November 19, 1863

Four score and seven years ago our fathers brought forth on this continent, a new nation, conceived in Liberty, and dedicated to the proposition that all men are created equal.

Now we are engaged in a great civil war, testing whether that nation, or any nation so conceived and so dedicated, can long endure. We are met on a great battle-field of that war. We have come to dedicate a portion of that field, as a final resting place for those who here gave their lives that that nation might live. It is altogether fitting and proper that we should do this.

But, in a larger sense, we can not dedicate -- we can not consecrate -- we can not hallow -- this ground. The brave men, living and dead, who struggled here, have consecrated it, far above our poor power to add or detract. The world will little note, nor long remember what we say here, but it can never forget what they did here. It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us -- that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion -- that we here highly resolve that these dead shall not have died in vain -- that this nation, under God, shall have a new birth of freedom -- and that government of the people, by the people, for the people, shall not perish from the earth.

Fiscal Gridlock

An odd column from Clive Crook, who doesn't appear to understand how the American system of government works. He appears to think that Harry Reid and Nancy Pelosi now control the U.S. government--as if George W. Bush does not have a veto, and as if his digging-in-of-his-heels doesn't create fiscal gridlock for the next two years. Crook's close: "Are the Democrats more willing to confront [fiscal imbalances] than the repudiated, fiscally incontinent Republicans?" is the wrong question to ask. Without the active cooperation of 16 Republican senators and 60 Republican representatives, even a completely unified Democratic Party could not do anything to restore sanity to fiscal policy--and we don't have those 16 or those 60.

Dealing with fiscal policy will have to wait until 2009, unless we have the good fortune to see Bush and Cheney resign before then.

Still, it is good to hear Clive Crook say what he thinks about Republicans:

scored dismally low marks on trade policy... caving to protectionist interests... president's standing is so low... if he were to reverse himself now and try to support [free] trade, he might actually set the cause back... Democrats point out how much better the Clinton administration's record of fiscal management was, and they are right... [Republican] theory offended against economic principles, common sense, and the available facts... repudiated, fiscally incontinent Republicans...

Here's a good chunk of the column:

WEALTH OF NATIONS: A Fiscal Challenge For The New Congress (11/17/2006): By Clive Crook, National Journal: A couple of things do seem clear, however. The new intake of Democrats appears to be depressingly well stocked with "fair-traders."... The prospect of a successful Doha Round of global trade talks is therefore even more distant than it was before November 7.

This is a great pity for the United States, and a really serious setback for the developing countries.... [B]uilding a coalition of support for open international markets is a great political challenge. The truth is, this administration has never so much as tried. It has scored dismally low marks on trade policy, frequently caving to protectionist interests on demand. The president's standing is so low that if he were to reverse himself now and try to support liberal trade, he might actually set the cause back even more. In all, the outlook for open markets has rarely seemed so bleak....

The main economic issue, though, is fiscal policy. Economists will remember this administration as the pre-eminent champion of big-government conservatism. In the past six years, the president has not vetoed a single spending measure. Public expenditures have exploded on his watch, and taxes have been cut as well. The result is a budget deficit that is huge... the demographics are unfavorable and getting worse: The deficit is going to grow.

Democrats point out how much better the Clinton administration's record of fiscal management was, and they are right. But what do they intend to do about the current mess?... [S]pending restraint will have to play a big part in any serious effort to curb the deficit. The new Democratic Congress will likely have lots of ideas for spending more, but so far it does not appear to have many ideas about how to spend less.... Democrats have objected far more loudly to the particular form of the administration's tax cuts than to tax cuts in their own right. Much of the benefit of the administration's tax changes has gone to the rich, they rightly point out....

The Democrats do advocate a return to pay-as-you-go budget rules, which require spending increases and tax cuts to be offset by compensating changes elsewhere. Fine. But... those rules can only slow the fiscal balance's deterioration, at best preventing things from getting worse....

[O]ne or two Republicans are still willing to argue that the way to curb big government -- which they keep saying they deplore -- is to "starve the beast." Cut taxes, let the deficit soar, and use that to enforce discipline on public spending. From the beginning this theory offended against economic principles, common sense, and the available facts. By now, nobody can deny that the experiment was given a fair run. Taxes have been cut, and spending has soared without restraint. What a surprise. Why should tax cuts starve the government when it has access to credit that, in the short term at least, is effectively unlimited?

The biggest economic challenge confronting America's new Congress... restoring the long-term balance between taxes and spending. Sooner or later, at the government's initiative or when financial markets abruptly insist on it, that task must be undertaken. The details will matter very much, and the parties can legitimately disagree about those. But solving the problem is going to require some combination of higher taxes and lower public spending. The election yielded a shift of control in Congress, but no new thinking on this crucial issue. Are the Democrats any more willing to confront this question than the repudiated, fiscally incontinent Republicans? It doesn't look like it.

Are You *Sure* I Belong in This Demographic?

This is definitely not my great-uncles' Financial Times.

Today's weekend FT comes with a large glossy 11" x 14" magazine-like object: Financial Times Christmas Unwrapped: How to Spend It Special Christmas Edition, containing prose like:

Chartering a jet for shopping in Paris or Milan or even New York is not as extravagant as you think, says Avril Groom: As recently as the turn of the millennium, the idea of taking a private plane to go shopping seemed nothing more than an outrageous indulgence of the super-rich.... Now such a trip would barely raise an eyebrow among the well-heeled and busy....

[...]

A long weekend in New York on Skyjet's Challenger, which takes 12 passengers, is about £7,000 per head which, given savings on shopping in the United States, the weak dollar, and the approximately £4,000 cost of a scheduled first-class flight, starts to look feasible to a big spender...

I often say that to understand the ads in the New York Times magazine you have to understand that they are aimed not at the average reader but at the average free cash consumption dollar of readers. But this is much more so:

Financial Times - Wikipedia, the free encyclopedia: How To Spend It magazine is a monthly magazine that usually gets published with the Financial Times Weekend Edition. The glossy large magazine has won the hearts of many Weekend Edition subscribers, with its high detail on the latest in the glitz and glamour of the high-life. Its articles mostly concern high quality products: yachts, mansions, apartments, designs, horlogerie, haute couture, automobiles, fashion advice and columns by important indivduals in the arts in gardening, food, the hotel business, and travel industries. It regularly themes its issues, such as "Travelling Unravelled", "A Passion for Fashion", "Superior Interiors", and its annual "Christmas Unwrapped". How To Spend It has won numerous prizes for being the best newspaper supplement of the year...

The Priority of Budget Balance...

Daniel Gross is puzzled:

Daniel Gross: November 12, 2006 - November 18, 2006 Archives: ALAN MURRAY ON DRUGS: In the Wall Street Journal today, Alan Murray writes a strange column. He acknowledges that the drug industry, abetted by Republicans in Congress, corruptly influenced the Medicare prescription drug bill in favor of Big Pharma.

The most conspicuous example of overreach was a line inserted in the Medicare Modernization Act of 2003 that prohibited the U.S. government from negotiating prices directly with drug companies. That prohibition was unnecessary; the law created a structure in which private insurers and health plans did the negotiating on the government's behalf.

But someone allied with the drug industry -- it's still a little unclear who -- insisted on making the implicit explicit, and in the process, created a campaign issue for Democrats.

But he doesn't think anything should be done about it.

As a result, the industry's big bet has now gone bad. Allowing the government to negotiate prices directly with drug companies has become Democratic dogma. And a few moderate Republicans are toeing the line as well.

That doesn't make it a good idea.

Truth is, drug companies can't really "negotiate" with the government, any more than a backwoods hiker can negotiate with a 900-pound grizzly bear.

With a market share of about 46%, the government would set drug prices, not negotiate them, and then establish "formularies" telling seniors which drugs they could use and which ones they couldn't. Would that make seniors feel better off? I doubt it.

For someone who frets a lot about the deficit, and about the need to cut entitlement benefits, this is a very strange argument indeed.

CBS's Dick Meyer Is a Journamalistic Skank

Dick Meyer, editorial director of CBS News, says that for twelve years he has been covering for the Republican leaders of the House of Representatives because informing his readers what is going on is "not something we [reporters] are supposed to do." He "apologizes":

Good Riddance To The Gingrichites, CBS' Meyer: GOP 'Chess Club' Ruled The House For 12 Years And Won't Be Missed - CBS News: This commentary was written by CBSNews.com's Dick Meyer:

This is a story I should have written 12 years ago when the "Contract with America" Republicans captured the House in 1994. I apologize.

Really, it's just a simple thesis: The men who ran the Republican Party in the House of Representatives for the past 12 years were a group of weirdos. Together, they comprised one of the oddest legislative power cliques in our history. And for 12 years, the media didn't call a duck a duck, because that's not something we're supposed to do.

I'm not talking about the policies of the Contract for America crowd, but the character. I'm confident that 99 percent of the population -- if they could see these politicians up close, if they watched their speeches and looked at their biographies -- would agree, no matter what their politics or predilections. I'm confident that if historians ever spend the time on it, they'll confirm my thesis. Same with forensic psychiatrists. I have discussed this with scores of politicians, staffers, consultants and reporters since 1994 and have found few dissenters....

The iconic figures of this era were Newt Gingrich, Richard Armey and Tom Delay. They were zealous advocates of free markets, low taxes and the pursuit of wealth; they were hawks and often bellicose; they were brutal critics of big government. Yet none of these guys had success in capitalism. None made any real money before coming to Congress. None of them spent a day in uniform. And they all spent the bulk of their adult careers getting paychecks from the big government they claimed to despise. Two resigned in disgrace. Having these guys in charge of a radical conservative agenda was like, well, putting Mark Foley in charge of the Missing and Exploited Children Caucus. Indeed, Foley was elected in the Class of '94 and is not an inappropriate symbol of their regime.

More than the others, Newton Leroy Gingrich lived out a very special hypocrisy. In addition to the above biographical dissonance, Gingrich was one of the most sharp-tongued, articulate and persuasive attack dogs in modern politics. His favorite target was the supposed immorality and corruption of the Democratic Party. With soaring rhetoric, he condemned his opponents as anti-American and dangerous to our country's family values -- "grotesque" was a favorite word.

Yet this was a man who was divorced twice -- the first time when his wife was hospitalized for cancer treatment, the second time after an affair was revealed. Gingrich made his bones in the party by relentlessly attacking Democratic corruption, yet he was hounded from office because of a series of serious ethics questions. He posed as a reformer of the House, yet championed a series of deforms that made the legislative process more closed, more conducive to hiding special interest favors and less a forum for genuine debate. And he did it all with epic sanctimony...

Dick Meyer is the editorial director of CBSNews.com, based in Washington.

Words fail me. Words fail us all.

Comment on Christina Wang (2006), "Financial Innovations, Idiosyncratic Risk, and the Joint Evolution of Real and Financial Volatilities"

Financial Innovations and the Real Economy: A Conference Sponsored by the Center for the Study of Innovation and Productivity. November 16 & 17, 2006 Federal Reserve Bank of San Francisco.

Thursday 1:00 PM Introduction Janet Yellen 1:10 PM "The Transition to a High-Debt Economy" Campbell Hercowitz Discussants: Hurst Rogerson 2:25 PM "The Evolution of Income Volatility and Spending Responses at the Household Level" Dynan Elmendorf Sichel Discussants: Carroll Willen 4:10 PM "Good Behavior and Market Rewards: An Experiment in Understanding the Rules of a Credit Bureau" McIntosh Discussants: Boucher Mian Friday 9:00 AM "The Effects of the Structured Credit Markets on the Cost and Availability of Corporate Debt" Ashcraft Santos Discussants: Gilchrist Parlour 10:45 AM "Financial Innovation, Macroeconomic Stability and Systemic Crises" Gai Kapadia Millard Perez Discussants: Krishnamurthy Nelson 1:00 PM "Financial Innovations and Macroeconomic Volatility" Jermann Quadrini Discussants: Denhaan Primiceri 2:45 PM "Information Technology, Bank Deregulation, and the Joint Evolution of Borrower and Bank Volatility" Wang Discussants: DeLong Rosen

J. Christina Wang (2006), "Financial Innovations, Idiosyncratic Risk, and the Joint Evolution of Real and Financial Volatilities" (Boston: Federal Reserve Bank of Boston Research Department: November)

Abstract: This paper presents a model in which financial innovations explain three widely discussed stylized facts regarding trends in economic volatility over the past two decades. Aggregate volatility of real variables such as output has fallen. In particular, the covariance between firm and industry activities has declined, and so has employment volatility for the majority of firms. In contrast, the volatility of quantities of financial variables has increased at both the firm and aggregate level.

The model links these outcomes to a single hypothesized cause: advances in financial technology brought about by a declining cost of information processing. As a result, the marginal cost of external funds has likely declined, reducing the need for firms to smooth cash flows. Firms, trading off cash-flow vs. production smoothing, therefore have more incentive to smooth production. This explains why financial volatility may go up as real volatility goes down. Moreover, financial innovations have likely also altered the composition of volatility toward a greater share of idiosyncratic risk, by facilitating diversification and thus lowering the premium demanded on idiosyncratic risk.

At the margin, the cost advantage to projects with idiosyncratic returns reduces the covariance of financial as well as real activities across firms. Since variance and covariance of real quantities trend in the same direction, real aggregate volatility declines. But the net effect on financial variables is ambiguous and so can yield greater aggregate volatility. The paper then presents evidence that the share of idiosyncratic risk has risen in bank portfolios, indicating that the same has occurred for individual borrowers as well.

Comment on J. Christina Wang (2006), "Financial Innovations, Idiosyncratic Risk, and the Joint Evolution of Real and Financial Volatilities"

At night in the suburbs of San Francisco, some of us awake as the hills echo and re-echo with the howls of the coyotes that have fed well on Glenn Rudebusch's chickens. We then lie awake, worrying. We worry why the Great Moderation in the U.S. business cycle on the real side that we have seen since the mid-1980s has not carried a big reduction in financial-side variability with it. We toss and turn, worrying that the real-side volatility decline has been part good transitory luck and part statistical illusion, all because people in financial markets putting their money where their mouths were do not project the continuation of the Great Moderation into the future.

Christina Wang's paper lets us sleep more easily, even if the coyotes continue to prey upon the chickens of Federal Reserve Bank Vice Presidents. It teaches us an important and valuable lesson: a financial system that is doing a better job will be highly likely to have both higher financial and lower real volatility.

