"Fisking" Modern Monetarism

OPINION / That '70s Show
By ALLAN H. MELTZER
February 28, 2008; Wall Street Journal / Page A16

The title of this message is slightly off. Alan Meltzer (AM) is not really an old-time Monetarist, because that view (as defined by Milton Friedman) is basically dead. (It morphed into something called "new Keynesianism.") However, even though AM does not believe in the idea that the money supply should be kept growing at a slow and constant rate (the key tenet of high Monetarism), he is of that tradition: to him, the Fed must fight inflation, forgetting all other goals.

My comments are in dark type, his in light type. If you want his full article unscathed, see the link above.

Is the Federal Reserve an independent monetary authority or a handmaiden beholden to political and market players? Has it reverted to its mistaken behavior in the 1970s? Recent actions and public commitments, including Fed Chairman Ben Bernanke's testimony to Congress yesterday -- where he warned of a steeper decline and suggested that more rate cuts lie ahead -- leave little doubt on both counts.

An independent central bank is supposed to maintain the value of the currency and prevent inflation. In the 1970s and again now, Federal Reserve officials repeatedly promised themselves and each other that they would lower inflation. But as soon as the unemployment rate ticked up a bit, the promises were forgotten.

Contrary to AM, a true "independent monetary authority" does not have to "maintain the value of the currency and prevent inflation." (These really are one goal, by the way.) A truly independent central bank (CB) can do anything it damn well pleases. No one could complain or do anything about it. But AM isn't really calling for an truly independent CB.

AM is advocating a political position by making an assertion of fact: he's calling for one that's independent of any democratic control -- so that the citizens cannot hold the CB accountable in any way. This kind of institution would instead be responding only to political pressure from Wall Street and the banks. He then hopes that its priorities would be totally dedicated to fighting inflation. His hopes are likely to be dashed, since the Fed is partly a creature of Wall Street, which is not just concerned with inflation.

By the way, the view that unemployment “ticked up a bit” during the 1970s is totally wrong. The overall rate jumped from 4.9% to 5.9% in 1972, while it had already been pretty high by 1960s standards before that. It soared from 4.9% in 1973 to 8.5% in 1975 and then stayed high (above 7%) for two years. AM has likely never experience unemployment and thus does not know what “ticking up” means.

People soon recognized that avoiding possible recession overwhelmed any concern about inflation. Many concluded that inflation would increase over time and that the Fed would do little more than talk. Prices and wages fell very little in recessions. The result was inflation and stagnant growth: stagflation.

AM is presenting the theory of the “credibility” of the Fed. If the CB isn't a strict task-master, the story goes, workers won't cut their money wages much in recessions (relative to productivity, but for simplicity let's ignore that). Similarly, businesses do not cut prices. There's some truth to that idea, but it's radically incomplete and therefore wrong. Back in the 1970s, the persistence of inflation and the rise of stagflation was much more than just a matter of "inflationary expectations."

First, there was the wage/price spiral. This is something that existed mostly autonomously from expectations and the credibility of the Fed. Workers find that their money wages are falling behind inflation and thus strive to raise them -- or to get a cost-of-living escalator built into their contracts. They were able to do this because their were stronger labor unions in the private sector than nowadays. Then, the employers push the costs of the higher wages onto consumers by raising prices. Back during the 1970s, they had the pricing power needed to pull this off.

Price hikes encourage further wage inflation. Despite the recession of the early Nixon years, which AM likely applauded, the price/wage spiral continued. This inflationary hangover meant that we saw the first "stagflation."

By the way, the Fed really wasn't in charge of the economy back then the way it was now, so its credibility was irrelevant to this discussion. It only gained its current status with the complete transition to a floating exchange rate system. Back in the 1960s and very early 1970s, the dollar was fixed to gold and other currencies, so the Fed was forced to focus its efforts on keeping it fixed. It was unleashed starting in August 1971, when Nixon started the process of letting the dollar go. The Fed soon replaced the federal government as the macroeconomic maestro.

