and often finish the dreadful work themselves.
"But should they fail in this war of extermination, sickly seasons,
epidemics, pestilence, and plague advance in terrific array, and sweep off their
thousands and tens of thousands. Should success be still incomplete, gigantic
inevitable famine stalks in the rear, and with one mighty blow levels the
population with the food of the world."
I wish I could have a free lunch for every time I've heard someone declare: "Malthus
was wrong." Superficially, it is true, mankind seems to have broken free of the
Malthusian trap. ...
The conventional explanation for our seeming escape from Malthus is the
succession of revolutions in global agriculture, culminating in the post-war
"Green Revolution" and the current wave of genetically modified crops.
Since the Fifties, the area of the world under cultivation has increased by
roughly 11 per cent, while yields per hectare have increased by 120 per cent.
... Yet these statistics don't disprove Malthus. As he said, food production
could increase only at an arithmetical rate, and a chart of world cereal yields
since 1960 shows just such a linear progression...
Meanwhile, vice and misery have been operating just as Malthus foresaw to
prevent the human population from exploding geometrically. On the one hand,
contraception and abortion have been employed to reduce family sizes. On the
other hand, wars, epidemics, disasters and famines have significantly increased
Together, vice and misery have ensured that the global population has grown
at an arithmetic rather than a geometric rate. Indeed, they've managed to reduce
the rate of population growth from 2.2 per cent per annum in the early Sixties
to around 1.1 per cent today.
The real question is whether we could now be approaching a new era of misery.
Even at an arithmetic rate, the United Nations expects the world's population to
pass the 9 billion mark by 2050.
But can world food production keep pace? Plant physiologist Lloyd T Evans has
estimated that "we must reach an average yield of four tons per hectare. to
support a population of 8 billion". But yields right now are ... just three tons
per hectare. And a world of eight billion people may be less than 20 years away.
Meanwhile, man-made forces are conspiring to put a ceiling on food
production. Global warming and the resulting climate change may well be
increasing the incidence of extreme weather events as well as inflicting
permanent damage on some farming regions.
... At the same time, our effort to slow global warming by switching from
fossil fuels to bio-fuels is taking large tracts of land out of food production.
According to the OECD, American output of corn-based ethanol and European
consumption of oilseeds for bio-fuels will double by 2016. ...
Some people worry about peak oil. I worry more about peak grain.
The fact is that world per capita cereal production has already passed its
peak, which was back in the mid-Eighties, not least because of collapsing
production in the former Soviet Union and sub-Saharan Africa. Simultaneously,
however, rising incomes in Asia are causing a surge in worldwide food demand.
Already the symptoms of the coming food shortage are detectable. The
International Monetary Fund recorded a 23 per cent rise in world food prices
during the last 18 months. ...
"The great question now at issue," Malthus asked more than 200 years ago, "is
whether man shall henceforth start forwards with accelerated velocity towards
illimitable, and hitherto unconceived improvement, or be condemned to a
perpetual oscillation between happiness and misery."
For a long time we have deluded ourselves that "illimitable improvement" was
attainable. As the world approaches a new era of dearth, expect misery - and its
old companion vice - to make a mighty Malthusian comeback.
Posted by Mark Thoma on Sunday, July 29, 2007 at 10:44 AM in Economics, History of Thought |
Alan Blinder discusses distortions that are introduced into the economy
when the tax rate on capital gains is lower than the tax rate on other types of
income. He begins by explaining the current debate over whether income from
private-equity and hedge fund management should be taxed as capital gains or as
regular income, and comes down on the side of treating it like ordinary income
(see the article for details), and then he asks why the rates should differ at all:
The Under-Taxed Kings of Private Equity, by Alan S. Blinder, Economic View, NY
Times: An arcane debate is raging in Congress over the appropriate taxation
of the bountiful incomes of people who manage private-equity and hedge funds —
incomes that can range into the hundreds of millions a year. I don’t recommend
trying to master the details unless you have either an accounting degree or
insomnia. But one thing is easy to understand, though hard to swallow: Some
people who are richer than Croesus are paying 15 cents in federal income taxes
on the marginal dollar, while you may be paying 25 or 35 cents...
Why do we have a preference for capital gains in the first place? The main
argument is that lower taxes on capital gains boost investment. But the evidence
on that point is iffy at best, and there are better ways to spur investment,
like, say, the investment tax credit. Besides, lower taxes on capital gains
reduce the tax bills of the rich relative to the rest of us — after all, they
own most of the capital. But in this age of hyper-inequality, shouldn’t we be
making the tax code more progressive, not less?
A far more important objection is that the tax preference for capital gains
undermines capitalism — a system in which capitalists, not the state, are
supposed to make the investment decisions. When I discuss this issue with my
Economics 101 students, I show them an example of a proposed investment that
loses money before tax (and which, therefore, should be rejected) but which
actually turns a profit after tax because of the preferentially low capital
gains rate. ... The government thus induces people to make bad investments,
which is a good way to run an economy into the ground. Come to think of it,
that’s just what the old Soviet Union did. It invested copiously, but badly.
But would taxing capital gains like other types of income imperil our
economy? No. The Tax Reform Act of 1986 did exactly that, and it did not end
capitalism as we know it. In fact, the gross domestic product in 1987 and 1988
grew at about the same rate as in 1985 and 1986, and the investment share of
G.D.P. barely budged.
As the tax debate unfolds, you may find it difficult to follow the
mind-numbing complexities. Who doesn’t? So just remember one simple principle:
If we tax Activity A at 15 percent and Activity B at 38 percent, a free-market
economy will give us more A and less B. Some of this shifting will represent
genuine movements of resources out of B and into A — including those bad
investments I just mentioned. The rest will be paper manipulations devised to
Which of these do you think our tax code should favor?
Posted by Mark Thoma on Sunday, July 29, 2007 at 02:07 AM in Economics, Income Distribution, Policy, Taxes |
Posted by Mark Thoma on Sunday, July 29, 2007 at 12:21 AM in Links |
In response to a recent post, George Borjas argues that things could have been worse under Kerry, something
I disagreed with, and still do:
More Kerryisms, by George Borjas:
One of my remarks about John Kerry in
this post has left
Mark Thoma a little puzzled. I wrote:
No matter how disappointed one is with the Bush administration, all it takes
is a little googling of John Kerry's latest nonsense to appreciate that things
could be worse.
My original post was motivated by Kerry's statement that increasing the
minimum wage would be beneficial to employers. It is hard to justify such a
statement on the basis of economic models. As Peter Schaeffer wrote in one of
the comments to my original post, even an efficiency wage argument makes little
sense in this context:
If the efficiency effect was large enough, why wouldn't employers raise wages
Nevertheless, Mark has a good point about how very disappointing the Bush
years have been. Mark says that "Iraq alone is enough to convince" him that
things could not be worse with a President Kerry. I'm not so sure.
As I said, all it takes is a little googling to find that Kerry's thoughts on
many subjects are, at best, puzzling--and, at least to me, show an undisciplined
mind at work. Here are some national security-related examples (all from
"I'm an internationalist. I'd like to see our troops dispersed through the
world only at the directive of the United Nations."
"You know, education, if you make the most of it, you study hard, you do your
homework and you make an effort to be smart, you can do well. If you don’t, you
get stuck in Iraq."
On the terrorist threat: "I think there has been an exaggeration."
Admittedly, the signature policies of the Bush presidency have been poorly
thought out and/or badly managed (e.g., Iraq, Katrina, immigration). And this
admission comes from someone who strongly supported Bush the first time around,
and less strongly the second time.
Despite this, it is far from clear that the U.S. would be better off if
things had turned out differently in 2004. What would this counterfactal world
look like if the man at the helm was someone who thought that the terrorist
threat was exaggerated, who didn't think much of the men and women in uniform,
and who was willing to surrender a big chunk of U.S. sovereignty and place the
lives of those men and women he didn't think much of under the "directive" of a
very corrupt United Nations?
On the efficiency wage argument, I agree. As I said originally, I didn't mean
to endorse the argument, only try to suggest what Kerry might have had in mind
("Without endorsing Kerry's argument, I believe he has in mind an efficiency
wage argument..."). My point was that under the argument I thought Kerry was
making, pushing the minimum wage higher and higher would not continue to have
benefits for firms. Thus the exercise in George's first point does not, in and
of itself, rebut Kerry's claims.
On the rest of the post, I have disagreements with all three points, but let
me focus on the claim that Kerry does not "think much of the men and women in
uniform." How one can say that about a war hero while endorsing someone who has
mismanaged the military into disaster after disaster is, well, puzzling (where
are George Bush's Purple Hearts, Silver Star, and Bronze Star?). I don't think I
need to do a point by point of all the ways George Bush has hurt the military,
and directly or indirectly shown disrespect to the men and women in uniform in
the process, but I can't see how, say, misleading us into a war that causes
needless death and injury on both sides and continuing to push a failed strategy
shows much respect for the men and women who pay the costs of Bush's deceptions and decisions.
And it may be useful to remind people that this was an attempt at a joke that
Kerry got wrong. What he
intended to say was:
Do you know where you end up if you don't study, if you aren't smart, if
you're intellectually lazy? You end up getting us stuck in a war in Iraq.
Using a misstated joke to characterize Kerry's position on the
troops when there is a whole history that says otherwise is less than fair.
Posted by Mark Thoma on Saturday, July 28, 2007 at 09:45 AM in Economics, Iraq and Afghanistan, Politics |
I'm missing something here. I don't see how you get from malt liquor,
marijuana use, and alcohol problems later in life are correlated to the
conclusion that malt liquor causes marijuana use and alcoholism. I didn't read
the study so maybe there's some way to tease causality out of the data, but why
should we be surprised that someone who, when given a choice, chooses a high alcohol content beverage, and one that has a relatively low per dollar alcohol
cost (see bottom of table 1 for responses to "because it is cheap" and "to get drunk quickly," the two most often cited reasons for choosing malt liquor), would also tend to use other drugs at a higher than average
rate and be at a higher risk for alcoholism later in life?:
Malt liquor linked to marijuana use among young adults, EurakAlert: Drinking
malt liquor -- the cheap, high-alcohol beverage often marketed to teens -- may
put young adults at increased risk for alcohol problems and use of illicit
drugs, particularly marijuana, according to a new study of malt liquor drinkers
and marijuana use by scientists at the University at Buffalo’s Research
Institute on Addictions (RIA).