When a firm goes bankrupt and defaults on its debt, it may be because it has had bad luck, it may be because it was badly managed, or it may be because it suffered from moral hazard--took account of the fact that in the lower tail the losses are eaten not by the firm but by the bank that loaned it the money. Banks that have a hard time distinguishing between these possibilities will be averse to lending--charge a high interest rate premium on loans--to firms seen as having a high degree of undifferentiated idiosyncratic risk. Improvements in data collection and analysis that allow firms to differentiate will cause banks to fear undifferentiated firm-level idiosyncratic risk less, and charge lower interest rate premiums for such lending. Other things being equal, firms will smooth production more, and smooth cash-borrowing requirements less, seeking to squeeze out more productive efficiencies by taking on more financial risk. To the extent that improvements in data collection and analysis reduce banks' fixed costs of monitoring loans, other things being equal banks will do more to diversify away firm-level idiosyncratic risk.

When a bank goes bankrupt and defaults on its debt, it may be because it has had bad luck, it may be because it was badly managed, or it may be because it suffered from moral hazard--took account of the fact that in the lower tail the losses are eaten not by the banks' shareholders but by those who hold or guarantee its liabilities. Improvements in data collection and analysis by those to whom banks owe their liabilities will allow them to better classify banks, and so the cost to banks of portfolios with bank-level idiosyncratic risk will fall. Other things being equal, banks will be willing to take on more bank-level idiosyncratic risk.

Of course this function that Christina Wang identifies is the primary job--one of the primary jobs--of financial markets: to diversify away idiosyncratic risk, as was ably explicated by that notable predecessor of Lintner and Markowitz, William Shakespeare. As Shakespeare writes, Antonio, the Merchant of Venice, does not fear that the lower tail of his portfolio return distribution extends far enough down to the state in which his heart is cut out with a knife. Antonio he has a properly-diversified portfolio. The banker lending him the money uses the highest information technology of that day: wandering down to Venice's Grand Canal, loitering on the High Bridge, and gossiping. The banker concludes that Antonio has:

an argosy bound to Tripolis, another to the Indies; I understand moreover, upon the Rialto, he hath a third at Mexico, a fourth for England, and other ventures...

Here the analogy breaks down. Negative transitory systematic news does indeed provoke a crisis in Antonio's affairs, but he is rescued not by a competent, technocratic lender of last resort but by his bride disguised as a teenage judge.

Christina Wang hopes that starting sometime in the mid-1980s we took a jump toward the ideal financial world in which one of CAPM's cousins holds, in which idiosyncratic risk is not priced because it is properly diversified away, and in which as a result the real economy can grab for all the production-smoothing efficiency benefits without worrying about firm- or bank-level costs of default or illiquidity. This shift could drive a reduction in real-side volatility coupled with an increase or no change in financial-side volatility.

She has a nice theoretical costly-state-verification model of the effects of improved data collection and analysis technologies. She has a very interesting theoretical Dixit-Stiglitz-based three-period model of the joint determination of real and financial volatility. The key insight is a very good one: that production-smoothing has not just manufacturing-side and labor-side efficiency benefits but financial-side efficiency costs: only if banks are confident in their ability to monitor firms and large depositors confident in their ability to monitor banks will firms be able to easily and cheaply borrow the money they need in recession to enable a production-smoothing corporate strategy. The fact that times of recession are times when a firm's free cash is likely to be uniquely valuable and not to be best invested in building up inventories is a potentially powerful explanation of why we have, historically, seen the reverse of production-smoothing in the American economy. She has interesting empirical results that suggest that banks and firms have reacted to a likely information-driven fall in the cost of idiosyncratic financial risk to take on more of it. The theory is sound and convincing. The micro empirics are interesting and suggestive.

But how much can this channel add up to on the macro level? How, exactly, does ICT help bankers? Working for the original J.P. Morgan, Charlie Coster was on the boards of 88 railroads at the turn of the last century and died of overwork--Morgan is reputed to have recruited Coster's successor while they were together carrying Coster's coffin to its grave. What would today's ICT have done to increase Coster's contribution to Morgan's bottom line, exactly?

And how much of the Great Moderation in real-side economic volatility can this channel account for? Recall the size of the Great Moderation: a 40% fall in the standard deviation of the cyclical component of GDP, more or less the same however you choose to measure it. A fall in spite of the fact that technology and cost shocks have in all likelihood been quantitatively greater in the past ten years than in any other post-WWII decade save possibly the 1970s.

As Christina Wang says, her paper as written can't do the job. It can only do about a third of the job--although Doug Elmendorf said half last hour. The model as extended quite possibly could.

In this literature, the game that is being hunted is the positive correlation between production and inventory investment that we saw in the past. In a standard production-smoothing model inventory investment should be relatively high when production is relatively low, and sales are very low. Instead--back before 1985--inventory investment was high when production was high. This shift could be possibly traced to Christina Wang's mechanisms. But it can account, in my back-of-the-envelope guess, for not a 40% but a 15% decline in the standard deviation of the cyclical component, whatever that is.

The big game for this model--as Chistina Wang says in her conclusion--will, I think, come from applications of models like this to the household sector. It's not just firms that have benefitted from the application of information technology to credit screening. I have gotten three offers of VISA cards and two offers of what were described as "guaranteed low interest" home-equity loans so far this week. Plus the people behind the counter at my most local Starbucks have started asking me if I'm interested in a no-annual-fee Starbucks VISA that will come with $25 of free caffeinated drinks. I don't know whether they are doing this to everybody or whether there is something special in my file. The smoothing-out of household durables purchases will, I think, be an important part of the Great Moderation when we finally nail it down. And I think that's where the high returns from Christina Wang's model will come. Last, the smoothing out of residential construction--if it indeed stays smoothed-out--may well turn out to be the heart of the matter. One branch of the conventional wisdom is that the smoothing-out of residential construction is a result of good luck that is about to end: that America's banks have been offered too much rice wine by the People's Bank of China, and have responded by lending like drunken bankers:$600,000 zero-down floating-rate loans to single-earner middle-class families buying three-bedroom houses in Vallejo, CA: and we will be sorry.

Christina Wang's paper suggests a second possible explanation. That recent residential investment financed by so-called "non standard" mortgage loans is a result at least in part not of the inebriation of the banking sector but of the ability to more finely calculate risk and return than was possible in the days when your mortgage had to be 30-year-fixed, 20% down, with amortization plus real estate taxes amounting to no more than 33% of last year's household income. That was an inadequate screen. What, really, are the current screens? How good are they? The application of models like this to residential financing may be the real big game here.

New Home-Building Activity Falls to Lowest Level in 6 Years: Another Point for Nouriel Roubini and the Pessimists

Gulp:

New Home-Building Activity Falls to Lowest Level in 6 Years - WSJ.com: By JEFF BATER. November 17, 2006 11:52 a.m.: WASHINGTON -- New home-building activity in the U.S. resumed its decline in October, tumbling to its lowest level in six years as builders dealt with bloated inventories of unsold property. Housing starts decreased by 14.6% to a seasonally adjusted 1.486 million annual rate, the Commerce Department said Friday. Building permits, an indicator of future building activity, fell a ninth consecutive time....

The government also lowered its original estimate for September starts, a number some economists considered a fluke. Construction rose 4.9% to 1.740 million in September, revised from an originally reported 5.9% climb to 1.772 million. Starts fell 5.7% in August, 4% during July, and 6.1% in June. Construction rose 6.6% in May. Economists had expected a less-severe drop in October. The median estimate of 22 economists surveyed by Dow Jones Newswires was a 5.6% fall to a 1.672 million annual rate. The 14.6% decline was the largest since 16.1% in March 2005, and it carried starts to their lowest since 1.463 million in July 2000....

In a sign that starts will likely continue to fall, October building permits dropped 6.3% to an annual rate of 1.535 million; the last month permits rose was January. Economists expected permits would be up by 0.1% to 1.640 million. Permits decreased a revised 5.2% last month to 1.638 million, compared with an earlier estimated 6.3% drop to 1.619 million....

The housing weakness trimmed a full percentage point off economic growth in the July-September quarter, when the economy expanded at a tepid 1.6% rate...

Write to Jeff Bater at mailtoLjeff.bater@dowjones.com

We Are Live at Salon, with an Obituary for Milton Friedman

J. Bradford DeLong (2006), "A Man Who Hated Government," Salon (November 16, 2006) http://www.salon.com/news/feature/2006/11/17/milton_friedman/

Also see:

Sam Brittan at the Financial Times: Salon (November 16, 2006) http://www.salon.com/news/feature/2006/11/17/milton_friedman/
Greg Ip at the Wall Street Journal: http://online.wsj.com/article/SB116369744597625238.html?mod=hps_us_at_glance_most_pop
Steven Pearlstein at the Washington Post: http://www.washingtonpost.com/wp-dyn/content/article/2006/11/16/AR2006111601779_pf.html

J. Bradford DeLong (2006), "A Man Who Hated Government," Salon (November 16, 2006) http://www.salon.com/news/feature/2006/11/17/milton_friedman/

"Lord, enlighten thou our enemies," prayed nineteenth-century British economist and moral philosopher John Stuart Mill in his Essay on Coleridge http://olldownload.libertyfund.org/Texts/MillJS0172/Works/Vol10/PDFs/Mill_1277.pdf. "Sharpen their wits, give acuteness to their perceptions, and consecutiveness and clearness to their reasoning powers: we are in danger from their folly, not from their wisdom; their weakness is what fills us with apprehension, not their strength."

For every left-of-center American economist in the second half of the twentieth century, Milton Friedman (1912-2006) was the incarnate answer to John Stuart Mill's prayer. His wits were smart, his perceptions acute, his arguments strong, his reasoning powers clear, coherent, and terrifyingly quick. You tangled with him at your peril. And you left not necessarily convinced, but well aware of the weak points in your own argument.

General William Westmoreland, testifying before President Nixon's Commission on an All-Volunteer [Military] Force, denounced the idea, saying that he did not want to command an army of mercenaries. Milton Friedman interrupted him: "General, would you rather command an army of slaves?" Westmoreland got angry: "I don't like to hear our patriotic draftees referred to as slaves." And Friedman got rolling: "I don't like to hear our patriotic volunteers referred to as mercenaries. If they are mercenaries, then I, sir, am a mercenary professor, and you, sir, are a mercenary general." And he did not stop: "We are served by mercenary physicians, we use a mercenary lawyer, and we get our meat from a mercenary butcher" http://www.davidrhenderson.com/articles/0199_thankyou.html. As George Shultz likes to say: "Everybody loves to argue with Milton, particularly when he isn't there."

Thinking as hard as he could until he got to the root of the issues was his most powerful skill. "Even at 94," Chicago economist and Freakonomics http://www.amazon.com/exec/obidos/ASIN/006073132x/ author Steve Levitt wrote on his website yesterday, "he would teach me something about economics whenever we talked" http://www.freakonomics.com/blog/2006/11/16/sad-news-milton-friedman-has-died/. In this morning's New York Times http://www.nytimes.com/2006/11/17/business/17milton.html?ex=1321419600&en=a0db578046e72e19&ei=5088&partner=rssnyt&emc=rss, Chicago economist Austen Goolsbee quotes from Milton Friedman's Nobel autobiography:

Friedman said that when he arrived [at the University of Chicago] in the 1930s, he encountered a "vibrant intellectual atmosphere of a kind that I had never dreamed existed."

"I have never recovered."

His world-view began with a bedrock faith in people, in their ability to make judgments for themselves, and thus an imperative to maximize individual freedom. On top of that was layered a deep faith and conviction that free markets were almost always the best and most magical way of coordinating every conceivable task. On top of that was layered a powerful conviction that a look at the empirical facts--a marking-to-market of your beliefs to reality--would generate the right conclusions. And on top of that was layered a fear and suspicion of government as an easily-captured tool for the enrichment of cynical and selfish interests that sought to grab whatever they could. Suffusing all was a faith in the power of argument and the utility of reason. He was an optimist: people could be taught the truths of economics, and if they were properly taught then institutions could be built to protect all against the corruption and overreach of the government.

And he did fear the government. He hated government's and society's sticking their nose into people's private business. And he interpreted "people's private business" extremely widely. He hated the War on Drugs, which he saw as a cruel and destructive breeder of crime and violence. He scorned government licensing of professions--especially doctors, who heard over and over again about how their incomes were boosted by restrictions on the number of doctors that made Americans sicker. He feared deficit spending: cynical politicians could pretend that the costs of government were less than they were by pushing the raising of taxes to pay for spending off into the future. He sought to innoculate citizens against such political games of three-card-monte: "Remember," he would say, "to spend is to tax."

This did not mean that government had no role to play. Enforcement of property rights, adjudication of contract disputes--the standard powerful rule-of-law underpinnings of the market--plus a host of other government interventions when empirical circumstances made them appropriate: Mayor Ken Livingstone's congestion tax on cars in central London is Milton Friedman's. Friedman's negative income tax is one of the parents of what is now America's largest anti-poverty program: the Earned Income Tax Credit. And, most important, government had a very powerful and necessary role to play in keeping the monetary system working smoothly through proper control of the money stock. If there was always sufficient liquidity in the economy--enough but not too much--then you could trust the market system to do its job. If not, you got the Great Depression, or hyperinflation.

In his belief that the government was required to undertake relatively narrow but crucially important strategic interventions in order to stabilize the macroeconomy--keep production, employment, and prices on an even keel--Milton Friedman was in the same chapter if not on the same page as John Maynard Keynes, the economic giant of the previous generation whose doctrines and influence Friedman worked tirelessly to supplant and minimize. The Great Depression had convinced Keynes that central bankers alone could not rescue and stabilize the market economy. In Keynes's view, stronger and more drastic strategic interventions were needed to boost or curb demand directly. Friedman and his coauthor Anna J. Schwartz argued in their Monetary History of the United States that this was a misreading of the lessons of the Great Depression, which in Friedman's view was caused by monetary mismanagement or perhaps could have been rapidly alleviated by skillful monetary management alone. Over the course of forty years, Friedman's position carried the day. Federal Reserve Chair Ben Bernanke right now holds Milton Friedman's view, not John Maynard Keynes's, of what kind of strategic interventions in the economy are necessary to provide for maximum production, employment, and purchasing power, and stable prices.