Second, and more importantly, there were two major oil shocks during the 1970s (1973-4 and 1979-80). These occurred due to political events (the 1973 Arab-Israeli war and the Iranian revolution) and had nothing to do with the Fed's credibility or lack thereof. The oil-price hikes, rather than the price/wage spiral or inflationary expectations had much more to do with causing the rise of inflation. Part of this impact was due to the newly-floating dollar: oil prices would be hiked in dollar terms, but then a depreciating dollar would undermine the oil revenues’ purchasing power, so that prices had to be hiked again (to protect the petro-princes).

Third, the rate of profit had fallen since the 1960s. As I've argued elsewhere, this encouraged business to raise prices more than usual. (Falling profit rates, all else equal, cause rising stagflation.) It wasn't a matter of passively responding to wage increases. It was the start of what the late labor leader Doug Fraser called a "one-sided class war" aimed at restoring profitability.

It's beginning to happen again. Unlike the response of wages and prices in the low inflation 1990s, expectations of rising inflation now delay or stop price and wage adjustment, inhibiting growth.

When AM says "inhibiting growth," I presume that he's following the convention among economists and referring to growth in the ability of the US to produce (potential output, the "supply side"). He's not referring to growth of demand, which is what most journalists mean. Because it’s clear that the kind of tight monetary policy he’s advocating causes slower growth of demand.

He's assuming that any kind of inflation hurts the supply side. That doesn't make sense. In standard orthodox theory, long-term supply-side growth is unaffected by inflation (unless it gets to Zimbabwean levels). Getting beyond the orthodoxy, inflation can actually make the economy more flexible, serving the employers' needs. You've got an employee (or a bunch of them) who you can't get rid of and whose wages are "too high"? Well, let inflation reduce the impact of the cost.

As noted, he's also assuming that anti-inflation recessions help supply-side growth. That does not follow either. Recessions stomp on private investment, weakening a key source of normal capitalist growth. There seems to be a correlation -- called Verdoorn’s Law -- between the growth of demand and the growth of supply, with demand leading the process. So sustained and deep recessions of the sort that AM is advocating actually can hurt supply-side growth.

One lesson of the inflationary 1970s: A country that will not accept the possibility of a small recession will end up having a big one when the politicians at last respond to the public's complaints about inflation. Instead of paying the relatively small cost of a possible recession, the public pays the much larger cost of sustained inflation and a deeper recession. And enduring the deeper recession is the only way to convince the public that the Fed has at last decided to slow inflation.

Here, AM is referring to the fact that the US went through a severe recession, with unemployment rates near 10% in 1982 and 1983 -- under the guidance of the Fed's Paul Volcker. Making things worse, it was a "double dip" recession, hitting in 1980 and then in 1981-82.

This "Great Recession" occurred for several reasons. First, people were sick of inflation at the time. But more importantly, it was an expression of the revenge of finance capital: creditors and owners of paper assets (bonds, stocks) had found their paper losing value due to inflation, so they helped the resistable rise of Volcker to the pinnacle of power, shoving aside the "weak" William Miller. It was a part of the one-sided class war mentioned above, involving not just a simple recession but the breaking of unions (think PATCO) and the smashing the old industrial heartland (Michigan, Indiana, Pennsylvania, etc.) The strict task-master had arrived.

Free market orthodoxy ruled. It was better to simply throw large numbers of workers out of work rather than increasing the inflation-fighting efficiency of the recession using wage and price controls. (Contrary to the standard story, wage/price controls complement recessions in fighting inflation rather than being a substitute.)

It worked! Inflation decreased, while labor unions in the private sector went on a seemingly final death march. Of course, Volcker does not deserve all of the credit. The drastic fall of oil prices in 1986 and after (due to the collapse of OPEC, having nothing to do with the Fed’s “credibility”) put a big nail in the coffin of stagflation.

Economic forecasts are not very accurate; still, the International Monetary Fund, the Congressional Budget Office and even the Federal Reserve do not forecast recession in 2008. The Fed thinks that the unemployment rate may rise to 5.3%, below the postwar average. In any event, it cannot do much to change economic activity or unemployment experienced in the next few months, and the Fed anticipates stronger growth in the second half of the year. Why the haste to cut interest rates drastically?

The experience of everyday people “in the trenches” of the economy suggests that something very much like a recession is happening right now, whether or not the economy falls in the exact way that technically defines a “recession.” And if forecasts aren’t accurate, why does AM use them?

