When to Impose Fiscal Restraint and With What

Martin Feldstein discusses the modest rise in 10-year government bonds rates over the past six months and concludes:

It would be wrong for the Obama administration and Congress to reduce the fiscal stimulus in 2009 or 2010, since there is no clear evidence of a sustained upturn. But it would be equally wrong to allow the national debt to double to 80 per cent of GDP a decade from now. Increasing taxes even more than proposed would weaken demand in the near term and hurt economic incentives in the long run. The fiscal deficit should therefore be reduced by curtailing the increases in social spending that the president advocated in his election campaign.

Mark Thoma tackles the when to impose fiscal restraint question with:

Here's (my interpretation of) Paul Krugman's argument about the source of recent movements in long-term interest rates: There are two reasons long-term rates might rise, first more worries about the debt and inflation in the future would drive rates up, and second the prospect of better economic conditions in the future would have the same effect, rates would go up. Suppose we receive bad news about the current state of the economy. That should cause expectations of lower output growth in the future, and hence lower tax revenues and higher spending on social programs than would exist with a stronger economy. So the bad news should cause an expectation of a larger deficit and more inflation worries, and that would drive long-term interest rates up (these worries would also make foreign central banks less likely to fund US borrowing which would reinforce the increase in long-term interest rates). But if it is future economic conditions that are driving the changes in long-term interest rates, bad news about the economy should drive rates down. Last week, we received bad news about the economy. If the debt/inflation/foreign lending story is correct, long-term rates should have gone up. If the state of the economy story is driving rates, rates should have fallen. What did long-term rates actually do? They fell.

Even if we are not currently witnessing crowding-out, we shall one day have to alter the current fiscal stimulus. But that does not mean we have to curtail social spending. We do have alternatives such as raising taxes or cutting defense spending. Feldstein may be a Republican, which appears to mean that he is less willing to say that high defense spending and low taxes also lead to long-run crowding-out. But it does – and I just wish conservative economists would occasionally admit this reality.

Deficit Disorder

Ed Luce comes up with a clever title but then he includes some very stale rhetoric from Judd Gregg et alia:

Once merely a worthy subject of concern, America’s fiscal outlook has rapidly become the object of widespread alarm. “Aside from weapons of mass destruction and terrorism, America’s fiscal situation is the most dangerous challenge facing the country,” says Mr Gregg. “Unchecked, it will reduce growth, weaken the dollar and ultimately undermine America’s global leadership role.” The administration cannot be blamed for what is this year an almost entirely inherited deficit. Mr Obama’s new spending accounts for only about one-tenth of it. The effects of the recession, the costs of the bank bail-out and the structural legacy of the three large tax cuts and two wars bequeathed by George W. Bush account for the remainder. Nor do critics, including Mr Gregg, blame the new president for pushing through a $787bn two-year fiscal stimulus within a month of moving into the White House. “We needed to dig the economy out of a hole,” says Mr Gregg. “I understand that.”

Well, I’m glad that at least one Republican recognizes that this President inherited both a fiscal mess and a deep recession from the economic mismanagement of the previous Administration.

But politics is quick to change. The otherwise deeply unpopular Republican party is starting to sense an opportunity. A rapidly growing proportion of the US public is registering anxiety at the sea of red ink pouring out of Washington. In the past week, two prominent polls showed that twice as many Americans were concerned about growing budget deficits as reforming healthcare – Mr Obama’s overriding domestic priority.

Republicans for the past 30 years have only pretended to care about fiscal responsibility as they simultaneously push larger defense department budgets and more tax cuts. OK, healthcare reform may indeed increase government spending but why not pay for it with tax increases:

Mr Obama has also pledged to ensure that the $100bn-$150bn a year healthcare reform will be “budget-neutral” – requiring no net extra spending. Some liberals see this as a straitjacket that could pare back the benefits he promised to extend to the 47m Americans without insurance and the tens of millions who are seen as underinsured. Conservatives, meanwhile, flatly refuse to believe it. “Obama wants healthcare spending to be budget-neutral and I want to be six foot four and have a full head of hair,” says Mr Holtz-Eakin.

