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## Robert Reich Is Right: Raise the Minimum Wage

He writes:

Robert Reich's Blog: Tenth Anniversary of Minimum-Wage Hike. Democrats Should Do it Again.: Message to Democrats: It's time to do it again. Current estimates are that 12 million Americans are at the federal minimum wage (now $5.15 an hour). Almost all the 1996 increase has been eroded by inflation. Democrats should propose increasing it to at least$7 an hour. Force Republicans to vote on it. If they refuse to, or they vote it down, make it a big issue in the fall campaign.

Contrast the plight of America's 30-million working poor with the fortunes of America's CEOs. The CEO of Exxon-Mobile just raked in over $400 million for his efforts last year. Assuming he worked a normal work week (not counting time on the golf course with members of his compensation committee), he got about$200,000 an hour....

In 1996, Republicans predicted that the raise from $4.25 to$5.15 would result in millions of job losses. But in fact, about 13 million new jobs were added to the American economy between 1996 and 2000. Earth to Congressional Democrats: Now's the time. Tenth anniversary. All the gain then now lost to inflation. 85 percent of Americans favor it. Mid-term election in the fall. It's a no-brainer.

Remember from October 13, 2004, when George W. Bush claimed to be in favor of raising the minimum wage?

washingtonpost.com: Third Presidential Debate -- President Bush and Sen. John Kerry: BUSH: Actually, Mitch McConnell had a minimum-wage plan that I supported that would have increased the minimum wage...

Note that he had to specify: McConnell's plan was to increase and not decrease the minimum wage.

Impeach George W. Bush. Impeach him now.

## Impeach George W. Bush. Impeach Him Now

Josh Micah Marshall explains why:

Talking Points Memo: by Joshua Micah Marshall April 30, 2006 02:19 AM: Be warned. The White House is now telling us that engineering a confrontation with Iran is a key part of their plan to resuscitate the president's dismal approval ratings in time to survive election day.... With respect to what's coming on Iran, what is in order is a little honesty, just as was the case with the Social Security debate a year ago. The only crisis with Iran is the crisis with the president's public approval ratings. Period. End of story. The Iranians are years, probably as long as a decade away, and possibly even longer from creating even a limited yield nuclear weapon. Ergo, the only reason to ramp up a confrontation now is to help the president's poll numbers....

We have many challenges overseas today.... The period of peril the country is entering into isn't tied to an Iranian bomb. It turns on how far a desperate president will go to avoid losing control of Congress.... [T]he man is a laughing stock, whose lies and failures are all catching up with him.... Double or Nothing is Not a Foreign Policy....

[Don't] believe this president any more when he tries to gin up a phony crisis. [The public doesn't] believe [Bush would] have much of an idea of how to deal with a real one. Enough of the lies. Enough of the incompetence and failure.

Impeach George W. Bush. Impeach him now.

## The Mind Is Its Own Place...

The mind is its own place, and can make a heaven of hell, a hell of heaven. Or so John Milton's Satan argued to himself, after his failed attempt at regime change.

Marginal Revolution: Did Gary Becker prove that advertising is informative?: Did Gary Becker prove that advertising is informative? So claims a NYT obituary for John Kenneth Galbraith. CrookedTimber and Brad DeLong question whether such models should be called "proofs." Fair enough, but neither does the obituary correctly represent Becker's theory of advertising. As I understand Becker's work (with Kevin Murphy) on the topic, individuals consume "social images" or "self-images." Having Nike shoes gives you the "benefits of being cool" if a) you actually have Nikes, and b) the ad links Nikes to a cool image for your relevant peer group. The standard economic theory of complements then applies for analyzing ads.

Under some conditions, advertising can be a "bad" for consumers, not a "good," and advertisers will pay consumers to watch ads. Furthermore ads will present images and cultural linkages, rather than substantive information in the traditional sense. This generates some Galbraithian results, but without requiring that consumers are "tricked" or even "persuaded" into a particular point of view. This is not a proof; I think of it as an existence theorem that advertising can make corporate sense, and sometimes be socially welfare-improving, yet without being very informative...