The freezing up of short-term financial markets called for more borrowing. The Fed's response was creative and correct. It recognized that its responsibility as lender of last resort required bold action to maintain the payments system; and it delivered.

It seems that AM ignores the repeated nature of the credit freeze. It’s more of a structural problem right now, rather than being something that can easily be solved using lender-of-last-resort lending.

But the rush to bring real short-term interest rates to negative values is an unseemly [!!] and dangerous response to pressures from Wall Street, Congress and the administration. The Federal Reserve became "independent" in 1913 so that it could resist pressures of that kind. And in the postwar years, although it often failed to do so, it was expected to safeguard the purchasing power of our money and maintain economic growth.

The Fed was supposed to resist pressures from Wall Street?? The main impetus for its creation occurred because the ultimate Wall Street insider -- J.P. Morgan -- was no longer up to the task of handling financial panics. The private sector had failed, so the public sector took over. The whole idea is not only protect the value of the currency (prevent inflation) but to protect Wall Street’s goodies.

For Wall Street, the pressure for lower interest rates is based on a hope that bond and mortgage yields will decline and their losses will be limited. Often long-term rates fall when the Fed lowers short-term rates -- and since bond and mortgage prices rise when their rates fall, the losses of investors in these instruments will be reduced. For Congress and the administration, there is a need to show "concern" by doing something in an election year. These are not the concerns that should influence an independent central bank.

It is truly bizarre that AM does not acknowledge the housing mess, in which falling house prices are causing increasing numbers of homeowners to have “negative equity” and increasing numbers of financial institutions to find that their assets are worthless -- or at least worth much less than they counted on. The latter, of course, is what spurred the aforementioned credit freezes.

Surely Mr. Bernanke and his colleagues remember what happened in the 1970s. They console themselves with the belief that they will respond to any inflation that occurs by promptly raising interest rates. That repeats the commitments made repeatedly in the 1970s, which the Fed was unwilling to keep. The blunt fact is that there is rarely a popular time to raise interest rates. [even when inflation is high?] And with the growing streak of populism in the country, it will become more difficult.

Oh my god! People are beginning to be populist! What next, democracy?

The Fed's recent behavior is in sharp contrast to the European Central Bank. The ECB keeps its eye on both objectives, growth and low inflation. It doesn't shift back and forth from one to the other. The Fed should do the same. In the 1970s, because the Fed shifted from one goal to the other and back again, it achieved neither. Both inflation and unemployment rose on average, then fell together in the 1980s -- after the Fed controlled inflation.

One problem with this assertion is that even though unemployment generally fell in the 1980s is that unemployment started taking on greater meaning. The intensifying neoliberal policy revolution (initiated by Volcker and Reagan) raised the cost of losing one’s job, so that any given unemployment rate had more impact in restricting wage demands. And the fall in inflation rates was not just due to breaking the back of the price/wage spiral but also the drastic fall in oil prices.

After 1985, Fed policy kept inflation and unemployment low. The result was 20 years of growth, and three of the longest peacetime expansions punctuated by short recessions.

Not mentioned are the institutional changes that weakened the wage half of the price/wage spiral and the increasing amount of international competition in product markets, which sapped the price half. To the very model of a modern monetarist, it’s all the Fed’s doing. And, following the tradition of Milton Friedman, if things go wrong, it’s all the Fed’s fault. It's never because the Fed faces irreconcilable goals, such as saving Wall Street while avoiding inflation.

We should not throw this policy away. Federal Reserve independence is a valuable right which should not be discarded. The Fed should insist on its obligation to prevent inflation and sustain growth, not sacrificing inflation to lower unemployment before the election.

What obligation? The Fed’s obligation is much more complicated than that, if you actually read the laws.

But let’s drop that issue and conclude by tying up two loose ends. First, I referred above to “sustained and deep recessions of the sort that AM is advocating.” He does not explicitly advocate a sustained and deep recession as much as assert that the current recession (if it occurs) will be mild, with perhaps a minor up-tick in unemployment. (People need a vacation, anyway, right?)

The other loose end is that the economy currently seems to fit AM’s story. In the private sector and most of the public sector, workers lack the bargaining power to raise wage. Most businesses don’t have much power to raise prices any more and are more like victims of supply and demand. So if inflation persists, it seems like it would be due to inflationary expectations and (dare we say it) the lack of credibility of the Fed.

