Adam Smith argued that greed generates positive outcomes. According the New York Times, contractors' greed undermined the military's effort to militarize space.
"President Ronald Reagan issued a call on March 23, 1983, to make enemy missiles “impotent and obsolete.” His research effort, scorned by critics as “Star Wars,” after the movie, cost taxpayers more than $100 billion. John D. G. Rather, a laser expert who was an official at a military contractor during that era, said corporate greed undermined the effort from the start. “It became a tug of war,” he recalled, “where everybody and their brother wanted a piece of the action".”
Broad, William J. 2007. "From the Start, the Space Race Was an Arms Race." New York Times (25 September): p. D 1.
Sunday, September 30, 2007
Military Contractors for Peace
Intellectual Property vs. Medical Progress
Here is a Wall Street Journal article that describes how an important medical treatment for brain injuries got no support, in part because it depended on a naturally occurring chemical rather than a potentially patented blockbuster drug.
Burton, Thomas M. 2007. "One Doctor's Lonely Quest to Heal Brain Injury: After 40 Years, Skeptics Back Hormone Therapy." Wall Street Journal (26 September): p. A 1."Decades of research -- often conducted in his spare time and with piecemeal funding -- led him to a surprising hypothesis: that progesterone, a natural female hormone that protects fetuses in the womb, may actually protect and heal injured brains. His work slowly helped overturn medical orthodoxy that states that brain tissue, once injured, stays that way. Now he and colleagues plan a large-scale human trial over the next several years. While the outcome is far from assured, the effort could produce a new treatment for the estimated 10 million people world-wide who suffer traumatic brain injuries each year."
"Dr. Stein's journey shows just how difficult it is to challenge the medical establishment, which often begrudges ideas outside the mainstream. It also underscores how difficult it is for a lone researcher to persevere without drug-company or other major financial support: For many years, Dr. Stein held administrative jobs and had to moonlight to continue his research. Drug companies tend to focus more on blockbuster drugs they design than on naturally occurring ones with minimal profit potential."
After decades of neglect, his work was finally subjected to experimental trials. Here is what happened:
"Over the next three years, the study focused on 100 head-injured patients who had been brought into the emergency room at Grady Memorial Hospital in downtown Atlanta. Some patients received standard treatment to control bleeding and fevers along with state-of-the-art head-injury treatment. Others were also given intravenous progesterone, at triple the highest natural levels at the end of pregnancy. One Saturday morning in 2005, Dr. Stein was driving north of Atlanta on a shopping trip with his wife when a stern-sounding Dr. Kellermann called him. Dr. Kellermann said he had just learned the study's findings, adding, "Pull over to the side of the road."
"Dr. Stein froze, fearing that decades of research with animals would prove useless, that progesterone might have turned out to raise the death rate in humans for some unforeseen reason. His heart was thumping as Dr. Kellermann told him the results: Patients on progesterone had a death rate of just 13% from their head injuries, less than half the 30% death rate of those on standard treatment. And progesterone showed no negative side effects. The 100-subject study was too small to prove that progesterone caused the lowered death rate, but the findings were consistent with animal research. Don Stein was so elated that he had to ask his wife to take over the driving.""In the respected journal "Annals of Emergency Medicine" this past April, Dr. Stein and his researchers summarized the study: "Moderate traumatic brain injury survivors who received progesterone were more likely to have a moderate to good outcome than those randomized to placebo."
Friday, September 28, 2007
The SCHIP Debate
Greg Mankiw weighs in on this controversy with the following exam question:
With medical costs skyrocketing, the middle class struggling, and heartless Republicans running the government, what has happened to the percentage of children without health insurance over the past seven years?
He then asks us to look at figure 1 from this source, which shows that this percentage has declined over the past decade. Greg then suggests to his readers:
Feel free to suggest your hypotheses to explain these data in the comments section.
Greg got some good answers including one from Marshall Derks, which simply said: “Simple answer, SCHIP was created in 97”. A longer answer came from Mike: “Partisan hackery at its worst, Dr. Mankiw. Shame. As bob put it, the correct question is what will happen in the two scenarios going forward”. These replies only go to show you what happens when you don’t drink the White House Kool Aid.
The Political Economy of War
The Washington Post reports that Saddam Hussain was willing to go into exile just before the invasion for a mere $1 billion. Assume that Lawrence Lindsey's $100 billion estimate reflected the administration's optimistic best guess of the cost of war. What do you think the administration thought might have been worth more than the $99 billion difference?
http://www.washingtonpost.com/wp-dyn/content/article/2007/09/26/AR2007092602414.html?sub=AR
COLE ON BUSH: BEYOND IMPEACHABLE
So, Juan Cole has provided a reputed transcript from a Spanish newspaper of a meeting on February 22, 2003 between Bush, Rice, and Spanish PM, Aznar at the Crawford ranch. Two claims from this are that Bush declared that he would invade Iraq even if the UN refused to approve it, and, more significantly, there was an offer on the table from Saddam Hussein to leave Iraq, being negotiated by the Egyptians. Price was one billion dollars plus Saddam taking out some documents on WMD (Cole speculating these were ones showing previous US funding and support for chemical weapons development, which the US did when Saddam was fighting Iran in the 80s with Rumsfeld famously shaking his hand back then).
So, Bush has gotten us a million dead and a trillion dollars spent, when he could have spent one billion. This is way beyond being impeachable and well into war crimes territory. (The only blog I have seen mentioning this besides Cole, so far, is marginal revolution, where Tyler Cowen made a comment about the Coase Theorem, and most of the commenters somehow thought that this was all evidence that the "skeptics" on Iraqi WMD were wrong and should now be embarrassed. Ack!)
Thursday, September 27, 2007
Apologies to John Dingell
Doug Henwood tells me that Charles Komanoff and
the folks at the Carbon Tax Center report that
Rep. Dingell's carbon tax bill is both good and,
in their words, "terrific." Here is a link for the bill.
http://www.carbontax.org
Wednesday, September 26, 2007
Unexpected Roads Happily Traveled
Robert C. Merton, winner of The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1997 (sometimes incorrectly known as the Nobel Prize in Economics wrote with what in retrospect might have an ironic ring:
"It was deliciously intense and exciting to have been a part of creating LTCM (Long-Term Capital Management). For making it possible, I will never be able to adequately express my indebtedness to my extraordinarily talented LTCM colleagues. The distinctive LTCM experience from the beginning to the present characterizes the theme of the productive interaction of finance theory and finance practice. Indeed, in a twist on the more familiar version of that theme, the major investment magazine, Institutional Investor characterized the remarkable collection of people at LTCM as "The best finance faculty in the world." In long retrospect, unexpected roads happily traveled"."
http://nobelprize.org/nobel_prizes/economics/laureates/1997/merton-autobio.html
Economists vs. Politicians
Peter recently posted something about Mankiw's New York Time piece supporting carbon taxes.
http://econospeak.blogspot.com/2007/09/mankiw-on-carbon-taxes.html
It isn't often that we can find examples of the economics profession behaving well, but the Wall Street Journal has chimed in reporting that economists as a whole agree that carbon taxes are the way to limit global warming, yet politicians are just as adamant in supporting the cap and trade. Nobody wants to get blamed for raising taxes. Rep. John Dingell (Dem, GM; i.e. General Motors) is still supposed to introduce a carbon just to prove how unpopular such a tax might be. Here is the link for the article:
http://online.wsj.com/article/SB118955082446224332.html?mod=todays_us_page_one
Health Care: Are Greg Mankiw and Dick Morris Trying to Help Senator Clinton?
Better question – why is Greg relying on Dick Morris for economic policy discussions? I refuse to suggest that Mr. Morris is going to bother to truthfully inform us on any issue preferring to quote Greg:
His one-third figures seem a bit high to me, but he is right that 47 million substantially overestimates the magnitude of the problem. A serious estimate would take out both illegal immigrants and those who are eligible for Medicaid but have not applied. Those eligible for Medicaid can always enroll once they need significant medical care. In addition, I would exclude those who were offered employer-provided health insurance but declined coverage, and those that are healthy and making more than, say, $50,000 a year. These two groups are choosing to roll the dice. According to estimates I have seen, they make up more than a quarter of the uninsured.
Let’s think this through – if the problem of uninsured is not as large as what Senator Clinton has suggested, then the budgetary costs of addressing this problem wouldn’t be as large either. The usual rightwing criticism of Clinton’s proposal is that it would raise taxes a lot. I guess Dick Morris was trying to help the Senator out by deflating this rightwing argument. Thanks Dick! Thanks Greg!
Moral hazard fundamentalism
Thoma and Delong both linked to Summers' FT column with this title yesterday. Summers has in mind the trade-off between stability and moral hazard that a lender of last resortmust negotiate. Fundamentalists look at the moral hazard costs of such policies (people take inefficiently high risks, knowing that they will be bailed out) and ignore the benefits of insuring that solvent debtors are not brought down in a panic: they see no trade-off at all. It's as if, he says, we argued that because the presence of a fire-house down the street makes us somewhat more likely to smoke in bed, that therefore there should be no firehouses!
This fundamentalism is indeed pervasive. Here is another example: State policies that compress the income distribution - progressive taxes, safety nets, etc- clearly increase moral hazard and lead to less effort- the incentive to take actions that increase pre-tax income is dulled to some extent. That's enough to condemn such policies for the fundamentalists. But this is to ignore the huge benefits that such policies create by spreading risk more efficiently. Due to adverse selection, generalized income insurance is not a paying proposition for private insurers. Social welfare states, by making everyone join the pool, substitute for this missing market. There is a trade-off here, as in the LLR case, and it is a tradeoff not (or not just) between efficiency and equity, but between two sources of efficiency: lower moral hazard and more risk-spreading both increase "certainty-equivalent" income. Policies that increase income security are not wimply interferences with efficiency: they are part and parcel of what efficiency requires. The thorough-going "ownership society" - the end-point of moral hazard fundamentalism in this context,-by failing to see the trade-off involved, is an inefficent society, where certainty-equivalent income is lower than it could be. It's no different form the society that foregoes fire-houses due to the moral hazard of increased smoking in bed.
Tuesday, September 25, 2007
Not Sure I’d Let This “Economist” Cook for Me
Mark Thoma emails me a gift calling Economics For Dummies the “economics of a dummy”. Ralph R. Reiland (the 3 R’s) says he is an associate professor of economics at Robert Morris University and a local restaurateur. I have no clue what the quality of instruction is at Robert Morris University but I sure hope the cooks at his restaurant are better at the culinary arts than Mr. Reiland is at understanding macroeconomics. He confused the aggregate demand effects of the 1964 tax cut supported by easy monetary policy with the supply-side insanity of Jude Wanniski and Arthur Laffer. He also wrote this old chestnut:
Additionally, inflation fell from double digits in 1980 to 1.9 percent in 1986, federal revenues increased by nearly half a trillion dollars over their 1980 levels by the end of Reagan's second term, the federal budget deficit fell from 6.3 percent of GDP in 1983 to 2.9 percent in 1989, and unemployment dropped from 7.1 percent in 1980 to 5.3 percent in 1989.
I would hope his students know that part of the reason inflation fell was that massive 1982 recession brought on by the Federal Reserve’s zeal to offset the aggregate demand effects from the 1981 tax cut. I would also hope his students are aware that real per capita Federal income taxes were barely higher in 1992 than they were in 1980. Can I suggest to Robert Morris that they not let such foolish ideas come before their students?
Monday, September 24, 2007
Using Markets to Fight Global Warming
Here is a remarkable step forward in fighting global warming here on the Left Coast. "The State energy commissioners on Thursday unanimously adopted a proposal that would financially reward or punish California's largest utilities for their performance on energy-efficiency programs. Members of the California Public Utilities Commission voted to award up to $450 million over three years to Pacific Gas and Electric Co., Southern California Edison, San Diego Gas & Electric and Southern California Gas Co. if they meet specific goals to trim energy consumption. While the money would come from approved rate increases, said Commissioner Dian Grueneich, who co-wrote the proposal, the increases would be more than offset by up to $4 billion in reduced energy costs for consumers." Follow the dancing money.
http://www.sacbee.com/103/story/390798.html
Sunday, September 23, 2007
How to Do Chicago Economics
McCloskey, Donald N. 1985. The Rhetoric of Economics (
140: "In seminars in economics it is common for the speaker to present a statistical result, apparently irrefutable by the rules of positive economics, yet to be met by choruses of "I can't believe it" or "It doesn't make sense." Milton Friedman's own Money Workshop at
And
Reder, Melvin W. 198
13: "Any apparent inconsistency of empirical findings with implications of the theory, or report of behavior not implied by the theory, is interpreted as anomalous and requiring one of the following actions: (i) re-examination of the data to reverse the anomalous finding; (ii) redefinition and/or augmentation of the variables in the model...; (iii) alteration of the theory to accommodate behavior inconsistent with the postulates of rationality... (iv) placing the finding on the research agenda as a researchability anomaly."
13: It is customary to confront theory with evidence. By contrast, "
18: The major objective is to convert non economists to their way of thinking.
19: "However imaginative, answers that violate any maintained hypothesis of the paradigm, are penalized as evincing failure to absorb training."
WHY DOES IT TAKE SO LONG TO HEAR FROM ECONOMICS JOURNALS ABOUT SUBMITTED PAPERS?
As editor of an economics journal, I regularly hear authors complain about long lags for referee reports. I am very sympathetic with these complaints and frustrated myself. What is especially frustrating is that I know that these lags are much shorter in many other disciplines, especially the hard sciences. Physicists and others are simply shocked at the lags in economics refereeing and publishing, and this has led to much of the recently emerged econophysics literature being published in physics journals like Physica A and European Physical Journal B, which are not indexed in the Journal of Economic Literature, and hence not read and not even known about by most economists.