“In our study of young adults who regularly drink malt liquor,” reports lead
researcher R. Lorraine Collins, senior research scientist at RIA, “we found that
malt liquor use is significantly related to reports of alcohol problems,
problems specific to the use of malt liquor and to marijuana use above and
beyond typical alcohol use.” ...
The study consisted of 639 young adults (456 men) of approximately 23 years
of age who regularly consume 40 ounces or more of malt liquor per week. ... The
participants were heavy drinkers, averaging 30 alcoholic drinks -- including 17
malt liquor drinks -- per week.
In addition to malt liquor use, marijuana was the illicit drug of choice,
with 46 percent reporting simultaneous use of malt liquor and marijuana.
Individuals who used malt liquor and marijuana together smoked 19 marijuana
joints, on average, during a typical week, whereas those who did not use the two
together smoked two marijuana joints, on average, during a typical week. Very
few participants reported regular use of other illicit drugs.
For those individuals who use malt liquor and marijuana simultaneously, the
study showed that they first drank alcohol at a younger age (between 13 and 14
years) and reported more substance use (particularly marijuana use) and more
alcohol-related problems than those who did not use both malt liquor and
marijuana together. Sixty-one percent of the participants reported that they
consumed one to two 40-ounce containers of malt liquor on a typical drinking
occasion. Given malt liquor’s higher alcohol content -- 6-11 percent alcohol --
this level of intake could translate into 3.5 (one 40-oz. bottle at 6 percent)
to 14 (two 40-oz. bottles at 11 percent) standard drinks.
“These results suggest that regular consumption of malt liquor, beyond that
associated with typical alcohol use, may place young adults at increased risk
for substance abuse problems,” Collins says. “Although many of these young
people may not yet meet diagnostic criteria for alcohol dependence, there is
clearly a need for prevention strategies targeted to ... excessive drinking of
I have a hard time believing that stopping people from drinking malt liquor
in and of itself will do much, if anything, to prevent addiction problems. If malt liquor disappears, another drink will take its place. The focus needs to be on changing the behavior and thought processes that lead to excessive drinking and drug use, not on eliminating a particular type of drink.
Posted by Mark Thoma on Saturday, July 28, 2007 at 09:36 AM in Economics, Health Care |
Forcing advisers to disclose conflicts of interest, thereby making it more
difficult for them to influence clients in a particular direction, can lead the advisers to make more exaggerated claims:
Disclosing Bias Doesn’t Cancel Its Effects, by M.P. Dunleavy, NY Times:
...Nobody likes to be at the mercy of an expert, especially of those who charge
for their services and whose trustworthiness can be hard to assess. Mechanics
are a common source of this frustration, but there are many others: doctors,
plumbers, financial advisers, real estate agents and technical support people,
to name a few.
We ordinary folks have to gauge, sometimes on the spot, whether a
specialist’s opinion is worth the price, and whether that person stands to
gain... [R]esearch suggests that consumers would do well to think twice before
assuming a professional’s advice is worth the price.
Continue reading "Disclosing Conflicts of Interest May Not Help" »
Posted by Mark Thoma on Saturday, July 28, 2007 at 01:35 AM in Economics |
Posted by Mark Thoma on Saturday, July 28, 2007 at 12:22 AM in Links |
Piger's monthly recession probability index says there is a 1.5% chance we
were in a recession in April, 2007 and the average probability for the first quarter of 2007 is 1.3%:
Hamilton's index has the probability at 26.2% for the first quarter of 2007:
Jim's post, part of which is repeated at Brad's, gives more details.
Posted by Mark Thoma on Friday, July 27, 2007 at 04:50 PM in Economics |
A couple of things from Greg Mankiw and George Borjas caught my attention,
so I want to make sure I understand what they are saying. First, Greg Mankiw says:
Brooks on the Economy, by Greg Mankiw: A prominent Harvard economist emails
me to recommend David Brooks's column from a few days ago. He calls it "truly
fantastic and obviously correct."
With such a strong recommendation from a colleague, I ... read Brooks. ...[T]he
Brooks piece is well worth reading. It is far more informed by cutting-edge
economic research than most things you find on the op-ed pages.
In case you missed it, here is Brooks [...reprint of column...]
If Greg is going to claim the authority of a "prominent economist" as standing behind this, he should tell us who that person is, there's no reason for secrecy here, but my question
is if Greg (and "prominent economist") stand behind all the claims in Brooks
here for a list of posts questioning the claims)? If not, if this isn't a blanket endorsement, could you please give us
more guidance as to where you agree or disagree so we can better evaluate your position? There are implications that can be drawn from Brooks's column, e.g. that low-income people are generally lazier than higher income, well-educated people:
today, many highly educated people work like dogs while those down the income
scale have seen their leisure time increase by a phenomenal 14 hours a week
so it would be helpful to have positions on this and other points Brooks makes clarified, especially in light of claims that high taxes have caused high-income individuals to reduce their work effort.
And I was a little bit surprised to find out that George Borjas believes
No matter how disappointed one is with the Bush administration, all it takes
is a little googling of John Kerry's latest nonsense to appreciate that things
could be worse.
This statement is made in the context of the minimum wage, so if the
statement is not intended to be broader than policies surrounding the minimum
wage, I'm less surprised. But if it is intended as a broader comment, then I
have to strongly disagree. Iraq alone is enough to convince me, and that's just
the beginning of the missteps from this administration. How could things be
On the other point George is making, in response to a quote from Kerry on how
raising the minimum wage can cause "increased productivity, ultimately improving
a firm's bottom line," he says:
If a $5.85 minimum wage creates a more "prosperous future for our small
businesses" than a $5.15 minimum wage, isn't it a little irresponsible to stop
there? Let's go for the $10.00 minimum wage? Or a $15 one? Or...
Without endorsing Kerry's argument, I believe he has in mind an
efficiency wage argument where raising wages enhances incentives for low income
workers - much as cutting taxes makes the rich work harder in supply-side
stories - and thus can stimulate productivity and reduce costs. If so, then one
would expect diminishing returns to further increases in the minimum wage so
that pushing the wage up to $10 or $15 wouldn't necessarily, by the efficiency
wage argument, continue to be worthwhile.
Update: Brad DeLong has follow-up comments.
Update: George Borjas responds.
Posted by Mark Thoma on Friday, July 27, 2007 at 01:44 PM in Economics, Income Distribution, Iraq and Afghanistan, Policy, Politics |
The Managing Director of the International Monetary Fund, Rodrigo de Rato,
discusses attempts to and strengthen IMF surveillance over the economic policies
of member nations:
Strengthening IMF surveillance, by Rodrigo de Rato, Project Syndicate: In
today's globalized economy, one country's economic and financial policies can
reverberate far beyond its borders. Be it the spread of inflation or the impact
of currency devaluation half a world away, global economic forces can have a
direct impact on every person's livelihood. Under such circumstances,
international cooperation is essential to ensure stability and growth and
prevent disruptive crises. ...
many years, the IMF has engaged its member countries in a process known as
"surveillance," in which it monitors, analyzes, and consults on each country's
economic policies - both exchange rate policies and relevant domestic policies.
These regular checkups help to identify potential vulnerabilities and maintain
economic stability. However, the increasingly complex policy challenges of the
globalized economy demand a fresh look at this process.
This June, the IMF's Executive Board did just that... This is one of the most
important reforms to the Fund's work in the 30 years since the surveillance
process was designed. ...
Continue reading ""Strengthening IMF Surveillance"" »
Posted by Mark Thoma on Friday, July 27, 2007 at 12:06 PM in Economics, International Finance |
Paul Krugman discusses three fears about the economy:
Sum of Some Fears, by Paul Krugman, Commentary, NY Times: Yesterday’s scary
ride in the markets wasn’t a full-fledged panic. The interest rate on 10-year
U.S. government bonds — a much better indicator than stock prices of what
investors think will happen to the economy — fell sharply, but ... ended the day
... well above its levels earlier in the year. This tells us that investors
still consider a recession ... fairly unlikely.
So it wasn’t the sum of all fears. But it was the sum of some fears — three,
The first is fear of bad credit. Back in March, ... I spun a fantasy about
how a global financial meltdown could take place: people would suddenly remember
that bad stuff sometimes happens, risk premiums ... would soar, and credit would
Well, some of that happened yesterday. “The risk premium on corporate bonds
soared...,” reported Bloomberg... “And debt sales faltered...” Mark Zandi of
Moody’s ... said ... another major hedge fund stumble..., “...could elicit a
crisis of confidence and a global shock.”...
But what’s really striking is ... the current angst ... over two things that
I thought had been obvious for a long time: the magnitude of the housing slump
and the persistence of high oil prices.
I’ve written a lot about housing..., so let me just repeat the basics. Back
in 2002 and 2003, low interest rates made buying a house look like a very good
deal. As people piled into housing, ... prices rose ... and ... the boom fed on
Eventually the bubble had to burst, and ... it did... And ... past
boom-and-bust cycles in housing tells us that it should be several years ...
before things return to normal.
I’ve written less about oil prices, so let me emphasize ... we’re now in our
third year of very high oil prices..., even though there hasn’t been any major
disruption in world oil supply.
It’s pretty clear what’s happening: ...finding new oil is getting a lot
harder. Meanwhile, emerging economies, especially in Asia, are burning ever more
oil... With demand soaring and supply growth sluggish at best, high prices are
what you get.
So why did people seem so shocked by a few more bad housing and oil numbers?
What I guess I didn’t realize was how deep the denial still runs.
Over the last couple of years a peculiar conviction emerged among some
analysts — mainly, for some reason, among those with right-wing political
leanings — that the housing bubble was a myth and that the real bubble was in
Each new peak in oil prices was met with declarations that it was all
speculation — like the 2005 prediction by Steve Forbes that oil was in a “huge
bubble” and that its price would be down to $35 or $40 a barrel within a year.
And on the other side, as recently as this January, National Review’s Buzzcharts
column declared that we were having a “pop-free” housing slowdown.
I didn’t think many people believed this stuff, but the market’s sudden
freakout over housing and oil suggests that I was wrong.