The problem is that even if the economy is imitating the economists’ model of the perfect market, that can be a disaster. With consumers in debt up to their necks and home equity collapsing, it looks like we’re going to have a massive collapse of consumer demand. No longer will middle-to-upper-class consumers live it up on credit. No longer will working-class and poor consumers meet their obligations in the face of stagnant wages using credit. It’s crunch time. Private investment will likely be blocked by fears of disaster and increasingly important corporate debt and unused capacity (as the demand for their product falls). It’s possible that the government’s military campaigns and the revival of exports will pump up the economy, but nothing is guaranteed. Both of those encourage inflation, which simply makes the Fed’s job harder and encourages moderation in recession-fighting.

As Bernanke knew in the early 2000s, deflation (a general fall in prices) is possible. It was made possible by the undermining of worker bargaining power and employer pricing power. With consumers in deep debt, falling prices are a total disaster. (A consummate orthodox economist, Irving Fisher, pointed this out in 1933, having just seen it happen.) Suddenly debts and interest payments become more important, encouraging waves of bankruptcy and further cuts in consumption. People begin to expect deflation and delay spending (if they can) to take advantages of future “deals.” The fall in prices becomes credible, so people believe in it.

Okay, we cannot predict that such a debt deflation will occur. But the point is that AM’s hoped-for mild recession might easily cause it. It's quite possible that Monetarist policies combined with the neoliberal changes in the economic structure could reap a whirlwind.

Perfervid Flapdoodle on the Post-Fidel Cuban Economy

Since the announcement of the retirement of Fidel Castro as Cuban president, there have been a series of postings and perfervid threads on both Brad Delong and Marginal Revolution, going on about what terrible shape the Cuban economy supposedly is in, along with denunciations of the political repression carried out by Fidel (I am in agreement with most of those latter denunciations). I have not visited Cuba myself, but there has been much debate, both over the varying published figures, and also among people who claim to have visited Cuba (which includes MR's Tyler Cowen, but does not appear to include Brad DeLong, whose arguments have seemed especially off the wall and out of line with most reports). Even the critics grant at least some quality of education and health care, although they often claim the official stats are inaccruately positive and that the health care system is deteriorating.

Among the matters of debate has been the effect of the US economic embargo on Cuba. Many state it is huge; others say it is not and bring up the past subsidies from the USSR and current ones from Venezuela. I do not intend to adjudicate that or any of the other issues here. Rather I wish to comment on a particularly hypocritical collection of views that some of the more inflamed commentators have put forward. So, we see people who a) strongly support free trade, b) strongly support keeping the embargo in place, c) strongly argue that the embargo has no (or few) negative effects on the Cuban economy, and d) never notice that the political repression that they (and I) are unhappy about has for nearly a half a century received its strongest propagandistic justification from the fact that this embargo has been in place for all this time, even as the US trades with the likes of China and Vietnam.

Parallax Accounting Standards

Maybe this is important, maybe not. But what do I know? I’m holed up here in my rainforest hovel, where the Long Damp has finally returned. I am ignorant of most accounting matters, but I suspect that the current credit crunch is, to misquote John Sayles via Burt Reynolds in “Breaking In”, “a big event in the world of asset pricing.”



Whenever there are opportunities to falsely upgrade values during a boom or falsely prevent them from dropping during a bust, I say keep an eye on the accountants.

Bed Sores and Outsourcing

Here is a brief extract from a valuable book that described how outsourcing was losing the sort of crucial healthcare information that can come from the supposedly "unskilled workers."

Appelbaum, Eileen, Peter Berg, Ann Frost, and Gil Preuss. 2003. "The Effects of Work Restructuring on Low- Wage, Low-Skilled Workers in U.S. Hospitals." In Eileen Appelbaum, Annette Bernhardt, Richard J. Murnane, eds. Low-Wage America: How Employers Are Reshaping Opportunity in the Workplace (Russell Sage Foundation): pp. 77-117.