Ofer Azar has argued in a paper in Economic Inquiry this year ("The slowdown in first response times of economics journals: can it be beneficial?" 45(1), 179-187) that indeed the increasing lag of authors hearing back from journals could be a good thing, maybe even optimal. This is because people need to pay a cost for sending papers to journals that are too far above them and in which they have no chance of publishing. Hence, they will get the signal if they have to wait a long time and just get rejected and send their papers to appropriate outlets. Azar argues (in a paper forthcoming in JEBO, which I edit) that the shorter response times in physics reflect that their papers are shorter on average than those in economics. This latter point is correct, but I think that what has happened is that a bad social norm has evolved in economics where referees simply assume that they can sit on papers from economics journals for a long time and just put them aside, fearing that if they get their reports back quickly, they will simply be punished by having more papers sent to them to referee, given that the average response times are so long. I dislike this social norm, but it is very hard to overcome (and the Berkeley Electronic Press's effort to shorten refereeing times has so far resulted in published articles that barely get cited in other papers).
Hapy Birthday
John Coltrane, born September 23,1926. Go listen to "Alabama" - and think about Louisiana.
Saturday, September 22, 2007
Does the Washington Post Think the U.S. Exports Oil?
Dean Baker has some fun with an article written by Steven Mufson on the supposed effect of Federal Reserve policy on oil prices:
Let's try to write this so even a reporter can understand it. Oil is bought and sold in a huge market. The unit of account happens to be the dollar. This means that if the value of oil against all other commodities remains fixed, and the value of the dollar falls against other currencies, then the price of oil will be higher measured in dollars, and essentially unchanged in other currencies (there are some secondary effects - if oil is more expensive in dollars, people in the U.S. will buy less, which can make the price of oil somewhat cheaper measured in other currencies). The same would be true if oil were priced in euros, yen, bushels of corn, or gallons of peanut butter. There is no special importance to the fact that oil happens to be priced in dollars. So, let's get the story straight and stop confusing readers.Dean Baker’s point is that currency of denomination is not the issue. But let’s take a look at what Mr. Mufson wrote:
Federal Reserve Chairman Ben S. Bernanke may have cooled off the credit crisis by cutting interest rates, but he may also have heated up oil prices this week. For seven consecutive business days, crude oil prices have hit new highs. Even after dropping slightly yesterday, crude oil on the New York Mercantile Exchange finished the week at $81.62 a barrel, up a third since Jan. 1 and not far short of the inflation-adjusted peak set in January 1981 … Lower interest rates have also undercut an already weakened dollar, which reached $1.41 against the euro. Since crude oil is priced in dollars, a weak dollar makes oil cheaper abroad and high prices in dollars more sustainable.
Mufson has the charts to demonstrate oil prices have risen and cites several factors that led to the increase in the market price besides the reduction in the Federal Funds rate. He then notes:
"In spite of the high [gasoline] prices, we have still seen growth in the United States," said Rob Routs, executive director of downstream at Royal Dutch Shell. He said that the United States has been importing about 1 million barrels a day of refined products
I guess Mr. Mufson knew we were a net importer of oil and not a net exporter. And I thought a dollar devaluation was supposed to increase world demand for our exports as it discouraged our demand for imports. The devaluation does matter as it impacts relative prices – but I think Mr. Mufson has his story a wee bit backwards.
Greg Mankiw Asks the Democrats a Good Question on Fiscal Policy
I think Greg Mankiw has a point here:
Okay, you want to raise taxes on the rich. I get that. But what do you want to do with the money? At different times, it seems, you want to: (1) Fund universal health care: (2) Give a tax cut to the middle class; (3) Reduce the long-term fiscal gap. Which is it? … No one really thinks you can achieve all three of the above goals in any significant degree and pay for them with only tax hikes on the rich. When it comes down to choosing among the three goals, which one would you pick?
Fair enough but when is Greg going to ask Mitt Romney the same type of questions. Mitt is acting a lot like Rudy Giuliani:
But eliminating the AMT would be extremely expensive, costing $100 billion in 2010 alone. Giuliani told the 700-member audience of the Northern Virginia Technology Council that he wants to cap the tax, and perhaps eventually eliminate it altogether. "Over time we can figure out how to eliminate it. ... If we were going to eliminate it, though, we'd have to balance it with additional tax cuts," Giuliani said, leaving confused expressions on his audience. "That might be by making the Bush tax cuts permanent."
Kevin Drum calls Rudy a buffoon:
Even a local Democrat who heard the speech was willing to give Rudy the benefit of the doubt on this: "I do think he may have misspoke," said Gerry Connolly, the chairman of Fairfax County's Board of Supervisors. Please. Just for once, can we hold this guy responsible for what he says? Sure, he misspoke, but he misspoke because he doesn't have a clue what he's talking about and blurted out the first thing that came to mind: namely that reducing taxes is the answer to every question. Nobody with even the vaguest idea of what it meant to eliminate the AMT would say that it had to be balanced by reducing other taxes.
Kevin is right. But he’s no less of a buffoon than Mitt Romney. It’s fine for Greg to ask his question to Democrats but when is he going to do the same to the candidate he seems to support?
Friday, September 21, 2007
Bubblicious
There is a useful piece by Floyd Norris in this morning’s NY Times about the Fed’s response to the housing bubble. It echoes the larger debate, which has flared up again with his PR blitz, over whether Greenspan was fiddling while Roman property values went through the roof.
Let’s step back for a moment and consider the larger context. The US has been running a very large current account deficit. Here are the quarterly data since 1990 courtesy of the BEA:
US Current Account Balance as a Percent of GDP
If this were the total story, the US economy would have been moribund since the late 1990s when the deficit really took off. This fraction represents income that leaves the country rather than making purchases that would support domestic employment.
But this is only half the picture. The other half is the return of this money via the capital account, in the form of purchases of debt, like treasury bonds, and assets. This return flow not only finances the current account deficit, propping up the dollar, but also makes possible continued US economic growth. For instance, the willingness of foreign central banks to accumulate treasuries means that the Bush crowd can borrow freely to finance the federal government deficit without fear of pressure on interest rates. (This is not to say that the fiscal deficit is too high in any general sense, which it isn’t.) The infusion of foreign finance also sustains asset prices, like stock values, above what they would otherwise be. This generates capital gains for those who have positions in these markets and also encourages borrowing against paper wealth.
The housing bubble could be seen as a bit of both of these. Foreign purchases of mortgage-backed securities injected large amounts of money into the housing market, so that the demand for loans, no matter how outlandish, never exceeded the supply. This in turn fueled a bubble in the existing housing stock. Now that the bubble is bursting, there are fears of a general financial crunch.
Perhaps, but there is still one more river to cross. If the central banks and oil funds that currently finance the US external deficit continue their willingness to hold dollar assets, the money will simply have to go somewhere else. It can finance government and corporate debt, driving down interest rates. It can go into purchases of US companies, goosing the stock market. As long is it has to go somewhere it will.
The risk, of course, is that at some point the sovereign entities on the receiving end of the massive dollar flow will decide that enough is enough. Perhaps the extent of losses they will suffer due to the mortgage meltdown will force them to pull back. Maybe a private sector stampede, sparked by further bad news about defaults, will overwhelm the ability of CBs to stem the tide and sustain US financial markets.
The larger story, however, is that, as long as the US economy chugs along in a temporary equilibrium of massive external borrowing, bubbles of one sort or another are inevitable. That’s why it’s an equilibrium and also why it’s temporary.
I Bet Lou Dobbs Is Not Happy With Mattel
Thomas A. Debrowski is Mattel's executive vice president for worldwide operations. After a meeting with Chinese product safety chief Li Changjiang, Mr. Debrowski decided his company should take a lot of the responsibility for the recent product recalls:
"Our reputation has been damaged lately by these recalls," Debrowski told Li in
a meeting at Li's office at which reporters were allowed to be present. " And Mattel takes full responsibility for these recalls and apologizes personally to you, the Chinese people, and all of our customers who received the toys," Debrowski said … The recalls have prompted complaints from China that manufacturers were being blamed for design faults introduced by Mattel. On Friday, Debrowski acknowledged that "vast majority of those products that were recalled were the result of a design flaw in Mattel's design, not through a manufacturing flaw in China's manufacturers." Lead-tainted toys accounted for only a small percentage of all toys recalled, he said, adding that: "We understand and appreciate deeply the issues that this has caused for the reputation of Chinese manufacturers." In a statement issued by the company, Mattel said its lead-related recalls were "overly inclusive, including toys that may not have had lead in paint in excess of the U.S. standards. "The follow-up inspections also confirmed that part of the recalled toys complied with the U.S. standards," the statement said. Li reminded Debrowski that "a large part of your annual profit... comes from your factories in China. "This shows that our cooperation is in the interests of Mattel, and both parties should value our cooperation. I really hope that Mattel can learn lessons and gain experience from these incidents," Li said, adding that Mattel should "improve their control measures."
I mention Lou Dobbs as his show has been on a tirade of China bashing as if we should stop importing goods from this trading partner. The reality is that most of the toys purchased by American households are made in China. During 2006, we imported $22.2 billion worth of toys from China according to this source. Mattel sales were $5.65 billion during 2006 and its operating margin was just shy of 13 percent. Mattel’s 10-K filing notes:
The foreign countries in which most of Mattel’s products are manufactured (principally China, Indonesia, Thailand, Malaysia and Mexico) all enjoy permanent “normal trade relations” (“NTR”) status under US tariff laws, which provides a favorable category of US import duties. China’s NTR status became permanent in 2002, following enactment of a bill authorizing such status upon the country’s accession to the World Trade Organization (“WTO”), which occurred in 2001. Membership in the WTO substantially reduces the possibility of China losing its NTR status, which would result in increased costs for Mattel and others in the toy industry. All US duties on toys were completely eliminated upon implementation of the Uruguay Round WTO agreement in 1995. The European Union, Japan and Canada eliminated their tariffs on most toy categories through staged reductions that were completed by January 1, 2004. The primary toy tariffs still maintained by these countries are European Union and Japanese tariffs on dolls of 4.7% and 3.9%, respectively, and a Canadian tariff of 8.0% on children’s wheeled vehicles.
I realize that the Lou Dobbs crowd is pushing hard for higher tariffs on imports from China, but such tariffs are not exactly the right incentive structure to promote better quality control in terms of toy production. Mattel and the Chinese government both have incentives not to wreck the flow of Mattel profits and Chinese jobs that would come American parents not trusting the products they produce. Sure – there are incentives to cut production costs and maybe the lower cost of lead paints may have been part of the problem here – as argued by this Angrybear. But as Mr. Debrowski notes, one can overemphasize this one aspect of the incentive structure.
I say this because Mattel and other companies that design and distribute toys with production outsourced to third party Chinese manufacturers have established the type of Hong Kong sourcing companies that I discussed here. OK, my Angrybear post from over a one ago was complaining that the IRS allows too much transfer pricing manipulation. But as one digs into the facts about these sourcing companies, one sees that these subsidiaries of companies like Mattel hire a lot a quality control personal. Are they spending enough on quality control? Perhaps not, but let’s see if the toy industry learns a valuable economic lesson from these product recalls.
Thursday, September 20, 2007
Men at Work
As you can see we're trying to improve the template of this blog. Mistakes will be made. Please bear with us.
Go ahead, attack me for the colors I've picked. I can take it.
This is the rest of yourpost you'll see when following the "Read more" link. Continue the restof your very long post here. Blah, blah and blah.
THE DOLLAR DIVE GETS SERIOUS
So, it is not just that the US dollar has hit an all time low against the euro, but it has hit parity against the long-derided Canadian dollar (aka "looney") for the first time in over 30 years, and much more significantly, for the first time in 50 years, the Saudis are considering unpegging their riyal from the US dollar, frustrated at the inflationary pressure arising from the rising cost of imported food as their currency declines with the dollar. The upshot is a very real danger of a full-blown plunge of the dollar internationally, in the wake of the interest rate cuts by the Fed, in their efforts to stem the tide of housing price declines and failures in the sub-prime mortgate industry that have been filtering out into the global financial markets. But, with the unprecedented and humongous net international indebtedness of the US, combined with ongoing and large-scale current account deficits, this is indeed a very dangerous situation (especially for someone like me about to travel to Europe, :-)).
Delong Smacks Lucas Down!
Check it out. I went to grad school during the heyday of Lucas/Sargent/Wallace/Barro "policy-ineffectiveness" theology. The picture of how the macroeconomy works that this gang flacked has turned out to be utterly, utterly wrong. The idea that the business cycle is caused by "unanticipated money" shocks - so that an economy where the Fed acted in predictable ways would be cycle-free: this is, and was, intellectual rubbish! Why have these people paid no price for being so wrong, I wonder? Like the liberal war-bloggers, their eminence is undiminished.
A Comment on Senator Obama’s Tax Proposal from a Bear Inflicted by Deficit Dementia
While I have been a big fan of what Max Sawicky started in Blogland a few years back, he and this ProGrowthLiberal (if you are thinking another Gene Sperling type – you are close) did not entirely agree 100% on how to express our views on things like fiscal policy. After all, someone who has been signing onto the Angrybear blog (before our cave got too crowded with all sorts of Bears – some of which I worry have been visiting Dick Cheney’s cave) as PGL, it is fair criticism that I’m in the Rubinomics camp at least when it comes to trying to restore national savings. I can try to defend my DeLong-ish deficit hawk view on things by appealing to the Solow growth model and all, but I know this crowd will rightfully fire back with things like the benefits of public investment, the importance of distributional equity, and even the need to stay close to full employment. No argument here, so let me get to my first politically framed post with an economist twist by pointing to a recent Angrybear post:I see the Republicans topping the modest tax cuts that Senator Obama is proposing by promsing larger tax cuts for everyone. But that’s the problem. The GOP is all about Spend&Spend and Borrow&Borrow, which simply means deferring the tax bite. I don’t want Democrats promising voters that money grows on trees.