Anyway, now reality is settling in. And there’s one more thing worth
mentioning: the economic expansion that began in 2001, while it has been great
for corporate profits, has yet to produce any significant gains for ordinary
working Americans. And now it looks as if it never will.
Previous (7/23) column:
Paul Krugman: The French Connections
Next (7/30) column: Paul Krugman: An Immoral Philosophy
Posted by Mark Thoma on Friday, July 27, 2007 at 12:33 AM in Economics, Financial System, Housing, Oil |
Posted by Mark Thoma on Friday, July 27, 2007 at 12:22 AM in Links |
Traditional news is fading away?:
Make news, not views, by Dan Kennedy, Comment is Free: Don't cry for Paula
Zahn. Her show on CNN's US network wasn't all that great, hardly anyone
watched... But before her August 2 departure from the House That Ted Turner
Built, it's worth pondering what she told Jacques Steinberg of the New York
"We worked so hard to maintain a high quality of objective reporting on the
air," she said. "Yet what has become clear when you look at the landscape,
particularly in the eight o'clock hour, it seems pretty obvious the audience is
drawn to opinion-driven shows. That is not what I do."
Zahn is right. There's less and less news on the three cable news channels -
CNN, Fox News, and MSNBC - and that's especially true in the evening, when
people might actually be watching.
Zahn had it particularly tough. In her 8-to-9pm time slot, she was up against
... Bill O'Reilly, Fox's loofah-wielding ratings king. MSNBC counters with
cable's sole liberal host, Keith Olbermann. The entirely predictable result:
Zahn's program is a distant third. ...
Rupert Murdoch's Fox News, which now dominates the market, offers one
conservative talk show after another, with the sole exception of Shepard Smith's
7pm newscast. Even Special Report with Brit Hume (how can it be special if it's
on every night?), hosted by an actual journalist, tilts noticeably to the right,
while primetime hosts O'Reilly and Sean Hannity deal strictly in cartoonish
stereotypes. ... Greta Van Susteren offers an hour's worth of tabloid trash
before the O'Reilly rerun.
MSNBC's signature personalities are Olbermann and political shouter Chris
CNN - the original cable news outlet, ... has done a little better. But its
best-known host these days may be Lou Dobbs, whose attacks on illegal immigrants
have made him an unlikely star... Larry King's talk show is non-ideological, but
it's also non-news. At least the network continues to put on something
resembling an actual newscast: Anderson Cooper 360....
CNN's once-sober sibling, Headline News, has gone on a bender with loathsome
programs hosted by sob sister Nancy Grace and reactionary doofus Glenn Beck.
It wasn't always this way. Just a few years ago, CNN and MSNBC competed
head-to-head with hour-long newscasts at 10pm... Since then, the success of Fox
has clearly affected the competition. Opinion is cheaper than news, and
apparently more popular, too. ...
The problem with all this opinion-mongering is that it contributes to
cynicism about the news and the alleged biases of the folks who report it. ...
Thus we have arrived at a point where even the horrors of, say, Abu Ghraib can
be dismissed as little more than partisan sniping. ... If the cable news
channels can't survive by bringing us, you know, news, then that's a pretty sad
When I still watched, I was never much impressed with Paula Zahn, partly
because the way the show was structured, its "he said-she said" format allowed the impression to emerge that important
issues are nothing more than partisan sniping. I stopped watching
during the run-up to the last presidential election when there was far too much back and forth argument presented as journalism at a time when people needed
much more than that from those responsible for making sense of the world. I
remember sending an email to Zahn (which I doubt anyone read) asking why, after
one guest had uttered what were demonstrable lies, the guest was invited back
for another of CNN's "news" reports to offer more of the "other side," where the
other side was nonsense. It didn't seem like there was anything an entertaining
guest could say that would prohibit them from being asked to return. There also
seemed to be a coziness or mutual reliance between Zahn and many of her guests,
guests who were mostly the same mouthpieces recycled again and again on every
issue, and the mutual dependence was more than you would hope for from an
objective news source. It did not appear she was willing to take any chances, to
risk ruffling any feathers by challenging even the obvious distortions, because
that would risk access to the guests, those connected with the administration in
particular, and potentially bring the scorn of the noise machine standing ever
ready to protect its own.
I don't know the answer, it appears that the profit maximizing strategy, i.e. the business strategy that
maximizes entertainment value, is not consistent with producing news and
information that optimally serves the public interest. But I do know we are not
well served by what we have.
Posted by Mark Thoma on Thursday, July 26, 2007 at 04:23 PM in Economics, Press |
Rudy Giuliani thinks he has a great idea - energy independence - and he's
going to lead the way:
Leading America Toward Energy Independence, by Rudy Giuliani, Real Clear
Politics: America needs to become energy independent. We should have started to move toward energy independence back in the
1970s... Presidents Nixon and Carter talked about energy independence, but not a
lot got done. The next President of the United States is going to have to make
it a major goal... Most people will say it's impossible...
I'm running for president because I know how to get things done.
I will move America toward energy independence... In the long-run, energy
independence can become a great industry for America. We can sell our advances
to countries like China and India. They need energy independence even more than
we do... The government has to approach energy independence the way we put a man on
the moon. ...
I'm going to turn this over to
Finally, it is worth pointing out that, even if the U.S. somehow were to
achieve energy self-sufficiency, that would not be the same thing as energy
independence. It is hard to envision an arrangement that could effectively
decouple the price of oil in the U.S. from that elsewhere in the world, even if
our imports were zero. As a result, even if we were importing no oil from Saudi
Arabia, I would expect a disruption in Saudi production to still have a very
dramatic effect on the price that consumers pay in the U.S.
For these reasons, I am open to discussion about the extent to which it might
be desirable to try to reduce the amount of oil that the U.S. imports, and
strategies for achieving that goal. But when someone talks about "energy
independence", I find it hard to take them seriously.
It's hard to take Giuliani seriously in any case.
Update: Free Exchange at The Economist follows up with "how vacuous such ideas really are."
Posted by Mark Thoma on Thursday, July 26, 2007 at 03:33 AM in Economics, Oil, Politics |
While I've had issues with material on the Wall Street Journal's editorial
page, and today is no exception, I want to be careful to separate what goes on
there from what gets presented elsewhere in the WSJ.
David Wessel's Capital column is not on the editorial page, and it
does not belong there. I don't always agree with everything he says, and I don't always disagree
either, but I never get the impression that facts are twisted to sell a
Globalization Study Moves Past Rhetoric, by David Wessel, WSJ: Most of the
policy briefs, working papers and trade-association reports that cross a
columnist's desk slide easily into the trash can or onto the read-someday pile.
But a recent study on globalization, commissioned by the Financial Services
Forum, an association of the chief executives of 20 huge financial companies,
ranging from American International Group and Citigroup to UBS and Wachovia,
The analysis, written by a former member of President Clinton's Council of
Economic Advisers, a former member of President Bush's and a former Bush
Commerce Department official, says:
(1) Globalization is good for the U.S. economy. (No surprise coming from a
bunch of financial firms that make money doing business across borders.)
(2) Gains from globalization aren't evenly shared. (A little surprising, but
in the past couple of years, there has been a willingness among business to
publicly acknowledge that economic reality.)
(3) To avoid a backlash against globalization, governments and businesses
must come up with new ways to spread its benefits more widely and assist those
hurt by all sorts of economic change. (Very surprising, more like a Democratic
candidate's talking points than a report issued and promoted by an outfit led by
Citigroup Chief Executive Charles Prince and Don Evans, the former Bush commerce
What's Going On? Business interests with a strong stake in globalization ... see rising public anxiety about globalization as a threat. And they
realize that preaching the gospel of comparative advantage isn't going to win
"The mounting opposition is in response to the other side of globalization --
outsourcing of jobs, economic dislocation, anxiety and fear," the forum said ... early this year. "Making the case for trade and
globalization requires...a list of specific, meaningful, practical,
cost-efficient, and effective public- and private-sector responses to the
reality that while the aggregate benefits of free trade and globalization are
tremendous, it can sometimes bring with it painful dislocations for individuals,
families, towns, regions, even entire industries." ...
Some business executives, prodded by politicians such as House Ways and Means
Chairman Charles Rangel, finally are realizing that trade-friendly Democrats
will be overwhelmed by trade skeptics unless there is something tangible to
offer workers worried about their livelihoods and their children's. A new Pew
Global Attitudes survey finds Americans generally optimistic about the next five
years, but only 31% expect their children's lives will be better than their own;
Europeans are even more pessimistic. By contrast, 81% of the Chinese expect
their children to do better.
The Financial Services Forum report is, in part, a response to that. The
specifics are intriguing ... because they move beyond inadequate approaches such
as making the failing Trade Adjustment Assistance program for dislocated workers
a tad more generous.
Among the Proposals: Raise taxes on winners to share benefits of
globalization more widely. Replace TAA and unemployment insurance with a big new
program for displaced workers that offers wage insurance to ease the pain of
taking a lower-paying job. Provide for portable health insurance and retraining.
Create a way for communities to ensure their tax base against big factory
closures. Eliminate tax hurdles for businesses that do what International
Business Machines is proposing: Offer 50 cents for every $1 (up to $1,000 a
year) that workers set aside to pay for training. ...
Grant Aldonas of the Center for Strategic and International Studies think
tank, one of the report's three authors [said] "...We are renegotiating the
social contract in America, but we're letting it be done by the United Auto
Workers and Delphi, and leaving a lot of others out -- including the poor and
the businesses on the leading edge."
Mr. Aldonas and his co-authors, Dartmouth's Matthew Slaughter and Harvard's
Robert Lawrence, ... say the U.S. need not accept as inevitable the
steady widening of the gap between economic winners and losers, an inequality
that threatens to produce barriers to trade, investment and immigration that
will hurt U.S. prosperity. ...
Now the question is whether business will go beyond talk. As C. Fred Bergsten
... puts it: "They haven't gone to the mat and talked to Charlie Rangel and
Democrats who are wavering, if not worse, and said, 'We want to support a
meaningful program of wage insurance, and we'll be willing to give up some of
our beloved tax breaks to pay for it.' "
One troubling sign: Although forum chief executives issued statements
blessing the new report, not one has been willing to talk to a Wall Street
Journal reporter about it.