It is, of course, true that in the Becker-Murphy "social images" model commercial advertising cannot get you to the first-best. A world in which you have to wear Nike shoes in order to obtain a symbolic link to the successful athletic career of Michael Jordan is worse than one in which wearing any shoes at all gives you a symbolic link to the successful athletic career of Michael Jordan. The government should take Nike's TV advertising slots by eminent domain, and play commercials that link all shoes--not just Nikes--to the "cool image" of Michael Jordan.

## John Kenneth Galbraith

What I wrote about John Kenneth Galbraith last year:

Foreign Affairs - Sisyphus as Social Democrat - J. Bradford DeLong: From Foreign Affairs, May/June 2005. John Kenneth Galbraith: His Life, His Politics, His Economics. Richard Parker. : Farrar, Straus & Giroux, 2005, 820 pp. $35.00: If there were justice in the world, John Kenneth Galbraith would rank as the twentieth century's most influential American economist. He has published several books that are among the best analyses of modern U.S. history, played a key role in midcentury policymaking, and advised more presidents and senators than would seem possible in three lifetimes. Yet today, Galbraith's influence on economics is small, and his influence on U.S. politics is receding by the year. In this lively and thoughtful biography, Richard Parker sets himself the task of explaining Galbraith's career: why it was so dazzling, and why its long-term impact has turned out to be so much less than expected. The result is not only the story of a smart, witty, and important man, but also a fascinating meditation on the rise and fall of twentieth-century American liberalism. A MAN FOR ALL SEASONS That Galbraith's career has been dazzling nobody can dispute. Professors of post-World War II American history can still do no better than to assign his books The Affluent Society and The New Industrial State to teach students how the midcentury U.S. economy came to dominate the world (and what should have been done to make it work better). Anyone wanting to learn about the beginning of the Great Depression should start with The Great Crash; there is no other history of the stock-market crash of 1929 that is as short and even half as worthwhile. During World War II, Galbraith helped run the Office of Price Administration, working to square the growth-inflation circle by pushing production far above economists' measures of potential output without sparking runaway price increases that would threaten the economic mobilization. And after the war, his work on the Defense Department's "United States Strategic Bombing Survey" made Washington rethink the efficacy of its standard war-fighting policy -- staying high in the sky and dropping lots of explosives on all kinds of people far below -- although perhaps the rethinking did not go far enough. Lots of ideas in the background of contemporary U.S. political and economic thought are Galbraith's. His work as an economist was a scattered but comprehensive attempt to think through the consequences of the transition from a nation of small farms and workshops to one of large factories and superstores. In doing so, he took on many of the questions most central to the new U.S. economic landscape: How much can advertising shape demand? In a world of passive shareholders, autonomous managers and engineers, and firm decisions that emerge out of internal bureaucratic contests, just what are the objectives that drive big firms? How does competition work when its principal dimensions are quality and marketing rather than price? And critically, how do the limits of polite discourse allow the system to hold itself together while constraining its flexibility? For decades, Galbraith's influence in politics was unmatched by any other economist. The pieces of his advice best remembered are those that went against the "conventional wisdom" (a now ubiquitous phrase that Galbraith coined): strategic bombing did not win World War II; Vietnam was a strategically unimportant quagmire where the United States would do more harm than good; macroeconomic "fine tuning" is likely to blow up in the face of policymakers; the businessman's capacity for self-delusion is nearly infinite. Galbraith sees the United States as a would-be social democracy that has lost its way, assuming that if only the self-serving declarations of the right could be wiped away, the benefits of a bigger, more activist government would become obvious to everyone. The right-wing claim that the most efficient economy is one in which the gales of perfect competition scour the land is, in Galbraith's