Look – I’m never going to be tall either but Douglas Holtz-Eakin knows that we could indeed raise taxes if the political hacks that currently lead the GOP drop their no new tax pledge. But the ultimate nonsense comes here:

But even if Mr Obama does ensure that expansion of healthcare is fully paid for, existing spending on healthcare and the Social Security retirement scheme remains on a path that will eventually bankrupt the federal government.

Oh please – the Social Security Trust Fund has a sizeable reserve that will continue to grow for the next decade. Luce sort of notes this later but why do we continue to see this kind of stupid association of Social Security finances with the rest of Federal government finances?

Paradox of Thrift or the Ineffectiveness of Tax Cuts?

Jack Healy reports that private consumption isn’t exactly soaring:

Tax cuts from the stimulus package and increases in Social Security checks lifted personal incomes sharply in May, the government reported on Friday, but it appeared that many people were putting that money away instead of spending it. Although personal spending increased slightly last month, the saving rate climbed to its highest level in 15 years as consumers tried to build a buffer against the threat of job losses and more economic hardships. The personal saving rate, which dipped below zero during the housing boom as Americans tapped home equity loans and other easy lines of credit, rose to 6.9 percent in May, the Commerce Department reported. That was its highest point since December 1993.

Pro-growth types often hail a rise in savings as means for generating more investment – but that assumes we are at full employment. Healy knows we are not:

As personal savings return to more normal levels, the increase prompts what economists call the “paradox of thrift.” Although saving money helps individuals repair their finances and pay debts, a sharp rise in overall personal saving can actually deepen a recession and hurt the people who are saving more. As people save money, fewer dollars circulate through shopping malls, Main Street businesses, and large employers and subsequently back to workers through their paychecks. This thrift pulls the economy lower.

Well said – but wasn’t those tax cuts that President Obama included in the stimulus package on the hope of getting bipartisan support supposed to give a boost to consumption demand? It seems that they neither got the Republicans to support his fiscal stimulus nor was a very good bang for the buck form of stimulus.

Some Religious Political Economic History of Iran (long under the fold)

As news coverage of events in Iran goes dark even as those events reportedly continue, I thought it might be worth putting up some background material on the religious political economic history of Iran, known as "Persia" prior to 1935 when Reza Shah changed the name to please his pal Hitler with his "Aryan" racial theories. The material is based on Chap. 17 of the 2004 (second) edition of Comparative Economics in a Transforming World Economy, MIT Press, by me and Marina V. Rosser. I note three interconnected themes in play before I go under the fold: national identity against outside powers (with Persia/Iran being the only Muslim nation besides Turkey not to be completely militarily conquered or directly ruled by an outside power during the past 500 years), its assertion of its Shi'i religious identity with this more recently coinciding with the effort to establish a "new traditional" Islamic economy, and, of course, the dominating role of oil in its economy in more recent decades (never below 85% of export earnings even in the 1960s when the price of oil was quite low). So, see those of you more interested below the fold, hopefully.



Persia achieved essentially its modern borders in 1501 with the coming to power of Shah Ismail, founder of the Safavid dynasty, who also imposed Shi'ism on most of the country in place of the previously dominant Sunni form of Islam. I shall not further here discuss details of Shi'ism versus Sunnism other than to note the importance of the concept of martyrdom in it and its tendency to a certain millenarianism based on the waiting for the reappearance of the Hidden Twelfth Imam, whom Shah Ismail claimed to be and who current President Ahmadinejad claims is actively supporting his government. Until the replacement of the Safavid dynasty by the Qajar one in 1785, the main foreign rival and competitor of Persia was its neighbor, the Turkish-ruled Ottoman Empire, which would become the "Sick Man of Europe" in the 19th century.