Milton Friedman's thought is, I believe, best seen as the fusion of two strongly American currents: libertarianism and pragmatism. Friedman was a pragmatic libertarian. He believed that--as an empirical matter--giving individuals freedom and letting them coordinate their actions by buying and selling on markets would produce the best results. It was not that he thought this was natural law--that markets always worked best. It was, rather, that he believed that places where markets failed were atypical; that where markets did fail there were almost always enormous profit opportunities from entrepreneurial redesign of institutions; that the market system would create now opportunities for trade that would route around market failures; and that government failure was pervasive--that any expansion of government beyond the classical liberal state would be highly likely to cause more trouble than it could solve.

For right-of-center American libertarian economists, Milton Friedman was a powerful leader. For left-of-center American liberal economists, Milton Friedman was an enlightened adversary. We are all the stronger for his work. We will miss him.

The Segregation Wing of the Republican Party

Joshua Micah Marshall hits the nail on the head:

Talking Points Memo: by Joshua Micah Marshall: November 12, 2006 - November 18, 2006 Archives: Nice to see that the segregation wing of the Republican Party can still muster a majority of votes in the Senate GOP caucus.

Duncan Black provides background:

Eschaton: Those who have been around for a long time remember what fun we had with Trent Lott back in the day. Hard to believe that was 4 years ago. I'm not sure whether the most amusing moment was hearing John Podhoretz say nice things about some blogger named 'Atrios' on NPR or Trent Lott going on BET and expressing his lifelong support for affirmative action. But, anyway, to remind us what that whole thing was about. At Strom Thurmond's birthday party, Lott said:

I want to say this about my state: When Strom Thurmond ran for president, we voted for him. We're proud of it. And if the rest of the country had followed our lead, we wouldn't have had all these problems over all these years, either.

...oops, corrected, that's actually what he said in 2002. What I had up earlier:

You know, if we had elected this man 30 years ago, we wouldn't be in the mess we are today.

Was what he said in 1980.

As does Obsidian Wings:

Obsidian Wings: Keep On Making Those Outreach Efforts, Republicans: Platform of [Strom Thurmond's] States' Rights Democratic Party, 1948:

4: We stand for the segregation of the races and the racial integrity of each race; the constitutional right to choose one's associates; to accept private employment without governmental interference, and to learn one's living in any lawful way. We oppose the elimination of segregation, the repeal of miscegenation statutes, the control of private employment by Federal bureaucrats called for by the misnamed civil rights program. We favor home-rule, local self-government and a minimum interference with individual rights.

5: We oppose and condemn the action of the Democratic Convention in sponsoring a civil rights program calling for the elimination of segregation, social equality by Federal fiatt, regulations of private employment practices, voting, and local law enforcement.

6: We affirm that the effective enforcement of such a program would be utterly destructive of the social, economic and political life of the Southern people, and of other localities in which there may be differences in race, creed or national orgin in appreciable numbers."

Strom Thurmond, 1948:

"There's not enough troops in the Army to force the Southern people to break down segregation and admit the Nigra race into our theaters, into our swimming pools, into our homes, and into our churches."

Strom Thurmond, 1948:

"There are forces at work in this country today which would lead our people down the same pathway to the total state that was traveled by the people of Germany, of Italy, of Russia. Harry Truman, Tom Dewey and Henry Wallace are birds of one feather. All three are kowtowing to minority blocs by advocating the so-called civil-rights program. This time they can not fool the people and especially the Democrats of the South. The Jeffersonian Democrats have spewed out of their mouths that mongrel outfit which captured our party at Philadelphia."

Strom Thurmond, 1948:

Nor was Thurmond any longer the 1948 Dixiecrat who had invited audiences to ponder working for a company or belonging to a union forbidden by law to discriminate against blacks. "Think about the situation which would exist," he said back then, "when the annual office party is held or the union sponsors a dance."

Nor was Thurmond any longer the 1948 Dixiecrat who, when it was revealed that he had invited the governor of the Virgin Islands to visit him without knowing that he was black, hastily explained, "I would not have written him if I knew he was a Negro. Of course, it would have been ridiculous to invite him."

Milton Friedman, R.I.P.

Bad but not entirely unexpected news this morning:

Influential Economist Friedman Dies at 94 - WSJ.com: By GREG IP: Nobel prize winner Milton Friedman, one of the most influential economists of the last century, died today. He was 94.

Mr. Friedman's Chicago School of thought stressed the virtues of unfettered markets. Mr. Friedman, a leading advocate of free markets, championed monetarism, the notion that the inflation can be regulated by the Federal Reserve's control of the money supply. He wrote extensively on the Great Depression and was an advocate of libertarian ideas such as the decriminalization of drugs.

Mr. Friedman died of heart failure after being taken to hospital near his home in San Francisco, his daughter, Janet Martell, said today. His wife Rose Friedman, who co-authored many of his books, survives him.

1912 — Born in New York.

1932-1933 — Receives bachelors degree from Rutgers University, masters degree from the University of Chicago.

1937 — Becomes a member of the research staff of the National Bureau of Economic Research, a post he would maintain until 1981.

1945 — With coauthor Simon Kuznets, publishes "Income From Independent Professional Practice," his doctoral thesis.

1946 — Receives doctorate from Columbia University and is hired to teach at the University of Chicago, where he serves as a professor of economics until 1976. Friedman would come to be seen as the leader of the Chicago School of monetary economics, which stresses the importance of the money supply as an instrument of policy and a determinant of the business cycle.

1951 — Wins the John Bates Clark Medal, which honors top economists under the age of 40.

1956 — "Studies in the Quantity Theory of Money" is published. In it, Friedman argues that increased monetary growth over the long run raises prices but has no effect on output. In the short term, increased money supply boost hiring and output.

1957 — "A Theory of Consumption Function" is published. Considered a landmark study, it tackles the notion, associated with John Maynard Keynes, that consumers adjust their spending to reflect current income, arguing instead that people's annual consumption is a function of what they expect to earn over the course of their lifetime.

1962 — "Capitalism and Freedom" is published. Friedman's key text on free markets, it argues in favor of floating currency exchange rates, an all-volunteer military, a negative income tax and education vouchers.

1963 — "A Monetary History of the United States, 1867-1960", co-authored with Anna J. Schwartz, is published. In a work that would become hugely influential in the field of monetary economics, Friedman and Schwartz used historical narrative and reams of supporting data to argue that steady control of the money supply is crucial in steering the economy. The book famously critiqued the Federal Reserve's performance during the Great Depression and the central bank launched a lengthy internal review of its policy-making after receiving a prepublication draft of the book. The Fed commissioned Elmus R. Wicker to write a rejoinder in hopes of deflecting some of Friedman's arguments.

1964 — Serves informally as an economic adviser to Republican presidential candidate Barry Goldwater. Later, Friedman served as an economic adviser to Richard Nixon's 1968 presidential campaign, and to Ronald Reagan's 1980 campaign.

1967 — Serves as president of the American Economic Association.

1975 — Friedman makes a controversial trip to Chile, along with several other University of Chicago professors, where he meets with dictator Gen. Augusto Pinochet.

1976 —Is awarded the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel in economics for his work in the fields of "consumption analysis, monetary theory and history and for his demonstration of the complexitity of stabilization policy."

1977 — Becomes a senior research fellow at the libertarian Hoover Institution at Stanford University.

1980 — PBS airs the 10-part "Free to Choose," which is made into a bestselling book co-authored with his wife, Rose Friedman. The series and book were a robust defense of the couple's free-market economic beliefs.

1981 — Serves as a member of Reagan's Economic Policy Advisory Board.

1988 — Receives Presidential Medal of Freedom and National Medal of Science.

2002 — President Bush speaks at a ceremony honoring Friedman, celebrating his 90th birthday and recognizing his contributions to the study of economics.

Nov. 16, 2006 — Friedman dies of heart failure at a hospital near his home in San Francisco. He was 94.

There's a story that at lunch at the White House in 2002 he told George W. Bush exactly what he thought about Bush's unpaid-for tax cuts. We will miss him.

James Baker's Iraq Study Group is a Fraud

Matthew Yglesias notes that James Baker's Iraq Study Group is a fraud, intended not to bring Bush back to reality but to provide more support for his fantasies:

Matthew Yglesias / proudly eponymous since 2002: The Commission: Via Jim Henley, a Guardian story shows once again that Democrats can't count on James Baker to solve the Iraq issue: "Mr Bush's refusal to give ground, coming in the teeth of growing calls in the US and Britain for a radical rethink or a swift exit, is having a decisive impact on the policy review being conducted by the Iraq Study Group chaired by Bush family loyalist James Baker, the sources said."

The Commission, in other words, not only won't change Bush's mind, but is changing its own mind to suit Bush's blinkered worldview. The idea that the enforcer sent down to Florida to help finesse the will of the electorate away in 2000 was going to be a big help to the Democratic Party always seemed like something to be skeptical about.

It's worse than that, Matt. The idea that the enforcer sent down to Florida to help finesse the will of the electorate away in 2000 was going to be a big help to the American people and the national interest always seemed like something to be skeptical about. Jim Baker regards his key role as backing up George W. Bush's fantasies rather than bringing him to reality.

More from the Manchester Guardian:

US plans last big push in Iraq | Special reports | Guardian Unlimited: "You've got to remember, whatever the Democrats say, it's Bush still calling the shots. He believes it's a matter of political will. That's what [Henry] Kissinger told him. And he's going to stick with it," a former senior administration official said. "He [Bush] is in a state of denial about Iraq. Nobody else is any more. But he is. But he knows he's got less than a year, maybe six months, to make it work. If it fails, I expect the withdrawal process to begin next fall."

The "last push" strategy is also intended to give Mr Bush and the Republicans "political time and space" to recover from their election drubbing and prepare for the 2008 presidential campaign, the official said. "The Iraq Study Group buys time for the president to have one last go. If the Democrats are smart, they'll play along, and I think they will. But forget about bipartisanship. It's all about who's going to be in best shape to win the White House.

The official added: "Bush has said 'no' to withdrawal, so what else do you have? The Baker report will be a set of ideas, more realistic than in the past, that can be used as political tools. What they're going to say is: lower the goals, forget about the democracy crap, put more resources in, do it."

What else do you have? Well, the Baker Commission could fulfill its mandate and tell the Congress the most important thing that could be done to improve the U.S.'s chances in Iraq, the Middle East, and around the world. If George W. Bush and Richard Cheney were to be removed from office, the situation would look so much brighter.

Here's Jim Henley

Jim Henley: Once More Into the Breach!: The "breach" being the President's ass, his head being what's going in "once more." Per the Guardian:

President George Bush has told senior advisers that the US and its allies must make "a last big push" to win the war in Iraq and that instead of beginning a troop withdrawal next year, he may increase US forces by up to 20,000 soldiers, according to sources familiar with the administration's internal deliberations.

Mr Bush's refusal to give ground, coming in the teeth of growing calls in the US and Britain for a radical rethink or a swift exit, is having a decisive impact on the policy review being conducted by the Iraq Study Group chaired by Bush family loyalist James Baker, the sources said.

Keep in mind that the ISG works for the White House. George Bush is its sole real customer, certainly not any pious abstraction like "the American people." The Repubs on the panel are going to bow.... Theoretically the Dems might not, but you have to consider the official Democratic Party's proven record of cowardice, befuddlement and dithering on the topic of Iraq. I figure at least some committee members will feel duty-bound to sign on to a "bipartisan"report that is, since it%u2019s what the President wants, in truth as partisan as reports get.

"The extent to which that [regional cooperation] will include talking to Iran and Syria is still up for debate," said Patrick Cronin, of the International Institute for Strategic Studies.

Translation: the President, and especially the Vice President, don't want to talk to Iran or Syria. At most they are willing to issue their preexisting and empty ultimata face to face rather than through the media.

Point three focuses on reviving the national reconciliation process between Shia, Sunni and other ethnic and religious parties. According to the sources, creating a credible political framework will be portrayed as crucial in persuading Iraqis and neighbouring countries alike that Iraq can become a fully functional state.

To the certain dismay of US neo-cons, initial post-invasion ideas about imposing fully-fledged western democratic standards will be set aside. And the report is expected to warn that de facto tripartite partition within a loose federal system, as advocated by Democratic senator Joe Biden and others would lead not to peaceful power-sharing but a large-scale humanitarian crisis.

bipartisan plan to install a junta or dictator. Iraq the Model! of covering your domestic ass politically. Which is important, because who wants everyone to see your ass when you've got a great big old head jammed up there?

Now, a field guide: The proposal clearly amounts to nothing more than avoiding the admission of defeat until it's time for the Bush Administration to leave office. No matter what Poppy and the family fixit man privately feel about the wisdom of starting the Iraq War or the idiocy of its prosecution, they will do everything to bail out their ward. He is their priority, not any quaint notion of the national interest. You've got to make the tough choices...

Here is General Abizaid saying that the "one big push" the Bushies are pushing for is simply stupid:

Informed Comment: Abizaid Opposes Withdrawal, Increase in Troop Levels: Here's how I interpret the contretemps Wednesday between Gen. John Abizaid and Republican Senator John McCain. McCain wants to send another division, about 20,000 US troops, to Iraq.

Abizaid told him:

1. that would produce only a temporary improvement since the US doesn't have a spare division to send to Iraq for the long term and
2. Increased US troop levels are counterproductive because they remove the incentive for the Iraqi government and army to get their acts together and fight the guerrillas and militias effectively and
3. If Iraq is going to come back to better days, it will have to be primarily with Iraqi troops and
4. Iraqi troops are not now doing the job, so if more US troops are sent to Iraq it should be as trainers and units available for joint patrols, not as independent combat troops....

[M]ost of Abizaid's arguments could also be deployed for a phased withdrawal, which he opposed.... What if it isn't just an increased US presence that would remove the incentive for Iraqi leaders to compromise and/or fight effectively? What if present troop levels do that? I say, let's take out a division ASAP (20,000 men) and make it clear that we're never putting a division back in to replace it. Then let the Iraqis try to fill the resulting vacuum themselves. Give them armored vehicles, tanks, helicopter gunships, and a nice wood-panelled room where they can negotiate with one another.... Such a phased withdrawal is not guaranteed to succeed. It has a better chance of succeeding than the current policy.