OK, you may say this Bear really has Deficit Dementia so badly that he has no clue as to how to play the DC games with the reprehensible GOP types. Fair enough but as I try to distance myself just a bit from Kevin Drum, I do need to step back and realize that Kevin is also afflicted with both Deficit Dementia and a desire to be slightly right of MoveOn. But that should not stop either one of us for calling on the next President for insisting on a more progressive tax code.
Which leads me to where I think Senator Obama must have been reading MaxSpeak, You Listen. Over at Angrybear, I had two habits: (1) complaining a lot about how multinationals manipulated transfer pricing and got away with it; and (2) stealing choice phrases from Max. These were not mutually exclusive activities as Max has some of the best commentaries on how transfer pricing manipulations would cheat the US Treasury.
So my first post is less on the issue of fiscal policy and more a promise to say more on this issue of how the next President – be that Senator Obama or one of the other good choices from the Democratic side (please don’t get me started on Rudy McRomney) – can gather at least a few morsels from effectively enforcing section 482, which should be the domain of economists even if we let the tax attorneys trample all over us.
Of course, if one of these responsible GOP types dusts off Social Security deform, expect this Bear to reject the notion that prefunding is jive. But I don’t want to go down that road just yet as I remain thankful that Max has given me the right to post here.
Update: Did I predict that the Republicans would up the ante on tax cuts? Ramesh Ponnunu proves me right! He wants everyone to get a tax cut. And I thought Ramesh was the sole smart one at the National Review. For why this is another nitwit rant, see Mark Thoma. Shall we just call the GOP, the “money grows on trees” party?
Wednesday, September 19, 2007
Prices as Intellectual Property
The magic of the marketplace that Hayek proposed works because prices covey the information necessary to make efficient decisions. I never believed Hayek, but I never supported intellectual property either. Here we have Harvard's bookstore acting as if its retail prices were intellectual property to prevent students from buying "efficiently."
http://www.boingboing.net/2007/09/19/harvard-bookstore-ou.html
"The Coop, Harvard's Barnes-and-Noble-run bookstore, has begun to throw out students who "take a lot of notes" about book pricing, stating that their prices are "intellectual property." Apparently, no one with a Harvard Law degree is involved in formulating this notion, as factual matters (such as pricing) are not copyrightable."
Greenspan on the futility of Economic Forecasting
Dufour, Jeff and Patrick Gavin. 2007. "Alan Greenspan's a Pessimist on Economists." Yeas & Nays (11 September). http://www.examiner.com/blogs/Yeas_and_Nays/2007/9/11/Alan-Greenspans-a-pessimist-on-economists
When you gather together three Nobel prize winners, four former members of the White House's Council of Economic Advisers, a Congressional Budget Office head and a former treasury secretary, you sure don't expect them to be told that, well, their life's work has all been for naught. But, at a private dinner Friday held at the Washington Club to honor Brookings Institution economist George Perry and Yale's Bill Brainard (both the retiring editors of the renowned Brookings Panel on Economic Activity), former Federal Reserve Chairman Alan Greenspan told the audience that economists don't really know anything.
"The one thing that struck me is that, despite the extraordinary sets of articles, insights and analysis by the people in this room and the other colleagues in BPEA, our ability to forecast the business cycle has not improved one iota," Greenspan said. "The best models don't work all that well."
Ouch.
But don't cry just yet, wonks: Greenspan was actually asked by BPEA to discuss the inherent difficulties in economic forecasts (economists are gluttons for punishment, don't you know) and Greenspan -- in the type of English only he can employ -- said the uselessness of their jobs actually creates usefulness!
"It doesn't, however, induce us to then conclude that, if the model doesn't forecast -- which implies that it has not captured the appropriate structure -- we nonetheless tend to use the structure of the model to do analysis and draw significant conclusions about how the inner workings of relationships occur even though the coefficients which we're employing clearly don't forecast anything worthwhile."
Exactly. What he said.
Thanks to Doug Henwood who posted this to the LBO mailing list.
Tuesday, September 18, 2007
more on Liberals vs. Conservatives
This one makes more sense to me than the one about conservatives being "rigid" and liberals being "flexible," which seemed tautological. Whereas that article really couldn't say anything about non-liberal, non-conservative people like Marxists (who I guess would be both rigid and flexible simultaneously), this one might: Marxists might be saying that the five different moral principles that Haidt posits have been ripped apart by the rise of modern capitalist society and that this alienation needs to end, to find harmony among them. -- Jim
from the Science section of the NY TIMES, 9/18/07: >>“Imagine visiting a town,” Dr. Haidt writes, “where people wear no clothes, never bathe, have sex ‘doggie style’ in public, and eat raw meat by biting off pieces directly from the carcass.”
>> He sees the disgust evoked by such a scene as allied to notions of physical and religious purity. Purity is, in his view, a moral system that promotes the goals of controlling selfish desires and acting in a religiously approved way.
>> Notions of disgust and purity are widespread outside Western cultures. “Educated liberals are the only group to say, ‘I find that disgusting but that doesn’t make it wrong,’ ” Dr. Haidt said.
>> Working with a graduate student, Jesse Graham, Dr. Haidt has detected a striking political dimension to morality. He and Mr. Graham asked people to identify their position on a liberal-conservative spectrum and then complete a questionnaire that assessed the importance attached to each of the five moral systems. (The test, called the moral foundations questionnaire, can be taken online, at www.YourMorals.org.)>> They found that people who identified themselves as liberals attached great weight to the two moral systems protective of individuals — those of not harming others and of doing as you would be done by. But liberals assigned much less importance to the three moral systems that protect the group, those of loyalty, respect for authority and purity.
>> Conservatives placed value on all five moral systems but they assigned less weight than liberals to the moralities protective of individuals.
>> Dr. Haidt believes that many political disagreements between liberals and conservatives may reflect the different emphasis each places on the five moral categories.
>> Take attitudes to contemporary art and music. Conservatives fear that subversive art will undermine authority, violate the in-group’s traditions and offend canons of purity and sanctity. Liberals, on the other hand, see contemporary art as protecting equality by assailing the establishment, especially if the art is by oppressed groups.
>> Extreme liberals, Dr. Haidt argues, attach almost no importance to the moral systems that protect the group. Because conservatives do give some weight to individual protections, they often have a better understanding of liberal views than liberals do of conservative attitudes, in his view. [what about the "extreme conservatives"?]
>> Dr. Haidt, who describes himself as a moderate liberal, says that societies need people with both types of personality. “A liberal morality will encourage much greater creativity but will weaken social structure and deplete social capital,” he said. “I am really glad we have New York and San Francisco — most of our creativity comes out of cities like these. But a nation that was just New York and San Francisco could not survive very long. Conservatives give more to charity and tend to be more supportive of essential institutions like the military and law enforcement.”<<
The jazzy sounds of Alan Greenspan
It's not news that AG spent some time playing clarinet in the Herbert Jerome band. In the memoir, so the grey lady informs me this morning, he recalls, during down-time, band-members clouded in tobacco and marijuana smoke in one room, while he sits alone in the next ensconced in an economics tome, or - I'm imagining,- some of the texts that pre-figure his inauguration into the Rand cult . I picture the standard jazz repertoire filtered through his green-eye-shaded, Objectivist sensibility:
"How High The Prime."
"I'm Growing Sentimental Over Me."
"In A Rationally Exuberant Mood."
"Tea For Two - With Separate Checks, Please."
"I Concentrate On Me."
"I've Got Liquidity - Who Could Ask For Anything More?"
"Concerto For Kooky (For Ayn)."
"In The Wee Smaa Structures Of The Minimal State."
---and that's just the first set!
Monday, September 17, 2007
National Bureau of Economic Research. 3
The third article, continues the downward spiral. There, Alexander Dyck, Adair Morse, and Luigi Zingales in "Who Blows the Whistle on Corporate Fraud?" suggest that government regulators are not very effective in rooting out corporate fraud, and, what is worse, rational expectations of investors are not very active either. The authors recommend giving more incentives to whistleblowers. This recommendation certainly must be wrong. What corporation needs such meddling? The decline in the standards of economics generally upheld by the National Bureau of Economic Research must be reversed.
http://www.nber.org/digest/aug07/w12885.htmlNational Bureau of Economic Research. 2
The second National Bureau of Economic Research article must have slipped in by mistake. There, Pinelopi Koujianou Goldberg and Nina Pavcnik in the article entitled "Distributional Effects of Globalization in Developing Countries." In what must be a horrendous blunder, they come to the conclusion, "the evidence has provided little support for the conventional wisdom that trade openness in developing countries would favor the less fortunate." After all, everyone knows that the purpose of expanding trade is an act of generosity, intended only to help the poor.
National Bureau of Economic Research. 1
I'm just looking over the August NBER digest. It covers five NBER articles, of which three may be mildly interesting. The first has the scary title, Public Insurance Expansions Crowd Out Private Health Insurance by Jonathan Gruber and Kosali Simon. We learn that: For every 100 children who are enrolled in public insurance, 60 children lose private insurance." Thank God that George Bush had the courage to stand up to the radicals and threatened to veto an expansion of child health coverage. Otherwise, they might lose their private insurance.
http://www.nber.org/digest/aug07/w12858.html
It's About the Oil Money
The web is ablaze with talk about Iraq, oil and the latest passing comment from Alan Greenspan. Let’s be clear:
The Iraq war is not about controlling oil. There is a global market in the gunk, and if the US or anyone else has difficulty getting it from country A it can always turn to country B. Also, no otherwise poor country would ever, ever refuse to sell oil for any prolonged period of time. It’s the difference between being important and having some leverage, and being a nobody. Quite aside from whatever you think about Hugo Chavez’ policies, where would he be if he stopped pumping and selling oil? So, no, there is no threat that any oil producing country will cause chaos by dismantling its industry or even reshuffling its sales contracts.
It could be about setting OPEC quotas, maybe. The countries the US hates and tries to undermine tend to be OPEC hawks (Iran and Venezuela). But it is not clear that those who set US priorities are so in favor of cheap oil either. There are also less expensive ways to influence OPEC.
Then what’s it about? The oil money. It’s big, one of the primary forces in the global economy. If Everett Dirksen had been a sheik, he might have said, “a few hundred billion here, a few hundred billion there, and soon you’re talking about real money.” Who gets this moolah and what they do with it is what it’s all about.
Washington has two overriding imperatives. First, the money should not be used to fund political movements the US opposes. This includes Chavismo, Islamicism or any other attack on liberal capitalism from the left or right. Second, the money should be recycled to banks with the appropriate dollar and euro portfolios, lest financial imbalances lead to a run on the hegemonic currencies. (OK, maybe there is no alternative if you have to put an unimaginably large sum somewhere, but it remains an imperative.) The blog folk wisdom about “the war was because Saddam wanted to price oil in euros” is technically wrong but gropes after the right answer: those who are allowed to rake in the oil billions must be counted on to send them back to the proper address.
Follow the money.
How to Blunt Competition
In a world with massive overcapacity, firms need to blunt competition. Here is a case in which one company buys out another, just to eliminate a competitor.Hansell, Saul. 2007. "Seagate: Missed the IPod but Selling to Lots of Snoops." New York Times On Line (10 September).
http://bits.blogs.nytimes.com/2007/09/10/seagate-missed-the-ipod-but-selling-to-lots-of-snoops/#more-423"
In 2006, there was a cutthroat battle for market share set off in part by Seagate's acquisition of Maxtor. This year, competition has eased and Seagate's gross margin has expanded to 24 percent. "The industry can't sustain two years of price wars, Mr. Watkins said, referring to rival drive makers. "People decided to stop losing money." When Seagate bought Maxtor in 2005, it kept hardly any of that company's technology or employees. The $1.9 billion deal was simply about removing a competitor. Seagate was No. 1 in the market; then Western Digital followed by Maxtor. While it kept the Maxtor brand, Seagate makes all its drives in what had been Seagate facilities using Seagate's technology. The company figures it lost half of Maxtor's market share. But the other half, plus the benefits of reduced competition, make the deal worth while, Mr. Pope said."
Sunday, September 16, 2007
Mankiw on Carbon Taxes
The drumbeat for carbon taxes has begun in earnest, and if we don’t pay attention we may wake up one morning a year from now and find the issue has been settled and a rare opportunity has been lost.
Mankiw has a piece in today’s New York Times that says the intellectual battles are over, and now it’s time for a grand coalition to put a tax on carbon. He gives these arguments:
1. Carbon taxes use a tried-and-true method for curtailing something we don’t like, in this case pumping carbon into the atmosphere.
2. We can use the revenue to cut other taxes, like the income tax. The taxes we cut have harmful effects on the economy, so we reap a double bonus: less bad stuff (carbon emissions), more good stuff (economic growth).
3. The only alternative to taxes is cap-and-trade. This opens the door to giving away carbon permits (bad), and if we somehow manage to auction them the result is identical to a carbon tax.
4. Each nation can set its own carbon tax, so we don’t have to worry about coordination. A global permit system would enable polluters in the US to buy carbon offsets in China.
In each case Mankiw is wrong, in some a little, in others a lot. It all adds up to a questionable sell job.
1. Yes, putting taxes on things we want to discourage is an old, time-tested idea. (Incidentally, it long predates Pigou. Do you remember a harbor fracas just before the American Revolution?) But so is issuing permits. We have permits for hunting and fishing, also for marriage. (One to a customer.) Neither involves reinventing the wheel.
2. Mankiw makes this argument because he believes that income, corporate profit and other taxes prevent the economy from reaching the free-market bliss it could otherwise attain, He knows government has to raise money, but he thinks it causes wicked distortions when it siphons off some of the earnings stream. This is faith-based economics, however. There is no systematic evidence that the income tax leads people to work less, and even if it did, it may just be the case that many of us should work less. If Mankiw’s travels take him to Cornell, he should have a Frank discussion on this topic.