During the 19th century under the Qajars, Persia became a plaything in the Great Game between Britain and Russia, both of which had territory bordering on Persia. The Islamic clergy were the main base of nationalist resistance to them in this period, provoking a war with Russia in 1828 and pushing the cancellation a year later of the 1872 Reuter concession to Britain that allowed its companies to control mines, the national bank, and railroad construction.

However, in 1901 they failed to resist the first oil concession given anywhere in the Middle East, the d'Arcy concession to Britain in 1901. This would lay the foundation for what would first be the Anglo-Persian Oil Company, which changed its name to Anglo-Iranian Oil Company in 1935, and would later become the current British Petroleum. It was this company's holdings in Iran that democratically elected Premier Mohammed Mossadegh nationalized in 1951, which triggered MI6 to invite the CIA to organize his overthrow in 1953 in Project Ajax, which led to the reimposition of the autocratic Shah Mohammed Reza Pahlavi, and the allowing of some US oil companies to participate in the oil concession with BP, even though the Shah would nationalize all these in the 1970s.

In 1906 a combination of western-oriented intellectuals and liberal clerics overthrew the Qajar dynasty in the "Constitutionalist Revolt" and established a government based on the Belgian consitution of the day (a participant in that government was the then young Mohammed Mossadegh). The tsarist Russians organized the overthrow of this government and the reimposition of the Qajars in 1911. During WW I, Persia was humiliated by both the Russians and the British occupying parts of the country. Reaction to this led to the overthrow of the Qajars in a military coup by Reza Pahlavi, a military officer, who became Reza Shah and was father of the later Shah, Mohammed Reza Pahlavi. Reza Shah would side with the Germans in WW II to offset the Soviets and the British, and they had him removed and replaced by his son in 1941. The son was removed by Mossadegh in 1951, but would rule after his reimposition until his overthrow in the Islamic Revolution of 1979. Needless to say, since 1953 the US has been the center of attention as a foreign power (except for Iraq during the 198os war).

It should be noted that Reza Shah started many trends and patterns that remain today in the Iranian economy. He was a secular nationalist whose role model was Kemal Attaturk of neighboring Turkey. He banned Islamic clothing for women, stripped the religious foundations of their lands and the Islamic ulama of their control over the courts. He also asserted a strong state role in the government, with state-owned enterprises leading in various parts of industy using modest oil revenues available, including textiles, sugar, cement, iron, and steel. His son would establish indicative central planning in 1944, which is still in place and used today.

From the 1950s to the late 1970s, industrial investment was roughly evenly split between private and public sources, with industries then receiving public funds including in addition to those already mentioned, copper, machine tools, aluminum, and petrochecmicals, as well as auto assembly, paper, and synthetic fibres. An import substitution strategy was generally attempted, and some of these later investments involved joint ventures with foreign multinational corporations. By the 1970s, members of the Shah's families and his cronies had large interests in many of these operations, which would lead to much opposition due to corruption. Many of those firms would become those that would be taken over the bonyads, the Islamic foundations, after the Islamic revolution in 1979.

In 1963, the Shah initiated his "White Revolution" that further attempted to secularize the society (women were granted many rights), with attempts to redistribute land to peasants. Further taking of land from the Islamic foundations was an especially sore point for certain Islamic leaders, especially Ayatollah Ruhollah Khomeini, who went into exile and would return in 1979 to become the first Supreme Leader of Iran after the Islamic revolution. That revolution followed a period of increasing autocracy by the Shah following the oil price increases in 1973, which were accompanied by rising inflation and increasing income inequality, along with perceived corruption and excessive foreign cultural influences inimicable to Shi'i Islam.

The post-revolutionary regime has gone through several policy phases. We have labeled the first the First Radical Phase, 1979-1981, which was led by socialist oriented Islamic economists, with Ayatollah Taleqani one spiritual leader, who had been a supporter of Mossadegh in the early 1950s. Many nationalizations took place during this period, but there was also nearly constant fighting and much bloodshed.