ECON 101B: Fall 2006: Problem Set 8: Short Paper Assignment: Due November 30

Write between 600 and 1000 words on the following topic:

Pick any of the major points--theoretical or empirical or applied--covered in this course. Write how you would explain what you have learned on that point in this course to somebody completely ignorant of economics.

99 Luftballons

What did it do to the German conscience collective to know, for forty years, that both your allies and their adversaries were planning to use your country as the battlefield for a theater thermonuclear war?

Hast Du etwas Zeit für mich
Dann singe ich ein Lied fuer Dich
Von 99 Luftballons
Auf ihrem Weg zum Horizont
Denkst Du vielleicht grad' an mich
Dann singe ich ein Lied fuer Dich
Von 99 Luftballons
Und dass sowas von sowas kommt

99 Luftballons
Auf ihrem Weg zum Horizont
Hielt man fuer UFOs aus dem All
Darum schickte ein General
Eine Fliegerstaffel hinterher
Alarm zu geben, wenn es so war
Dabei war da am Horizont
Nur 99 Luftballons

99 Duesenjaeger
Jeder war ein grosser Krieger
Hielten sich fuer Captain Kirk
Das gab ein grosses Feuerwerk
Die Nachbarn haben nichts gerafft
Und fuehlten sich gleich angemacht
Dabei schoss man am Horizont
Auf 99 Luftballons

99 Kriegsminister
Streichholz und Benzinkanister
Hielten sich fuer schlaue Leute
Witterten schon fette Beute
Riefen: Krieg und wollten Macht
Mann, wer haette das gedacht
Dass es einmal soweit kommt
Wegen 99 Luftballons

99 Jahre Krieg
Liessen keinen Platz fuer Sieger
Kriegsminister gibt es nicht mehr
Und auch keine Duesenflieger
Heute zieh ich meine Runden
Seh die Welt in Truemmern liegen
Hab' nen Luftballon gefunden
Denk' an Dich und lass' ihn fliegen

And how long will it last?

A Nomination for This Year's Stupidest Men Alive Contest

A correspondent nominates William Sjostrum, who trashes the excellent and thoughtful Ian Buruma's Murder in Amsterdam without having read it:

AtlanticBlog: November 2006 Archives: Theodore Dalrymple reviews Ian Buruma's Murder in Amsterdam: The Death of Theo van Gogh and the Limits of Tolerance. I have not yet read Buruma's book, so I cannot comment on its accuracy, but I find it interesting that Dalrymple tempers his praise for the book by criticizing its political correctness...

Econ 210a: Fall 2006: Memo Question for November 22

Memo Question for November 22:

An influential literature cites the scarcity of labor as a key factor in the emergence of the "American System of Production." How much of this argument (if any) survives Peter Temin's 1966 critique?

Hoisted From Comments: "If you'd posted my whole story... it would be apparrent the article addresses your point [in the] 12th & 13th [para]grafs

The intelligent Demian McLean writes in about his story on James Glassman, the story that began:

James Glassman says his seven-year- old prediction that the Dow Jones Industrial Average will rise to 36,000 wasn't wrong, just early. Two years after Glassman and co-author Kevin Hassett published their theory, the Dow average had sunk 29 percent..."

and a few paragraphs later continues:

The Dow has since recovered.... The surge has improved some portfolios and may eventually do the same for the reputations of the authors, who stand by their forecasts...

Demian McLean writes:

[Brad DeLong's Semi-Daily Journal: Fair and Balanced Almost Every Day: James Glassman and Kevin Hassett Rear Their Ugly Heads Yet Again: Dow 36,000' optimists unbowed | Chicago Tribune]http://delong.typepad.com/sdj/2006/10/james -glassman_.html: Pardon the irony, Brad, but you're quoting a journalist out of context. If you'd posted my whole story, instead of editing it with ellipses, it would be apparrent the article addresses your point:

12th & 13th grafs:

With a 2021 deadline, Glassman's prediction of 36,000 would require the Dow to grow by 7.6 percent annually. `When you consider the market has historically doubled every seven to 10 years, that's not really going out on a limb,'' said Barry James, who oversees $1.8 billion as chief investment strategist at James Investment Research Inc. in Xenia, Ohio... The personal attack on me is curious, considering I e-mailed you before the story's publication, hoping to include your voice as a critic. I never heard back. I have to disagree. Half the people who remember anything from a story remember only the headline. Of those who read beyond the headline, they focus on and remember what comes first. Because journalists typically write in "inverted pyramid" style, readers interpret placement of facts and factoids in the lead as a signal that they are the most important things. And what proportion of readers get to paragraph 13 at all? Journalists mislead their readers when they put things that should appear in paragraph 1 in paragraph 13, just as editors mislead their readers when they put things on page A23 that should be on page A1 My view is that Demian McLean simply should not have written the article: it misinforms his readers. After all, with moderate power--the power to put things on the Bloomberg wire--comes the moderate responsibility not to misinform. If he were going to write the article, a much better lead--if he had to write the article at all--a lead that did not misinform--would have been: James Glassman and Kevin Hassett predicted back in 1999 that the Dow would reach 36,000 "very quickly," "perhaps in three to five years." It didn't. Now Glassman is predicting that the Dow will reach 36,000 by 2021. Glassman's prediction of 36,000 would require the Dow to grow by 7.6 percent annually. "When you consider the market has historically doubled every seven to 10 years, that's not really going out on a limb," said Barry James, who oversees$1.8 billion as chief investment strategist at James Investment Research Inc. in Xenia, Ohio...

Spillovers, Local Public Finance, and the Deductibility of State and Local Taxes

Things that make you go "hmmmm...":

Greg Mankiw's Blog: AMT Reform: The Washington Post reports that the new Democratic majority in Congress wants to focus on the Alternative Minimum Tax. The AMT is paid disproportionately by residents of Democratic states because those states tend to have high state and local taxes and the state and local tax deduction is disallowed under the AMT.

This raises the question: Is the state and local tax deduction justifiable in the first place? I think not. Suppose the residents of town A vote for high local taxes to finance, say, a municipal pool. The residents of neighboring town B keep taxes low, allowing people who so choose to join a private pool club. Because of the federal tax deduction, town A gets a federal subsidy at the expense of town B. This is neither equitable (it is violates the principle of horizontal equity) nor efficient (it encourages excessive provision of goods and services by states and localities over the private sector)...

When I took public finance from Richard Musgrave, the canonical examples on this question were somewhat different. They were things like:

1. Suppose Town A votes for high local taxes to finance, say, more law enforcement officers, who arrest criminals making their getaways after committing robberies in Town B...
2. Suppose Town A votes for high local taxes to finance, say, a better library, which inhabitants of Town B can wander into and use...
3. Suppose Town A is discouraged from raising taxes to the level that provides the efficient level of public services because it fears that businesses will migrate across the border to Town B...
4. Suppose Town A votes for high local taxes to finance, say, better schools which teach more things and, with Nash bargaining between workers and employers, raise the productivity and profits of firms in both Town A and Town B...
5. Suppose Town A votes for high local taxes to finance a high-quality emergency room in its public hospital, which treats heart attack patients from Town B...
6. Suppose Town A votes for high local taxes and spends the money on roads, which makes it easier for shoppers from Town C to get to Town B, and so boosts profits of and employment in retail stores in Town B...
7. Suppose Town A votes for high local taxes to finance improvements to its parks, while Town B sells off its public lands in order to temporarily lower its taxes...
8. Suppose Town A votes for high local taxes to provide free flu shots to all its inhabitants, reducing the risk that Town B inhabitants will catch the flu...
9. Suppose Town A votes for high local taxes to buy an extra fire engine and more fire inspectors, thus reducing the risk that Town B will be immolated in a wildfire...
10. Suppose Town A votes for high local taxes to buy and store emergency earthquake supplies that will be of use to Town B residents if the San Andreas lets go in a big way...

Plus there is the curious "the AMT is paid disproportionately by residents of Democratic states." I would have put it differently, and said that the AMT IS paid disproportionately by Republicans, many of whom live in states that usually give their electoral votes to the Democratic candidate.

The Grand Strategy of the Western Alliance

I should write something intelligent, supportive, and enthusiastic about Blake Hounshell's "The Old New World Order."

Assume I have done so [here] and go read his piece:

American Prospect Online - The Old New World Order: A revival of pragmatic liberal internationalism is what the world, and America, need now. By Blake Hounshell. Web Exclusive: 11.03.06

Remember Vietnam? It has been over thirty years since the last Marines made their ignominious helicopter exit from the rooftop of the U.S. Embassy in a Saigon on the verge of collapse. Last week, with barely any Americans noticing, the World Trade Organization (WTO) announced that after nearly twelve years of grueling negotiations and reforms, our former communist enemy had completed the necessary steps to go to the WTO's General Council on November 7 for an up-or-down vote on membership....

What should we think of Vietnam's journey? The country is by nobody's definition a democracy, though its abysmal record on human rights has improved somewhat in recent years. But its rapid growth (second only to China in Asia) has bettered the lives of millions of Vietnamese....

Recently here on TAP Online, Shadi Hamid and Spencer Ackerman debated what should serve as the lodestar of a progressive foreign policy vision. Hamid argued that the United States should make the promotion of democracy the centerpiece of its foreign policy, while Ackerman advocated that human rights take that role. Such questions will very likely become more relevant after Tuesday, if Democrats gain more power in Congress. But neither Hamid nor Ackerman offered the correct answer. As the small example of Vietnam helps to illustrate, the United States ought to be redirecting its energies toward renewing its strength and expanding the postwar liberal world order. Do that, and the rest -- democracy, human rights, liberal reforms -- will eventually follow...

Fleetlord Atvar Pressed His Fingerclaw into the Opening for a Control...

Duncan Black and Matthew Yglesias discuss whether Glenn Reynolds has lost his mind. Duncan writes:

Has Glenn Reynolds lost his mind?

Yes.

This has been another edition of simple answers to simple questions.

Duncan is commenting on:

Matthew Yglesias / proudly eponymous since 2002: What? Rarely is the question asked: Has Glenn Reynolds lost his mind? -- "my speculation that Iran has some method -- nuclear or otherwise -- that has deterred us from taking the kind of action that both Bill Quick and I expected in 2004 is seeming better-founded."

What's the "otherwise" here? Rick Santorum's Venezuelan space terrorists, perhaps? And what "kind of action" did he and master strategist Bill Quick expect?

My guess? That Reynolds fears that the Iranians will unleash the Lizard People who have been hiding out in the Zagros Mountains since they landed fifty years ago.*

*I blame his reading too many Harry Turtledove novels about the invasion of the Lizard People from the stars, like Homeward Bound. Ronald Reagan's watching "The Day the Earth Stood Still" had beneficial consequences for humanity. But I don't think this is working out the same way.

What Reynolds should really be worried about is not some Iranian Lizard-People-"otherwise"but rather naturally-occurring asteroids--as Marginal Revolution reports:

The explanation [of chevron deposits] is obvious to some scientists. A large asteroid or comet, the kind that could kill a quarter of the worlds population, smashed into the Indian Ocean 4,800 years ago, producing a tsunami at least 600 feet high, about 13 times as big as the one that inundated Indonesia nearly two years ago. The wave carried the huge deposits of sediment to land.

Most astronomers doubt that any large comets or asteroids have crashed into the Earth in the last 10,000 years. But the self-described "band of misfits" that make up the two-year-old Holocene Impact Working Group say that astronomers simply have not known how or where to look for evidence of such impacts along the world's shorelines and in the deep ocean.

Scientists in the working group say the evidence for such impacts during the last 10,000 years, known as the Holocene epoch, is strong enough to overturn current estimates of how often the Earth suffers a violent impact on the order of a 10-megaton explosion. Instead of once in 500,000 to one million years, as astronomers now calculate, catastrophic impacts could happen every few thousand years.

Recession? A Point for Nouriel Roubini

Over the Bloomberg wire:

Retail Sales Are Lower, but Beat Expectations - New York Times: Sales fell 0.2 percent after a revised 0.8 percent decline in September, which was twice as large as originally reported, the Commerce Department said yesterday. Purchases excluding gasoline rose 0.4 percent last month.

"This shows consumers are hanging in there but not showing outsized exuberance," said Anthony Chan, chief economist at J. P. Morgan Private Client Services in New York. "It paints a picture of a moderating economy."

Economists expected retail sales to fall 0.4 percent in October, matching the previously reported decline in September.

Sales excluding autos fell 0.4 percent after a 1.2 percent drop. Sales excluding autos were projected to decline 0.2 percent after a previously reported drop of 0.5 percent...

Seasonally adjusted, retail sales in October were 1% lower than in August. Retail sales excluding autos were 1.6% lower in October than they were in August.

This is not very good news.

Resisting the Ideological Hegemony of Neoclassicism

I have fallen victim this semester to the ideological hegemony of neoclassicism, and taught my intermediate macroeconomics course--Econ 101b--with very little attention to issues of income distribution. It has been a grow-and-stabilize-the-GDP course almost exclusively.

Enough students are unhappy about this, however, that it looks like I will be adding a reading course on the distribution of income and wealth in America since 1929 to my spring teaching load.

Suggestions for things that we should read? Goldin and Margo, Katz and Murphy, Card and Lemieux, Saez, Gosselin-Moffitt-Gottschalk-Hacker, and what else?

The Bush Fiscal Policy Botch (Southern Ring of the Clown Show Department)

Max Sawicky is shrill:

MaxSpeak, You Listen!: THE ECONOMIC THOUGHT OF N. GREGORY MANKIW:
25% OF WHA?
: 25% OF WHA? Professor Mankiw channels the finding of an "economist" at NRO... to the effect that tax cuts accounted for only "about a fifth" of the dizzying swing in projected ten-year deficits in 2001 from $5.6 trillion surplus to$2.9 trillion deficit. He ranks the impact of tax cuts behind "spending" and "changed economic and technical assumptions." Somebody in the comments kindly points out that interest, classified under "spending"... is actually an artifact of tax cuts as well as spending increases. This knocks the impact up from a fifth to a quarter.

Of the $2.9 trillion in spending,$1.6 is defense. The tax cuts are measured at $1.6 trillion. Now the changed economic and technical assumptions... mean that the original$5.6 trillion surplus projection was money that did not in fact exist.... The correct 2001 projection would have been a surplus of $2.1 trillion... so the swing is from plus 2.1 to minus 2.9, or$5T total.