One thing that bothers me about the whole inequality debate is the
presumption that the winners deserve their incomes because it reflects their
contribution to the firm, i.e. it is the wage that would be earned in
well-functioning competitive markets, with the reward is equal to the person's marginal
contribution to the firm. Thus, the analysis often begins with the idea that any tax takes away someone's hard-earned income and redistributes it elsewhere.
But for the incomes where inequality is rising most -
those at the very top of the income distribution - this is a questionable claim. The
idea that the salary of a CEO or hedge fund manager is set by competitive markets, or even
approximately so, seems unlikely, or at least open to serious question. It should not
just be assumed in these debates.
If the incomes of the winners are higher than they would be in a competitive
market, then many of the arguments against taxing their "hard-earned money" melt
away. For example, if a person would earn $1,000,000 in a competitive market,
but because of market imperfections earns $1,200,000 instead, is it unfair to
tax away the extra $200,000?
At a 33% tax rate in a competitive market, after-tax income would be $667,000, i.e. the competitive income of $1,000,000
minus 33%. At the non-competitive income of $1,200,000, it would take a tax rate of around 44% to
leave the person equally well off (i.e. $1,200,000 - 44% of $1,200,000 = approx. $667,000).
For this reason, I would argue that tax rates such as the 44% rate in this example are not as high as they might seem. Part of the tax simply levels the playing field, i.e. taxes away the income in excess of the competitive level, and the tax rate is then 33%, not 44%, on the part of income that would be earned in a competitive market.
Update: Free Exchange at the Economist has a different take on this issue.
Posted by Mark Thoma on Thursday, July 26, 2007 at 12:24 AM in Economics, Market Failure, Policy, Taxes |
Adriana Z. Fernandez and Alex Nikolsko-Rzhevskyy of the Dallas Fed review the
performance of Taylor Rules as a guide to monetary policy:
Measuring the Taylor Rule's Performance, by
Adriana Z. Fernandez and Alex Nikolsko-Rzhevskyy,
Economic Letter, FRB Dallas: In the Full Employment and Balanced Growth
Act of 1978, Congress gave the Federal Reserve two goals: Keep inflation low and
stable while promoting economic growth. Financial markets, businesses,
economic analysts and others expend considerable
effort trying to fathom how the Fed attempts to meet its dual mandate.
One tool for understanding Fed policy is the Taylor
rule, with its many variations. The brainchild of Stanford University's John B.
Taylor, it relates output and inflation to the historical behavior of the
federal funds rate—the Fed's most important policy lever—to show the general way
the central bank responds to changing economic circumstances. The Taylor rule
recognizes the Fed's two monetary policy goals, with rates rising to control
inflation when it gets too high and falling to stimulate output and employment
when the economy turns sluggish.
The Fed doesn't explicitly follow the Taylor rule or any
other formula in making decisions. Instead, the Federal Open Market Committee
studies a wide range of information to determine the best course of action.
Nonetheless, the rule has proven a reasonable guide to how the federal funds
rate adjusts to economic developments.
The Fed has taken steps in recent years to increase the
transparency of its decision-making, hoping that clearer communication will
improve the public's comprehension of its actions, thereby enhancing the
economy's performance. In a similar way, the Taylor rule has contributed to
better understanding of monetary policy by providing a general guide to how the
What makes a good Taylor rule? We addressed this issue
by using a recently developed econometric technique to determine how the
original rule and subsequent variations perform using different measures of
inflation, output and unemployment. We found that the rule remains relevant
today, despite the changes wrought by globalization, financial market
innovations and technological advances.
Continue reading "FRB Dallas: Measuring the Taylor Rule's Performance" »
Posted by Mark Thoma on Thursday, July 26, 2007 at 12:15 AM in Economics, Monetary Policy |
Posted by Mark Thoma on Thursday, July 26, 2007 at 12:06 AM in Links |
An email brings a link to a radio program at the BBC on an attempted coup
during the Roosevelt presidency:
The Whitehouse Coup, BBC: Document uncovers details of a planned
coup in the USA in 1933 by right-wing American businessmen The coup was aimed
at toppling President Franklin D Roosevelt with the help of half-a-million war
veterans. The plotters, who were alleged to involve some of the most famous
families in America, (owners of Heinz, Birds Eye, Goodtea, Maxwell Hse & George
Bush’s Grandfather, Prescott) believed that their country should adopt the
policies of Hitler and Mussolini to beat the great depression. Mike Thomson
investigates why so little is known about this biggest ever peacetime threat to
American democracy. [Listen
to this programme in full]
[View a picture gallery of images related to this edition]
I'm not overly familiar with this episode, so here's what Wikipedia has to say:
Business Plot, Wikipedia:
The Business Plot, The Plot Against FDR, or The White House Putsch, was an
uncovered conspiracy involving several wealthy businessmen to overthrow
President Franklin D. Roosevelt in 1933.
Purported details of the matter came to light when retired Marine Corps Major
General Smedley Butler testified before a Congressional committee that a group
of men had attempted to recruit him to serve as the leader of a plot and to
assume and wield power once the coup was successful. Butler testified before the
McCormack-Dickstein Committee in 1934. In his testimony, Butler claimed that a
group of several men had approached him as part of a plot to overthrow Roosevelt
in a military coup. One of the alleged plotters, Gerald MacGuire, vehemently
denied any such plot. In their final report, the Congressional committee
supported Butler's allegations on the existence of the plot, but no prosecutions
or further investigations followed, and the matter was mostly forgotten.
General Butler claimed that the American Liberty League was the primary means
of funding the plot. The main backers were the Du Pont family, as well as
leaders of U.S. Steel, General Motors, Standard Oil, Chase National Bank, and
Goodyear Tire and Rubber Company. A BBC documentary claims Prescott Bush, father
and grandfather to the 41st and 43rd US Presidents respectively, was also
Continue reading "The Plot against FDR" »
Posted by Mark Thoma on Wednesday, July 25, 2007 at 02:43 PM in Economics, Social Insurance |
Since Brad took the time to do this good deed, I should help out as I can, so here's
his reaction to Robert Samuelson's latest column:
Blogging: "In That Case, We Have No Time to Lose. Plant [the Trees] This
Afternoon!" (Why Oh Why Can't We Have a Better Press Corps?/Robert J. Samuelson
Is a Bad Person/Washington Post Edition), by Brad DeLong: Mark Thoma does an evil deed by telling me that somebody should take note of
Robert Samuelson. And he's right: somebody should. But why does it have to be
First, some history: The last time we tried to put a "Pigou tax" on carbon
emissions--back in 1993 with the Gore BTU tax proposal--Robert Samuelson opposed
it: "Congress," he said, "should... deliver a firm message: We won't pass this
[energy] tax... [without] more spending cuts. This would give Congress more time
to evaluate the energy tax and put more pressure on the White House to cut
spending.... Congress... [should not] be stampeded."
Remember that: Robert Samuelson did not want Congress to be "stampeded" into
including a carbon tax in the 1993 reconciliation bill.
Economists believe that things work well when the incentives individuals
face--the good or ill that their actions cause for themselves--match up to the
good or ill of the impact that their actions have on society as a whole. Thus
our liking for energy taxes...:
...a tax on carbon makes [individuals] feel that
harm in their pocketbook and so matches up individual incentives with social
outcomes. That's what the Gore BTU tax proposal was trying to do.
There are in general two ways that you can match private incentives with
Continue reading "Brad DeLong: Robert Samuelson's "Intellectual Three-Card-Monte"" »
Posted by Mark Thoma on Wednesday, July 25, 2007 at 11:16 AM in Economics, Environment, Policy, Press |
Jeff Sachs uses Darfur to illustrate the connections between the natural
environment, poverty, population growth, and war:
development, no peace, by Jeffrey D. Sachs, Project Syndicate: Anyone
interested in peacemaking, poverty reduction, and Africa's future should read
the new United Nations Environment Program (UNEP) report "Sudan: Post-Conflict
Environmental Assessment." ... It is a vivid study of how the natural
environment, poverty, and population growth can interact to provoke terrible
human-made disasters like the violence in Darfur.
When a war erupts, as in Darfur, most policymakers look for a political
explanation and a political solution. This is understandable, but it misses a
basic point. By understanding the role of geography, climate, and population
growth in the conflict, we can find more realistic solutions than if we stick
with politics alone.
Extreme poverty is a major cause, and predictor, of violence. The world's
poorest places, like Darfur, are much more likely to go to war than richer
places. This is not only common sense, but has been verified by studies and
statistical analyses. ...
Extreme poverty has several effects on conflict.
Continue reading "Jeffrey Sachs: Peace through Economic Development" »
Posted by Mark Thoma on Wednesday, July 25, 2007 at 04:05 AM in Economics, Policy |
Caroline Baum on the source of inflation:
'Imported' Inflation? Try 'Made in the U.S.A.', by Caroline Baum, Bloomberg.com:
For years globalization was touted ... in terms of the low prices it delivered
to consumers. It was unqualified bad news only if you happened to be the fellow
who made the goods now being produced in China.
Now the tide has turned. After more than a decade of ''exporting'' deflation,
... the ... price of Chinese imports to the U.S. has risen in the last few
months, triggering predictable reactions based on faulty assumptions.
Specifically the question is, can one country import inflation from another?
In the case of China and the U.S., it depends on whether one is flying from east
to west or west to east. China pegs its currency to the U.S. dollar. ... If the
U.S. inflates, China inflates, not the other way around. ...
The broader issue is whether a sovereign nation with an independent central
bank can import inflation -- or deflation -- from overseas. ...
Forget about borders and exchange rates for a moment and think about
individual prices in the domestic economy. Let's say the price of oil goes up
because demand increases. Is that inflationary?
Former Federal Reserve Chairman Alan Greenspan used to explain to Congress
that relative price changes are not inflationary per se. ... For a given stock of money, a rise in the price of oil may translate into a
one-time rise in the price level. With time, the price of something else will
fall as consumers cut back on non-oil purchases.
The same is true for the price of imports. If consumers have to pay more for
items made in China, they will have less money to spend on domestic goods and
services and other foreign imports --unless the central bank accommodates those
higher prices by allowing the money supply to increase.