The Second Radical Phase was 1982-1984, and was triggered by the Council of Guardians (appointed by the Vilayat-el-faqih, Supreme Jurisprudent or Supreme Leader, in this case, Khomeini) ruling as un-Islamic bills from the democratically elected Majlis to nationalize land and also foreign trade. This was the period in which the major Islamic elements of the economy were put into place, including the forbidding of interest in banks (which had been nationalized) as well as increased control by the bonyads of many sectors. Some industries that had been nationalized were re-privatized.

The First Pragmatic Phase was 1985-89, basically the second half of the Iran-Iraq war period, with current opposition leader, Mir Hossein Mousavi, as prime minister (a position that no longer exists). This involved opening to foreign trade and looseing of some regulations in support of the war effort. It ended with both the end of the war and the death of Khomeini, who was replaced by the current Supreme Leader, Ayatollah Ali Khamene'i.

The Second Pragmatic Phase was 1989-1997, coinciding with the two term presidency of Ali Akbar Hashemi Rafsanjani, now the leader of the Expediency Council, and apparently supporting Mousavi, with some of his children reportedly arrested in recent days. To a large extent, his policies were essentially an extension of those in the previous period, with more emphasis on private sector development, with his opponents accusing him of corruption and having achieved great wealth in this period. He was the opponent of Ahmadinejad in the 2005 election, and was veiwed then as the candidate of the entrenched clerical hierarchy against the upstart populist, Ahmadinejad.

The Social Reform Phase was 1997-2005, the period of the presidency of the somewhat moderat Mohammed Khatami. He attempted a social relaxation, but it ran into severe limits as the ulama and the Revolutionary Guards asserted their control over the police, security forces, and the courts under the authority of Khamene'i. In economics he was somewhat of a semi-socialist technocrat, emphasizing more of a state role and increasing the influence of the indicative central planners.

We do not have a label in our book for the period under Ahmadinejad, but I would call it the period of Populist Repression. He attempted to do some redistribution of income and also clamped down on social reforms. As it is, the Iranian economy remains as dependent on oil as it has been for many decades, and as I reported in another post, appears to be suffering from rising inflation and unemployment, especially youth unemployment, and ironically even rising income inequality, despite the stated goals to redistribute by Ahmadinejad.

The Health Care Debate in Washington has the Wrong Metrics

I don’t fault Max Baucus for trying to forge some sort of reasonable bill or being a fellow member of the deficit hawk wing of the Democrat Party but let’s not lose sight of what really matters:

A bipartisan group of senators at work on health care reported progress Thursday in holding the cost of legislation to their $1 trillion target, but Republicans quickly added there was no agreement on even the outlines of a bill. "We have options that would enable us to write a $1 trillion bill, fully paid for," Sen. Max Baucus, chairman of the Senate Finance Committee, told reporters. His comments came one week after analysts set the cost of earlier proposals at $1.6 trillion over 10 years.

How much the government pays for health care is not even an issue in my book. The real budgetary issue is what do we pay as a nation overall. Let me explain with a simple example based – suppose that the average citizen currently spends $6300 a year out of his own pocket or via private insurance for health care and the government is spending $700 per person per year so the total cost of health care is $7000 per person per year. If a new health care system doubled what the government was paying (to $1400 per person per year) but lowered private payments to say $5500 per person per year, the cost of health care would then be $6900 per person per year. If we could do that with sacrificing the quality of health care, then the only issue would be how to pay for the extra government spending. Of course, the answer is easy and generally supported by the public – it’s called raising taxes. Of course, some of our nitwit political leaders see tax increases as the ultimate sin.

Weaponized Keynesianism

Ali Frick reports on a very well articulated tirade from Barney Franks. The backdrop:

Last week, over the objections of Defense Secretary Robert Gates and the Obama administration, the House Armed Services Committee restored funding for the basically useless F-22 fighter jet, in the process stripping funding for nuclear waste cleanup efforts. Last night, Rep. Barney Frank (D-MA) filed an amendment to restore the waste cleanup funds and eliminate the money for the F-22. The move came after months of Republicans issuing dire warnings about the consequences of suspending the F-22 program: Frank Gaffney, for example, declared it would lead to “diminished military capability, emboldening enemies, and alienating our friends.”