Ergo by advanced mathematics as my econometrics prof used to say, the Bushist contribution to that $5 trillion swing is$1.6T from defense and $1.6 from tax cuts, or 64 percent, the wages of fiscal conservatism in our time, thanks in no small measure to the economic leadership of Professor N. Gregory Mankiw. I would dispute Max's division. Of the$5 trillion ten-year swing in the deficit, $3.2 trillion--64%--is due to the Bush failure to properly fund the defense buildup--its insistence on cutting taxes even after it becomes clear that it wants to spend another fortune on defense. The other 1.8 trillion--36%--is also the fault of the Bush administration: increases in other categories of spending above the 2001 projection baseline. Appropriate fiscal policy would have had us running a large surplus--a more than$2 trillion ten-year surplus--to prefund the expenditures that will be needed because of our aging population. No matter whether you think spending should be higher or lower than it currently is, every single fiscal policy move of this administration has carried us in the wrong direction, away from the surpluses we should be running right now, and collectively they have been a huge mistake. That tax cuts are not the overwhelming proportion of mistakes speaks not about the innocucuity... innocuousness... innocularity... whatever... of tax cuts, but of the magnitude of unfunded spending increases.

Econ 101b: Fall 2006: November 14, 2006: Yield Curve

The yield curve and the bond market conundrum:

Most recent Federal Reserve Press Release (October 25, 2006): http://www.federalreserve.gov/boarddocs/press/monetary/2006/20061025/: The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent...

SmartMoney.com's Living Yield Curve is excellent: http://www.smartmoney.com/onebond/index.cfm?story=yieldcurve&nav=dropTab: PEOPLE TALK ABOUT interest rates going up and going down as if all rates moved together. The rates on bonds of different maturities behave quite independently of each other, with short-term rates and long-term rates often moving in opposite directions.... The yield curve is what economists use to capture the overall movement of interest rates.... Plot today's yields for various maturities of U.S. Treasury bills and bonds on a graph and you've got today's curve... the line begins on the left with the shortest maturity -- three-month T-bills -- and ends on the right with the longest -- 30-year Treasury Bonds.

Jim Hamilton of UCSD is a little less worried about the "inverted yield curve" than he used to be: http://www.econbrowser.com/archives/2006/11/the_yield_curve_2.html: To the extent that the decline in the yield spread does represent a fall in the term premium, and if indeed a fall in the term premium itself does not signal an economic slowdown, it means that the current negative yield spread does not have quite as bearish a connotation as the historical correlation between the yield spread and output might otherwise suggest.... [R]ecent week-to-week moves in the yield spread... have been dominated by news about the real economic outlook, with prospects for slower economic growth translating into lower expectations for future short rates and a lower yield spread. Insofar as that's the case, the recent pitch into negative territory must still be regarded as worrisome. But just how worrisome? Slower than normal growth still looks to me like a safe bet. On the other hand, the negative growth characteristic of a recession is a little less likely than I regarded it before studying the latest research...

Treasurys rally after tame PPI, retail sales - MarketWatch: http://www.marketwatch.com/News/Story/Story.aspx?column=bond+report&siteid=mktw&dist=10markets: The benchmark 10-year Treasury bond was up 13/32 at 100-16/32, while its yield sank to 4.5620%.... The 2-year note was up 3/32 at 100 9/32, yielding 4.718%, keeping the yield curve inverted. The 30-year bond gained 24/32 to 97-14/32, yielding 4.653%, an 8-month low...

British History 101

What I have been listening to:

British History 101 on PodcastAlley.com: Thu, 09 Nov 2006: St. Thomas Becket, Archbishop of Canterbury killed 29 December 1170. Tue, 07 Nov 2006: A correction to the Guy Fawkes special. Thu, 02 Nov 2006: Guy Fawkes' Day: Remember, remember, the Fifth of November! Fri, 27 Oct 2006: Lady Godiva: In this week's episode, we take a look at the fair Lady who gave rise to the name of one of the world's most delicious candies! Fri, 06 Oct 2006: Her Majesty Queen Elizabeth II: This week, we take a look at the United Kingdom's current monarch. Thu, 21 Sep 2006: Abdication of Edward VIII

Queen Elizabeth II's uncle - and a shameful one at that! Fri, 08 Sep 2006: Magna Carta. Thu, 31 Aug 2006: Hadrian's Wall. Fri, 18 Aug 2006: The Battle of Dunkirk. Fri, 11 Aug 2006: Boudicca's Revolt. Sat, 05 Aug 2006: The Battle of Trafalgar. Fri, 28 Jul 2006: The Battle of Hastings...

Rich Lowry Sees Light at the End of the Tunnel: "Liberals cannot count on conservatives being associated with corruption, incompetence or an unpopular war forever."

Spencer Ackerman is amused:

toohotfortnr: blackened is the end: Best Rich Lowry line ever:

Liberals cannot count on conservatives being associated with corruption, incompetence or an unpopular war forever.

I'm interested in the passive voice. Associating themselves with the mendacious, malevolent, incompetent, and disconnected-from-reality Bush administration was not something that was done to conservatives, but rather something that conservatives did.

The Pigou Club: Egalitarian Utilitarianism

Mark Thoma attempts to lead Greg Mankiw's Pigou Club off in a different direction:

Economist's View: Pigouvian Redistribution: There has been a lot of support lately for the ideas that Arthur Cecil Pigou (1877-1959) set forth in his book The Economics of Welfare. Pigou held the chair of political economy at Cambridge (succeeding Alfred Marshall) and was the leading neoclassical economist of his day. The book is an attempt to provide a theoretical basis for government intervention to improve social conditions. His introduction of Pigouvian taxes is part of that effort.... [O]ther ideas from his book... [include this] argument for redistributing income from the rich to the poor....

[I]t is evident that any transference of income from a relatively rich man to a relatively poor man of similar temperament, since it enables more intense wants, to be satisfied at the expense of less intense wants, must increase the aggregate sum of satisfaction. The old "law of diminishing utility" thus leads securely to the proposition: Any cause which increases the absolute share of real income in the hands of the poor, provided that it does not lead to a contraction in the size of the national dividend from any point of view, will, in general, increase economic welfare.

This conclusion is further fortified by another consideration. Mill wrote: "Men do not desire to be rich, but to be richer than other men. The avaricious or covetous man would find little or no satisfaction in the possesion of any amount of wealth, if he were the poorest amongst all his neighbours or fellow-countrymen." More elaborately, Signor Rignano writes: "As for the needs which vanity creates, they can be satisfied equally well by a small as by a large expenditure of energy. ... In reality a man's desire to appear 'worth' double what another man is worth, that is to say, to possess goods (jewels, clothes, horses, parks, luxuries, houses, etc.) twice as valuable as those possessed by another man, is satisfied just as fully, if the first has ten things and the second five, as it would be if the first had a hundred and the second fifty."

Now the part played by comparative, as distinguished from absolute, income is likely to be small for incomes that only suffice to provide the necessaries and primary comforts of life, but to be large with large incomes. In other words, a larger proportion of the satisfaction yielded by the incomes of rich people comes from their relative, rather than from their absolute, amount. This part of it will not be destroyed if the incomes of all rich people are diminished together. The loss of economic welfare suffered by the rich when command over resources is transferred from them to the poor will, therefore, be substantially smaller relatively to the gain of economic welfare to the poor than a consideration of the law of diminishing utility taken by itself suggests...

John Tierney: Department of "Huh?" (Why Oh Why Can't We Have a Better Press Corps? Department)

Josh Micah Marshall points us at John Tierney's final op-ed column:

Bring On the Seinfeld Congress - New York Times: After six years of libertarians reluctantly electing Republicans as the lesser of two evils, we've finally had enough. We've voted out big-government conservatism, and the result is the happy state of gridlock. For now, our work is done...

Back up. Tierney says that it was a swing of libertarians away from Republican to Democratic candidates that made Nancy Pelosi Speaker of the House? Is he psychotic? Delusional? Or simply totally cynical about how much c--- he can feed his readers?

Shame on the New York Times. It won't survive if it keeps employing people who lack either contact with reality or a desire to inform rather than mislead their readers.

DeLong Smackdown Watch...

Why oh why haven't I been reading Blake Hounshell regularly?

Whither Free Trade? - American Footprints: Brad DeLong scoffs at Jacob Weisberg's contention that "free trade is the real election casualty." The good professor says:

Normally, these days, Republican presidents are better on free trade than Democratic presidents. But George W. Bush is not a "normal" president. WCI is right that the appropriate response of other countries to Weisberg's spin is "hollow laughter."

But this is dodging the question...

Vietnam Today: America's Grand Strategy at Work

Our "soft power" at work:

Vietnam: The South Has Finally Won - Newsweek: International Editions - MSNBC.com: Hanoi's communists won the Vietnam War, but southern-born reformers are leading an economic boom as the country opens up to the world: By Michael Hastings and George Wehrfritz: Grainy black-and-white photos show thin men riding bicycles along streets devoid of cars. A prominent chart tracks paltry monthly rice allotments to every category of Vietnamese, even communist cadres. Assorted ration cards and food stamps fill a display case... the painful decade after North Vietnam's communist armies toppled the U.S.-backed government in Saigon in 1975. An introductory message describes the period as one of "inappropriate socioeconomic management." That's an understatement: from 1975 to 1986, Vietnam's rulers oversaw a disastrous experiment in Stalinist collectivization, herded thousands of Southern capitalists into labor camps and unleashed an exodus of boat people across the region. The human suffering was immense.

The government calls the show "Hanoi Life Under the Subsidy Economy, 1975-1986." But a sexier title would be "How the South Won the War." The Vietnamese capital portrayed in the exhibit bears scant resemblance to the bustling present for one simple reason: Hanoi is now playing by Saigon's rules. Economic reforms pushed by Southern entrepreneurs have fueled an economy that's grown nearly as fast as China's over the last decade. Manufacturing jobs are plentiful, and the national poverty rate has plummeted from 57 percent in 1993 to about 18 percent today....

Hanoi credits the turnaround to policies known simply as doi moi, or "renovations," launched with great fanfare in 1986. In fact, local leaders in Saigon, now known as Ho Chi Minh City, began testing the new approach years earlier by tapping an ethnic-Chinese business class that Hanoi viewed as ideologically suspect. Those officials later rose to national prominence, even as local entrepreneurs helped build a globally competitive, export-led economy funded mainly by foreign investment. Foremost among the forward-thinking southern leaders was Vo Van Kiet, who became deputy premier in 1986 and helped launch doi moi. He served as prime minister in the 1990s. "The official history of Vietnam's reforms doesn't include this first chapter," says Pham Chanh Duong, a key businessman from that era. "We gave [Hanoi] a practical example for the reforms they enacted in 1986, but nobody dares talk about that."

The conquered South led the economic charge in part because it had experience with colonial markets and benefited from America's wartime infrastructure of roads, highways, airbases and ports. Over the past decade, though, the North-South divide has narrowed. Hanoi has improved its own roads, rails and ports to such an extent that light manufacturing now flourishes there and in nearby Haiphong. And the importance of opening the economy, once pushed by southerners, has become accepted wisdom in the capital. "There are a lot of stereotypes about the North and South having different points of views," says Minh Vu, a senior economic adviser to Prime Minister Dung, noting that the regional divide no longer plays a great role in shaping policy.

Economic History Seminar November 13, 2006: William Sundstrom

He comes up from Santa Clara to talk about:

William Sundstrom (2006), "The Geography of Wage Discrimination in the Pre-Civil Rights South" (San Jose: Santa Clara University).

Abstract: Before the civil rights movement of the 1960s, the pay gap between African-American and white workers in the south was large overall and quite variable across locations. Using 1940 census data, I estimate the white-black earnings gap for men across separate county groups called "state economic areas," adjusting for individual differences in schooling and experience. I show that the gap was significantly greater where blacks were a larger proportion of the workforce, plantation institutions were more prevalent, more of the population was urban, and white voters exhibited more segregationist preferences. These results are consistent with descriptive evidence that discrimination in southern labor markets operated through discrimination in job assignments, which prevented black workers from acquiring skills on the job and also depressed wages through a crowding effect.

"The 'lynching' variable doesn't do much in the regressions, and isn't correlated with much of anything except general poverty..."

Journamalism: A Septifiecta from the Washington Post

First, we have:

Panel May Have Few Good Options to Offer - washingtonpost.com: By Michael Abramowitz and Thomas E. Ricks: Washington Post Staff Writers: Sunday, November 12, 2006; Page A01: [A] panel of prestigious Americans will begin deliberations to chart a new course on Iraq.... This panel, led by former secretary of state James A. Baker III and former Indiana congressman Lee H. Hamilton (D), might play a decisive role in reshaping the U.S. position in Iraq, according to lawmakers and administration officials....

Ya think? Ya really think they "may" have few good options to offer? "May"? I thought [snark] that it was a slam dunk that the Baker-Hamilton group would have at least five GREAT options to offer, in all of which trained armies of flying attack monkeys appear above the White House singing "Bush Akbar!"[/snark].

Plus we don't know whether to believe what the people in the story say, or whether three years from now Tom Ricks will reveal in his next book that it's a load of hooey. Ricks, you see, is a person who is unclear on the difference between a reporter and a stenographer: "I'm a reporter. One of the parts of the job of being a reporter is to accurately report what people say. It doesn't mean that I agree with it".

Second, we have Peter Baker. Shorter Peter Baker: That Karl Rove works for corrupt pedophiles doesn't detract from his true genius. It is remarkable how Baker buys Rove's claims that it is in some sense unfair and unnatural for votes to depend on Mark Foley and Jack Abramoff, while it is fair and natural for votes to depend Rove's claims that the Democrats are the party of "cut and run." It is remarkable how Baker tiptoes around the possibility that Rove's brand of ethics-free politics attracts people like Abramoff who are free of ethics.