85: "because food service and housekeeping are not typically seen as distinct sources of hospital success or expertise, some hospital administrators have outsourced these functions or their management to external firms that specialize in these areas. On the other hand, food service workers, housekeepers, and nursing assistants all have direct contact with patients, and contacts can affect patients' experiences in the hospital and satisfaction with care. In response, other hospital administrators have sought to improve employee skills within these jobs and ensure a more stable workforce through more careful selection, cross-training, and work reorganization."

Bed Sores and the Cultural Revolution

More than three decades ago, I read a book by an English doctor, who described his positive experiences during the cultural Revolution. Just today, I got around to the New York Times science section from last week in which nursing homes are starting to adopt slightly similar practices in which they distribute responsibility to all levels of caregivers. The basic difference, of course, is that in the Chinese case all the caregivers were given authority as well as responsibility, while something much different occurs in nursing homes.

What follows is my brief notation from the British doctor's book and some extracts from the article.



Horn, Joshua S. 1971. Away with All Pests: An English Surgeon in People's China, 1954-1969 (New York: Monthly Review Press).

Joshua Horn, a British doctor, depicted the changes that occurred in his hospital at the time. He described how nurses, orderlies, patients, and even patients' friends became active in the decision-making process. Although the typical orderly had no formal medical training, she or he would spend far more time with the patient than the doctor, who might have only a few minutes to spend with the patient. As a result, the orderly might have a great deal to offer in deciding what course of treatment to follow.

Schaffer, Amanda. 2008. "Fighting Bedsores With a Team Approach." New York Times (19 February).

"Experts estimate that two million Americans suffer from pressure ulcers each year, usually through some combination of immobility, poor nutrition, dehydration and incontinence. The Centers for Disease Control and Prevention does not keep statistics on fatalities, but one prominent victim was the actor Christopher Reeve, who died of a bedsore infection in 2004 in the middle of a heroic battle against paralysis. New research is suggesting that the battle against bedsores requires a team approach, enlisting everyone from nurses and nursing assistants to laundry workers, nutritionists, maintenance workers and even in-house beauticians."

"At the Lutheran Home in Fort Wayne, Ind., for instance, “the laundry workers helped us see that some clothes weren’t fitting the residents properly and were restricting their skin,” said Jeanie Langschied, a registered nurse there. The kitchen staff began putting protein powders in cookies to boost nutrition. They added buffet dining, so residents would not remain in one position for so long, compressing fragile skin. Even the beauty shop “realized that wait times needed to decrease,” Ms. Langschied said, and residents should be repositioned while getting their hair done. “It was all departments looking at everything, and it was just amazing the information that flowed through."

Really Bad Economics in Defense of Savings

The zombie that Keynes couldn’t kill still stalks the landscape. In a New York Times op-ed today, Conley tells us that the reason we are sliding into a recession is that we save too little, and that only more savings can pull us out.



A few remarks, with Conley in italics:

The recent slowdown in gross domestic product growth is only a symptom of recession, not the cause. While there are many things to blame for the current crisis — most notably the subprime mortgage mess — one factor that has received little attention is America’s low savings rate.

Um, what is the transmission mechanism here? Weren’t people buying subprimes saving too much or in the wrong way relative to their income? This seems to be an argument based on moralism, not economics: we have been bad these past years, spending beyond our means, and now the recession will be our punishment. In the middle ages our sins were punished by earthquakes and plagues, now it’s recessions. At least it’s an ordered universe.

The simplest approach would be to seed universal mutual fund accounts for low-income Americans. The best way to do this would be through a so-called refundable tax credit deposited directly into a special investment account for each taxpayer. In future years, the government could contribute an additional 50 cents for every dollar the taxpayer deposited into this account. Think of it as a universal 401(k), but one that could be used not only for retirement but also for things like a down payment on a house, college expenses or unexpected health costs.

Well this is dandy: in a time of recession we should create new incentives for individuals to salt away more money. Less consumer demand, that’s the ticket. And behind this proposal is the error of thinking that savings creates investment. If the economy is in a nosedive, and businesses are going bust everywhere, who will want to invest?

As I’ve written in this august blog before, our savings shortfall is the consequence of the massive and ongoing trade deficit: we have to borrow to make up the difference between what we earn and what we spend. The problem with the stimulus package, at least one of them, is that it does nothing for expenditure switching.