But it’s time to give Congressman Franks the microphone:

I am of course struck that so many of my colleagues who are so worried about the deficit apparently think the Pentagon is funded with Monopoly money that somehow doesn’t count ... These arguments will come from the very people who denied that the economic recovery plan created any jobs. We have a very odd economic philosophy in Washington. It’s called weaponized Keynesianism. It is the view that the government does not create jobs when it funds the building of bridges or important research or retrains workers, but when it builds airplanes that are never going to be used in combat, that is of course economic salvation.

A follow-up question given the role of the marginal propensity to import in the size of the Keynesian multiplier: when the government purchases a military airplane, how much of that comes from domestic versus foreign content as opposed to when the government decides to have a bridge built?

Protest now defined as 'terrorism'

We have been informed that the current web-base [US Department of Defence] instruction course asks, as one of its multiple-choice questions, "which of the following is an example of low-level terrorism activity?" To answer correctly, the examinee must select "protests."

See here (.pdf).

Bang Goes 'Globalisation Theory'

[Related to previous post 'Before the Economic Crisis began in 2007']

What cannot be sustained is any hegemonic claim that globalisation theory is either adequate as it stands, capable of integrated development into an adequate theory, or superior to the theories which it has displaced.

.. we face a choice between a body of theory which, no matter how analytically coherent, unfortunately fails to explain the basi facts, and another group of theories that do offer an account of the most basic trends we can actually observe, the scientific choice seems clear to me; to make progress we have first to return to the abandoned theories that do in fact explain the facts, and ask ourselves how and why they achieve it, and whether their explanations and concepts can form an element of a new, and superior theory.

[Alan Freeman, 'The new world order and the failure of globalisation'. See full reference details below.]

Unfortunately F William Engdahl's description of 'Full Spectrum Dominance' is a much tighter fit of today's frightening reality.

[*] Alan Freeman (2002): The new world order and the failure of globalisation. Unpublished.
The new political geography of poverty. University of Greenwich
http://mpra.ub.uni-muenchen.de/2652/1/MPRA_paper_2652.pdf
[This is a fuller but earlier prepublication version of an analysis of stagnation and divergence in the world economy which appeared in Pettifor, A (2003) Real World Economic Outlook, pp152-159. Basingstoke: Palgrave MacMillan, pp152-164.]

Before the global economic crisis began in 2007

“In 1991, the GDP of the world in dollars was $4,997. In 2000, it was $4,909…. the wealth-producing capacity of the world is no longer keeping up with its population growth, and the wealth-producing capacity of nearly a quarter of its people is literally marching backwards…. In the 90s per capita GDP in the countries in transition fell between 50% and 75% depending on the measure adopted, catapulting them into the ranks of the developing countries.” .”… Even in PPPs, poverty is clearly increasing in the modern world…. [Since 1970] “differential growth did not speed up the growth of the advanced countries relative to the rest of the world. It slowed down the growth of the rest of the world, relative to the advanced countries The present organisation of the world economy [is] acting systematically to undermine it. The US is growing at the expense of other advanced industrial nations…. up till 1980, US investment was financed from internal savings, which always exceeded investment. This reversed in 1980 and savings from then on fell behind investment. This was particularly marked in the 1990s expansion in which savings and investment moved in opposite directions.” *

The new world order and the failure of globalisation
Alan Freeman (2002): Unpublished.

The new political geography of poverty. University of Greenwich
http://mpra.ub.uni-muenchen.de/2652/1/MPRA_paper_2652.pdf

[This is a fuller but earlier prepublication version of an analysis of stagnation and divergence in the world economy which appeared in Pettifor, A (2003) Real World Economic Outlook, pp152-159. Basingstoke: Palgrave MacMillan, pp152-164. ]

Dueling Fatwas On Nuclear Weapons In Iran. Who's In Charge?