So it is always and everywhere the province of the central bank to determine
its domestic inflation rate. ... As long as globalization doesn't mean one world central bank -- Trilateral
Commission and Bilderberg Group conspiracy theorists, restrain yourselves --
''flexible exchange rates give countries the independence to set their own
inflation goals,'' Glassman says. ''That insulates everyone else from what you
choose to do.''
And as for price shocks, the central bank has the ability to offset them,
whether they occur at home or abroad. Inflation isn't transmitted via spores in
the air. It's a monetary phenomenon, and as such, starts and ends on native
shores. Globalization hasn't made central banks impotent. ...
Let me add a bit to the last paragraph. Inflation is caused by money growth and in the long-run inflation and money growth move together, but there can also be episodes of inflation in the short-run as relative prices adjust to oil price or other shocks. However, whether or not the movement of prices from one level to another in response to shocks should be called inflation is a matter of definition, some monetary economists reserve the term inflation for a continual run-up in the price level, not a one-time change to a new level, but whatever such movements in prices are called there's still a role for central banks to play in response to shocks that cause short-run movements in the price level.
Posted by Mark Thoma on Wednesday, July 25, 2007 at 02:16 AM in Economics, Inflation |
Posted by Mark Thoma on Wednesday, July 25, 2007 at 12:33 AM in Links |
Seeing an uncle of mine this summer reminded me to make an image of this, which is getting very old and brittle. I don't mean to bore you with my scrapbook, this is just so I have a digital copy, but maybe someone will be interested. It's a postcard, and the test pilot signatures (Al White and Joe Cotton) from the first flight to break the Mach 3 barrier:
Continue reading "The First Mach 3 Flight: The XB-70A" »
Posted by Mark Thoma on Wednesday, July 25, 2007 at 12:24 AM in Miscellaneous, Technology |
People have, rightly, jumped all over the David Brooks column today in the
New York Times that tries to spin a positive story about rising inequality. He
is effectively rebutted at:
There are also questions about whether he came up with
this himself, or whether he was fed (and willingly ate) the data and arguments:
If so, and it's hard to believe he did this by himself, I wonder who's feeding him?
There is another editorial today, this one in the WSJ, that also deserves
a little scrutiny. Apparently Paul Krugman's column on competition among
high-speed internet service providers rattled some cages and brought this
response from Robert McDowell, a commissioner on the Federal Communications
McDowell is a George W. Bush appointee. He is a former FCC lobbyist from
Virginia for telephone companies.")
As you read this keep in mind that when you
don't have an argument to offer in rebuttal, a common tactic is to attack the
data. The scare tactics, beginning in the second paragraph with every
"heavy-handed" possibility he could come up with, also point to the lack of
effective counterargument Modern market-based telecommunications regulation that promotes competition through correct market incentives does not fit the "mandates" description he gives, not at all, e.g. see "Designing Incentive Regulation for the Telecommunications Industry," by
David E. M. Sappington and Dennis L. Weisman. So his "heavy-handed government mandates" are nothing more than scare tactics. And when argument actual is provided, it's less than
Broadband Baloney, by Robert M. McDowell, Commentary, WSJ: American
consumers are poised to reap a windfall of benefits from a new wave of broadband
deployment. But you would never know it by the rhetoric of those who would have
us believe that the nation is falling behind, indeed in free fall.
Looming over the horizon are heavy-handed government mandates setting
arbitrary standards, speeds and build-out requirements that could favor some
technologies over others, raise prices and degrade service. This would be a
mistaken road to take -- although it would hardly be the first time in history
that alarmists have ignored cold, hard facts in pursuit of bad policy.
Exhibit A for the alarmists are statistics from the Organization for Economic
Cooperation and Development. The OECD says the U.S. has dropped from 12th in the
world in broadband subscribers per 100 residents to 15th.
The OECD's methodology is seriously flawed, however. According to an analysis
by the Phoenix Center, if all OECD countries including the U.S. enjoyed 100%
broadband penetration -- with all homes and businesses being connected -- our
rank would fall to 20th. The U.S. would be deemed a relative failure because the
OECD methodology measures broadband connections per capita, putting countries
with larger household sizes at a statistical disadvantage.
I need to jump in here. This whole thing about household sizes, which he
makes a big deal of, is a red herring. If you look at
this table you see
that if you do it as subscribers per household, not per capita, France goes from
having slightly more penetration than the US to slightly less. Big deal. And
Japan still has higher penetration. Back to the "counterargument":
Furthermore, the OECD does not weigh a country's geographic size...
This is followed by an argument where the author, surprise, "does not weigh a
country's geographic size." Comparing the number of "Wi-Fi hot spots" in the
U.S. to the number in smaller countries doesn't tell us much:
The OECD conclusions really unravel when we look at wireless services,
especially Wi-Fi. One-third of the world's Wi-Fi hot spots are in the U.S., but
Wi-Fi is not included in the OECD study...
Most American Wi-Fi users do so
with personal portable devices. It is difficult to determine how many wireless
broadband users are online at any given moment, since they may not qualify as
"subscribers" to anyone's service.
In short, the OECD data do not include all of the ways Americans can make
high-speed connections to the Internet, therefore omitting millions of American
broadband users. Europe, with its more regulatory approach, may actually end up
being the laggard because of latent weaknesses in its broadband market.
The portable device usage isn't included for other countries either, so it's
not clear how this adjustment would turn out without actually doing the calculations. Also, when he says "Europe ... may actually end up being the
laggard," he implies Europe is not the laggard now, contrary to the impression he is trying to give. Oh well, that's what happens when you are grasping for any
argument that might convince the unwary. Continuing:
Our flexible and deregulatory broadband policies provide opportunities for
American entrepreneurs to construct new delivery platforms enabling them to pull
ahead of our international competitors. For instance, newly auctioned spectrum
for advanced wireless services will spark unparalleled growth and innovation.
Soon, we will auction even more spectrum in the broadcast TV bands to spur
more broadband competition. In addition, we are in the midst of testing powerful
new technologies to use in spectrum located in the "white spaces" between
broadcast TV channels.
This is all wonderful news for our future.
But the point is that we are behind now. What happens in the future is a
guess, not a certainty, and does not rebut the existing statistics on high-speed access that have been given. He also says:
In a competitive market, consumer demand compels businesses to innovate. ...
Yes, in a competitive market that's true. But these markets are not
competitive and that's why we need incentive based regulation to
ensure a robust, competitive, telecommunications market. Continuing again:
When it comes to broadband policy, let's put aside flawed studies and
rankings, and reject the road of regulatory stagnation. ... Belief in entrepreneurs
and a light regulatory touch is the right broadband policy for America.
Better yet, "when it comes to broadband policy, let's put aside flawed" editorials and reject scare tactics. Belief in regulation of
monopoly power "is the right broadband policy for America."
Update: Tyler Cowen has more on the WSJ commentary.
Posted by Mark Thoma on Tuesday, July 24, 2007 at 06:12 PM in Economics, Market Failure, Policy, Regulation |
Jagdish Bhagwati on illegal immigration:
illegal immigrants decently, by Jagdish Bhagwati, Commentary, Financial Times:
...US immigration reform ... collapsed in the Senate on June 28 and the nation
was left more polarised than ever. What went wrong? ...
The main problem ... was that the 1986 Immigration Reform and Control Act had
tried similar reforms ... but had failed. Many who opposed the proposed reforms
knew this and would not go along..., convinced that history would repeat itself.
As John Kenneth Galbraith once said about his foe Milton Friedman: “Milton’s
problem is that his policies have been tried.”
The IRCA had a two-pronged strategy. The amnesty would take care of the stock
of illegals, estimated at 6m. Only half took advantage of it, leaving an equal
number in illegal status... The flows of illegals were to be taken care of
through enforcement at three levels: enhanced border enforcement, employer
sanctions and raids against illegals who were already in the US.
None of these worked. Borders could not be controlled unless you were willing
to be rough. But you could not be, because illegal immigrants are human
beings... [T]hose caught were not incarcerated but simply sent across the border
and came back again and again till they got through. ...
As for employer sanctions, hardly any legal actions against employers were
undertaken. But even if there had been, few judges would have used draconian
punishment against those giving employment to the “huddled masses” seeking work.
Equally, few Americans could contemplate with equanimity a manifold increase in
disruptive raids against illegals that many considered inhumane.
So, the IRCA predictably did not eliminate the problem. By the time the new
reforms were being proposed, the stock of illegals had in fact doubled to an
estimated 12m ..., with a yearly absorption of 300,000 illegal workers in the
The only significant change proposed from the failed IRCA approach was that
Mr Bush had asked for a temporary guest-worker programme. The idea was that it
would siphon off most of the illegals into a legal channel. But by the time it
had been moulded and mauled through successive compromises, it could not be
expected to do much...
But all is not lost. Once passions aroused by the proposed reforms have
cooled, Americans should be ready to see that a way must be found to treat
illegals with the decency and respect that humanity requires, while respecting
equally the innate American sense that laws matter. ... Perhaps a different and
more realistic approach might get us what we could not achieve with
In particular, why not build on the unappreciated fact that the illegals are
not today the underclass with few rights that they were for many years? ... With
vastly increased ethnic minority populations, especially Hispanic, the illegals
enjoy a higher comfort level than at the time of the IRCA. ... There are
numerous non-governmental organisations, such as the National Council of La Raza
and civil rights groups such as the American Civil Liberties Union, that give
the illegals a substantial sense of protection.
If asking for full citizenship through the amnesty is currently impossible,
we can work instead to raise this comfort level to something much closer to what
citizenship brings, without asking for full citizenship. Cities such as New
Haven have begun to do this. It never makes sense for the best to be the enemy
of the good.
Here's more on the reference to New Haven:
New Haven opts
to validate its illegal residents, csmonitor.com: At a time when a rising
number of states and cities are cracking down on illegal immigrants, New Haven,
Conn., is reaching out to them with a unique perk: an ID card.
Besides serving as identification for bank services and if police ask for ID,
the card can be used at municipal locations such as libraries, beaches, and
parks – and as a debit card for city parking meters and at 15 downtown shops.
Cities – and critics – ... are watching closely as New Haven prepares to hand
out its first batch of cards July 24. The idea: integrate illegal immigrants
into the community, protect them from crime that can happen because of a lack of
documentation, and encourage them to be more willing to report crimes to police.