view, nonsense. Modern industrial and post-industrial production is a large-scale process, large-scale processes require planning, and planning requires stability -- which means that the gales of the market must be calmed. This political vision, however, has been in retreat since the early 1980s. Nobody wants to hear about the importance of Big Government, Big Bureaucracy, or Big Labor (which hardly even exists). Galbraith's economic views have undergone an even more distressing eclipse. Among economists (excluding economic historians), the 70-year-olds have read Galbraith and think he is very important; the 50-year-olds have read Galbraith and know that the 70-year-olds think he is important but are not sure why; and the 30-year-olds have not even read him. Parker has an explanation -- a relatively convincing one -- for the retreat of Galbraith's politics. The story behind it is the Democratic establishment's loss of nerve. Too many party intellectuals and politicians drink cocktails on Martha's Vineyard, in Parker's view, and too few spend time on the shop floor learning what issues are important to those sweeping up or manning an assembly line or tending the convenience-store cash register from midnight to six a.m. Thus, the mass base of the Democratic Party has withered, and without a mass base Democratic politicians listen too much to their rich contributors and turn into Eisenhower Republicans -- people who are interested above all in balancing the budget. Galbraith, a committed social democrat, has wielded his pen and his tongue in an effort to halt this decades-long rightward drift. But he has failed: his allies are too few, and the loss of nerve among the party elite is too complete. Parker also has an explanation -- also a relatively convincing one -- for the eclipse of Galbraith's economic thought. The story here is of the blindness of an academic establishment steeped in Paul Samuelson's Foundations of Economic Analysis. Economists, Parker believes, have sold their birthright for a tasteless pottage of mathematical models. As a result, they can say much about theory but little about reality. And they ignore Galbraith because he is a guilt-inducing reminder of how much broader and more relevant economics can be. WHAT WOULD GALBRAITH DO? This explanation, however, is far from complete. Late-twentieth-century American economics centers on the use of mathematical models to reach one of two conclusions: that the market is already doing a good job, or that some imperfection is causing "market failure" and correcting or counterbalancing the imperfection will make everything okay. Thus there are New Classical macroeconomists, who believe that the market works fine and that even depressions are necessary and inevitable; Monetarists, who believe that recessions result from failures in the banking system, which can be corrected by ensuring stable growth of the money supply; and New Keynesians, who are indistinguishable from Monetarists save for their identification of market failures in the labor market or in the investment decisions of firms. In all these cases, it is clear what an economist must do to belong to a particular school: start underneath the lamppost, take a few steps in one direction by describing a market failure, and then start searching for lost keys. New Classicals master the solutions of "dynamic stochastic general-equilibrium representative-agent models." Monetarists analyze the details of the financial system in an effort to define a "neutral monetary policy." New Keynesians trace the implications of subtle differences in labor- and capital-market failures. Just what a "Galbraithian" economist would do, however, is not clear. For Galbraith, there is no single market failure, no single serpent in the Eden of perfect competition. He starts from the ground and works up: What are the major forces and institutions in a given economy, and how do they interact? A graduate student cannot be taught to follow in Galbraith's footsteps. The only advice: Be supremely witty. Write very well. Read very widely. And master a terrifying amount of institutional detail. Harry Johnson, in his superb but not entirely fair critique of Milton Friedman's Monetarists, said that in order to carry out an intellectual revolution in economics, one must propound a doctrine that has three qualities: it can be summarized in a single sentence, it provides the young with an excuse for ignoring the work of their elders, and it tells the young what they can do to further the revolution. John Maynard Keynes and Friedman both offered such doctrines. They said, respectively, that "aggregate demand determines supply" and