MORE PEAK FOOD

by the Sandwichman

In the comments on Peak Food, Juan shared his observations of activity in the grain markets.

"Led by trade on the Minnesota Grain Exchange (MGEX), there were sequential limit up days that effectively froze the market, part of a short squeeze, unmet margin calls, rumours that the Canadian Wheat Board was stressed, elevator and/or bank failures."

The chart below shows MGEX front month wheat contracts (click on the chart to enlarge):





"From 8 Feb, the big three grain exchanges, with CFTC approval, all raising margin requirements while loosening trading limits, which at least in theory should attenuate or stop the rise.

"There is some real fundamental basis for the price rise but what began a few weeks ago went beyond this and has begun to really hit smaller bakeries as well."

The following commentary is from Karen Ballhagen & Scott Davis's 'Sorting It Out' column at AgWeb from February 8:

"An enormous amount of money continues to change hands in the multiple wheat pits -- primarily linked to the Minneapolis exchange. The focus of supply and demand may have run its course, leaving money as the major player. I say this in part due to the companies which are being squeezed now on the other side of this run-away market. Grain elevators and large grain companies across the U.S. and Canada are facing critical junctures in managing uncomfortable lending situations due to margin calls. Banks have become more prudent with lending in recent months due to the U.S. real estate debacle. If you look closer at the Minneapolis market, you will not only see prices have spiked to above $15/bushel on the futures, but even more serious is the potential for that to go higher yet. The daily price limit on wheat is about to jump another ten cents to 40 cents per day. At this price tag, where does that leave the end users to financially defend hedge positions? It would speak volumes to agriculture if solid grain companies start to fold under pressure due to this money squeeze.

"I can hear it now: the old timer 30 years from now in 2038 will be telling his grandson about the wild and wooly wheat market of '08 when prices defied gravity. But the second half of this tale has yet to be written. Margin calls and forced liquidation are now the primary driver of wheat price action as the "squeeze" in Minneapolis wheat has moved past the point where true fundamentals have much meaning."

Robert J. Samuelson Goes Imbecilic Over Obama

In today's WaPo, Robert J. Samuelson attacks "the Obama delusion," complaining that he is a new kid on the block whom RJS is uncomfortable with in contrast with Hillary and McCain. He starts with the usual whine about Obama's speeches being too good but lacking substance. Then he admits that Obama presented a 12-point economic plan at the Janesville, WI GM plant, only now the problem is that it is just "the usual political goodies," and looks too much like Hillary's plan. Oh. But I thought Hillary's plan was OK. I think RJS is steamed that he has not been schmoozed enough by Obama and his circle.

Of course RJS makes a serious fool of himself by ranting about entitlements, he being one of these people who thinks social security and medicare are one and the same. So, Obama is castigated for not resolving entitlement spending. His call to lift the income cap on FICA taxes is simply dismissed, although it is something specific. That Hillary is calling for a vague commission with no specifics, and McCain has said nothing at all that I know of about any of this, and has confessed that he does not know much about economics, does not seem to bother RJS in his lather at all.

Sunstein and Obama

Peter noted the connection between Obama and Sunstein's minimalism already. It occurs to me that some of his earlier work is germane as well. He was a leading light of the revival of "Civic Republicanism" in legal theory. A key idea is that politics can be more than bargaining on the basis of given preferences, that democratic deliberation can sometimes, at its best, be a locus for the transformation of preferences.

Some of our greatest political leaders, or so it seems to me, have been people who challenged us to transform ourselves. Think Lincoln, King, FDR. Some of us who are impressed by Obama see him as potentially cut from the same cloth. We'll see.

Are Child Laborers Exploited?

Don’t jump to conclusions. Children who work for pay usually make less than adults, but they are usually less productive too. It is far from obvious whether their employers take in more profits, or whether child labor undercuts jobs and wages for adults. You can speculate on this all you want, but now, for the first time, there is empirical evidence.


My study, “Child Labor Wages and Productivity” has just been published by the International Labor Organization (ILO). Working with teams in four countries, we surveyed children and their employers in two sectors per country, gathering data on the division of labor between adults and children, relative wages and productivity, firm-level factors, employer motivation, and the social context. You can read about children who fish off the coast of Ghana, repair cars and motor scooters in India and fold fireworks in the Philippines. The analysis is not particularly high-tech, but you can find basic wage regressions and estimates of production functions with child and adult labor inputs. There is also a ton of descriptive material.