Third, we have the Washington Post giving space to Doug Feith--Doug Feith! the man Tommy Franks called the stupidest man alive--to write a puff piece on the greatness of Donald Rumsfeld:

The Donald Rumsfeld I Know - washingtonpost.com: ...not an ideologue.... He did not ignore the advice of his military advisers.... [A] revealing contrast between [Rumsfeld's] Pentagon and... Colin Powell.... Pentagon lawyers told Rumsfeld that the detainee interrogation techniques in the old Army field manual were well within the bounds of the Geneva Conventions.... [M]ilitary officers at Guantanamo Bay, Cuba, asked Rumsfeld to authorize additional techniques.... [T]he country's leading civil libertarians... would have approved of the way Rumsfeld handled the service lawyers' dissent.... Rumsfeld has been attacked for insisting that troop levels for the Iraq operation be kept low, supposedly out of ideology and contrary to the advice of the military.... Rumsfeld questioned standard military recommendations for "overwhelming force."... Rumsfeld never told Gen. John Abizaid or Gen. Tommy Franks that U.S. Central Command could not have... [more] troops.... Rumsfeld is more politically sensitive than that -- he would never expose himself to the risk of a commander later saying that he had denied... forces.... If other generals are unhappy with the troop levels... the problem is not that they failed to persuade Rumsfeld, but that they failed to persuade Abizaid or Franks...

"If" generals are unhappy with the fact that we have too few troops in Iraq. "If." "If." "If." Well--Feith says--it's not Rumsfeld's fault we have too few troops in Iraq!

Fourth, Fred Hiatt's shop, which Media Matters reads so I don't have to:

Media Matters - Wash. Post editorial acknowledged Republicans dominated in "negative campaigning" but said it was "because they were the ones on the defensive": In a November 9 editorial, headlined "A Better Way," which discussed how "[n]egative campaigning hit new lows this year," citing four tactics used by Republicans this election cycle, The Washington Post asserted that "[t]he worst offenders... were Republicans, but that probably was because they were the ones on the defensive."... Additionally, the Post editorial cited the "sleazy new practices such as robo-calls designed to annoy and deceive voters" but did not note that they were employed by Republicans, not Democrats.... The editorial also referred to "the Election Day disgrace of Maryland's top two elected officials sanctioning the use of a clearly false campaign flier..." but did not note that the campaign was conducted by Republicans... Gov. Robert L. Ehrlich Jr. and Senate candidate Michael S. Steele...

Fifth is that these campaign frauds were committed not just by Republicans--a thing the Post does not mention--but by Republicans whom the Post had endorsed--another thing the Post does not mention. Remarkably high quality of the Maryland Republicans endorsed by the Post, as noted by Duncan Black:

Eschaton: Truly Awful: With [governor] Ehrlich losing in Maryland I'm reasonably happy to believe that there's some karmic rebalancing going on in the universe. And, hey, nice job endorsing this scum Washington Post!

At least six chartered buses carried mostly poor, black men from as far as Philadelphia to hand out inaccurate voter guides in Baltimore and Prince George's County yesterday as part of an effort by backers of Gov. Robert L. Ehrlich Jr. and U.S. Senate candidate Michael S. Steele to woo black voters. The glossy voter guide, paid for by the Ehrlich and Steele campaigns, pictured three of Maryland's most prominent black Democrats above the words "These are OUR Choices," even though two were not on yesterday's ballot and the other was running unopposed. Inside, under the heading "Democratic Sample Ballot," it listed mostly Democratic candidates as the preferred choices -- along with Ehrlich and Steele, who were not identified as Republicans...

You have to work hard to match this bias. But Journamalist number five, Charles Krauthammer is up to the task. Here he is trying as hard as he can to keep his readers from knowing how many people voted for whom--to spread the meme that the country was "evenly divided" in the election:

Charles Krauthammer - Only a Minor Earthquake - washingtonpost.com: How serious is the "thumpin' " the Republicans took on Tuesday?...[T]hey won 29 House seats... slightly below the post-1930 average for the six-year itch in a two-term presidency. They took the Senate by the thinnest of margins -- a one-vote majority.... A switch of just 1,424 votes.... A margin this close should no longer surprise us... the country has been evenly divided politically.... [B]oth parties have moved to the right... the biggest winner... Joe Lieberman....

Sixth, Glenn Greenwald catches the Post editors hard at work with the rubber hoses on their reporters:

The Washington Post... on the [Bush] Press Conference... detailed the Rumsfeld lie... with unusual candor, i.e., that the President "appeared to acknowledge having misled reporters." It's so unusual to see a major newspaper accurately report on the President's dishonesty....

Bush indicated that he had made the decision to replace Rumsfeld before the elections... He appeared to acknowledge having misled reporters, saying, "And so the only way to answer that question and to get you onto another question was to give you that answer." He added... "Win or lose, Bob Gates was going to become the nominee.

But... [now] the passage I quoted about the President's having acknowledged that he "misled reporters" is gone entirely.... [T]he Post changed what was the accurate reporting -- that Bush expressly acknowledged that he "misled" reporters... by claiming in the new version that he merely "contemplated" Rumsfeld's exit before the election...

The seventh and last instance of journamalism is the piece de resistance: Washington Post National News Director John Harris on NPR talking about what he calls "The Freak Show"--as in the Washington Post's A1 story:

Kerry Offers Apology to Troops: Sen. John F. Kerry (D-Mass.) issued two apologies for remarks that seemed to impugn U.S. troops and abandoned his public schedule yesterday, but he denounced what he called the "campaign of smear and fear" against him as the surreal sequel to the 2004 presidential election echoed across the campaign trail. The White House and Republican allies orchestrated a cascade of denunciations throughout the day...

What does Harris say on NPR? Here are excerpts:

JOHN HARRIS: It is being treated [i.e., John Harris's people are reporting it] like it's the biggest thing facing the country right now. Emphatically, it is not....

[...]

BROOKE GLADSTONE: [B]y covering... this misplaced pronoun in Kerry's joke, aren't you playing right into the Administration's hands?....

JOHN HARRIS: Yes.... This is not the world as it should be. Unfortunately, it is the world as it is. The freak show, we try to describe it clinically in the book, but we're not neutral about it. We're [LAUGHS] roundly opposed to it. It is a corruption of our democracy.

[...]

JOHN HARRIS: The people at the White House and in the Republican Party claiming to be offended by this and saddened by this, of course [Laughs] weren't offended and saddened. They were delighted. They thought they had a great opportunity to make the election about John Kerry...

JOHN HARRIS: Brooke, I tried that for one day and, indeed, that is what we did. I cannot, by proclamation, create my own reality and say that this was not, in fact, a dominant reality of the closing days of the campaign. And my first responsibility to readers is to describe that reality. Now, I don't think, if you look at The Post stories, that we covered them in a freak show way. I believe we maintained detachment. But nonetheless, you are right. We were responding in a way to the freak show. I hope that we were not letting the freak show drive our own values but, unquestionably, the freak show succeeds in driving coverage...

The most remarkable thing in Harris's appearance is:

JOHN HARRIS: [I]t's not my job as an editor to delete the noise [of what he calls the Freak Show--incidents like the attack on John Kerry] or pretend that it doesn't exist. Probably George W. Bush's drunk-driving incident from 1977 wasn't the most important issue facing the country in the closing days of the 2000 campaign. Nonetheless, that was also something that entered the media echo chamber. I think the individual journalists like me are always in a quandary

John Harris has taken this metaphor--signal and noise--from electrical engineering. Harris uses it to describe his newspaper, the Washington Post--thinking of the Post as picking up the equivalent of radio waves from the ether and then playing them for its readers. If you are building a radio, you want to build it in such a way as to get the best reception possible--you want the circuitry of your radio to amplify the "signal" and suppress the "noise." In electrical engineering, a high signal-to-noise ratio is a very good thing. But, says Harris, I'm the antithesis of an electrical engineer: it's not my job to produce a hi-fi low-noise sound. It's my job to faithfully reproduce the "noise" that is the Freak Show, not suppress it.

Journamalism.

Sectarian Strife In Iraq: The MinuteMan Points Us to a Depressing New York Times Story

Tom Maguire points us to an article by Richard Oppel:

JustOneMinute: Sectarian Strife In Iraq: The NY Times has a discouraging Sunday "Must read" about the handoff of security to the Iraqi Army in the Diyala Province to the north and east of Baghdad. Briefly, the Shi'ite led politicians in Baghdad are encouraging the Shi'ite led Army in Diyala to side with the Shi'ite militias and purge the Sunnis. The Times has lots of on-the-record quotes from US officers to make their point. Some snippets:

Diyala is known as "little Iraq," because of its volatile mix of Sunnis, Shiites and Kurds. With its lush groves of date palms and abundant oil reserves, it is emerging as a crucial strategic territory in the sectarian struggle now gripping the country.... Diyala is now teeming with Shiite militiamen who have rushed in from Baghdad in recent months to protect the Shiite population from attacks. Once considered by American officials to be relatively pacified, it has become a cauldron of violence... the experiences of American commanders over the past year in Diyala provide a window on the possible consequences of ceding authority to the Iraqi Army. And with the civilian homicide rate in Diyala now running at about 10 killings a day, according to United States officials, compared with 4 a day in April, the commanders' experiences form a cautionary tale.

In July, the United States turned over "lead responsibility" for security in Diyala to the Iraqi Fifth Army Division... General Shakir. The Iraqi general denies treating Sunnis unfairly and says he has no knowledge of death squads in Diyala.... General Mixon said: "He's either failing to supervise closely enough to know what's going on, or he's directly involved in it. One or the other. There can't be any in between."

[...]

The sectarian violence that exploded in Baghdad, after the bombing of a Shiite shrine in Samarra in February, has spread like a contagion to other regions. Shiite death squads in Baghdad have forced many Sunnis to flee to Baquba, 35 miles to the north, where some have joined the insurgency and have begun attacking Shiites. "The Sunni have driven the Shia out of Baquba," said Lt. Col. Thomas Fisher, commander of the 1-68 Combined Arms Battalion, which left Baquba in early November after a yearlong deployment. "They have come from Baghdad, driven out by Shiites there." Many Shiites are completing the circle, he said, fleeing to Baghdad or farther south.

Sunnis in Baquba now slaughter Shiites simply to avenge the killings of Sunnis in Baghdad, said Baquba's mayor, Khalid al-Sinjari, a Sunni.... But now the Shiites also kill in Baquba. The Mahdi Army, a militia allied with the radical Shiite cleric Moktada al-Sadr, has 6,000 to 8,000 members in Diyala.... The growing militia presence combined with the sectarian turn by Iraqi commanders will increasingly leave the Sunnis with only one source of protection, Colonel Jones said: terrorist groups like Al Qaeda in Mesopotamia and Ansar al-Sunna.

"We are really painting them into a box here," he said.... It's the innocents, it's these farmers out here, it's these kids who pay the price. But these interests are colliding and they don't care about that. Power is what they're going after, consolidated and uncontested political power."

"I think the sectarian war is coming this way," he added.

Willful Ignorance in the White House: Why Oh Why Are We Ruled by This Disconnected-from-Reality [Unprintable]?

Brad DeLong's Semi-Daily Journal: Fair and Balanced Almost Every Day: Stupidest Men Alive Nominations: Josh Bolten: Is Bolten any stupider than Rove himself or Bush for that matter? What struck me the most listening to Bush's press conference when he dumped Rumsfeld was how clear it was that he really was surprised at the GOP losing the House. I mean, it is one thing before an election to go around being optimistic and saying you will win, just as he said he was going to keep Rumsfeld on, and all that. But it is now clear that he and Rove (and Bolten also apparently) really were drinking seriously self-delusional kool-aid.

I have gotten a Republican friend of mine all upset by saying the most dangerous thing about Bush is his willful ignorance. This business of apparently really believing they would keep the House is an extremely striking example. If there is anything that might come out of this election in terms of improving the executive's performance, I hope it will be that Bush will get out of his cocoon a bit more, preferably a lot more, maybe even read a newspaper from time to time?

Armistice Day 1941: "The Czechs too Know the Answer. The Poles. The Danes. The Dutch. The Serbs. The Belgians. The Norwegians. The Greeks."

Arlington Cemetery, November 11, 1941: Among the great days of national remembrance, none is more deeply moving to Americans of our generation than the Eleventh of November, the Anniversary of the Armistice of 1918, the day sacred to the memory of those who gave their lives in the war which that day ended.

Our observance of this Anniversary has a particular significance in the year 1941. For we are able today as we were not always able in the past to measure our indebtedness to those who died. A few years ago, even a few months, we questioned, some of us, the sacrifice they had made. Standing near to the tomb of the Unknown Soldier, Sergeant York of Tennessee, on a recent day spoke to such questioners. "There are those in this country today," said Sergeant York, "who ask me and other veterans of World War Number One, 'What did it get you?'"

Today we know the answer--all of us. All who search their hearts in honesty and candor know it. We know that these men died to save their country from a terrible danger of that day. We know, because we face that danger once again on this day. "What did it get you?" People who asked that question of Sergeant York and his comrades forgot the one essential fact which every man who looks can see today. They forgot that the danger which threatened this country in 1917 was real--and that the sacrifice of those who died averted that danger.

Because the danger was overcome, they were unable to remember that the danger had been present. Because our armies were victorious, they demanded why our armies had fought. Because our freedom was secure, they took the security of our freedom for granted and asked why those who died to save it should have died at all.

"What did it get you?" "What was there in it for you?" If our armies of 1917 and 1918 had lost there would not have been a man or woman in America who would have wondered why the war was fought. The reasons would have faced us everywhere. We would have known why liberty is worth defending as those alone whose liberty is lost can know it. We would have known why tyranny is worth defeating as only those whom tyrants rule can know.

But because the war had been won we forgot, some of us, that the war might have been lost.

Whatever we knew or thought we knew a few years or months ago, we know now that the danger of brutality and tyranny and slavery to freedom-loving peoples can be real and terrible. We know why these men fought to keep our freedom-and why the wars that save a people's liberties are wars worth fighting and worth winning-and at any price.

"What did it get you?" The men of France, prisoners in their cities, victims of searches and of seizures without law, hostages for the safety of their masters' lives, robbed of their harvests, murdered in their prisons--the men of France would know the answer to that question. They know now what a former victory of freedom against tyranny was worth. The Czechs too know the answer. The Poles. The Danes. The Dutch. The Serbs. The Belgians. The Norwegians. The Greeks.

We know it now.

We know that it was, in literal truth, to make the world safe for democracy that we took up arms in 1917. It was, in simple truth and in literal fact, to make the world habitable for decent and self-respecting men that those whom we now remember gave their lives. They died to prevent then the very thing that now, a quarter century later, has happened from one end of Europe to the other.

Now that it has happened we know in full the reason why they died.