that "inflation is always and everywhere a monetary phenomenon"; they dismissed their predecessors as obsolete; and they set hundreds of young to the task of estimating consumption, investment, and money-demand functions. Galbraith propounded no such easily summarized doctrine. The closest we can get is: "the world is complicated, and both right-wing ideology and the conventional wisdom that is this age's self-image are terribly wrong." He offered critiques that required you to read and understand old theories, not new theories that allowed you to dismiss everything prior as irrelevant. The result? Nearly all economists today are Paul Samuelson's children. Many are Keynes' children. Friedman, Robert Lucas, Robert Solow, and James Tobin all have plenty of descendants. But there are few Galbraithians on the ground. Would economics as a discipline be stronger if the 50-year-old and 30-year-old economists had a better appreciation of Galbraith? Almost surely. Will the winds of economic fashion shift and cause economists to appreciate Galbraith once again? For that to happen, an astute young economist would have to devote himself to "mathing up" chapters of The Affluent Society and The New Industrial State and publishing them in journals -- not a likely prospect in today's risk-adverse academic environment. ALGER LIVES Galbraith's life traces an arc through an age in which three gigantic shocks appeared to transform U.S. politics. The Great Depression convinced the upwardly mobile that they could be downwardly mobile too, the middle class that it and the working class had common interests, and high-wire entrepreneurs that even they needed government to provide a strong safety net -- hence Franklin Roosevelt's New Deal. Then the self-destruction of the Republican Party in the wake of its takeover by Barry Goldwater led to a decade of Democratic dominance that brought forth Lyndon Johnson's Great Society. And finally, with the advent of Richard Nixon's "southern strategy," the base of the northern Democratic Party moved to the left, leading to a decade of southern conservative Democrats voting for northern Democratic liberals to chair committees and run Congress. This was the age of Galbraith's ascendancy -- an age during which the United States looked to be moving ever closer to his vision of the good society. But all these shocks turned out to be temporary. The middle class no longer fears impoverishment at the hands of another Great Depression, as it did in the 1950s, and it is less certain that it shares interests with the working class. Republican legislators may still feel that extremism in the defense of liberty is no vice, but they are now smart enough to keep quiet about it. The Democratic South has morphed into the Republican South, and enough electricity to power Illinois and New York could be produced if only one could attach magnets to Abraham Lincoln and William Seward as they spin in their graves. What has survived throughout is the American myth of rugged individualism, and it is this that Parker's political story neglects. The power of this myth has meant that the United States is not, and never will be, a European-style social democracy. People may come together for barn raisings, but America is still the land of upward mobility and opportunity, where the most common questions are, I've done it, so why haven't you? and Doesn't this social solidarity stuff mean that I've got to pull more than my share of the weight? In spirit, it is still a nation of upwardly mobile immigrants blessed with an abundance of resources (free land) and an absence of government constraints (free labor). Galbraith would say, sardonically, that this national self-image is just another fraudulent piece of conventional wisdom -- nurtured by the delusional, who cannot see reality, and the rich, who see it all too well but know that such delusions make them richer and more powerful. And Galbraith would be more than half right. But this self-image is also a very powerful social fact, and this more than anything else explains his waning influence on U.S. politics. It is not that the Democratic establishment has lost its nerve or been seduced by law firms and lobbyists; it is that the old Horatio Alger myth has proved extraordinarily durable. At the beginning of the twenty-first century, it has become clear who John Kenneth Galbraith really is: Sisyphus, constantly pushing the boulder of social-democratic enlightenment up the hill. But the hill, it turns out, is too steep, and Galbraith not mighty enough. And here's a genuinely bad passage from Holcomb Noble and Douglas Martin's obituary of John Kenneth