There are dueling fatwas (religious law rulings) in Iran about nuclear weapons. In the presidency before that of Ahmadinejad back in 2003, Vilayat-el-faqih ("Supreme Jurisprudent") Ayatollah Ali Khamene'i issued one that declared the "development, production, and use of nuclear weapons" to be against Shari'a (Islamic law), ("Nuclear weapons unholy, Iran says Islam forbids use, clerics proclaim", Robert Collier, SFGate, 31 October 2003). He has never repudiated this fatwa.

However, there is a subsequent fatwa issued in 2006 by the mentor of President Ahmadinejad, the Ayatollah Mohammed Taghi Mesbah-Yazdi, who has also been the main pusher among the Iranian clerics of Holocaust denial, as reported by a "disciple" of his, Mohsen Gharavian. In that he supported production and use of nuclear weapons for self defense, ("Iranian fatwa approves use of nuclear weapons", Colin Freeman and Philip Sherwell, Telegraph.co.uk, 19 Feb 2006). Given that Khamene'i is now supporting Ahmadinejad, where does he stand on this?

BTW, while many Iranians are not keen on nuclear weapons, most reports have it that there is overwhelming support among the population for its ongoing civilian nuclear weapons program, which is not in violation of the Non-Proliferation Treaty, to which Iran is a signee, including presumably many of those now demonstrating in the streets of the larger Iranian cities.

The Bonyads And Iran As An Islamic Economy

While many consider the forbidding of interest (riba) to be a key component of being an Islamic economy, and Iran technically does this for its state-owned banks (although not in practice), what arguably makes it the most "Islamic" of economies is the large role in the economy of Islamic charity foundations known as "bonyads" (Persian for the Arabic "waqf"). Since the 1979 Islamic revolution, these have come to play an important role in the economy, controlling by best estimates on order of 20% of Iran's GDP, all of this being in the non-oil sector of the economy (http://en.wikipedia.org/wiki/Bonyad). The Bonyads do not pay taxes and do not have to publicly report their activities (and have been accused by many as the conduits for funding of foreign groups such as Hezbollah). Controlled by mullahs (Islamic clerics), they are supposed to be charitable organizations, but most appear to do little of this and to be corrupt and bloated institutions propped up by subsidies, with 80% of them reportedly losing money. They seem to be adding to inequality in the economy, and unhappiness with their role was part of what drove support for Ahmadinejad in 2005, although he has since reinforced them, not reduced their role in the economy.

Data on income distribution is murky. Certainly Ahmadinejad made some efforts to redistribute, including raising pensions and many salaries when he first took office. However, it appears that inequality is worsening. The gini coefficient may have been as low as .37 in 2003, although was probably higher. It appears to have fallen after 1979, but then increased again later above .40, possibly declining again in the early 1990s after the end of the Iran-Iraq war. The most recently reported figure I have seen comes from early 2008 from Abbas Bakhtiar (http://www.payvand.com/news/o8/jan/1258.html) at .44 and supposedly rising. Bakhtiar also reports that the sanctions by foreigners have had a negative effect on the Iranian economy, although he blames corruption and internal problems, including a stifling influence coming from the bonyads, as primarily responsible.

The Revolution Will Be Televised

It is no mystery why repressive regimes want to suppress media coverage of their crackdowns of peaceful protests but the Iranian regime has an internet problem. Nico Pitney’s live-blogging is eye opening and as far as I call tell – the regime has sent out its basij thugs in the hope of intimidating the protestors and to try to pin the blame for all of this on their false claims that the US and UK governments have been fostering terrorism. There is some evidence that the intimidation part may not be working out all that well but the regime might get their rally around Ahmadinejad if our government is foolish enough to listen to Krauthammer, Wolfowitz, Barnes, and Hayes-Kristol . As Steve Benen there are more mature Republicans who don’t advocate such stupidity and fortunately this President is not about to be Ahmadinejad’s stooge. One has to shudder to think how far this regime will go to hold onto power. But thanks to Twitter, Facebook, and blogging – the world will know even as this regime tries to block media coverage.