But relying on carbon taxes is also a terrible way to finance the government. We are talking about half a trillion dollars or so in revenue, so the percentage of financing would be quite large. Income fluctuates, and that is a problem, but the spending on a particular set of items, like fossil fuels, has the potential to fluctuate even more. Example: suppose we really are facing an oil production peak, and scarcity causes the price to spike? Every 10% rise in oil prices will tend to cause something like a 5% reduction in long run demand (I’m rounding here – and thanks to Gar Lipow for his valuable work in collating the evidence), but this also means less carbon tax revenue, potentially a lot less. This is a serious problem, one that the green taxers have not really confronted.
3. Cap-and-trade and cap-and-auction are two entirely different animals. The first gives away the permits to historic polluters, the second asserts the public’s ownership of the commons and charges a price for its use. It is true that the dominance of wealth over our political system often leads to giveaways like cap-and-trade, but that’s a fight we can’t avoid in any case.
The real wonder here is that Mankiw could make such an elementary economics error as to suggest that taxes and cap-and-auction are “effectively” the same. In an uncertain world this is false. From a conventional benefit-cost perspective, Weitzman showed long ago that there were important differences depending on the slope of the marginal benefit and cost functions. Translated into common English, if we are uncertain about the long run relationship between the price of carbon emissions and the amount of emission – and we very much are – and if the risk of allowing too much climate change is greater than the risk of economic indigestion from trying to be too green – which seems pretty clear to me – then permits are the right choice. By controlling the number of permits we control our most important impact on the earth’s carbon budget, but allow prices to wander. By setting a tax we control the price but allow the amount of pollution to wander. That’s a big difference: you might say, given the gravity of what is at stake, that it’s the difference between ecological responsibility and irresponsibility.
4. Both taxes and permits create the same problem. If one country takes stringent action of either sort and another doesn’t, producers in the less-green country get a competitive advantage. If you have a permit system, they don’t have to pay for the permits; if you have a tax system, they don’t have to pay the tax. What to do? There have been mumblings from Europe about a green tariff to offset these differences, which makes sense to me. This is a discussion we need to have no matter what system we put into place.
Mankiw doesn’t seem to have paid attention to the global debate about climate equity. In the long run, there is no defensible argument against allotting each of the planet’s residents the same carbon “space”. In the short run, the rich countries start out with more because they can’t cut back to the sustainable level immediately without causing themselves and everyone else grave harm. But they also have an obligation to take action first and more aggressively since it is the accumulation of carbon in the atmosphere that causes the problem, and us industrialized types have been adding to this accumulation for a hundred years or more. Kyoto was a bumbling attempt to implement this ethical framework; hopefully we will do it better in the future.
The reason we need global action is that it is a global problem. Countries that fail to act free ride off of those that do. This points to the need for a stronger climate treaty, but no such treaty would try to tell countries what methods they should use, only what results they should be held to. So Mankiw’s discussion of taxes vs permits in the global context is confused and, in the end, irrelevant.
Bottom lines: (1) Although we still have (soon to be extinct) dinosaurs blocking the path, there is now a general consensus behind aggressive action to forestall the most extreme climate change. If Mankiw had published this article five years ago I would have welcomed it. Today, however, the question is what to do about the problem, and I would strongly encourage those who put ecological responsibility and social justice first to stick to their guns. We should have permits because they put the planet first, and we should auction them and distribute the revenues on a per capita basis because it is fair and economically sound. (2) It is a mistake to get drawn into a debate over how high to set carbon taxes. No one wants to pay taxes. The result will be a half-hearted effort riddled with safety-valves and loopholes. Perhaps this is why the big money is behind a tax approach: they know they will be let off the hook. When we talk about how many permits to issue, on the other hand, the debate is over how much carbon accumulation, and therefore how large a risk of catastrophic climate change, we are willing to accept. That’s the conversation we need to have.
Saturday, September 15, 2007
A French Lesson
Laissez-faire refers to pro-market policies (though in practice, they help big business and the rich). It is not the same as laisser faire, which means a feckless and unconsidered attitude in the application of any policy. Somehow the George W. Bush administration combined both laissez faire and laisser faire.
Jim
Friday, September 14, 2007
SURGIN' GENERAL
by the Sandwichman
Correct me if I'm wrong, but the main purpose of the Iraq "surge" was clearly to place extra U.S. troops in Iraq so when some of those extras were eventually withdrawn it could be hailed as a "troop reduction". This is like a merchant raising the price on an item and then putting it "on sale" for the regular price. Does Bush and his apparatus think the American people are that stupid? Are the American people that stupid?
Thursday, September 13, 2007
A Tale of Two Unions
The prison guards have been very successful in calling for more staffing as well -- often by forcing the state to lock up more people. Those who resist passing such laws are charged as soft on crime. They have also been very successful in blackmailing the state into giving them more money. Here they go again.
http://www.sacbee.com/111/story/376533.html
PREGENITAL POLYMORPHOUS EROTICISM
by the Sandwichman
In Eros and Civilization, Herbert Marcuse quotes Barbara Lantos, "Play is an aim in itself, work is the agent of self-preservation." He concludes from this that, "it is the purpose and not the content which marks an activity as play or work.... For example, if work were accompanied by a reactivation of pregenital polymorphous eroticism, it would tend to become gratifying in itself without losing its work conent."
The key to such a libidinal work relation, according to Roheim (cited by Marcuse) is a "general maternal attitude as the dominant trend of a culture." "Consequently," Marcuse explains, "it is considered as a feature of primitive societies rather than as a possibility of mature civilization. Margaret Mead's interpretation of the Arapesh culture is enteirly focused on this attitude:
To the Arapesh, the world is a garden that must be tilled, not for one’s self, not in pride and boasting, not for hoarding and usury, but that the yams and the dogs and the pigs and most of all the children may grow. From this whole attitude flow many of the other Arapesh traits, the lack of conflict between the old and the young, the lack of any expectation of jealousy or envy, the emphasis upon co-operation.Sandwichman conjectures that -- contrary to the assumption of the psychoanaltic literature (according to Marcuse) -- Mead's account of the Arapesh is a feature of her mature civilization. Whether or not it actually depicts Arapesh culture is a matter of luck, personality (Mead's) and perception. In other words, not only is there a possibility, but the general maternal attitude toward the world-as-a-garden is a persistent utopian motif in modern civilization. The pregenital polymorphous eroticism is all around us already. We just have to tune in to it.
HAS THE IRAQ WAR BEEN ALL ABOUT OIL?
For many intelligent and well-informed people I know the answer to this question is an obvious "yes." However, I beg to differ. Certainly oil has been important. At a very high level the answer is "yes," to the extent the Iraq war has been the extension/sequel of the (first) Persian Gulf War. That was clearly all about oil, propaganda to the contrary. If Kuwait did not have the Burgan pool, then the world's second largest, with Saddam's conquest of Kuwait setting him up for an easy run to Saudi Arabia's al Ghawar, the world's largest pool of oil, George H.W. Bush would not have given a hoot about him invading Kuwait. So, if this war is finishing the business of that one, it's ultimate cause is all about oil and keeping it from falling under the control of perceived enemies, although of course after the first war, Saddam was in his box and not going to get those fields. I would also accept that Cheney seems to have long been heavily motivated by the oil factor, even if it is just as petty as feathering his own nest at Halliburton or for cronies like the Hunt brothers, with Bush having some of this from his own past as a Texas oil man, as well as his dad's old interests. And we know that Cheney was in on that report from the late 1990s going on about Iraq as the major possible source of new supply that could be tapped in the 21st century. So, Cheney clearly has been the major voice of the oil interest in all this, despite him also being a front for the broader military-industrial complex, and also having pet peeves about Saddam shooting at the US planes that flew over the no-fly zone, as reported in one of the Woodward books.
However, I see at least three other things going on in terms of actually initiating the war. One was the faction of Likud-oriented neocons, Wolfowitz, Feith, and Abrams being probably the most important in the making of the war. Their interest was securing Israel from Saddam making nukes or funding Palestinian parents of suicide bombers. Those who claim that the US backing Israel is somehow linked to the US wanting to control oil in the Persian Gulf are out of touch with history and the long struggle in the State Department between the pro-Israeli faction and the old oil-oriented "Arabists." Of course this group of neocons clearly made an alliance of convenience with the Cheney oil faction, but their interests were not fundamentally identical, except in both supporting war in Iraq. Then there is the faction that wanted a nice excuse for big funding for the military-industrial complex. Rumsfeld was a leader of this group. Then we get to arguments more tied to Bush himself, the crucial "Decider" here after all, despite all of Cheney's influence and machinations. One motive for him was political. Having a war in Iraq after the escape of bin Laden at Tora Bora allowed for distracting from disagreements over domestic policy and provided a way for demonizing the Dems, which worked in the 2002 elections and even again in 2004 (as long as a majority of the US population continued to believe the lie that Saddam was linked to 9/11), although this game finally fell apart in 2006. And finally there was all that psychological garbage with his dad, showing he was the real man who could "finish the job" and all that, and wanting to "get" Saddam after he tried to assassinate the old man, although clearly Cheney played to that particular aspect.
There is one other element of this that is rarely addressed by those who say "it is all about oil." That is, what were they going to do with the oil if they got it (which, of course, the war has failed to do so far anyway, even if the Oil Ministry building in Baghdad was secured right away)? Now if it was crude money in Cheney's pockets through Halliburtoon, that is one thing. But from Bush's perspective it is more difficult. His motive presumably was to get re-elected more than just making money from the oil industry. For that he needed presumably to increase oil production from the Gulf, thereby keeping oil prices down and pleasing the SUV-driving voters. However, the oil companies presumably preferred reduced prodcution, which increases their profits (and is what has happened, although I do not think that is what Bush either planned or hoped for). There was always this contradiction that is never resolved or explained in this explanation: would control lead to more or less production? So, bottom line: oil was important, but it was not everything in the war in Iraq.
Public Employees for Privatization
The Sacramento Bee reports the giant California Public Employees' Retirement System is planning to use some of its money to invest in infrastructure, which is, of course, privatized infrastructure.
http://www.sacbee.com/103/v-print/story/371759.html
Wednesday, September 12, 2007
Martin Feldstein
Martin Feldstein just resigned as head of the National Bureau of Economic Research a couple of weeks before the release of my new book, The Confiscation of American Prosperity.
I devote a large part of one of my later chapters to exploring the history of the Bureau and the career of Martin Feldstein.
THE NEW KURDISH OIL LAW
Another item covered in Ben Lando's http://www.iraqoilreport.com that has been almost completely unnoticed in the MSM is that on August 6, the Kurdistan Regional Government (KRG) passed an oil law, in sharp contrast with the central Iraqi government, which has so far failed to do so. In the wake of its passage, the KRG is apparently making a deal with Hunt Oil Company of Dallas, which the Oil Minister of Iraq, Ali Shahristani, is threatening to declare illegal because it does not apparently contain a provision for sharing revenues with the central government, although the KRG has issued a statement saying that it is in principle willing to do so, especially if no oil deals are allowed in the Kirkuk region, containing the second biggest pool of oil in Iraq, and which the KRG is hoping a referendum will hand over to the KRG.
Actually, the KRG has since May 2006 cut deals with five oil companies, most of them wildcatter operations not from the US, with the first (and the first to start production) being DNO from Norway, with the others from Canada and Turkey. The early prospects have been favorable, with "gushers" reported coming in from parts of Iraqi Kurdistan in the fields operated by DNO, and the KRG apparently hoping to have 200,000 barrels per day (bpd) going by the end of this year and 2 million bpd in five years, out their own pipeline through Turkey (assuming that taking Kirkuk does not anger the Turks too much, who are worried about the Turkmen population there). Reportedly the DNO contract gives the company 10-30% of the revenues as profits, with the rest going to the KRG, and none to the central Iraqi government.
So, this may be the economic beginning of the "ground-up" partition of Iraq that seems to be going on more widely. The SIIC in the south is pushing for a separate entity there, which region has the largest oil pool. And the tribal Sunni sheiks in al-Anbar are getting armed by the US (which arming could have been done without the surge). Today they fight al-Qaeda in Iraq (which Juan Cole has long claimed would have happened sooner if US troops had completely withdrawn sometime ago, and their move to do so predated the surge), but tomorrow they will be able to fight an increasingly Shi'i-dominated central government, especially if the other regions take all the oil revenues for themselves. leaving nothing for the Sunni Arabs in the center, who remain alienated by the ongoing de-Baathification Commission, led by Chalabi.
Tuesday, September 11, 2007
Left vs. Right Brains: a new twist
[Does this study say that the reason why some people become more conservative with age is brain rot? that hardly explains quick changes, such as that of David Horowitz.
[what do such studies say about Marxist brains?]
From the Los Angeles Times
Study finds left-wing brain, right-wing brain
Even in humdrum nonpolitical decisions, liberals and conservatives
literally think differently, researchers show.
By Denise Gellene
Los Angeles Times Staff Writer
September 10, 2007
Exploring the neurobiology of politics, scientists have found that
liberals tolerate ambiguity and conflict better than conservatives
because of how their brains work.
In a simple experiment reported today in the journal Nature
Neuroscience, scientists at New York University and UCLA show that
political orientation is related to differences in how the brain
processes information.
Previous psychological studies have found that conservatives tend to
be more structured and persistent in their judgments whereas liberals
are more open to new experiences. The latest study found those traits
are not confined to political situations but also influence everyday
decisions.
The results show "there are two cognitive styles -- a liberal style
and a conservative style," said UCLA neurologist Dr. Marco Iacoboni,
who was not connected to the latest research.
Participants were college students whose politics ranged from "very
liberal" to "very conservative." They were instructed to tap a
keyboard when an M appeared on a computer monitor and to refrain from
tapping when they saw a W.
M appeared four times more frequently than W, conditioning
participants to press a key in knee-jerk fashion whenever they saw a
letter.