Galbraith. Embarrassing: John Kenneth Galbraith, 97, Dies; Economist, Diplomat and Writer - New York Times: Mr. Galbraith argued that technology mandated long-term contracts to diminish high-stakes uncertainty. He said companies used advertising to induce consumers to buy things they had never dreamed they needed. Other economists, like Gary S. Becker and George J. Stigler, both Nobel Prize winners, countered with proofs showing that advertising is essentially informative rather than manipulative. Proofs? I know many people who find Becker's and Stigler's arguments powerful ones. I know nobody who would call them "proofs." Many viewed Mr. Galbraith as the leading scion of the American Institutionalist School of economics, commonly associated with Thorstein Veblen... [which] deplored the universal pretensions of economic theory, and stressed the importance of historical and social factors in shaping "economic laws." Some therefore said that Mr. Galbraith might best be called an "economic sociologist." This view was reinforced by Mr. Galbraith's nontechnical phrasing, called glibness by the envious and antagonistic... I thought the rule in an obituary was that it was the one time when it was profoundly uncool to cite those critics who are too cowardly to name themselves... Ironically, Mr. Galbraith's pride in following in the tradition of Veblen was challenged by the emergence of what came to be called the New Institutionalist School. This approach, associated with the University of Chicago, claimed to prove that economics determines historical and political change, not vice versa. Huh? Some suggested that Mr. Galbraith's liberalism crippled his influence. In a review of "John Kenneth Galbraith: His Life, His Politics, His Economics" by Richard Parker (Farrar, 2005), J. Bradford DeLong wrote in Foreign Affairs that Mr. Galbraith's lifelong sermon of social democracy was destined to fail in a land of "rugged individualism." He compared Mr. Galbraith to Sisyphus, endlessly pushing the same rock up a hill that always turns out to be too steep. That's not what I said. ## George W. Bush Objects to the Singing of the "Star Spangled Banner" in Yiddish George W. Bush denounces, among others, the Yiddish poet Dr. Abraham Asen for daring to translate the "Star Spangled Banner" into Yiddish: FT.com: World / USPrint article | Email articleMain page content: In case there was any doubt, President George W. Bush made one thing perfectly clear on Friday: he thinks the US national anthem should be sung in English. The presidential declaration may seem an odd one.... "The national anthem ought to be sung in English," Mr Bush told reporters gathered in the Rose Garden to hear the president discuss the US economy. "And I think people who want to be a citizen of this country ought to learn English, and they ought to learn to sing the national anthem in English." Jack Balkin tells us of: Balkinization: ...this 1943 translation of the Star Spangled Banner into Yiddish by Dr. Abraham Asen, described as "the foremost Yiddish adapter of English poetry," and proudly presented in commemoration of the one hundred anniversary of the death of Francis Scott Key: O'zog, kenstu sehn, wen bagin licht dervacht, Vos mir hoben bagrist in farnachtigen glihen? Die shtreifen un shtern, durch shreklicher nacht, Oif festung zich hoiben galant un zich tsein? Yeder blitz fun rocket, yeder knal fun kanon, Hot bawizen durch nacht: az mir halten die Fohn! O, zog, tzi der "Star Spangled Banner" flatert in roim, Ueber land fun die freie, fun brave die heim! ## Why Oh Why Can't We Have a Better Press Corps? (Max Boot Edition) Busy, Busy, Busy Busy, Busy, Busy is a national treasure: Busy, Busy, Busy: As is often the case, Max Boot's depiction deviates a bit from reality. He writes: No one working for the mainstream media today would refer, as Ernie Pyle did during World War II, to "our soldiers," "our offensive," "our predicament." Today it's "American soldiers," "the military offensive" and (most damning of all) "the president's predicament" - as if this were Bush's war, not ours. But the facts beg to differ. Take, for example, the purported pundit's best evidence, his most damning phrase. Take it to Google and find: Total internet references to "the president's predicament": About 260. References to "the president's predicament" not mentioning "Clinton", "Monica" or "Lewinsky": About 124... Meanwhile, hits on "our predicament" together with "Iraq" total: About 24,000.... Obsessive subjugation of factuality to narrative is, of course, something of a trademark for Mr. Boot. The abiding mystery is why the Los Angeles Times persists in inflicting him on innocent