Reaction to the first-of-a-kind program has been swift and sharp, illustrating
the wide divide in US public opinion over the issue. ...
In New Haven, the main motivation for the ID cards was public safety, says
Kica Matos, the city's community services administrator and a main initiator of
the program. One reason the illegal immigrant community doesn't trust the police
and doesn't come forward to report crimes is that police invariably ask to see
The card isn't just for illegal immigrants, either, Matos says. It was
designed to be useful for all residents, she adds, so it wouldn't be regarded as
a "scarlet U" for "undocumented."
The city has fielded calls from governments and immigrant-rights groups in
New York, San Francisco, and Washington State, she says. "There's a lot of buzz
around the card, but they're waiting for us to get our program rolling."
Posted by Mark Thoma on Tuesday, July 24, 2007 at 12:51 PM in Economics, Immigration, Policy |
John Rawls seems to be showing up in discussions quite a bit lately:
misplaced love of John Rawls, by Linda Hirshman, TNR: The year 2006 marked
the thirty-fifth anniversary of the publication of the Bible of
twentieth-century liberalism, John Rawls's A Theory of Justice. ... In
over 500 densely argued pages, Rawls claimed that politics had to be conceived
in fundamentally moral terms." ...
Rawls's appeal is that he created a justification for the liberal state that
did not require a lot of apparatus. No appeals to history, no metaphysics about
how people differ from animals, no lists of virtuous political values to
constrain the process. Just close your eyes, Rawls said, and think of what kind
of political society you would make if you didn't know who you were. Black,
white, male, female, smart, dumb--you might be anyone who would then have to
live in the society you imagined. Rawls said if you did this, you'd produce
unlimited free speech and moderately redistributive capitalism. ...
Perversely, Rawlsian liberalism also produced a slippery slope into its
opposite, complete selfishness. After all, unless you could achieve the degree
of selflessness he required, there was no other place to stop. John Gray, the
wandering Brit of contemporary philosophy, correctly called Rawls's hegemony
"the legal disestablishment of morality." The game that Rawls set in motion,
designed to eliminate common preexisting political values, could also produce
the result that everybody simply advocated for himself.
It is not a coincidence that the only successful two-term Democratic
presidency of the Age of Rawls was engineered in part for Bill Clinton by Bill
Galston, a political theorist with a background in classical thought. Although
Galston pays due homage to Rawls, his crucial work is ends-driven, not justified
on the blindness of the procedure... Rawls's work--the best effort to take a tradition
grounded in the bourgeois revolutions of the seventeenth and eighteenth
centuries--and make it relevant to a modern, industrial state simply left the
country to the conservatives.
As intellectuals have struggled to get the basic Rawlsian framework to work
in the real world, none have made the argument for the metaphysical assumptions
that must be a part of their political prescriptions. Even now, liberal thinkers
like Paul Starr and Michael Tomasky, who are trying to generate richer visions
for liberalism, cannot completely free themselves from Rawls's legacy.
This failure is but the sorry hangover of the years of Rawls. Make a public,
political argument for classical political virtues of courage, philanthropy, and
temperance, and armies of philosophy professors and various amateurs emerge from
the blogosphere to remind you that Aristotle's metaphysics supported slavery.
What is then left? But such insistence on purity is a victory only for those for
those who would rather the Right be President. It is time for the thinkers of
the Democratic revival to leave the senior common room.
I don't know as much about Rawls as I should - it's not something I rely upon
when I think about government intervention - so for a bit more on Rawls I'll turn it over to Brad
DeLong. He wrote this in response to a recent
op-ed by Greg Mankiw that mentions Rawls as a basis for redistribution, though I've cut the part that
responds directly to Greg:
Let's Not Tell Hilzoy!, by Brad DeLong:
...Rawls does not think that the primary goal of public policy should be to
redistribute resources to help those at the very bottom. Rawls thinks that the
first goal of public policy is to maximize liberty for all. He thinks that the
second goal of public policy is to make everybody better off. Redistribution
plays third fiddle in Rawls's orchestra: it is a constraint on social wealth
maximization--things that make people better off must be shared: choose that set
of social and economic arrangements that makes everybody better off, but don't
choose a set of social and economic arrangement that makes some people better
off at the price of making the worst-off even worse off.
Here is what I think is the best way to think of this third point, of Rawls's
A group of people are sitting around the campfire, after a hard day's worth
of work and pay in which what jobs people did and how hard they worked and how
they were rewarded was determined by some complicated and not very transparent
Looking around, the person who is worst off says: "Hey! Wait a minute! This
isn't fair. Everybody else is better off than I am."
And one of the others replies: "I'm sorry. You do get less than everybody
else. But we set things up in the best way we could. Given the constraints
imposed by human psychology and the natural world, we couldn't have set things
up in any way so that you would have been better off."
"Oh. That's OK then."
According to Rawls, an arrangement that passes this test is "just" and
Now I don't think that Rawls has it correct: I don't think that socioeconomic
arrangements that pass Rawls's test are necessarily just, and I don't think
socioeconomic arrangements that are just necessarily pass Rawls's test. There
are too many lexicographic orderings wandering around Rawls's setup for any
economist to be happy with it...
Posted by Mark Thoma on Tuesday, July 24, 2007 at 04:32 AM in Economics, Income Distribution, Policy, Politics |
George Borjas is puzzled:
The Minimum Wage And Immigration: A Puzzle, by George Borjas: The federal
minimum wage is rising today for the first time in a decade, from $5.15 to $5.85
an hour. And this reminds me of an important puzzle in labor economics that
remains unresolved ... between the studies that examine the impact of a rising
minimum wage on employment and those that examine the impact of immigration on
Many studies in each of these literatures calculate correlations between
wages and employment across cities or geographic regions. The minimum wage
studies, for instance, relate changes in employment across states to changes in
the minimum wage across states. The immigration studies relate changes in wages
across regions to immigration-induced changes in supply. ...
The ... two sets of studies draw completely contradictory inferences from the
data. On the one hand, the minimum wage literature often finds that a regression
of employment on wages reveals a near-zero coefficient on the wage, and this is
interpreted as saying that changes in the minimum wage have little effect on
employment. On the other hand, the immigration literature often finds that a
regression of wages on employment reveals a near-zero coefficient on employment,
and this is interpreted as saying that immigration has little effect on the
In the minimum wage literature, the inference is that the labor demand curve
is almost vertical (or very inelastic), while in the immigration literature, the
inference is that the labor demand curve is almost horizontal (or very elastic).
Let me rephrase the puzzle another way. If one were to believe the
zero-effect result in the minimum wage literature, one would be forced to
conclude that immigration must have huge adverse effects on the wage of native
workers (at least in the short run). But if one were to believe the zero-effect
result in the immigration literature, one would then have to conclude that
minimum wage increases would have huge disemployment effects.
The only thing in common between the two sets of studies is that there is a
zero correlation between wages and employment across geographic areas. What one
puts on the left-hand side and the right-hand side of the regression model
doesn't change this fundamental empirical fact.
Am I the only one who finds the contradictory inferences disturbing? It seems
to me that at least one (and perhaps both) of the inferences economists draw
from these cross-region correlations must be wrong.
Posted by Mark Thoma on Tuesday, July 24, 2007 at 12:15 AM in Economics, Immigration, Unemployment |
Posted by Mark Thoma on Tuesday, July 24, 2007 at 12:06 AM in Links |
There were less posts than usual today. One reason is that I started
reading this history of the town I grew up in, a small town in Northern
California called Colusa, and it captured my attention. This probably interests me more than you since the places, names, etc. are all so familiar to me, but if
you are interested, here's the chapter I just read.
If you know Northern California at all, Sutter's Mill where gold was
discovered in 1848, Bodega, Sacramento, Yerba Buena, Chico, etc., this will be
familiar to you too. It's an account by John Bidwell of his early experiences in California
(this is in the 1840s just before the Gold Rush, he was one of the first to
arrive in many areas of Northern California, there's a Bidwell Mansion in Chico
adjacent to the CSU Chico campus). Toward the end, he describes an encounter
with native Americans where he was the first white person they had ever seen,
and his account also describes, among many other things, the harsh treatment the
native Americans received from the new arrivals. The bear hunting lessons given
in two places might be of interest, there's a woodsman who can't find his way home, and there's some economics here and there as
well if you look for it:
County: Its History Traced from a State of nature through the Early Period of
Settlement and Development to the Present Day with a Description of its
Resources, Statistical Tables, etc., Biographical Sketches of Pioneers and
Prominent Residents. Orland. 1891: Explorations of Colusa County, Chapter 3,
Furnished by Gen. John Bidwell.
[General John Bidwell, of Chico, was one of the first to cross the plains
from the Missouri River, making his journey to California between May 5 and
November 5 1841. But as the first-known white explorer of Colusa County, his
travels and experiences form necessarily an interesting chapter in the early
periods of Colusa County. General Bidwell kindly consented to furnish us with
his autobiography, of which we gladly availed ourselves, taking down his
narrative as he dictated to us. As the autobiography is complete and somewhat
lengthy, we are obliged to cull only those passages therefrom which pertain to
Colusa County. The narrative as a whole is most interesting, in some places
thrilling, and is told in such simplicity of style and attractiveness of manner
that, feeling obliged to omit it, we do so with regret. Only a fear of marring
the unities of our purpose to treat here solely of Colusa County caused us to
forego the pleasure of giving his autobiography in its entirety.-Author.]
I may premise what I have to say further on concerning what is now Colusa
County and as I saw it then in a state of nature, which no white man had ever
entered except a few wandering trappers till I passed through it, by giving a
brief outline of my earlier experiences in California. These may be necessary,
in order not to lead up too abruptly to my little narrative concerning Colusa
After completing my journey across the plains, which occupied six months of
the year 1841, I went to Sutter's ranch, near Sacramento, and entered the employ
of Sutter, where I remained till the January following. There was at that time
no fort yet built, only a station for a few ranchers, hunters, and fur traders.