Each participant was wired to an electroencephalograph that recorded
activity in the anterior cingulate cortex, the part of the brain that
detects conflicts between a habitual tendency (pressing a key) and a
more appropriate response (not pressing the key). Liberals had more
brain activity and made fewer mistakes than conservatives when they
saw a W, researchers said. Liberals and conservatives were equally
accurate in recognizing M.
Researchers got the same results when they repeated the experiment in
reverse, asking another set of participants to tap when a W appeared.
Latest Trade Data
Much has been made of the continuing strength of US exports and the decline in the so-called "non-oil" trade deficit, but Brad Setser, as usual, hits the nail squarely:
"The same forces propelling Chinese export growth – the weak dollar and still-strong global economy – are also propelling US export growth. Those same forces are also a key reason why oil is high. Take away strong global growth and both US export growth and the price of oil would be lower."
Incidentally, OPEC is puzzling over the effect that financial turmoil will have on the demand for oil, but the oil funds themselves play an important role in propping up the markets. Not that anyone knows the real numbers, of course.
conspiracy theorists cross the line
[This kind of stuff is banned on pen-l, the progressive economists' discussion list, but I think it's important.]
Sept. 11, 2007 / New York Times.
A Sept. 11 Photo Brings Out the Conspiracy Theorists
SHANKSVILLE, Pa., Sept. 7 — Valencia M. McClatchey thought she was doing the right thing when she gave the F.B.I. a copy of her photo of the mushroom-shaped cloud that rose over the hill outside her home after United Flight 93 crashed in a field here on Sept. 11, 2001.
And, after it became apparent that hers was the only known picture of that ominous gray cloud — and the first taken after Flight 93 crashed — Mrs. McClatchey thought she was still doing the right thing when she gave copies to people who asked for them, and let newspapers and television stations use it.
But fame for the photo has had an unexpected cost for the photographer.
“Every time I’ve done any stories it goes online and all these conspiracy theorists start up and they call me and harass me,” said Mrs. McClatchey, 51, who runs her own real estate company.
In online postings, critics have ripped apart every element of the photo and Mrs. McClatchey’s life. They accuse her of faking the photo, of profiteering from it and of being part of a conspiracy to cover up that the government shot down Flight 93.
They claim the mushroom cloud is from an ordnance blast, not a jet crashing; the cloud is the wrong color for burning jet fuel; the cloud is too small and in the wrong position.
They have posted her personal e-mail address, phone numbers and street address online. One Canadian “9/11 debunker” surreptitiously taped a phone conversation with her, questioning her about the photo, and then uploaded it to his Web site.
“It’s just gotten so bad, I’m just fed up with it,” Mrs. McClatchey said. “This thing has become too much of a distraction in my life. I have a husband and a new business to deal with, too.”
The photo is considered legitimate by the Federal Bureau of Investigation; the Smithsonian Institution, which used the photo in an exhibition on Sept. 11; and the Flight 93 National Memorial, which has used the photo in pamphlets.
“We have no reason to doubt it,” said Special Agent Bill Crowley, a spokesman for the Pittsburgh F.B.I. office, which oversaw evidence collection in Shanksville.
Along with the rest of the nation, Mrs. McClatchey was watching the coverage of the Sept. 11 attacks in New York and Washington when she was shaken from her couch by a blast just over a mile away. She grabbed her new digital camera and took just one picture from her front porch.
The photo shows a sloping green farm field with a brilliant red barn in the foreground. Hovering above the barn in a brilliant blue sky is an ominous dark gray mushroom cloud. Mrs. McClatchey titled the photo “The End of Serenity.”
Barbara Black, acting site manager for the Flight 93 memorial, said, “What makes the image so powerful is that it’s this serene scene in Pennsylvania, this typical red barn, green trees, and then this terrible cloud above it that changed our life here forever.”
At the temporary memorial site, Flight 93 “ambassadors,” local residents who volunteer to tell visitors what happened here, always start the story by showing people Mrs. McClatchey’s photo.
From the beginning, Mrs. McClatchey said, she tried to use the photograph to help remember the 40 passengers on Flight 93. She sells copies to people and lets them choose whether $18 of the $20 fee goes to the Flight 93 National Memorial or the Heroic Choices organization (formerly the Todd Beamer Foundation).
To ensure that she controlled distribution of the photograph, in January 2002 she copyrighted it. To “protect the integrity of the photo,” Mrs. McClatchey said, she filed suit in 2005 against The Associated Press, saying that it violated her copyright by distributing the photo to its clients as part of an article. The lawsuit is pending.
Mrs. McClatchey’s neighbors here defended her against the accusations of the people they called the “Internet crazies.”
The McClatcheys “are as good neighbors as you could possibly have,” said Robert Musser, who owns the red barn that is so prominent in Mrs. McClatchey’s photo.
To accommodate visitors who will show up on Sept. 11 to recreate the picture, and who eventually find their way to the Mussers’ 94-year-old barn, they have tried to spruce it up this past week, adding a touch of paint. They plan to spend thousands in the near future to shore up the foundation on one side so the barn will endure for years to come.
“Here this barn could fall down, and it’s in the picture that’s so famous,” said Mr. Musser’s wife, Phyllis. “We have to do something.”
M. de Tocqueville,
I recently re-read *Democracy in America* with some political theorists, criminologists, and philosophers. I was struck by the following passage, which I haven't seen anybody make much of in the years since. It is a fascinating turning-of-the tables on the public-choice crowd (anachronistically, I mean):
I have no doubt that the democratic institutions of the United States, joined to the physical constitution of the country, are the cause (not the direct, as is so often asserted, but the indirect cause) of the prodigious commercial activity of the inhabitants. It is not engendered by the laws, but it proceeds from habits acquired through participation in making the laws.
D-I-Y POP-UP GUIDE TO JOY IN WORK IIB
by the Sandwichman
The "problem of leisure"
Eric Gill defined the problem of leisure in the following terms: "In former times, such culture as men attained as the product of their working life. Now culture, if it is to be attained at all, is a product of leisure."
Gill also defined the relationship between work and leisure as a political problem. "It is the problem of freedom and slavery. For the freeman does what he wishes when he is at work -- but the slave, when he is working, does what he is compelled to do. And the slave is only happy when he is not working -- but the freeman, as it says in the Book of Ecclesiastes, 'has joy in his work and this is his portion.'"
Monday, September 10, 2007
A coup in the US future
From today's New York TIMES:
Americans Feel Military Is Best at Ending the War
Americans trust military commanders far more than the Bush administration or Congress to bring the war in Iraq to a successful end, and while most favor a withdrawal of American troops beginning next year, they suggested they were open to doing so at a measured pace, according to the latest New York Times/CBS News Poll. ...
The poll found that both Congress, whose approval rating now stands at its lowest level since Democrats took control from the Republicans last year, and Mr. Bush enter the debate with little public confidence in their ability to deal with Iraq. Only 5 percent of Americans — a strikingly low number for a sitting president’s handling of such a dominant issue — said they most trusted the Bush administration to resolve the war, the poll found. Asked to choose among the administration, Congress and military commanders, 21 percent said they would most trust Congress and 68 percent expressed most trust in military commanders.<<COMMENT: if these numbers continue and start to apply to more and more issues in US politics, we should expect a military coup d'etat in the future (in a decade or two?) After all, neoliberalism and especially the Bush 2 version of that disease have messed up the economy and made it almost impossible for the "loyal opposition" (the Dems) to do better. The country's becoming more and more like Latin America, so it may come a time when a golpe del estado is a normal event.
Jim
Sunday, September 9, 2007
HARRISONBURG KURDS -- UPDATE
This is dragging over a thread from the former Maxspeak, where postings about the case of four Kurdish men in Harrisonburg, Virginia who were targeted heavily for technical violations of transferring money to their relatives back in Iraq, helped stimulate local media attention and then public outcry, and then their release with only suspended sentences, an actual favorable outcome due to blogging effort.
Anyway, I attended a picnic this afternoon put on by the Kurdish community of Harrisonburg. The current situation is that the FBI appears to be exacting its subtle revenge on the four men. All four wish to become citizens, but all of their paperwork seems to be stalled at the FBI, even though their offenses were strictly administrative. One needs a green card and is on hold for his app, two have green cards and are on hold for their exam, and one had (and passed) his exam before all the garbage blew up. He was told two days ago that he should have become a citizen in April, 2004, but the FBI refuses to send back his paperwork. Apparently four years is the record for the FBI to sit on somebody's paperwork like this. Some more action may be needed on this matter, and apparently some letters are about to be written in support of these men.
Friday, September 7, 2007
Brad DeLong on productivity
Brad DeLong made an interesting point about my earlier message here about productivity.
http://delong.typepad.com/delong_economics_only/2007/09/productivity-an.html
http://econospeak.blogspot.com/2007/09/mysterious-productivity-lead-of-us.html
He said that the Chinese (using my earlier example) are making the shoes for five dollars because they have not yet developed brands to market them for themselves. When they do, the US GDP will go down accordingly.
This process seems to be already beginning. The idea behind the expectation of the future success of US intellectual property economy was people in the
I'm reminded of an exchange between Boswell and Samuel Johnson:
"Very little business appeared to be going forward in
"Sir (said Johnson) "We are a City of
But already,
How long will it be before Chinese brands win a reputation for quality? Some older people may recall when Japanese cars were considered junk.
Gary Becker on Infrastructure
I already posted this to the pen-l mailing list & tried to post it as a comment to Becker's blog, but for some reason (technical, I am sure), it never appeared.
Gary Becker has a piece on the blog he shares with Richard Posner regarding infrastructure in the wake of the Minneapolis Bridge collapse.
http://www.becker-posner-blog.com/archives/2007/08/the_infrastruct.html
I find it interesting the way conservative economists always find a way to make every problem call for the same solution — markets, markets, markets. In my soon-to-be-released (2 October) Confiscation of American Prosperity, I compared this attitude to the behavior of a doctor who would prescribe the same procedure for every problem, whether it would be a heart attack or broken leg.
First of all, he uses several tactics to rule out the need for more government spending. First of all, he claims that the roads and bridges are in good shape. The second tactic is far more interesting to me. Often when somebody calls for more government spending or regulation to solve a problem, conservatives claim that an unrelated program would be more cost effective.
Childhood vaccinations are a good example. For example, if somebody recommends policies, such as the regulation of tobacco, conservatives, such as John Graham, later Bush’s regulatory czar, argued that allocating money for regulation rather than spending it on childhood vaccinations or some other worthy purposes is tantamount to “statistical murder” (see Graham 1995).
Graham, John D. 1995. ”Comparing Opportunities To Reduce Health Risks: Toxin Control, Medicine and Injury Prevention (Dallas: National Center For Policy Analysis).
http://www.ncpa.org/studies/s192/s192.html
Of course, the people who make such an argument never actively promote the childhood vaccination. Instead, they merely insist on government inaction. In this case, Becker argues that reducing alcohol related deaths would make a greater contribution to safety, without giving any suggestion of how to achieve such a goal.
Finally, Becker makes the case that — surprise surprise — the best approach would be privatization, without explaining how privatization could be accomplished in a way to guarantee better maintenance of the infrastructure.
Steve Forbes & Osama bin Laden Join Forces
Osama bin Laden is apparently now appealing to the conservative forces in the United States, calling for a flat tax.
"To conclude," bin Laden says, "I invite you to embrace Islam." He goes on to say: "There are no taxes in Islam, but rather there is a limited Zakaat [alms] totaling
What should conspiracy theorists make of this?
NEW BLOG ON IRAQI OIL INDUSTRY
The leading expert on the ins and outs of the Iraqi oil and broader energy sector, Ben Lando, has started an excellent and informative blog at http://www.iraqoilreport.com. Highly recommended. His opening reports remind us of how and why it is that Bush is not getting his way in Iraq regarding an oil law to help the US companies. He also makes it clear that the anathema that Moqtada al-Sadr is held in Washington (with neocons like Charles Krauthammer openly declaring that US troops should have killed him back in 2004, easier said than done) is not how he is held by decisionmakers in Iraq, especially those in charge of the oil industry.
Thursday, September 6, 2007
Who Is Michael Perelman
Most of us have already introduced ourselves. I will try to do so. Actually, I will take the easy way out and point you to something I posted elsewhere.
I teach at California State University, Chico, which might make me Chico Marx. Anyway, the following URL might tell you something about my work.
http://michaelperelman.wordpress.com/my-intellectual-biography/
D-I-Y POP-UP GUIDE TO JOY IN WORK II
by the Sandwichman
with the Saint Simonians, industrial labor is seen in the light of sexual intercourse; the idea of the joy of working is patterned after an image of the pleasure of procreation -- Walter Benjamin
The British artist Eric Gill gave a series of lectures in the 1930s, which was subsequently published as a book, Work and Leisure. What he had to say was largely in the tradition of 19th century English moralists on work, such as Thomas Carlyle, John Ruskin and William Morris. He summarized his argument in a letter to the editor of The Burlington Magazine for Connoisseurs responding to a critical review of his book.
I reproduce Gill's summary of his book below, but first a word about Gill's curious sexual (mis)conduct. In addition to countless encounters with models, prostitutes, patronesses and anyone else in a skirt who came within hailing distance, Gill had incestuous relations with his sisters, his daughters and "experimented" with his dog (and he wasn't even a Republican!).
An indignant sketch of Gill's proclivity was given by Barbara Grizzuti Harrison in a 1989 review -- "Perversity raised to a principle" -- of Fiona MacCarthy's ERIC GILL A Lover's Quest for Art and God. My own view is that Harrison's indignation was misplaced. Not to condone or celebrate Gill's behaviour, I would place the blame for it instead on modern industry's failure to realize the utopian dream image mentioned in the above quote by Benjamin. And now, without further ado, here's Gill's summary of Work and Leisure:
In Chapter 1 of the book, I dealt with the nature of art as embracing the whole of human making. In the course of this, I endeavored to show that by the use of modern machines responsibility is denied to the individual workman -- he has been reduced to a subhuman condition of intellectual irresponsibility -- and that machines in their perfection do not help the labourer but are a substitute for him. It is argued therefore that machine-made things, however good in their kind, are not, properly speaking, human products and are therefore ultimately unsuitable for human use.