readers. ## Where Can I Go to Wash My Mind? Ranchero software has added a "sort by attention you pay to them" command to its NetNewsWire RSS feed reader: Ranchero Software: NetNewsWire 2.1b16 Change Notes: Sorting Subscriptions by Attention.... NetNewsWire now tracks more information about what you do and can tell which feeds are more important to you. (This will get better over time, since it has only just started to track info.) Actions that make a feed rank higher: opening item links, flagging items, posting to weblog, and posting to del.icio.us... Let's see what it thinks I find most worthy of attention on the internet.... First place: Kevin Drum's Political Animal. Second place: Josh Micah Marshall's Talking Points Memo. Third place: Wonkette. Clearly I need to wash my mind. Full scrub. ## The Present's so Bright... Another near-five percent output growth quarter, accompanied by a growth of labor input that I measure as about 1.6 percent at an annual rate. That means productivity growth at more than three percent per year. So why aren't real wages rising faster? Why does labor demand growth appear so weak? ## Saver Myopia Andrew Samwick sees a sunny day with dark clouds on the horizon: Vox Baby: The End of Personal Saving?: Today's GDP report gives some very good news in the top line number--a real growth rate of 4.8 percent in the first quarter of 2006. As this is the advance report, we'll expect revisions to the number at the end of May with the preliminary report and at the end of June with the final report. But an annual growth rate of 4.8 percent is a very nice place to start. The GDP report also contains information on personal income and saving, and this continues to be more and more puzzling: Personal saving -- disposable personal income less personal outlays -- was a negative$50.5 billion in the first quarter, compared with a negative $15.8 billion in the fourth. The personal saving rate -- saving as a percentage of disposable personal income -- decreased from a negative 0.2 percent in the fourth quarter to a negative 0.5 percent in the first. Saving from current income may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods. In a free society with a market economy, we have choices about whether to save or consume our resources today, and I don't presume to tell people which choice to make. But it's a very simple truth that we cannot consume the same resources both today and tomorrow, and so it is with an eye toward the ability to consume in the future that economists generally believe that the savings rate should be high rather than low. I wonder how it can be that with the Baby Boom generation in the high-income and presumably high-saving part of its economic life cycle, we can possibly have negative saving rates for the population as a whole, if we are making decisions with any attention to the amount of consumption we will be able to do in the future. If households are myopic and are saving too little, the government should offset this and save for them--i.e., we should raise taxes to fund big budget surpluses. ## An Yglesias for All Seasons A Man for All Seasons (1966): Thomas More: May I see that chain Richard? Richard Rich: Certainly. Thomas More: It is a fine chain. Richard Rich: It has pleased His Majesty to make me Justiciar for Wales. Thomas More: Why Richard, it profits a man nothing to give his soul for the whole world... but for Wales? Matthew Yglesias appears to be happy that the Democrats are diminishing their maneuvering room to ever get the country to adopt a sensible energy and environmental policy: TAPPED: WHO YOU CALLIN' STUPID? Methinks a lot of folks out there are too quick to underestimate the intelligence of highly trained professional politicians. The basic dilemma facing Democrats at the moment regarding gasoline goes as follows: High gas prices are very unpopular with the public. This presents an opportunity for the opposition party to score gains against a genuinely pernicious incumbent party by presenting itself as prepared to "do something" about the situation. But, simultaneously, the correct liberal point of view is that high gasoline prices are actually a good thing for environmental and foreign policy reasons. Ergo, Democrats propose "legislation that would put a moratorium on the Federal gasoline tax for at least 60-days to provide consumers immediate relief at the pump," but would also "chop oil company tax benefits and burden refineries with unwarranted reporting requirements, making it unable to win enough support in Congress to have even a remote chance of passing." This accomplishes the political goal of making the Republicans unpopular -- siding with their corporate masters to defeat a plan to lower the price of gasoline -- while also accomplishing the policy goal of not making gasoline prices lower. That, to me, deserves the label "smart."