Sutter employed Indian hunters and trappers. They used carbines chiefly, though
a few had rifles. The settlement, if it could then be so designated, was in an
embryo state. No crops had been raised; grain had been sown, but, owing to an
unprecedentedly dry season, it had failed to mature. There was no such thing as
bread, so we had to eat beef, and occasionally game, such as elk. deer,
antelope, wild geese, and ducks. Our Christmas dinner that year was entirely of
Continue reading "Northern California before the Gold Rush" »
Posted by Mark Thoma on Monday, July 23, 2007 at 09:00 PM in Economics, Miscellaneous |
Haven't seen much about this, so thought I'd note it here. This is an
editorial from the local paper about the Bush administration's refusal to allow Homeland Security Committee member Congressman Peter
DeFazio to examine plans for government action following a terrorist attack or natural disaster:
Access denied, Editorial, Register-Guard: If the Bush administration wanted
to fuel conspiracy theories about its classified plan for maintaining
governmental control in the wake of an apocalyptic terror attack, it could not
have come up with a better strategy than refusing to let Congressman Peter
DeFazio examine it.
Continue reading ""Maybe the People Who Think There's a Conspiracy Out There are Right"" »
Posted by Mark Thoma on Monday, July 23, 2007 at 10:53 AM in Politics, Terrorism |
Paul Krugman discusses how lack of competition among providers of high-speed
internet service has caused the U.S. to fall behind other countries:
French Connections, by Paul Krugman, Commentary, NY Times: There was a time
when everyone thought that the Europeans and the Japanese were better at
business than we were. In the early 1990s airport bookstores were full of
volumes ... promising to teach you the secrets of Japanese business success.
Lester Thurow’s 1992 book, “Head to Head: The Coming Economic Battle Among
Japan, Europe and America,” which spent more than six months on the Times
best-seller list, predicted that Europe would win.
Then it all changed, and American despondency turned into triumphalism.
Partly this was because the Clinton boom contrasted so sharply with Europe’s
slow growth and Japan’s decade-long slump. Above all, however, our new
confidence reflected the rise of the Internet. ...[M]ost of Europe except
Scandinavia lagged far behind the U.S. when it came to getting online.
What most Americans probably don’t know is that ... as dial-up has given way
to ... high-speed links — it’s the United States that has fallen behind.
The numbers are startling. As recently as 2001, the percentage of the
population with high-speed access in Japan and Germany was only half that in the
United States. In France it was less than a quarter. By the end of 2006,
however, all three countries had more broadband subscribers per 100 people than
Even more striking is the fact that our “high speed” connections are
painfully slow by other countries’ standards. ... Oh, and access is much
What happened to America’s Internet lead? Bad policy. Specifically, the
United States ... forgot — or was persuaded by special interests to ignore —
...that sometimes you can’t have effective market competition without effective
You see, ... to get [to the internet] you need to go through a narrow
passageway, down your phone line or down your TV cable. And if the companies
controlling these passageways can behave like the robber barons of yore, levying
whatever tolls they like on those who pass by, commerce suffers.
America’s Internet flourished in the dial-up era because federal regulators
... forced local phone companies to act as common carriers, allowing competing
service providers to use their lines. Clinton administration officials ... tried
to ensure that this open competition would continue — but the telecommunications
giants sabotaged their efforts, while The Wall Street Journal’s editorial page
ridiculed them as people with the minds of French bureaucrats.
And when the Bush administration put Michael Powell in charge of the F.C.C.,
the digital robber barons were basically set free to do whatever they liked. As
a result, there’s little competition in U.S. broadband — if you’re lucky, you
have a choice between ... the local cable monopoly and the local phone monopoly.
The price is high and the service is poor, but there’s nowhere else to go.
Meanwhile, as ... Business Week explains, the real French bureaucrats used
judicious regulation to promote competition. As a result, French consumers get
to choose from a variety of service providers who offer reasonably priced
Internet access that’s much faster than anything I can get, and comes with free
voice calls, TV and Wi-Fi.
It’s too early to say how much harm the broadband lag will do to the U.S.
economy as a whole. But it’s interesting to learn that health care isn’t the
only area in which the French, who can take a pragmatic approach because they
aren’t prisoners of free-market ideology, simply do things better.
Previous (7/20) column:
Paul Krugman: All the President’s Enablers
Next (7/27) column: Paul Krugman: The Sum of Some Fears
Update: Paul Krugman emails:
I wrote a piece on this, "Digital Robber Barons?", back in 2002 -
unfortunately, it looks my worries were justified. Also, Matthew Yglesias had a piece 2
years ago (which I somehow missed).
The broadband penetration statistics are at http://www.oecd.org/document/7/0,3343,en
Connection speeds are at http://www.websiteoptimization.com/bw/0705/
And he adds his personal experience:
When Robin and I moved into our
current house, which is in Princeton Township a few minutes' drive from the
university, we had NO broadband available. We actually got a satellite dish -
which provided lousy access, but better than dialup. Eventually Verizon offered
DSL - pretty slow DSL. And last year Patriot Media, our cable monopoly, finally
came up with its own offering. But that's it.
Posted by Mark Thoma on Monday, July 23, 2007 at 12:33 AM in Economics, Market Failure, Regulation, Technology |
This is Russell Baker with an analysis of the fate of newspapers in the internet age,
the failure of the press in the run-up to the Iraq war, and other issues. This
is part of a much longer essay:
Goodbye to Newspapers?, Book
Review by Russell Baker, NY Review of Books: ...The American press has the
blues. Too many ... good newspapers are in ruins. It has lost too much public
respect. Courts ... now taunt it with insolent subpoenas... It is abused
relentlessly on talk radio and in Internet blogs. It is easily bullied into
acquiescing in the designs of a presidential propaganda machine determined to
dominate the news. Its advertising and circulation are being drained away by the
Internet, and its owners seem stricken by a failure of ... entrepreneurial
Then there are the embarrassments: hoaxers like Jayson Blair and Stephen
Glass turn journalism into farce. The elite Washington press corps is bamboozled
into helping a circle of neoconservative connivers create the Iraq war. What
became of heroes? Journalists used to dine out on the deeds of Bob Woodward and
Carl Bernstein during Watergate; of David Halberstam, Neil Sheehan, and Malcolm
Browne in Vietnam; of "Punch" Sulzberger and Kay Graham risking everything to
publish the Pentagon Papers. Instead of heroes, today's table talk is about
journalistic frauds and a Washington press too dim to stay out of a three-card-monte
Rupert Murdoch of course has long spread melancholy in newsrooms around the
world, but it was the disclosure in May that the Bancroft family, which controls
The Wall Street Journal, might be ready to sell him their paper ... that really
struck at journalism's soul. ... The Wall Street Journal is not another
newspaper. It is one of the proudest pillars of American journalism. Like The
New York Times and The Washington Post, it has for generations been controlled
by descendants of a founding patriarch.
Family control has sheltered all three newspapers from Wall Street's most
insistent demands, allowing them to do high-quality—and high cost— journalism.
It was said, and widely believed, that the controlling families were animated by
a high-minded sense that their papers were quasi-public institutions. Of course
profit was essential to their survival, but it was not the primary purpose of
their existence. That one of these families might finally take the money and
clear out heightens fears that no newspaper is so valuable to the republic that
it cannot be knocked down at market for a nice price. Murdoch at the Journal is
a dark omen for journalists everywhere. ...
Papers everywhere [feel] relentless demands for improved stock performance.
The resulting policy of slash-and-burn cost-cutting has left the landscape
littered with frail, failing, or gravely wounded newspapers which are
increasingly useless to any reader who cares about what is happening in the
world, the country, and the local community. ...
2. ...Neil Henry's ... book is concerned with...: How does the Internet
affect what we still call "the press"? Is "blogging" the journalism of the
future? How can the journalist avoid being manipulated by the vast and deadly
effective propaganda machinery of government and business? ...
Continue reading ""Goodbye to Newspapers?"" »
Posted by Mark Thoma on Monday, July 23, 2007 at 12:15 AM in Economics, Politics, Press |
Posted by Mark Thoma on Monday, July 23, 2007 at 12:06 AM in Links |
About that Laffer curve:
CBO: Tax Cuts’ Impact Has Faded, by Greg Ip, WSJ Washington Wire: The stimulative effect
of Bush’s tax cuts has worn off and the supply-side benefits are “small,” the
Congressional Budget Office says. At the request of House Budget Committee [chair] John
Spratt (D., S.C.), the CBO analyzed the impact on the economy other than through
the direct impact on tax revenues of the Economic Growth and Taxpayer Relief Act
of 2001 (EGTRRA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA).
In a letter to Spratt released Friday, CBO director Peter Orszag said, “The
short-term effects of EGTRRA and JGTRRA in stimulating aggregate demand in the
economy have largely dissipated by now, and the supply-side effects of those
policies are uncertain but are probably small.”
Some of the tax cuts’ provisions “increased incentives for people to work and
save (which can increase growth), but other provisions had no effect on
incentives. In addition, the two tax laws increased the budget deficit, and
doing so tends to reduce economic growth over the medium and long term. At this
point in time (several years after enactment), once those various factors have
been taken into account, the overall impact of the tax legislation on the
economy is likely to be modest,” Orszag wrote.
Orszag concluded that the tax cuts’ indirect impact on economic growth,
investment and saving and could affect this year’s budget deficit anywhere from
an increase of $3 billion to a reduction of $14 billion, depending on the
assumptions used. That is separate from the direct boost to the deficit through
lost revenue and the added interest on borrowing to cover the gap of $211
It currently expects this year’s deficit to be between $150 billion and $200
billion, implying that without the tax cuts, the budget would probably be in
surplus this year.
Posted by Mark Thoma on Sunday, July 22, 2007 at 11:07 AM in Budget Deficit, Economics, Politics, Taxes |
Note that the color for the "no" category is not consistent from top to bottom:
I'm surprised how many people support pay caps for CEOs, and at the large number of people who do not believe that there is equal opportunity. The article reports that "Large majorities of people in the US and in Europe want higher taxation
for the rich and even pay caps for corporate executives to counter what
they believe are unjustified rewards and the negative effects of
globalisation." There is also more uncertainty about the effects of globalization than I would have guessed. Although the majority of those with an opinion view globalization negatively, more than 40% of the people polled weren't sure how to answer. More detail here (free).