In Chapter 2, I argued that in human society, commerce springs naturally as the business of exchange and that there is not normally any "art" which is not an object of commerce--for no painter can eat paintings but must exchange them for bread. The trouble arises, according to my argument, when the trader or middleman becomes insubordinate and obtains control of production and consumption, thus perverting production to "the vicious aim of profit." In this commercialism, machine-production is the natural instrument. It enables those who control it to make more things more cheaply and, therefore -- the machine-minders being dispossessed -- more profitably, and they are not worried by any questions of inhumanity.
In Chapter 3, I argued that though art is all human making and commerce is the right and natural business of the exchange of goods and services, there is a quality in human beings and therefore in human works which is not patient of valuation in terms of prices and that it is this quality which, in ultimate analysis, is man’s reason of being or final cause, and without which there could be no need to bother about art or commerce, right or wrong, justice or injustice, piety or politics. This is the quality of holiness and in humane societies, societies not ruled by finance, societies in which things are made by men for men and not by machines, the quality of holiness is a common quality, a common-place quality, nothing to write home about or put in glass cases in museums.
Jay Leno for President!
isn't having the king-maker in office even better than having a king?
meanwhile, pause to ponder the precipitate plunge of a prime portion of the photography profession: the Pavarotti Paparazzi.
JD
BY FORCE OF THOUGHT -- MEMOIR OF JANOS KORNAI
"So, Barkley, what book did you read this summer?" says the teacher at the beginning of the school year. Well, over a recent weekend at the beach in Lewes, Delaware after dropping off our daughter to be a freshman at George Mason, I read most of the intellectual memoir of the Hungarian economist, Janos Kornai, By Force of Thought, published by MIT Press recently. It is really an intellectual history of central and eastern Europe from the 1930s to the present.
So, Kornai became a true Stalinist in 1945 as an 18-year old Jew in Budapest who barely survived the Nazis and whose father and older brother did not. Doubts began creeping in during the early 1950s as he encountered friends who had been tortured into false confessions. He would split from Marxism, and during the 1956 Hungarian uprising went through the difficulty of surviving while not abandoning or violating friends or principles. Later he would be a fan of neoclassical economics in the 1960s, as he published papers on mathematical programming that could be used in principle for central planning, although he notes that the conditions for his two-level planning to work did not hold in reality, so he saw it as an ultimate critique. In the 1970s he would come to be a critic of neoclassical economics, in his book Anti-Equilibrium, even as he would be begin to spend half his time at Harvard (and the other half in Budapest). His most famous idea was of the soft budget constraint, a critique of attempts at market socialism in Hungary and elsewhere, although also applicable to western economies. Later, he would write wisely about the path of transition out of the Soviet bloc economies, with Hungary doing better than most in its path to join the EU. He emphasized a more social democratic approach that would retain substantial parts of the old social safety network, even as the economy mostly became market capitalist. This would preserve social structures and democracy and equality better than the harder line policies found in Russia and other states with far greater problems.
I have great personal respect for Kornai and think he deserves the Nobel Prize, although probably he will not get it, "transition" now being somewhat passe. But, he is a wise observer, and this book is deeply insightful and even moving.
Plus que ca change
In a new popular history of "Mr. Polk's War," Invading Mexico, by Joseph Wheelan, I find:
"Above all, the Whigs resented Polk's assertion that by questioning his conduct, Whigs were aiding and abetting the enemy. [Tennessee Congressman Meredith] Gentry bitterly observed:'Because we will not crouch, with spaniel-like humility, at his feet, and whine an approval of all his acts, we are met...with the grateful compliment from the President that we are traitors to our country.'"
Om an unrelated note: Go Venus!
Wednesday, September 5, 2007
It's a dog's life, act II
Barbara Ehrenreich reports that: > A friend of mine, of very modest means himself, consults for a billionaire couple who commute between London and Los Angeles by private jet, with their dogs following in a second private jet. <
--
Jim Devine / “In the years since the phrase became a cliché, I have received any number of compliments for my supposed ability to 'think outside the box.' Actually, it has been a struggle for me to perceive just what these 'boxes' were — why they were there, why other people regarded them as important, where their borderlines might be, how to live safely within and without them." -- Tim Page (THE NEW YORKER, August 20, 2007).
Tax Carbon?
The New York Times has a story today about John Dingell’s change of heart on climate policy. The auto industry’s point man in Congress now favors a stiff tax on carbon emissions. There has been an undercurrent of suspicion that he has rallied to the least popular approach to the problem in order to discredit it. The Times’ Leonhardt gives Dingell the benefit of the doubt.
What I didn’t like were Leonhardt’s claims that a carbon tax “is the climate solution that economists and environmentalists have long dreamed of” and that the only alternative is cap-and-trade, giving away emission permits to longstanding polluters. The third approach, and by far the best, is setting up a permit system and auctioning off each one of them.
There are two reasons why permits rule. (1) There is great uncertainty about the future relationship between carbon prices and pollution levels (long run elasticity of demand for fossil fuels). Taxes place the burden of this uncertainty on the environment (the amount of pollution); saleable permits place it on costs faced by energy users (fossil fuel prices). (2) Politically, if we go the tax route, we end up in a discussion about taxes. That’s why skeptics thought Dingell might be boring from within. If we center the policy on permits the debate is over how much greenhouse gas emissions we are willing to tolerate. That’s the discourse we need.
Folks, this is a very important issue at a very important time. In the next year the contours of the national debate over climate change policy will be set. Huge ecological consequences – and gobs of cash – are on the line. It is essential to start off in the right direction. I’d like to see enough clarity and truculence in the activist community that journalists are forced to take notice.
Tuesday, September 4, 2007
Do We Do What Dewey’d Do?
A recent discussion of industrial policy on Dani Rodrik’s blog got me thinking. When the phrase “industrial policy” comes up (as I’m sure it often does at the wild parties our readers get soused at), we think of government commissions that “pick the winners”, funneling credits and subsidies to the embryonic Industries of the Future, while showing the door to the enfeebled Industries of the Past.
My experience in Germany, however, showed me another model. A society can favor the development of certain types of industries via a mosaic of education and training institutions, stakeholder-oriented financial institutions, vibrant local and regional economic development initiatives and the like. In other words, IP can be bottom-up rather than top down. When Germans think IP they think France, where all decisions are made in Paris, but a foreigner can see that Germany has its own form of IP, one that probably works better and is more participatory.
The next step was to think again about John Dewey and his ideas for the extension of democracy (his strong democracy, not our current weak one) into the economy. Open up a system like Germany’s to even more participation and you would have something like what Dewey had in mind. (The old guy called it “socialism” but admitted it didn’t look much like what the rest of the world called socialism.) But Dewey’s concern was not only political but (ahem) pragmatic. It was essential that the system should really work and not just be politically agreeable. Most of his analytical juices went into that part of the problem, and I think much of his insight could be translated into IP-ish terms. He was also off base on some matters (such as an overly optimistic conception of the role of science), and we can learn from that too.
Kevin Q. can probably spin rings around this post – I’d be happy if he would.
THE HOUSING MESS, THE FINANCIAL MARKETS, AND THE MACROECONOMY
I wish to recommend to one and all Jim Hamilton's reports and commentaries over the last several days on the meeting at Jackson Hole for the Kansas City Fed annual do, where they are all going on about the sub-prime mortgage problem and its many implications. Jim has them up at econbrowser at http://www.econbrowser.com, and he presented a paper there as well as being a very up-the-middle and fair-minded commentator on the proceedings, which have included speeches or papers by Bernanke, Gramlich, Mishkin, Taylor, Shiller, Leamer, Richard Green, and Susan Wachter. Hamilton is not a pessmist like Dean Baker or Nouriel Roubini who have been predicting a recession for some time out of all this, but does critique the more pollyannaish of the speakers there, with Fed Governor (and author of the most widely used money and banking text) Frederick Mishkin fitting that bill. Despite some stabilization of the financial markets two weeks ago, Hamilton sees ongoing problems due to the opacity and "where is the garbage?" of the derivatives and CDOs with all the sub-prime crud in them still out there. The other problem, emphasized by Baker and Roubini, is that as long as housing prices continue to fall, more mortgages can turn into garbage and ultimately the economy can be pushed into recession. There is the added wiggle that foreclosures and bankruptcies can dump more houses onto the market, thereby exacerbating the downward trend in prices.
Regarding the opacity mess, this has been warned about for some time in connection with the huge expansion and increased complexity of newer derivative instruments for some time, even before the sub-prime mortgage problem reared its ugly head. Almost a year ago, New York Fed President, Timothy W. Geithner, rather cautiously warned about it in a widely noted speech, "Hedge Funds and Derivatives and their Implications for teh Financial System," http://www.ny.fed.org/newsevents/speeches/2006/gei060914.html. The combination of this problem with all the opacity and repackagings of the sub-prime garbage have been very much at the heart of the current flocking of the black swan unknown unknowns along Keynesian/Knightian uncertainty lines that have spooked the global financial markets.
Regarding the potential dynamic for declining housing prices to trigger sales that push further declines, this is like the mechanism behind a crash that happens on a stock or other markets where margin calls force sales on liquidity-constrained investors which then further push down the prices further triggering the margin calls. This Minskyan mechanism is at the heart of a paper by me with Mauro Gallegati and Antonio Palestrini, available on my website at http://cob.jmu.edu/rosserjb, "The Period of Financial Distress in Speculative Markets: Interacting Heterogeneous Agents and Financial Constraints." Beyond what I have already said, I shall not drag you all through the technicalities of this paper, but I do note that it is the first paper ever to provide a mathematical model for the "period of financial distress," described by both Hyman Minsky and also Charles Kindleberger in his magisterial, _Manias, Panics, and Crashes_. According to him there are three patterns of speculative bubbles and their endings: a peak followed by a sudden crash, a peak followed by a slow decline, and by far the most common with the vast majority of historical bubbles following it: a peak followed by a period of slow decline (known as the "period of financial distress") then followed by a crash.
So, the question is, were the events of two weeks ago the peak or a crash? Is it over, as Mishkin thinks, or are the ongoing declines in housing prices the sign of a period of financial distress that will erupt sometime coming up in a much more serious crash with much more serious consequences for the world macroeconomy?
feudalism in Iraq [more]
from "Today's News" from the Washington POST's on-line e-magazine, SLATE, on September 4:
> Bush's visit to Iraq was shrouded in secrecy and he spent approximately eight hours in the country before continuing with his scheduled trip to Australia. He was joined by other top administration officials, and as everyone points out, Bush never left the fortified base. USAT notes that meeting with Prime Minister Nouri al-Maliki in Sunni country might have been designed as "a slight to al-Maliki," whom many consider to be running a sectarian government.
> More likely though, Anbar was chosen because it's seen as the clearest place where some success has been evident. But Anthony Cordesman, an Iraq expert, tells the NYT that Anbar isn't really exemplary of a successful American strategy since any progress there has more to do with the local frustration with al-Qaida in Iraq. Although Bush tried to bring both sides together yesterday, there is clearly still distrust between the Shiite central government and the Sunnis as many doubt the Anbar model can be exported to other areas.
> But that is exactly what the new U.S. strategy in Iraq has become, reports the WSJ in a Page One piece. The paper says that "after almost four years of trying to build Iraq's central government in Baghdad" the United States has concluded that "what appears to work best in the divided country is just the opposite." In other words, the United States is increasingly trying to prop up local leaders and the WSJ suggests this might amount to dividing the country into different areas, a strategy that sounds a lot like the "soft partition" that several Democrats have been advocating for some time. The thinking is that the United States should worry a bit less about the central government and hope that the country will remain united in the long run because local leaders will still depend on Baghdad for money.
> And, wait a minute, isn't that a strategy shift from the stated goals of the "surge" that was supposed to give some breathing room for politicians in Baghdad so they could make progress and create a model democracy in the Middle East? The "big change in the debate has come about because the surge failed, and it failed in an unexpected way," points out the NYT's David Brooks (subscription required) who says there is now a consensus that "peace will come to the center last, not to the center first."
> Both the WP and LAT check in on how the troop buildup is going and ask whether the surge is working. Short answer: no. The LAT goes through the depressing data: There's been little political progress, the number of Iraqis forced to leave their home has increased, there's been no significant drop in civilian deaths, and a new troubling trend has emerged of intra-Shiite killings. The best the LAT and WP can say is that things are sort of stable because neighborhoods have become more segregated, and there is a heightened presence of U.S. troops.
> Meanwhile, the WP notes U.S. troops can't trust many in the Iraqi army, which has been infiltrated by Shiite militias. And, to make matters worse, many of the Sunnis joining forces with the United States used to be insurgents and have a strong distrust of the Shiite government. No one really knows if they could ever really work together if U.S. troops leave.<this sounds a lot like the feudalism from above strategy to me.
Jim Devine
Safety
Peter's summing up of the standard neo-classical approach to job safety is exactly right. There are some exceptions. Robert Frank, for instance. Frank, whose work I admire, is a little bit like the proverbial carpenter who, having only a hammer, thinks everything is a nail. In his case, the hammer is the idea that people care not just about income, but also relative income. In *Choosing The Right Pond* he uses his hammer on the work-place safety issue. Here is a little example based on his ideas that I use in the Principles course. (By the way, I teach economics at Bowling Green State University in Ohio: hello fellow bloggers!).