We know also what obligation and duty their sacrifice imposes upon us. They did not die to make the world safe for decency and self-respect for five years or ten or maybe twenty. They died to make it safe. And if, by some fault of ours who lived beyond the war, its safety has again been threatened then the obligation and the duty are ours. It is in our charge now, as it was America's charge after the Civil War, to see to it "that these dead shall not have died in vain." Sergeant York spoke thus of the cynics and doubters: "The thing they forget is that liberty and freedom and democracy are so very precious that you do not fight to win them once and stop. Liberty and freedom and democracy are prizes awarded only to those peoples who fight to win them and then keep fighting eternally to hold them."

The people of America agree with that. They believe that liberty is worth fighting for. And if they are obliged to fight they will fight eternally to hold it.

This duty we owe, not to ourselves alone, but to the many dead who died to gain our freedom for us--to make the world a place where freedom can live and grow into the ages.

The Big Picture: GOP Gets Bushwhacked!

Barry Ritholz sees a connection between rising inequality and the Republican defeat:

The Big Picture: GOP Gets Bushwhacked!: As we noted the day before Election Day, It is Still the Economy, Stupid. Voter insecurity -- about Jobs, rising costs of healthcare, education, housing, automobiles, food and energy -- has much of the middle class on edge. This seems to have been lost on many people.

Alan Abelson addresses this very issue:

SURVEYING THE SHAMBLES AFTER THE VOTERS had pretty much laid waste to his personal aspirations and political blueprints for the next two years, the president professed to be baffled as to why the economy, which he characterized as "strong," failed to play a more powerful role in shaping the outcome. We can help Mr. Bush here: The economy, in point of fact, was a big factor in deciding the election. But for an awful lot of folks, not a few of whom voted, it has been anything but strong.

It has been for some time a favorite conceit of the administration, its economic shills and the bullish claque on Wall Street that we're enjoying the best of all possible worlds: a buoyant economy unsullied by inflation. In truth, we've had the most lopsided expansion in memory (and ours, sigh, goes back a long way), with a fair number of people making out quite well, but a much larger number -- make that a really huge number -- of people treading water at best.

As to inflation, computers, as economists never tire of telling us, undeniably are cheaper than ever. The question is, though: Have you every tried eating a computer?....

None of this will be particularly unfamiliar to the regular readers of this blog. What you may be unfamiliar with, however, is how some of the employment data shakes out. It turns out that there's much less to new job creation than meets the eye:

In his reflections, offered at his post-election press conference, the president singled out the bright job picture, echoing the sentiments he expressed on release of the October employment data a couple of Fridays ago. And, to be fair, he didn't lack for company. Chorusing Mr. Bush's upbeat view of the report were the usual suspect Wall Street cheerleaders, who couldn't wait to pick up their megaphones and hail the big upward revisions of the previous two months' employment data, and the drop in last month's jobless rate.

Except to confuse civilians, journalists and kindred innocents, we were and remain a little mystified as to what all the hoorahing was about. While there was a sprinkling of glad tidings, notably the modestly longer workweek in September and October, and a nice 0.4% rise in hourly wages, the report struck us as pretty lame. Worse than that, actually, because of what it seemed to portend for both jobs and the economy.... [T]he larger point of all these numerical details -- and we apologize if you're feeling a trifle numbed by numbers -- is that the bulk of jobs being added are not big payers, and the bulk of the jobs being lost are."...

Sure, Iraq has become an ever larger morass, and voters know it. And we cannot overlook the high percentage of exit polls commentary regarding corruption. But if the economy was throwing off more benfits to the folks below the top 10% of earners/asset holders, the election would not have been nearly so lopsided. Yes, its still the economy -- the bifurcated economy. I continue to be amazed how few people see the schism...

Economic Outlook

Glenn Rudebusch at the SF Fed thinks that we have dodged a bullet: that the decline in housing investment will not send the economy into a recession:

• On balance, any spillover from the housing slowdown to the rest of the economy appears to have been offset by four important factors that are supporting growth. The first of these factors is the solid growth in employment, with associated increases in labor income. The solid pace of hiring this year raises questions about whether recent flagging GDP growth reflects a transitory lull rather than a substantial slowdown. The second factor supporting growth is the recent drop in energy prices. The third factor is the recent increases in equity markets, which bolster household wealth. And, finally, as the fourth factor, borrowing costs--especially conventional fixed mortgage rates--continue to be relatively low.
• A crucial question facing policymakers is how soon will core inflation return to a more comfortable level. One reason for cautious optimism is that inflation expectations appear to remain contained, as various indicators of these expectations are in the same range that has prevailed over the past two years. Therefore, this year's surge in price inflation has not changed the market's view about where inflation will eventually be returned to by the Fed.
• In contrast, the upside risk to the inflation outlook from labor market pressures appears to have been growing. As the FOMC noted in its October 25 statement: "the high level of resource utilization has the potential to sustain inflation pressures." Since then, the labor market continues to tighten, and the unemployment rate fell to 4.4 percent in October, the lowest level since May 2001.

I Have to Disqualify Donald Luskin from the Stupidest Men Alive Contest

An unarmed man in a contest of wits. A correspondent emails me that National Review's Donald Luskin is puzzled because he cannot reproduce Jacob Hacker's findings of rising income instability in America:

The Conspiracy to Keep You Poor and Stupid: Yale economist [sic: he is a political scientist] Jacob Hacker has been getting a lot of play in the mainstream media with his new book The Great Risk Shift -- a kind of Bush-bashing self-help book.... Hacker's thesis, in a nutshell, is that... people don't feel "economic security." His seemingly scientific proof statement is a chart of what he calls "income instability."...

I can't find any other data series that even remotely gives me this result... three that I calculated... [per capita disposable income, median households income, average hourly earnings].... All three are different measures of the volatility of income -- and none of them look the slightest like Hacker's... they lead one to the opposite conclusion -- that incomes have become less unstable through time....

One has to wonder just how Hacker tortured his data to get it to confess that incomes are more unstable today then [sic: than] they've been in the past.

Luskin's confusion can be easily cleared up. Hacker calculates the average variability of individual Americans' incomes. Luskin calculates the variability of the average of individual Americans' incomes. As everybody who has taken even one semester of statistics--or even thought about it for fifteen minutes--knows: in general the variability of the average is not equal to the average of the variabilities. Why on earth should anybody think it should be?

For Luskin to claim that there must be something wrong with Hacker's numbers because Hacker's calculations of the average variability don't line up with Luskin's calculations of the variability of the average, well...

There is a reason I have to disqualify Donald Luskin from this year's Stupidest Men Alive contest: He's a ringer. It just wouldn't be fair to the other contestants.

Mark "Karl Rove Is Beloved" Halperin Receives a Nomination (Why Oh Why Can't We Have a Better Press Corps?)

The view in the reality-based community has always been that, with Ralph Nader spotting Rove 3 percentage points in the 2000 election, and with a "war" being worth roughly 5 percentage points for the incumbent's vote share, it's not a sign of real genius to eek out squeaker elections. There has been a debate within the reality-based community as to whether people like Halperin who celebrate Rove's genius are simply cynically sucking up to a favored source or really have drunk the koolaid.

Duncan Black nominates Mark Halperin for the Stupidest Men Alive contest, and reminds us of what may well be the worst piece of political journalism published in an American newspaper in 2006:

Ace of Base: By MARK HALPERIN: George W. Bush and Karl Rove... [ask:] Why do things differently when you like the results you have been getting? In the 2002 and 2004 national elections, the president and his top political adviser won by margins provided by conservative voters who shared the White House's view that the country should continue to move right.... [T]he Bush-Rove model animates the Republican Party's election strategy for 2006.... [The] view... [that] a campaign that appeals to moderates, one waged from the center, is the only way for the [Republican] party to maintain control of the House and Senate.... probably won't work.... [T]he Republicans... best chance is to stick with the old, base-driven Bush-Rove electoral strategy.

Why?... America is a polarized country, one where there are fundamental divisions worth fighting over.... The goal is to accumulate just enough power to use the energies and passions of the base to effect ideological change... even if -- sometimes especially if -- those changes might be at odds with majority public opinion. For the Republicans, this brand of politics works because the United States in many ways remains a fundamentally conservative nation.... Republican politicians, therefore, have the advantage of being able to proudly announce what they really think. They can go on offense....

If you have any doubts about the confusion of the Democrats, just look at the party's midterm strategy.... [T]he core of their enunciated message... has in recent elections been a recipe for defeat. Such equivocation is the kind of themeless pudding that does not match up well with the conviction of the White House message....

[T]he G.O.P. base is coming home -- and just in time. Base support is headed toward 90 percent, just about where it was before the 2002 and 2004 elections. The speeches the president gave about national security leading up to the fifth anniversary of 9/11 re-engaged the base and raised his overall approval rating to around 40 percent. He also has shifted the debate back to his favored playing field: national security.... Bill and Hillary Clinton... the couple's visibility seems to be energizing the Republican base as well....

As in 2002 and 2004, the Democrats have been baited into a heated discussion on terrorism and Iraq, blocking out debates that would be more favorable to their cause, like Social Security, the economy and gas prices. The Clintons have whipped up Democrats into a frenzy to fight back, but on Capitol Hill and on television they are largely fighting back on Republican terrain.

This is exactly what happened in the last two elections: Mr. Bush and Mr. Rove fired up the base on national security, taxes and social issues and found a way to win a majority of the electorate, even as they lost the allegiance of a majority of the country over all. The national security debate, the visibility of the Clintons and the momentum the Republicans gain from Mr. Bush's rising poll numbers -- all of these echo previous election cycles...

And yet another, from last week:

By Mark Halperin: [O]ur Rove thesis--the emphasis, for those who want to understand the world, should be on "genius" and not "evil" (as in "Rove is an evil genius").... Democrats, Republicans, and the Jacob Weisbergs of the world can pick nits all they want with Rove--that Bush isn't the most successful president ever, that Rove can't walk on water, that Bush lost the popular vote in 2000, and that they both have made plenty of political and policy mistakes. All of that is true. The reality is, though, that Bush and Rove, as a team, have never lost to Democrats, and their wins in 2002 and 2004 defied the odds in many ways. If Democrats win a big victory next Tuesday, it will be interesting to hear Rove's explanation. But for goodness' sake... people who live in Bethesda, Chevy Chase, and Manhattan should understand that in much of red America, Rove is beloved and respected, and they should ask themselves why that is...

I think these settle the debate.

An Economic Achilles Returns to the Fray!

A hearty welcome back to General Glut!

General Glut's Globblog: Lonely crank!: Lonely crank!: If for no other reason than this, I'm coming out of retirement (yes, again -- you'd think I was Bill Parcells or something):

For a long time there we were told not to attack the fake centrists because at least they attacked Bush, too. But that position is now untenable because it became obvious that fake centrists only attacked Bush's means, not his ends. Fake centrist economic schemes, which were and are merely slight variances on the corporate-whoring of wingnut policies, used to only be attacked by lonely cranks like General Glut. Now Duncan Black and Thomas Frank and others attack economic Technocrat "Centrism" on grounds of principle as well as on the obvious point that such policies have lost the working class for the Democrats.

That's high praise indeed. If the blogosphere doesn't need another lonely crank, I don't know what it needs!

This is very nice to see--I, a centrist attacking Bush's means say--although you don't know that you are really having an impact until they call you not a "lonely crank" but a basement-dwelling bathrobe-clad lonely crank.

And Felix Salmon writes:

RGE - "It would be so nice if something made sense for a change.": [W]e welcome the General's return, since he's clearly come back in high spirits, as is evidenced by his musings on potential "out-of-control" inflation in the UK.

What exactly is this terribly worrisome British inflation rate, you ask? Nearly the 11% of 1990? The 22% of 1980?! The 27% of 1975?!?! No. It is the haunting and ominous 3.6% of September 2006...

Never mind that there is not a scrap of evidence to indicate that inflation rates as high as 8% actually damage real economic growth. Yet the wise old Bank of England wants us to believe that anything over 2% CPI growth is somehow sinister and perilous.

And this is exactly the kind of crazy thinking that Ben Bernanke wants to bring to the United States...

The Democrats in 2006 Compared to the Republicans in 1994

More election popular-vote numbers:

Statistical Modeling, Causal Inference, and Social Science: The Democrats in 2006 compared to the Republicans in 1994: The Democrats' victory in the 2006 election has been compared to the Republicans' in 2004. But the Democrats actually did a lot better in terms of the vote. The Democrats received 56% of the average district vote for the two parties in 2006, whereas the Republicans only averaged 51.6% in 1994.... The 2006 outcome of 56% for the Democrats is comparable to their typical vote shares as the majority party in the decades preceding the 1994 realignment....

Even with their large vote majority, the Democrats only received 53.3% of the seats in the House. This is as we and Bafumi et al. anticipated. More info on the seats-votes relationship is in our recent paper. (For example, had the Republicans received 56% of the vote in 2006, we estimate they would've won about 250 seats.)

By the way, the Democrats' 56% share of the two-party vote tracks closely with the "generic congressional vote" in which they were also getting 56% in the polls (that is, 52.1%/(52.1% + 40.6%)).

Technical notes

I ddidn't have a spreadsheet with all the 2006 data, but the New York Times reported that the average swing was 7.6%. We actually calculate average district votes by imputing 75% for uncontested races (to represent the strength that the party might have had if the district had been contested; the 75% comes from computing the average vote in districts just before and just after being uncontested, based on historical data), so we needed to make corrections for uncontesteds.

In 2004, we have 31 uncontested Democrats and 37 uncontested Republicans: the average district vote for the Democrats was 50.5% using our correction (or 50.0% if you simply plug in 100% for uncontested races). In 2006, the NYT showed 30 uncontested Democrats and 4 uncontested Republicans, yielding an average district vote of 56.1% using our correction (or 57.6% if you simply plug in 100%). The 57.6% number is really dramatic but I think it overstates the Democrats' strength in giving them 100% in all those districts. [John K. has a slightly different count of the number of uncontesteds, but it wouldn't change the result much.]

Another option is to use total vote rather than average district vote. We discuss this in Section 3.3 of our paper (in particular, see Figure 4). The short answer is that we use average district vote because it represents total support for the parties across the country. The Democrats tend to do better in lower-turnout districts and so their total vote is typically slightly lower than their average district vote.

Republicans Eat Their Young!