Posted by Mark Thoma on Sunday, July 22, 2007 at 10:53 AM in Economics, Income Distribution, International Trade, Policy |
I haven't had a chance to read past the introduction and conclusion yet, but this
paper looks worth taking a closer look. Here's the conclusion:
The Effect of Internal Migration
on Local Labor Markets: American Cities During the Great Depression, by Leah
Platt Boustan, Price V. Fishback, and Shawn E. Kantor NBER WP 13276, July 2007 [open link]:
...V. Conclusion Throughout American history there has been extensive debate about the impact
of immigrants on the economic status of native-born workers. The conversation
has become particularly heated recently as the nation considers immigration
reform. Economists working with modern data have not reached a consensus about
the impact of immigrants on wages and work opportunities.
During the Depression, immigration from abroad was dampened by the
combination of a massive economic downturn and strict immigration quotas. Even
so, residents in areas where the Depression was less severe protested influxes
of migrants from other parts of the country. The most famous example was the
outcry in California against the Dust Bowl migrants, but the same debates
occurred throughout the country. The new arrivals were accused of taking jobs,
lowering wages, and crowding relief rolls. Using aggregate data on internal
migration flows matched to individual records from the 1940 Census, we examine
the impact of positive net migration on the economic welfare of workers along a
variety of dimensions.
As is often the case in the modern literature, we find that the impact of
in-migration on hourly earnings was small and not statistically significant in
the 1930s. However, in-migrants threatened the economic prospects of longer-term
residents in other ways. During a decade in which unemployment rates stayed
above 10 percent and many workers were unable to find jobs that offered 40 hours
of work per week, work hours and access to work relief were highly valued.
Residents of metropolitan areas that experienced high in-migration during the
Depression decade worked fewer weeks during the year and thus experienced a
significant drop in their annual earnings. Although the probability of obtaining
a regular job was not reduced, those who were out of work faced greater
difficulty in securing a work relief position. Finally, as has been found in the
modern era, greater in-migration stimulated out-migration by longer term
The experiences in the Great Depression help to understand why the
anticipated economic disruption of in-migration causes resident workers to oppose
newcomers to their areas. Workers in cities protested the in-migration of fellow
citizens, arguing that all the newcomers could do was make things worse for the
existing population. Our findings, which are from an historical period when
international immigration fell to a trickle, suggest that localized protests
against in-migration would likely still occur today even if our borders were
completely sealed. What opponents of immigration today often fail to recognize
is that disparities in labor markets across geographic areas causes people to
migrate internally, thus affecting labor market outcomes. While the vehemence of
the protests might be lessened to some degree if the newcomers happened to be
similar in race, ethnicity, and citizenship to the longer-term residents, the
economic impact of the migration would still be felt.
Posted by Mark Thoma on Sunday, July 22, 2007 at 12:15 AM in Economics, Unemployment |
Posted by Mark Thoma on Sunday, July 22, 2007 at 12:06 AM in Links |
Austan Goolsbee, of the University of Chicago Graduate School of Business and
an adviser to the campaign of Senator Barack Obama, on why people buy sports
A Billion Bucks for the Cubs? It’s Only Money, by Austan Goolsbee, Economic
View, NY Times: What makes a man so desperate to own a sports team that he
would be willing to pay a billion dollars for it? ... Answering why people buy
teams turns out to be important to more than just sports fans. There is big
money at stake.
After owners indulge their childhood fantasy of buying a team, they tend to
switch to an adult perspective and start viewing the team as a business. And
they typically conclude that it’s a bad business.
Consider the Seattle SuperSonics basketball franchise. The Starbucks mogul
Howard Schultz sold the team to an Oklahoma businessman, Clayton Bennett, last
year. Evidently, the Sonics lost about $60 million in the five years that Mr.
Schultz owned the team. Mr. Bennett now wants a big subsidy from the city of
Seattle to build a new arena, or else he may move the team to Oklahoma City.
Other team owners use large losses to force tough salary caps and other
restrictions on the pay of the athletes during labor negotiations. If teams
can’t make money, they reason, the business can’t survive.
But if this is such a bad business, we are back to the same questions: Why do
these guys line up to buy the teams? Should we really care that it’s a bad
business? If a billionaire throws a lavish 60th birthday party, it costs a lot
of money. But that doesn’t make it a bad business. It’s a party. It’s not
supposed to make money. Is a sports team really that different?
Owners’ complaints about losses leave out the basic fact that capital gains
are profits, too. And when scores of grown men desperately want to buy sports
teams, there tend to be big capital gains.
Take the Sonics. The team may have lost $60 million while Mr. Schultz owned
it. But he bought it for $200 million in 2001 and sold it for $350 million five
years later. So he ended up making something like $90 million (taxed at the
favorable capital gains tax rate, no less) on top of the fame, prestige and free
tickets he got while he was owner.
If the Cubs ... sell for $1 billion, Tribune will have earned an annual
return of almost 15 percent since it bought the team for around $20 million in
1981. Given the company’s recent problems, it’s probably the best investment it
So owning a sports team gives budding billionaires local stardom and a big
return — no wonder that they are lining up to buy these teams. The only question
that remains, I suppose, is why the vanity value of teams keeps climbing. You
might have thought that this value would be about the same whenever there’s a
sale, so that the capital gain wouldn’t be such a big component. But because
ever-richer guys are bidding against one another, there has been persistent
inflation in team values. ...
Posted by Mark Thoma on Saturday, July 21, 2007 at 06:57 PM in Economics, Politics |
Kartik B. Athreya of the Richmond Fed defends the use of theory to evaluate data, and to guage past and future policy decisions [link to Lucas critique added].
In Praise of Theory, by Kartik B. Athreya, Opinion, Richmond Fed: Here is an
interesting story: The pace of personal bankruptcies rose quickly during the
1990s, even as the overall economy fared well. What might we conclude from these
facts? One possibility is that improvements in financial intermediation have
made credit-granting decisions easier and have led to greater borrowing by risky
groups previously denied credit. Another is that nothing has changed in the
lending industry, yet households anticipated rapid future income growth. This
led them to borrow, but for those whose income failed to grow as expected,
default proved useful, leading overall bankruptcy rates to rise. Still another
explanation is that neither lender behavior nor income expectations have
changed, but instead that there is no longer any “shame” in defaulting on debts.
Each of these explanations may partially account for the facts, and some may
fail altogether. But interpreting historical behavior and predicting future
patterns first requires a theory about how consumers make financial decisions.
What are people considering when they choose how much to spend, how much to
borrow, and how much to save? By themselves, the data tell us little.
Modern economics develops theories in the form of mathematical models of
household and firm decision-making in which their collective behavior is
required to be consistent with the feasibility requirements imposed by the
model. This is known as an “equilibrium” approach. Equilibrium analysis may be
clearly contrasted with an alternative still prevalent in consumer finance, one
that places far less emphasis on modeling explicit decision-making. The latter
approach instead relies on summarizing observed features of the data, usually
using regression analysis, and treating the correlations as being informative
for the effects of policy.
Why should we not simply stare at data, perform a purely statistical
analysis, and hope to learn from the results?
Continue reading ""In Praise of Theory"" »
Posted by Mark Thoma on Saturday, July 21, 2007 at 12:33 PM in Economics, Monetary Policy, Policy |
This is from Joan Robinson. It's about using economics as an ideological defense of wealth. Keep in mind as you read this that it was written
in 1936, not today.
A lot of the discussion is about tax cuts, and I was amused at the end where she says that
even though her opponent wasn't clever enough to think of it, to be fair, there is a way a
tax cut can affect employment. She then goes on to foreshadow
supply-side arguments, then dismisses them as unlikely to have much of an impact
in alleviating short-run economic difficulties.
The introduction to this section of the book where this essay appears (the fourth volume of Collected Economic Papers by Joan Robinson) says that "Keynes read the drafts and I cut out anything that I could not persuade him was correct..." And, though it doesn't relate to the essay that follows, given the charges that the traditional Keynesian model ignores inflation, this is an interesting statement (it is in reference to an essay called "Full Employment" in the same section), "It is certainly absurd to suppose [Keynes] was not aware of the prospect of inflation setting in when near-full employment is maintained for a run of years." Here's her essay, "An Economist's Sermon":
An Economist's Sermon: Economics is the Dope of the Religious
People, by Joan Robinson, 1936: Consider the case of a man to-day who has an
honest intelligence, a strong social conscience and an independent income.
His intelligence tells him that he has no particular right to enjoy a
privileged position. 'Right' is a vague phrase. A doctor has in a sense a right
to a motor-car because it makes him do his work better than he could without it.
And if he uses it to visit his friends as well as his patients, no harm is done
to anyone. But our man is too honest to try to persuade himself that his own
comfort really makes very much difference to the amount of benefit that he does
to other people. His conscience tells him that he would be doing a good act if
he endowed a hospital with his wealth and worked for his living. But his
independent income is not easy to give up.
He cannot keep all three - integrity of mind, a quiet conscience, and the
privileges of wealth. One must be sacrificed. If he is a saint he sacrifices the
wealth - but we will suppose that he is not. If he is a man of no definite
religious creed he can keep his mental honesty and his income by sacrificing his
conscience. He can say "I am a selfish individual. I don't pretend to have any
better right than anyone else to a comfortable life, but I propose to enjoy it
if I can."
But if he belongs to a definite religion this line of escape is impossible
for him. Conscience is more precious than anything else. Without its approval he
can have no peace. He will have to sacrifice his honesty of mind instead, and
make up arguments to show that it is right for him to be better off than the
majority of his neighbours.
Now, it is here that the economist is a godsend to him. The economist is a
self-appointed expert. It is his business to know about these things. A man may
have an honest and independent mind and yet take on trust the opinion of experts
on a subject that he has not time to master for himself. If the economist tells
him it is all right, then he can keep his integrity, his income and his
conscience all intact.
One of the main effects (I will not say purposes) of orthodox traditional
economics was to fill this want. It was a plan for explaining to the privileged
class that their position was morally right and was necessary for the welfare of
society. Even the poor were better off under the existing system than they would
be under any other. There is a significant passage in the reminiscences of
Alfred Marshall. As a young man, a mathematician and philosopher, before he
had embarked upon economics, he began to be troubled by social conscience:
Continue reading ""Economics is the Dope of the Religious People"" »
Posted by Mark Thoma on Saturday, July 21, 2007 at 12:15 AM in Economics, Taxes |
Posted by Mark Thoma on Saturday, July 21, 2007 at 12:06 AM in Links |