The bottom line is, sometimes, under some conditions. When normal people talk about child labor they often assume that children are a gold mine for unscrupulous employers. This can be true, but it’s not the whole story. Meanwhile, when economists study child labor they usually assume the opposite, that the law of one price equalizes unit labor costs across all age levels. This is even less likely to be the case. If you care about child labor and want evidence instead of arbitrary assumptions, I think you’ll find the study up your alley.

It’s a free download at http://www.ilo.org/ipecinfo/product/viewProduct.do?productId=7065.

Showdown in Wisconsin Too Close to Call

Hillary's last chance in Wisconsin has her slightly ahead in last poll last night. Too close to call. Here is my take. Northwestern part goes to Obama, old Progressive territory like Minnesota. Northeast, including Green Bay (she was in its suburb, De Pere last night) goes to Hillary, old Joe McCarthy stomping ground. Rural parts of the southern part of the state tossup. Madison and Dane County (around Mad City) for Obama. Racine slightly to Obama because of Af-Am pop, Kenosha slightly to Hillary. Milwaukee split, northside to Obama, southside to Hillary. Which leaves what I have said all along is the key: Waukesha County, third largest in the state, suburbs to the west of Milwaukee, inner part more working class with income rising as one goes west and getting more suburban. Tossup, but as it goes, so will the state and Hillary's chances.

Repression at University of Missouri, Kansas City

A very troubling report:

http://cas.umkc.edu/aaup/facadv23.html

Why the McCain Line on Iraq is Wrong

John McCain will be pushing the line that the "surge has worked," based on declines in attacks on US troops and declines in violence in Baghdad and al-Anbar Province, even as violence is again on the increase in some other parts of Iraq, and basic political and economic settlements remain unachieved. The problem is that neither of these declines in violence has had very much to do with an increase in the presence of US troops, although the case is stronger for Baghdad than for al-Anbar. In Baghdad the decline in violence would ultimately have happened because the main source of it was ethnic cleansing and the rise of sectarian segregation. This is now basically complete, with few integrated neighborhoods left and with many Sunnis fleeing both Baghdad and Iraq. A city that was 2/3 Shi'i, is now about 3/4 Shi'i, with the US effectively aiding this outcome.

The turning of tribal sheikhs against al-Qaeda in Iraq in al-Anbar Province has had nothing to do with increased US troops (although providing arms probably helped) and everything to do with al-Qaeda in Iraq stupidly killing sons of some of those sheikhs. Ironically, one of the biggest neocon hawks, Charles Krauthammer, has effectively admitted this. He criticized Dems in Congress for saying the 2006 election changed things by pointing out that this change of attitude had happened prior to the election, even as McCain and crew are claiming it came later in 2007 with the US troop surge. Not so. Bottom line is that the violence situation has been naturally self-stabilizing, making it much easier to engage in large-scale withdrawals of US troops without destabilizing Iraq beyond what it is anyway.

More on Labor Markets vs. Family Values

Following up my last post that suggested family stability inhibits labor flexibility, I might mention that in our own recent hiring experience at Chico State, an inordinate number of good candidates proved unemployable because of the need to accommodate a spouse.

In a similar vein, Andrew Oswald showed that home ownership is the most reasonable explanation for differences in unemployment rates between countries. His scatter graph has a very impressive fit, presumably because people with homes are less likely to pick up and leave for a new job.

Oswald, Andrew J. 1999. "The Housing Market and Europe's Unemployment: A Non-Technical Paper."

http://www2.warwick.ac.uk/fac/soc/economics/staff/faculty/oswald/homesnt.pdf

PEAK FOOD

by the Sandwichman

A guy came into the food co-op today to pick up the four 25-pound sacks of wheat he special ordered. He told me to "pick up a couple of sacks of wheat for yourself and store them in your basement." So I took a look at recent news stories on agricultural commodity prices. Prices are soaring. Every kind of planted crop has increased in price by 30% to 50% over the past few months. This will have a huge impact on food prices.

Things are going to get very interesting.