Suppose there are two types of jobs, safe and risky, and 2 workers. Safe jobs have a safety index of 2 and pay $20,000, while risky jobs have a safety index of 1 and pay $30,000. Further suppose workers utility is the product of three factors: income measured in thousands of dollars, safety( measured by the index), and relative income. Now we have a standard prisoner's dilemma. If you take the safe job, taking the safe job as well gives me utility of (20)(2)(1) = 40. Taking the risky job gives me (30)(1)(3/2) = 45, so I take the risky job. If you take the risky job, I get (20)(2)(2/3) = 26.67 if I take the safe job and (30)(1)(1) if I take the risky job, so I take the risky job in this case too. Each of us does better choosing the risky job whatever the other does, but when we choose the risky job we are worse off, with utility of 30 each, than had we both taken the safe job and gotten utility of 40 each.
Making safety level 2 mandatory makes both workers better off and has no effect on employers (the pay differential is assumed to reflect the cost of making the workplace safer) and is thus a Pareto-improvement. Also note that if we were to infer from the fact that workers reject the safe job (without regulation) that the added safety is worth less than $10, 000, and go on to use this as input into an estimate of the value of life, we would be seriously wrong: deciding collectively, workers would be willing to pay up to $15,000 each for the safer job, since an income level of 15 and safety level 2 gives the same utility, 30, as the risky job when relative income isn't a factor.
The neat thing about Frank's hammer is that the result is consistent with perfectly competitive labor markets and no lack of knowledge on the workers' part of the true risks they face. When these conditions are not met - as they aren't - then the case for regulation is a fortiori. But Frank shares with the neoclassicals a vocabulary that is incapable of talking about injustice.
Monday, September 3, 2007
Perp Walk
Hmmmm. I guess I should say a word about myself, so as not to be too different from everyone else? (Q: What are you going to do when you grow up? A: Find some people, dress like them and follow them around. --Firesign Theater)
I am Peter Dorman, an economist and long-time political obsessive, not affiliated with any school, camp or fire ring. I teach at the Evergreen State College, known for its extraordinarily demanding brand of wanton indulgence. I do a little of this and that academically, never wanting to specialize to the point of accomplishment boredom. Some topics over the years: occupational safety and health, benefit-cost analysis, trade theory, international political economy, child labor, unemployment insurance, climate change, the precautionary principle.
Bloggers seem to be pronouncing themselves on free trade and liberty, so for my part I will say I have theoretical and political issues with the justification for unregulated trade, and I would like to reduce the role that hierarchy and authority (institutional not moral) plays in our world. What really irritates me is nationalism, the utopia of ages past that has now attained a gruesome hegemony.
I will mostly post on economics-related matters, since I figure the web is overrun with everything else, and because I think there is mostly a big hole where serious economic thinking ought to be in the discourse of the left.
Crandall Canyon, One More Time
Before the Crandall Canyon disaster recedes into media oblivion, it’s worth spending a moment to think about what economics does and doesn’t have to say about this grisly series of events.
The standard theory, which can be found in any labor economics textbook and even some principles texts, is that dangerous work is essentially a non-problem. Workers will only take a dangerous job if they get extra pay to compensate. This gives employers an incentive to make jobs safer up to the point when the cost of more safety exceeds the added wages they would have to pay. The result: the level of safety is efficient (marginal benefit of safety improvements equals marginal cost), workers with a taste for risk are efficiently matched with employers whose technologies make risk harder to reduce, and workers in dangerous jobs are no worse off than those in safe ones, since they have bigger bank accounts to keep them happy. There are two big regulatory implications: interference, like enforcing safety rules, is against the interest of both workers and employers, and the wage-safety tradeoff can be used to calculate a “value of statistical life”, which comes in handy whenever cost-benefit analyses need to be performed.
I kid you not.
The “consensus” view in the profession is that a wealth of empirical data validates this theory. The Environmental Protection Agency holds earnest discussions on whether the value of a life should be raised or lowered a bit, or perhaps set at a higher level for some groups (like the rich) compared to others.
There’s no point getting into a full-scale disquisition on this topic; my book from 11 years ago says it all. (Except for everything I’ve been saying since then....) One pertinent question we might ask, however, is this: what, if anything, does conventional economic theory tell us about a disaster like Crandall Canyon? Is this a theory for large data sets only, or can it be applied to a particular incident? My view: if it doesn’t make sense in any particular case, it doesn’t make sense in 60,000 cases.
So what do we have?
1. Efficiency: no, with the practice of retreat mining.
2. Risk-loving workers: we don’t know the psychological profile of the miners, but it would be outrageous to claim that the courageous rescuers, three of whom died on the job, simply had a higher tolerance for risk. Not knowing the difference between getting a kick out of risk and putting it on the line for others is typical of utility theory.
3. Fair distribution of risk: dubious. The tipoff is that three of the six miners now buried in the mountain were Mexican nationals; my guess is that they were not being offered whatever plum jobs were available in rural Utah.
Would it be too much to ask for an economics that, instead of spinning fantasies, asked practical questions like, what kind of labor market structures lead to this devaluing of human life? How can competition be prevented from leading to a race to the bottom (OK, not the best metaphor for coal mining) in safety practices? What forms of regulation can most effectively achieve the essential goals of public health and social justice?
The Mysterious Productivity Lead of the US Economy
The International Labour Organisation just released a report showing that labor in the United States is the most productive in the world. Four points are relevant here.
First, part of that productivity reflects the fact that workers in the United States spend more time on the job than workers elsewhere. Even so, the output per hour is still the second highest in the world — after Norway.
Second, conventional economics teaches us that wages reflect productivity, yet for more than three decades hourly wages (corrected for inflation) have shown a slight decline, while productivity has soared.
Third, a country can become more productive merely by shutting down some of its less productive operations. In that sense, increasing productivity can be nothing more than an indication of deindustrialization. I don’t think that is the case here, but the ongoing illumination of less productive businesses has been a factor. According to conventional theory, deindustrialization could mean rising wages for the same reason that productivity increases. By eliminating the low salaries, the average of the remaining salaries would be higher — except that the resulting increase in unemployment allows business to drive wages down.
Fourth, productivity can mean something very different from what people might think I was productivity. This statistic is nothing more than the gross domestic product divided by the amount of labor. Consider a fictitious country named Nike. It has a single product — shoes, which it can market throughout the world. This country has four workers: a lawyer to make contracts, a marketer to advertise the product, a shipping clerk, and an accountant. Rather than making shoes by themselves, they contract with a sweatshop in China which sells them shoes for $5 a pair. The country exports 4 million pairs of shoes year for $100 a pair.
A statistical agency would credit each of the four workers with producing a million shoes, representing a net increase in value of $95 each. Nike would certainly be the most productive country in the world. Or would it be?
Iraq
speaking of dumping Iraq's Maliki: he would probably like that. He's likely got a lot of swag by now and would like to escape that country. The US may also give him a good retirement program.
and Mike Meyer is right: Bush would be perfect king for that country. He should be installed pronto.
JD
hi,there
thanks to Barkley for his self-defining broadside. I'm not very good at presenting myself that way. I usually respond to specific questions and/or answers. I'll try to introduce myself that way, in response to parts of Barkeley's statement.
I wasn't aiming to be totally anonymous. I just like the nickname "Econoclast," which I've been using on and off for 15 years or so. I'm Jim Devine and a profess economics at Loyola Marymount University, a Jesuit university in Los Angeles.
I may have to drop the nickname. Others use it on the web. Maybe we should have a contest to decide on a new nickname.
As for free trade: one of the main reasons I'm against "it" is that usually such agreements as the NAFTA aren't really about free trade at all. Rather, the NAFTA was about greater rights for capital and fewer for labor. Free trade works nicely in theory, but in practice it usually stinks. That's because the details and effects of actual laws reflect the balance of power in society. And capital has much more power than it used to (say, in the 1960s). It's used "free trade" to increase that power, as part of the neoliberal vicious circle. So now we have labor arbitrage, the gradual reduction of wages and conditions to the lowest common denominator.
as for liberty: I'm in favor of it. But the only true freedom is that created democratically. Locke- or Friedman- or Hayek-type freedom involves the freedom of the rich at the expense of the poor. Democratic freedom involves compromises amongst peers.
JD
Hello and Happy Labor Day
"Is this thing on?......The bombing begins in 10 minutes."
(That is one of the greatest of union-busters, Ronald Reagan, amusing himself)
For Labor Day, I have a story. My grandfather was a shop steward for UE at Westinghouse in Philadelphia, militant to a fare-thee-well. My father was the first in this (my) shanty-Irish family to attend college, where he studied physics and eventually became a physicist. One summer during college, my grandfather helped get him a job doing research at the plant. At some point during the summer, a grievance issue led my grandfather to call a strike and set up a picket line. And across this picket line, he proceeded to escort my father, his son!
I should add that we learned early on from my dad that a scab was one of the worst things one could be, and that crossing a picket line was a sin for which the recitation of no amount of hail-marys could atone.
Anyway, my grandfather, who died in the late 60's, was the kindest man I have ever known. Happy Labor Day, Da-Bill.
ARE LAZY U.S. WORKERS TOO PRODUCTIVE?
by the Sandwichman
I have to run off to work, but I wanted to leave you lazy Americans with a Labor Day holiday a "sandwich":
August 24, 2007: Are Americans too lazy?: U.S. workers can't compete globally unless they work harder, writes Fortune's Geoff Colvin.
September 2, 2007: Report: U.S. Workers Are Most Productive: U.N. Report: U.S. Workers Most Productive in World; Each Produces $63,885 of Wealth Per Year By Bradley S. Klapper, Associated Press Writer.
What a difference a week makes, eh?
RAISING THE ROOF
by the Sandwichman
It's interesting that Barkley should bring up raising the ceiling on Social Security contributions as an example of a possibly progressive change that he would steer away from for fear that it would open the door to all sorts of regressive changes. Years ago (12), when I started my analysis of policy on working time, one of the first angles I came up with was the idea that eliminatiing the quasi-fixed (see note below) characteristics of payroll taxes and other employer-paid fringe benefit contributions would remove an obstacle to redistributing working time.
I suppose it might be a good tactic at times to hunker down around the status quo to prevent an opponent from using any progressive change as an invitation to ransack it. It can't be a good long-term strategy, though.The opponent will persistently probe for vulnerabilities and if defenders of Social Security "do nothing", then that passive conservativism will itself become a vulnerability. A program or policy that doesn't adapt to changes in its environment eventually becomes a liability to its defenders and erstwhile beneficiaries.
This is not to say that raising the ceiling on Social Security contributions is necessarily the best way to respond to changes in the workplace and in the employment policy regime since the 1930s. Take Back Your Time, an organization I'm involved with, has a campaign to add vacation entitlements to the Fair Labor Standards Act (that's not necessarily my personal choice of priority either). All I'm saying -- for now -- is you can't move forward by standing pat, especially when the ground you're standing on is under attack.
"quasi-fixed": this is a bit of economists' jargon the Sandwichman will elaborate on in a subsequent post. In a nutshell, it refers to employment costs that (supposedly) don't vary in proportion to the number of hours worked.
Sunday, September 2, 2007
CHECKING IN AND SAYING HELLO
So, I am Barkley Rosser, aka rosserjb@jmu.edu, here, I guess, my email address. Those of you who are fans of the predecessor of this blog, Maxspeak, You Listen! of the sainted Max Sawicky, who will shut it down tomorrow on Labor Day (the irony!!!), you may remember that I am one of the old co-bloggers there. So, to the extent this is a sort of continuation of that, I would like to say hello to everybody and also a "welcome aboard" to the new co-bloggers, some of whom seem to be wanting to be "cool" bloggers with phoney identities. I am not going to object to that, although I am sort of mystified at tenured full professors doing it. But, so be it.
One observation I shall make is that several of the new co-bloggers are from a well known progressive list, PEN-L, which has long been run by michael perelman, who is co-blogging here openly under his own name, unlike at least a couple of his regulars that I have been told are here, but are hiding under monikers. I and Max were also longtime regulars over there, although I drifted over to the blogosphere some time ago, except for the hes list, which is more academic. PEN-L has long been a high quality list, so if this becomes a sort of semi-PEN-L blog, well, worse could happen, even while we will miss Max. (Will you be keeping PEN-L up, michael?).
For those who do not know michael, I will note that he is a professor at Fresno in CA and the author of many interesting books. He is an iconoclast, even though there is an "econoclast" here. Michael achieved some greater degree of celebrity earlier this year when was quoted in the "hip heterodoxy" article by Christopher Hayes in The Nation that set off a major storm throughout much of the econoblogosphere. He was the one who declared to Hayes as they watched the suits come out of the reception for Milton Friedman's Free to Choose, while standing outside the EPI reception where Max also made a mention in the article, that the neoclassicals (in their suits) are "a mafia," with "neoclassical mafia" becoming a headline for a bunch of the related postings. Anyway, it will be a pleasure to be co-blogging with the ever effervescent and knowledgeable Michael P.
Regarding my own perspectives, I note that in 1984 I was a sub-adviser to the George McGovern campaign. No, this was not the 1972 campaign when he was the Dem nominee with Bill Clinton and all kinds of DLCers coming out of there. This was when he ran as the "conscience" of the Dems, with the major candidates being Walter Mondale (who got the nomination, only to lose 49 states to Reagan), Gary Hart, and Jesse Jackson. I crafted his proposal to cut the DOD budget by $63 billion, which he touted in Iowa. After he came in a surprising third there, he dropped out of the race.
One oddity of me is that I have some libertarian impulses, left over from a libertarian phase in my youth, which weakened when I realized after reading Barry Goldwater's _Conscience of a Conservative_ that there might be conflicts between property rights and human rights (in the context of the civil rights movement). I realized that unlike Barry, I would take the human rights over the property rights. However, I have a kind of (late) Millian position, that liberty is the default assumption, and that one must argue for why it should not hold, although I am a lot easier to convince on those exceptions than I was in my youth and a lot more open to the existence of social collectivities and all that. I also am probably the only one here who might defend free trade from time to time (probably my major difference with old Max), although this leads to things like my biggest criticism of NAFTA being that it was unequal in favor of the US corn industry against the Mexican one because of the subsidies issue, with many thousands of poor Mexicans being thrown off their ejido farms, thus depressing wages in Mexico.