... John Whitehead... and Brad DeLong... labeling the initiative an example of "stupidity." But it's not silly, it's not stupid, and it's a very efficient way of combining the Democratic Party's two primary goals under circumstances where they seem to be deeply in tension. If you want to call it "dishonest political theater" or "posturing," then that's your right. But it's very smart posturing. The substantive drawbacks of the proposal are no downside at all because it clearly can't pass... It's hard to reverse rhetorical field. Once you're on record as saying that the problem with gasoline prices is that they're too high, it's hard to get to where you ultimately want to be. ## Wile E. Coyotenomics I: Just-in-Time Politics David Wessel asks why the U.S. bond market isn't pricing any of the high interest rate scenarios that we economists think are possible five or so years from now: WSJ.com - Capital: Market Calm Belies Fiscal-Policy Dangers: April 27, 2006; Page A2: The U.S. government has promised health and retirement benefits in the future that exceed receipts projected from today's tax code. President George W. Bush pronounces current federal spending trends "unsustainable." The U.S. economy is more dependent on the savings of foreigners each year. Wise observers of differing political persuasions warn this cannot persist indefinitely. Yet there is no hint that politicians in Washington are moving toward corrective policies.... They defer solving problems that lurk in the future until confronted with a crisis. So where is the bond market when you need it? Why aren't foreign investors fleeing the dollar? What happened to those market vigilantes who push up interest rates on Treasury bonds or yank down the dollar if procrastinating politicians head toward profligacy? Fear of the bond market, after all, clubbed President Clinton into abandoning campaign promises for a middle-class tax cut and tackling the deficit instead. As Clinton political guru James Carville famously put it: "I used to think if there was reincarnation, I wanted to come back as the president or the Pope or a .400 baseball hitter...but now I want to come back as the bond market. You can intimidate everybody." Puzzled by the market's complacency, former Congressional Budget Office Director Douglas Holtz-Eakin offers an amendment: "I want to come back as the bond market's shrink."... [S]omething other than the fiscal outlook is driving markets. That frustrates deficit Cassandras.... "Long-term interest rates are principally determined by expectations about what the Fed will do over the next year or so, rather than how much Treasury debt we expect to be trading five or 10 years from now at a set of interest rates that we can only dimly forecast," says Peter Fisher.... The Bush administration certainly isn't worrying. It takes comfort that the market won't validate claims of fiscal doomsayers.... Former Treasury Secretary Robert Rubin, now at Citigroup Inc., is still convinced that the day of reckoning is coming and shares a colleague's intriguing hypothesis to explain the market's apparent lack of concern: "A lot of investors believe in 'just-in-time politics' -- that the political system isn't going to be unwise enough to allow all these untoward things to happen, so it will respond just in time." Financial markets can focus on other things only because they assume Congress and the White House will steer away from the fiscal rocks before it is too late.... But the facts remain: The U.S. government has made benefit promises it cannot afford to keep and the U.S. economy cannot expect to borrow ever-greater sums from abroad forever. And the fixes, when they come, won't work quickly: The president can't send in the National Guard to fix Social Security or Medicare. Waiting to act until financial markets lose faith in just-in-time politics is somewhere between foolish and irresponsible. ## The Financial Times Has a View of Bush Energy Policy The Financial Times editorial page tells us what it thinks of George W. Bush and his energy policy: FT.com / Comment & analysis / Editorial comment - Bush runs on empty: Pity the leader of a nation that regards cheap petrol as a basic human right. That is President George W. Bush's position as pump prices start to approach a high of$3 a gallon ahead of next month's driving season - and next autumn's mid-term elections - while his approval ratings are closing fast on a low of about 30 per cent.