Dana Mlbank's "Washington Sketch" sketches Washington D.C. on Wednesday, and watches Bush say that he was making a change in response to what the voters said--firing Rumsfeld--that he was going to do anyway, "win or lose":

Dana Milbank - The Thumpees Try Their Luck at the Blame Game - washingtonpost.com: President Bush had many explanations for what he called the "thumping" his party took on Tuesday, but the most creative was the notion that his chief strategist, Karl Rove, had spent too much time reading books.

"I obviously was working harder on the campaign than he was," the president said at yesterday's East Room news conference. The reporters laughed. The Architect, who had challenged Bush to a reading contest, wore a sheepish grin and stared at his lap....

The president, who started his appearance with an admission that "I share a large part of the responsibility," went on to blame everybody else.... [C]orruption: "People want their congressmen to be honest and ethical, so in some races that was the primary factor."... Mark Foley, whose name remained on the Florida ballot: "People couldn't vote directly for the Republican candidate."... [B]allot rules. "You could have the greatest positions in the world... but to try to get to win on a write-in is really hard to do."... [B]ad luck: "If you look at race by race, it was close."... Donald Rumsfeld, by firing him as defense secretary.... And, not least, he blamed the uncomprehending voters: "I thought when it was all said and done, the American people would understand the importance of taxes and the importance of security. But the people have spoken, and now it's time for us to move on."...

Democratic National Committee Chairman Howard Dean, the party's bantam rooster, barely waited until sunrise to start crowing. In a morning news conference at the National Press Club, he stood with hands in his pants pockets and used the word "extraordinary" nine times and "huge" 12 times.... Republicans were equally determined to show their disunity. While Dean spoke, conservative leaders held dueling news conferences in other rooms at the press club. Their theme: Blame the party, not us. "This was not a repudiation of conservatives," said Pat Toomey, a former GOP congressman. "It was a rejection of the Republican Party." At the rival conservative event across the hall, Richard Viguerie was condemning "the failed big-government policies of President Bush."

GOP officials pointed the finger elsewhere. On Fox News, Republican National Committee Chairman Ken Mehlman said the party's vaunted turnout operation works only "in the very close races." Rep. Tom Reynolds (N.Y.), who led House Republicans' campaign efforts, said more Republicans could have won -- if they had acted more like him. "Just take a look at my race," he suggested....

Bush was trying to tone down the rhetoric from the campaign, when he said the Democratic "approach comes down to this: The terrorists win, and America loses."... But he seemed unsure how much to concede.... He said he was "making a change" at the Pentagon to respond to the voters, but he also said he was going to sack Rumsfeld "win or lose."

And Michael Grunwald:

Republicans' Angry Factions Point Fingers At Each Other - washingtonpost.com: After minutes upon minutes of soul-searching, Republicans are now in recrimination mode. And the GOP's various factions all agree: This wouldn't have happened if the party had listened to us.... [M]oderate Republicans quickly concluded that the party needs to be more moderate. Conservative Republicans declared that it should be more conservative. Main Street is angry at Wall Street, theo-cons are angry at neo-cons, and almost everyone is angry at President Bush and the GOP congressional leadership.... Rumsfeld and... Hastert... agreed to step down.... Frist (R-Tenn.) had already decided to leave Congress, but GOP insiders said Tuesday's debacle should eliminate him from presidential contention in 2008.

By day's end, Republican fingers had pointed at every conceivable Republican scapegoat: ex-representative Mark Foley of Florida and his scandal-plagued colleagues, Republican National Committee Chairman Ken Mehlman, presidential adviser Karl Rove, even Sen. John McCain of Arizona.... GOP lobbyist Ed Rogers.... "Look, bad policy and bad politics makes for bad elections."

Democratic Heroes: Harold Ford and Ned Lamont

Thank you, Harold Ford, for running an excellent campaign in Tennessee. You would have won if only half a generation more had passed.

And thank you, Ned Lamont. Steve Gilliard explains why:

THE NEWS BLOG: I know it's hard for people to see the benefit in Lieberman returning to the Senate, but there was one.

Mike Bloomberg led Republicans in sending the Lieberman campaign \$20m dollars. The WH opened their wallets to Joe and he took their money.

One problem, Jim Talent needed it more. So did George Allen, Michael Steele and Conrad Burns. Every dime the GOP sent to Lieberman went to reelect a man who votes with the Dems most of the time, while denying the most loyal Republicans needed funds.

We probably hold the Senate today because the GOP felt the need to lavishly support Lieberman. Money is finite. Every dime taken up by Lieberman was unavailable to other Republicans in tight races.

Bush Bipartisanship and the Reality-Based Community

From Joshua Micah Marshall's shop, Talking Points Memo:

Yup, that didn't last long. The new era of "bipartisanship" in Washington ended promptly at 1:22 EST Thursday -- when the White House sent John Bolton's nomination as UN ambassador back to the Senate. After seeing the nomination fail twice before, the White House hopes to push Bolton through a lame-duck Senate before the Democratic majority takes office in January.

As Steve Clemons noted, the White House made the move a mere 14 minutes after President Bush and Speaker-to-be Nancy Pelosi concluded their remarks to the press following a lunch meeting purportedly focused on how to work together. Thankfully, defeated Rhode Island Sen. Lincoln Chafee signaled that he would continue to oppose Bolton, dooming the nomination for a third time.

Meanwhile, it started to dawn on much of Washington that the President's nomination of Bob Gates to replace Don Rumsfeld as Secretary of Defense would have to make it through a Democratic-controlled Senate, a prospect the President himself did not seem to be considering when he offered the job to Gates on the Sunday before the mid-term elections. Suddenly, the ghosts of the Iran-contra scandal had returned.

As one TPM reader noted, "Who better to mend fences with a newly empowered Congress than someone whose claim to fame is involvement in a secret operation specifically forbidden by Congress?" -- TPM Reader DK

And a rumor that Bob Gates belongs to the reality-based community:

The Talent Show: Maybe Robert Gates Isn't So Bad After All: More interesting, however, is the note that accompanied the forwarded letter....

Dear Fellow Aggies (and some who aren't Aggies but will find this interesting),

By now, you've probably heard that Donald Rumsfeld has resigned as Secretary of Defense. (Thank God!) Also, you may have heard that Bush has nominated Robert Gates to be Rumsfeld's replacement. Gates is a former head of the CIA and, for the past two years, has been president of Texas A&M.

Below is an email forwarded to me by __, professor at A&M. Those of you who went to A&M might remember _ as a highly intelligent, fiercely liberal prof who loved to stir things up and encourage his students to challenge the status quo and stand up for what is right.

About a year ago, I was in College Station and visited _ for a few drinks. He told me then of his admiration of Gates, despite some initial apprehension due to Gates' background, and for what Gates was doing for A&M. He also said that at a recent faculty party, Gates told him that he thought that Bush was the worst president we'd ever had...

When 16,777,216 Attacks!

Slashdot fails to scale:

Slashdot | Slashdot Posting Bug Infuriates Haggard Admins: Last night we crossed over 16,777,216 comments in the database. The wise amongst you might note that this number is 2^24, or in MySQLese an unsigned mediumint. Unfortunately, like 5 years ago we changed our primary keys in the comment table to unsigned int (32 bits, or 4.1 billion) but neglected to change the index that handles parents. We're awesome! Fixing is a simple ALTER TABLE statement... but on a table that is 16 million rows long, our system will take 3+ hours to do it, during which time there can be no posting. So today, we're disabling threading and will enable it again later tonight. Sorry for the inconvenience. We shall flog ourselves appropriately. Update: 11/10 12:52 GMT by J : It's fixed.

What Democrats Should Do Now on Foreign Policy

Suzanne Nossel is a goddess!

democracyarsenal.org: We Win: Then What?: Here are ten quick pieces of advice:

1. Don't Overstate the Influence of Congress Over Foreign Policy Making - Foreign policy is the responsibility of the executive branch. Even in the majority, progressives will not be at the helm and shouldn't pretend to be. Particularly given the hard-headedness of this administration (Dick Cheney's "full steam ahead" comment on Iraq yesterday epitomizes it) progressives should not pretend to enjoy more sway than they do. For example, there's been lots of talk of a regional conference to activate Iraq's neighbors on behalf of stability. That will be tough to make work, but especially so for an Administration that still won't admit what's gone wrong.
2. Don't Let Anyone Forget How We Got Here - The reason the American public is contemplating switching horses absent what many pundits thought was essential to progressive victory: namely, a consensus plan for Iraq, is that they have come to blame the Administration for creating an insoluble crisis. Iraq will get likely get worse before it gets better, and a changeover on Capital Hill cannot undo most of the mistakes already made. We need a bipartisan approach to digging out from the crisis, but should not lose sight of who got us into it.
3. Don't Expect an Easy Out From Iraq - Lots of progressives have been speaking as though some tough talk to the al-Maliki government in Iraq will get it to step up to the plate, get security under control, and allow us to exit without a complete meltdown into sectarian violence. While I don't pretend to know to what degree the Iraqi government's failings are attributable to lack of will versus lack of competence, it seems certain that regardless, the problem will not be solved. While it may make good campaign rhetoric, its not plausible that the government is willfully allowing their country to devolve into chaos but, with the right stern words, will suddenly reverse course and get things under control. Short of that all scenarios are pretty bleak.
4. Be Honest with the American Public - Half-truths got us into Iraq, but they won't get us out. With greater control in the Congress, progressives will have the authority to unpack the Administration's statements and claims and let the public in on the truth about how the war effort is going, what the likely consequences of withdrawal will be, and what needs to be done to mitigate them.
5. Look for a Handful of Tangible Ways to Push Policy in the Right Direction - Rather than trying to pull off a miracle in Iraq, progressives should focus on preventing the White House from digging us deeper into the whole, and on some tangible steps to address the worst of the policy lapses. A few specifics:
1. Lead on Afghanistan - Rapid deterioration in political and security conditions in Afghanistan is a disaster in the making, yet out-and-out crisis is still preventable. The NATO Commander in Chief is begging for more help training troops and police and building up civil society. The Administration has not had the bandwidth for Afghanistan to be more than an afterthought, but progressives in Congress could change this.
2. Take a Hard-Line on Corruption and Waste in Iraq and Elsewhere - Friday's headline that the Special Inspector General for Iraq Reconstruction was being shunted from office is the latest evidence of the Administration's utter disregard for the rights of taxpayers who are funding the Iraq War, and its compulsion to protect defense contractors and lax Pentagon overseers.
3. Support the Troops - Overblown though it was, Senator Kerry's accidental insult to the troops serving in Iraq had an undercurrent of truth to it: our military is manned disproportionately by Americans who enjoy less means and fewer educational opportunities. There have been numerous proposals to limit the burdens of extended deployment, reinvigorate the GI bill and improve benefits for veterans.
4. Talk Directly to the Military - Our men and women in uniform are taking brave steps to make themselves heard in the Iraq debate. They are the best source of information about what's gone wrong and whether and how it can be fixed. Their support will be essential to the success of any progressive attempts at course correction. Building up these ties will also pay political dividends in the long-term.
5. Iraq Damage Control - Regardless of when America's pull-out from Iraq begins, the central challenge going forward will be to minimize the inevitable chaos that reins now and will prevail in our wake. By expediting priority reconstruction projects, pushing for a political settlement to govern Iraqi oil revenues, and advocating greater engagement by Iraq's neighbors in the stabilization process, progressives can pave the way for a smoother withdrawal, regardless of whose watch it happens on.

"Don't Expect Anything Bold" from Democrats

Mark Thoma catches one:

Economist's View: "Don't Expect Anything Bold" from Democrats: Robert Reich says you shouldn't expect much from Democrats, their power will be limited:

The Democratic Victory: Keep Your Expectations Low, by Robert Reich: Hold the champagne. Don’t expect anything bold to come out of the new Democratic House.

First, Dems don’t have enough votes to overcome Bush vetoes. Second, the new Dems are from marginal districts where they will have to be moderate-to-conservative in order to be reelected. Third, the Dem leadership has its eyes on the big prize - the 2008 presidency - and doesn’t want to do anything to scare off voters.

Barney Frank at the financial services committee will, at most, require more company disclosure of executive pay... John Dingle at energy and commerce is so concerned about the auto industry he won’t try to increase auto mileage standards (he has opposed increasing CAFÉ in the past). George Miller at education and commerce will at most seek additional money for Pell grants, but there won’t be additional money unless Dems cut defense discretionary, which they won’t do.

Dems will demand that Robert Gates, the new defense secretary, keep them in the loop over Iraq, but Dems won’t push him... they’ll have lots of hearings and do very little.

In other words, keep your expectations low....

[T]here's one huge plus: Bush's next Supreme Court nominee (should he have the chance to nominate) won't get easy passage.

Bob is right. The Democrats now have agenda-setting and oversight powers. But as to legislative oomph... Up until now it has taken the middle 20 senators and George W. Bush to pass laws, and that is still the case.

Stupidest Men Alive Nominations: Josh Bolten

Stupidest Men Alive nominations. Ezra Klein submits the name of Josh Bolten:

TAPPED: THE ROVE MYTH. Remember Josh Bolten's prediction for the election?

"I believe Karl Rove," Bolten said in an interview in his West Wing office Friday. "Karl Rove, somewhere inside that massive brain of his, has figured out the political landscape more clearly than the entire collection of conventional-wisdom pundits and pollsters in the entire city of Washington."

If nothing else, this election will destroy the myth of Rove. He managed to lose the vote in 2000. Win a few seats in 2002. Barely pull out a reelection during a time of instability and war. And then lead his party to historic losses in 2006.

Enough of this guy. He could've created an enduring majority after 9/11. Instead, he pursued a strategy of polarization and radicalization, tenuously constructed atop a foundation of corporate handouts (Medicare Part D), perverse policy, and fear mongering. Along the way, he destroyed the country's fiscal health and international prestige.

Discrediting his leadership template will be one of this election's sweetest effects.

He had a lot of help--from the mendacious, disconnected-from-reality, malevolent, and incompetent George W. Bush and the rest of his administration, and from all the Republicans and elite press members who pretended to take their fantasies seriously.

Nevertheless, Bolten's prediction is remarkable.

Econ 210a: Fall 2006: Memo Question for November 15

Memo Question for November 15:

Maxine Berg and Pat Hudson write that the "historiography of the industrial revolution in England has moved away from viewing the late eighteenth and early nineteenth centuries as a unique turning point in economic and social development." Do you agree with their conclusion that the literature has moved too far in this direction? Why or why not?
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