However, I do not generally post on that issue. Expect more out of me on the upcoming war whoop that Cheney and the neocons are reported by Juan Cole and badger at arablinks to be about to assault us with this month, not to mention housing, financial markets, and a lot of other odd stuff. (Those of you who have been around maxspeak already have a pretty good idea what to expect from me).
Oh yes, and in some ways I am sort of conservative, that is in the sense of not wanting to change certain things. So, I am notorious for piggishly opposing in strenuous terms any changes to the social security system of the US. I recognize that some proposed changes might be progressive, for example lifting or eliminating the cap on income for taxation. However, I view opening the door to any change as opening the door to all kinds of other changes that will be lousy: privatizations, lousy indexing, and so and so forth. All the better to fight to get the public educated about how hysterically off the wall the official projections are and to get ready to fight any "reforms" that a future Dem prez might feel inclined to push to show how "responsible" he or she is.
And, for the record, I am a Professor of Economics at James Madison University. I have not seen where one can put a link to one's url, but mine is http://cob.jmu.edu/rosserjb, for what it is worth. A bunch of papers there on all kinds of stuff.
Saturday, September 1, 2007
DO-IT-YOURSELF POP-UP GUIDE TO JOY IN WORK
by the Sandwichman
I should specify that by 'joy in work', I'm not referring to garden-variety job satisfaction, mere fun or pride in accomplishment. What I have in mind hinges on a comment regarding the Saint Simonians by Walter Benjamin:
with the Saint Simonians, industrial labor is seen in the light of sexual intercourse; the idea of the joy of working is patterned after an image of the pleasure of procreation.
Test
This is to test embedding video. I know, it's basic.
Please click on the "Read more..." link below:
Read more...
And here's my test:
Will it work?
HTML Bleg
The main shortcoming of the design here, aside from the fact that it sucks deeply, is the lack of the extended post feature where for long posts the continuation is found under a link. A proposed hack for that problem is here, but when we tried it we got a 404 error. Any suggestions for a fix would be welcome. Leave them in the comments. Other suggestions to improve the design are welcome. Blogger says the overall width we are using is best to fit the widest variety of browsers and monitors, so that won't change. Otherwise we are wide open for improvements.
Thinking the Unthinkable: Iraq
How the U.S. can pull out of Iraq and that country might actually do O.K.
Prelude.
Before starting, we must remember that the horse has likely already left the barn. The Bushwhackers have messed Iraq up so royally that is probably impossible to save Iraq from its worst nightmares.
Alas, it is unlikely that the Bush League will abandon their war goals -- even though that abandonment is absolutely necessary to my plan working. Rigidity is their strong suit. In addition, the Cheney gang is too busy building for a war against Iran to even think about changing the war goals.
Even though I can't read their "minds," I use the economists' "revealed preference" technique* to interpret those goals as being:
(1) getting and keeping strategic control over Iraqi oil; and
(2) having permanent military bases in Iraq to "project power" over the entire Middle East. (The latter represents a second major military presence, in addition to that of that U.S. loyal ally, Israel.)
My guess is that the Bushies have already likely gave up on the idea of helping their friends (Halliburton, etc.) make gigantic profits -- because those profits are likely very small nowadays. But they are unlikely to give up on these big two. If they want to have just a little bit of law and order in Iraq, they'll have to do so.
As I've said before in my e-mail rantings, Iraq is like a monkey trap: the hunter catches the monkey because it (the simian, not the hunter) reaches into the coconut to get the food and is unwilling to release the food in order to make its paw small enough to exit the coconut. The hunter has chained the coconut down, creating the trap. As with all analogies, this one is not totally accurate: there is no "hunter." Our Fearless Leaders created their own monkey trap. However, if Osama had any dreams before 911, they likely included the creation of such a trap.
Fugue.
But what's my plan? In case you forgot it in the middle of my ramblings, I was proposing a plan to allow the U.S. to quickly pull out of Iraq while allowing that country to do O.K.
The plan first involves giving up on the whole idea establishing capitalism (what the Bushies call "democracy") in Iraq in the immediate-to-intermediate future.
Creating capitalism not possible without a sustained regime of law and order. Capitalism and markets cannot prevail without secure property rights and a general atmosphere of trust. So much Rumsfeldian "stuff" has "happened" that Iraq has become a poster child for the Hobbesian war of each against all.
What the U.S. elite needs to do is to establish feudalism. So my plan should be dubbed "Operation Iraqi Feudalism." (The government won't have to change their operation's initials. They can continue to use the same luggage, etc., without changing the monogram.)
When feudalism arose in Western Europe, it was a natural-seeming (decentralized) outcome of the collapse of the Roman Empire and a long series of wars, civil wars, "barbarian" invasions, and the like.** For Iraq, however, feudalism would have to be feudalism imposed from above.
1. The U.S. power elite has to get rid of Maliki and the current Iraqi "government." The U.S. has to rule with raw power rather than hiding behind the fig-leaf of Iraqi "rule." This presents a real problem with legitimation with U.S. taxpayers, for sure. But it probably wouldn't make any difference to Iraqis. They know what's happening in their country. They know who's really in power (to the extent that the U.S. actually has power).
2. The U.S. leaders have to create power "on the ground." This creates the basis for local law and order, which in turn can eventually allow the creation of a central state. Here, following the late political economist Max Weber, a state monopolizes the generally-accepted use of force within a geographical area. My plan starts with mini-states (fiefdoms) and then hopes to create a centralized state to impose law and order on the country-wide level.
A. First, the U.S. has to use information that it should have collected a long time ago. That is, they needed to break Iraq into a large number of districts -- as small as possible. Next, the Bushwhackers -- or their "think" tanks -- have figure out which military or paramilitary group has the most power in that area.
Both military power and issues of legitimacy have to be considered, but if it's a toss-up, it's the ability to use force that's more crucial to the creation of law and order.
B. Then, the U.S. must turn local power to the most powerful group in each district. That group could be parts of the official Iraqi army; it could be "death squads"; it could be Saddamite dead-enders; and it could even be allied with "al Qaeda in Iraq" (if that organization really exists).
However, foreign groups -- including the U.S. armed forces, what's left of the so-called "coalition of the willing," and the actual "al Qaeda in Iraq" -- would be excluded from this role. Law and order must be created by Iraqis, even if they do not live up the exalted moral standards that we in the "West" claim to believe in. After all, the point is to give Iraq back to the Iraqis.
C. If possible, larger districts could be built out of the smaller ones, so that it's not just a matter of a large number of fragmented districts of an equal size. But these larger districts should not be designed with the current provincial system in mind. It should be built from the bottom up, because that's what's most likely to create and maintain law & order within each district as soon as possible. The larger provinces are abstractions, not realities.
3. The leaders of these military organizations should then be named as rulers -- dictators -- of their districts. They could be called "barons" (or whatever the Arabic term for "baron" is). They might be given hereditary office -- to honor classic European feudalism -- but that wouldn't matter in practice. After all, it's only the more powerful and effective barons who would be able to pass their power down to their offspring.
One difference with classic W. European feudalism is that I am not suggesting that serfdom should be recreated. However, it's quite likely that everyday Iraqis will surrender their rights (in land, etc.) to their local baron in return for military/police/mafia-style protection (against other barons, bandits, etc.) That looks a lot like serfdom. But it's hard to believe that it's worse than the current situation that Iraqi peasants and workers face now.
Serfdom might be recreated -- but only in some districts. Just as European feudalism, there would be a tremendous amount of variation between areas. The greater amount of individual freedom in some districts might inspire people in other districts to fight for their democratic rights.
4. The central parliament should be replaced with a council of barons. That would be responsible for managing the collective interests of the entire Iraqi state. It's sometimes forgotten that such councils existed in the Western European version of feudalism and often played a significant role. (That's where that stuff about the "First Estate," the "Second Estate," etc. came from. The feudal classes had political organizations.)
5. The U.S. should then appoint strongest baron in the land as the king. In the feudal era, the kings often took on the name "Caesar," trying to dress up as Roman emperors. So maybe the new Iraqi King should be called "the Saddam" -- or "the Bush." If the king is a Shi'ite, of course, the king would not be a Saddam. He wasn't their idol.
The king should be given control over all of the U.S. military bases, the Green Zone, and other properties that the U.S. has stolen from Iraq. This would establish the kind of system that prevailed under European feudalism -- with the king as the biggest baron. It would also bias the system toward the creation of a more centralized system (under the king's thumb, natch).
In general, having an uneven distribution of territories and power among the barons (including the king) would create more possibilities for the creation of a country-wide coalition to impose law and order. In plain but purple prose, if there is a small number of Big Barons, it's easier to come to a compromise and form a real centralized state.
6. As noted, the U.S. should forget about controlling Iraqi oil. Instead, oil revenues should be distributed to each Iraqi citizen in equal amounts, after taking about 1/2 to finance the Saddam's new Iraqi government. (This is the plan actually used with Alaska oil revenues.)
Also, such things as the power grid should be turned over to the new central government and its
king. Anything that must be under centralized control should be centralized, if possible.
Will this work in practice? No. The distribution of oil revenue and the electricity will continue to be severely disrupted.
But the centralized political organizations -- the council of barons, the king's bureaucracy -- would have some incentive to end this dislocation. If they have enough power to move toward the creation of centralized state power, they can institute the oil revenue plan and the like. They'll likely skim off a lot of revenues for themselves, but having the "Alaska" oil plan in place would create a precedent in the popular mind that would limit the corruption a little.
In the end, only the Iraqi people can make things right. But for this to happen, the country first needs law and order to prevail from border to border.
7. After creating the barons, the king, and the Alaska plan precedent, the U.S. should pull its troops out completely and as quickly as possible. The current civil war might intensify for awhile. However, the speed of this intensification might actually be slower than nowadays.
There would be a lot of population movement between districts, along with ethnic cleansing and similar disgusting phenomena. Life will continue to be nasty, brutish, and short. For quite a while, just as many Iraqis would die per month as are doing so nowadays.
There would be a multi-sided war as the various barons fight with each other, but the king -- or some new king -- would eventually become the hegemon as exhaustion set in. In sum, Iraq would recapitulate the bloody history that European feudalism went through. Unfortunately for Iraq, they won't be able to conquer other parts of the world (the way Europe did) to exploit them and to moderate its transition process.
Whoever the king is, he (or she?) would likely end up being as bloody-minded as Saddam was. However, it's got to be remembered that the kings who created our beautiful "modern" nation-states were exactly the same way. They used an iron fist to create their nations. Absolutist kings such as the French Sun King were no pussycats. They ruled with fire and iron.
Then, Iraqis would have to struggle to establish a full-scale state of the modern sort, i.e., one that monopolizes the means of violence within the country. Then democracy or capitalism could be established (or an unstable combination of both). As noted, both of these would be extremely hard to establish under current conditions. "Extremely" seems an understatement in this context.
8. The international relations piece of this puzzle would be exceedingly sticky. Kurdistan would want to split off. Turkey would invade. Etc., etc., etc.
I guess that the solution would be for the U.S. to guarantee Iraqi borders: the country is not allowed to split up and other countries are not allowed to invade. This seems quite unlikely, since it goes totally against the U.S. imperialist grain. However, the U.S. owes Iraq a lot.
In addition, the U.S. should try to limit the flow of arms into that country. That would speed up
the end of the civil wars and help create a unified power.
This may be one of those cases where "if wishes were SUVs, homeless folks would waste gasoline" cases. We cannot assume that the U.S. will do the right thing. But in most cases, the U.S. elite has the incentive to preserve national boundaries. There are other incentives that can undermine that one, of course. But I can't see what they are, once the rest of the plan is followed.
Coda.
Of course, the whole plan is extremely unlikely. However, the situation in Iraq is so bad that neither W nor Hillary will be able to fix it the way they'd like to. The results are likely to be even
worse -- and more expensive -- than under my plan.
As usual, I would enjoy hearing from the experts on this subject.
* That is, I look at what they do, not what they say. But it sounds better when draped in jargon, doesn't it?
** The word "barbarian" is in quotes because those folks have received a bad rap.
where next?
Lawrence Summers (a very famous economist who seems to have a problem with arrogance) writes:
>Over the past 20 years major financial disruptions have taken place roughly every three years, starting with the 1987 stock market crash; the Savings & Loans collapse and credit crunch of the early 1990s; the 1994 Mexican crisis; the Asian financial crises of 1997 with the Russian and Long-Term Capital Management events of 1998; the bursting of the technology bubble in 2000; the potential disruptions of the payments system after the events of September 11 2001 and the deflationary scare in the credit markets in 2002 after the collapse of Enron.<
... and now we see the housing/credit crunch.
But where's the next financial "disruption" going to hit? Suppose that the Fed reduces rates and eases credit further either (1) to prevent the spread of the financial mess to the rest of the economy or (2) to moderate the recession that hits when the financial mess does spread. Suppose further that the Fed succeeds, so that all the US sees is a mild recession of the sort seen in 2001. (Of course, as wotj that one, it's likely to be less "mild" for those of us who have to find jobs in labor markets.)
So a "soft landing" is achieved (even though that phrase should make our backbones go into
frigid overdrive).
But in the previous financial crunches that Summers mentions, the Fed's response simply caused a delayed reaction in other sectors. For example, the Fed's response to the "Asian financial crises of 1997 with the Russian and Long-Term Capital Management events of 1998" helped to cause the "the technology bubble" which burst in 2000. Then the 2001 "save" sparked the housing bubble that's currently pulling the U.S. economy down.
So what sector is most likely to be hit if the Fed succeeds now?
My crystal ball is on the fritz, so I'm stopping there. And this is not a rhetorical question.