The Economics Of The Iranian Presidential Election

While many think the appeal of Mahmoud Ahmadinejad has been his Shi'i fundamentalism, in 2005 he ran against the wealthy former president and favorite of the Iranian mullah hierarchy, Hashemi Rafsanjani on populist economic grounds, complaining somewhat like Jimmy Carter in 1976 against Gerald Ford that the Iranian people were economically worse off than four years before and that he would help the poor. Supporters of Rafsanjani included the established mullah hierarchy, including Vilayet-el-faqih ("Supreme Jurisprudent") Ayatollah Khamene'i. There is evidence that Ahmedinejad has engaged in various redistributive programs especially aimed at the rural poor. However, crucial economic variables have gotten worse, just as they did for Carter by 1980, opening him up to the criticism he leveled against his earlier opponent. There are various numbers out there, but after digging around it would seem to me that the best estimate on the overall unemployment rate is that it was about 10.4% in December 2004 (http://www.payvand.com/news/04/dec/1102.html), but that by February 2009 it had hit 16.3% (http://www.encyclopedia.com/doc/1G1-594557005.html).

As for poor Carter in the US, the inflation in Iran also appears to have risen as well from 13.5% in 2006 to 17.1% in 2008, prodiving the dread genie of stagflation (http://www.indexmundi.com/iran/inflation_rate(consumer-prices).html) , with some reports suggesting it has soared to over 20% in 2009, all of this with much higher oil prices than in 2005, which should have made things easy for Ahmadinejad economically. It should also be noted that most sources show youth unemployment being anywhere from 50-100% higher than the overall rate, thus quite possibly over 30% now, with that of young women possibly as high as 50%. No wonder that Ahmadinejad has been hurting badly on the economic issue, both with fervent youth now in the streets, as well as with such previous backer as the conservative bazaari merchants and even reportedly with elements of the military and Revolutionary Guards who respected Mousavi's performance as prime minister during most of the Iran-Iraq war in the 1980s.

The real question now, in the face of clear electoral fraud by the regime, is why Khamene'i has switched sides and is backing Ahmadinejad this time over Mousavi, who appears not to have threatened the foundation of the regime before now. Khamene'i has called for there to be no demonstrations today in Iran, with the threat that any might be put down violently. This becomes even more problematic given that the one authority able to replace his is the council headed by former president Rafsanjani, whom he reputedly supported in 2005, but who now supports Mousavi by the best reports. Clearly this is a moment of deep decision in Iran, and I do not have a full explanation or understanding of what is really going on there. At this point I hope that there is not too much bloodshed, while truth and justice prevail.

The Vote Totals in Iran? French language media versus English language

I have just observed one of the more curious disjunctures in the media between what is appearing in the media of one language and in another. I have just returned from France where I was watching Euronews in French and reading French newspapers, as well as various US and British sources in English and have looked through Juan Cole and WaPo and some others. I do not know the explanation of the disjuncture nor which is correct. Actually it is not a matter of disagreement so much as that the French are reporting something that I have seen zero reporting of in any of the English language media.

The matter is the reputed leaking of the actual vote totals from the Ministry of the Interior in the Iranian presidential election. Both on Euronews and in the newspaper Liberation the story is that the ministry was seized early in the aftermath of the election, throwing out the official functionaries. One of those is the reputed source of the vote totals reported in these sources. They are the following, to the nearest million:

Moussavi, 19 million
Kourabi, 13 million
Ahmadinejad, 6 million (actually 5,77)
Rezaie, 3 million.

So, if these numbers reported in the French language media are correct, Ahmadinejad not only did not get 62%, with Moussavi at 34, but he came in third with less than a third of the votes of Moussavi. If this report is correct, nobody in the world should be surprised by what has been happening there.

The Danger of Boilerplate

by the Sandwichman

Sandwichman cries "Foul!" on the Economist and its blogger, Charlemagne, for perpetrating a LUMP OF CRAP hoax on its readers.

Back then [the 1980s and 1990s] many politicians, unions and workers also fell for the "lump of labour" fallacy, which suggests that there is a fixed amount of work to be done at any given time, available for slicing up and sharing out according to policymakers’ will.

As longtime Sandwichman followers know, the alleged fallacy is a canard, one that the Economist trotted out 17 times between 1993 and 2005, giving rise to the following satire, composed entirely from sentences from the magazine:

[UPDATE: Dean Baker agrees that The Economist Gets the Arithmetic of Shorter Work Time Wrong.]

"The idea that a fixed quantity of work exists, to be parcelled out among workers, is the so-called lump-of-labour fallacy. It is depressing that supposedly responsible governments continue to pretend to be unaware of the old 'lump of labour' fallacy: the illusion that the output of an economy and hence the total amount of work available are fixed.

"The notion that there is a fixed amount of work to be shared out, so that shorter hours for all must mean more jobs, is widely derided by economists as the 'lump of labour' fallacy. The idea of the 35-hour week, derided by many economists as the 'lump-of-labour fallacy', is that if employees work less, companies, spurred by tax concessions, will hire more. Although mocked by economists as a prime example of the 'lump-of-labour' fallacy – the idea that there is only so much work to go around – the government claims that it had created 240,000 jobs by the end of 2000. But to conclude from this that overall employment will decline is to succumb to the lump-of-labour fallacy: the long-disproved idea that there is only a fixed amount of output (and hence work) to go round.

"France's own Frédéric Bastiat had pointed out two centuries ago that there is no limit to the work that needs doing. Debunking the 'lump of labour fallacy' before it was even given that label, he suggested that to parcel out the limited amount of work available, people should be required to use only one hand, or even to have a hand chopped off. But -- the lump of labour fallacy strikes again -- the amount of work to be done is not fixed. The quantity of work is not fixed: such a notion is known to economists as the 'lump-of-labour' fallacy.

"The lump of labour fallacy also lies behind paranoia about jobs being 'stolen' by low-wage countries. The accusation that migrants steal jobs is a version of the 'lump of labour' fallacy -- that there is only so much work to go around. In effect, export pessimism involves a fallacy of its own -- a 'lump-of-trade' fallacy, akin to the idea of a 'lump of labour' (whereby a growing population is taken to imply an ever-rising rate of unemployment, there being only so many jobs to go round).

"This is a classic lump-of-labour fallacy (the idea that there is a fixed quantity of work and that if you take a job it is at my expense). Economists call this the 'lump-of-labour' fallacy. Economists call this the lump of labour (or sometimes the lump of output) fallacy.

"The lump of labour fallacy is often to blame for confusion about whether productivity growth (due to more efficient working practices or to new technology) is a good or bad thing. Luddism is also commonly linked to the lump-of-labour fallacy in economics, which first-year students are taught to refute and according to which, as the demand for labour is fixed in the short run, labour-saving machinery is bound to 'kill jobs'. But the assumption that this results in fewer jobs rather than more output (and hence more goods, and more job-stimulating demand, in a beautifully virtuous circle) is based on an economic fallacy known as the 'lump of labour': the notion that there is only a fixed amount of output (and hence work) to go round.

"If new technology or foreign competition do lead to net job losses it will not be because the lump of labour has become a fact rather than a fallacy, but because labour is not sufficiently mobile between sectors and regions, or because relative wages have failed to adjust. Nearly all of these mistakes boil down in the end to the most enduring of all economic fallacies: the idea that there is only so much output to be produced, or capital to be invested. (Europe is currently preoccupied with the 'lump of labour' version of this mistake, see page 18.)

"A recent piece accused conservatives of embracing the 'lump of labour fallacy', the mistaken claim that there is a fixed quantity of work which governments must strive to allocate equitably. Hmm. Are those arguments entirely incorrect? Yes, entirely. The first is a myth. In fact, the paper he cited did not commit the lump of labour fallacy."