Do not pity him for too long, though, because Mr Bush has really squandered the chance to do something about what he has correctly characterised as America's "addiction" to oil.

After the attacks of September 11 2001, the president had a unique opportunity to create a bipartisan and public consensus behind increased energy efficiency and reduced energy dependency, especially on oil imported from politically unreliable parts of the Middle East, Africa and Latin America. He did not take it. Instead, the administration took four years to produce an energy bill that, in spite of some electricity network improvements, in no way addresses the fact that per capita energy use in the US is far higher than in any of its competitors - in transport, for example, three times that of Japan.

This level of energy intensity has little to do with high rates of economic growth and a great deal to do with driving habits. More fuel-efficient engines do not translate into more miles per gallon if cars keep getting heavier and faster, and the culture and the economic incentives ensure that the Hummer trumps the Hybrid.

This week the president announced a package of measures to the Renewable Fuels Association. He plans to "leave a little more oil in the market" by suspending deposits in the strategic petroleum reserve; issue a series of waivers on clean fuel standards; and order a probe into possible price manipulation by big oil. The markets rightly read this as inconsequential populism and the oil price remains stubbornly high.

More to the point, and unlike previous price spikes from the Arab oil embargo to the three Gulf wars, it is not just current prices that are high. The markets are forecasting prices above $70 a barrel five years ahead. The era of cheap oil may be over. High global economic growth, especially in Asia, is powering demand for a tight supply of oil, made tighter by insufficient refining capacity. Most of all, there are probably no big new oil fields to be discovered, while nearly all the big old oil fields are in regions (not just the Middle East) offering an infinite variety of political risk. As but one example, a more considered, less bellicose US attitude towards Iran would do more to steady the oil market than all Mr Bush's measures put together. In the end, however, America's addiction can be beaten only by hard policy decisions: rigorous fuel-efficiency standards, a tax regime that prices petrol realistically, as well as a framework of incentives for investment in alternative technologies. Meanwhile, the best agent of change is expensive oil. Impeach George W. Bush. Impeach him now. ## Stupidest Woman Alive... Florence King of, yes, National Review makes her play for the Stupidest Woman Alive. Ezra Klein read it by accident, and now needs professional help: Ezra Klein: Hoo Boy: This is the sort of high quality political commentary you can only find in The National Review: Rest assured that I am not going to write about insurance per se. That requires a natural ear for droning that I lack; a numbers cruncher's visceral need to drizzle % signs all over the page; and, of course, the technical knowledge to criticize HillaryCare and BushCare. I can't do that. As Samuel Johnson said of the plot of Cymbeline, "It is impossible to criticize unresisting imbecility." I leave "deductibles" and "co-payments" and all the rest of it to the panicky-eyed patients milling around the doctor's checkout desk while his shattered nurse waits on hold to find out who pays for the first three hemorrhoids. I love the pride folks take in their ignorance, particularly when they're puffing out their chest because they can't evaluate the policy they've chosen to write about. It's like a disclaimer: "Everything I'm about to say is ill-considered and uninformed. Don't listen." But more than not listening, I shouldn't have read. What follows is honestly -- and I rarely use this word, but I simply can't think of another -- moronic. It's one part cultural analysis of the concept of insurance, one part bizarre moral hazard argument. It argues that insurance created the hypochondriac. It argues that the fundamental reason folks rush to the doctor -- I shit you not -- is they hate to "waste" their insurance. That's right, I go and spend hours in waiting rooms because I got an insurance card burning a hole in my pocket, baby. I just don't know what to say. I know what Ezra should say. Here's what he should say: "Congratulations, Ms. King. You are now the front runner in the Stupidest Woman Alive contest. Oh, and anybody listening who has written for National Review wants to be taken for anything other than a moronic hack? Run, as far and as fast as you can, away from the operation. And change your name too." ## Party of Stupidity Watch II The Republicans. Tim Haab is on the case: Environmental Economics: Read this Quick: Gas Rebate Proposal: GOP senator are proposing a$100 tax credit to "offset the pain of higher pump prices for gasoline." I have to post this quickly because there is an economic lesson to be learned, but this thing is likely to be voted down before I can finish typing.

So what's the lesson? Consumers respond to prices at the margin--that is behavior changes when the price of the last unit of a good purhased changes. Imagine the local street hot-dog vendor us trying to get you to buy more hot dogs. Which is more likely to increase hot dog sales--the vendor giving you $5 or the vendor dropping his price by 10%? Now, I've already argued that the evil gas producers can't lower their prices on a whim, but the government could if they wanted to--by reducing the per gallon gas tax. Now that would be just plain silly--right? My point is, this gas tax rebate proposal will have absolutely no effect on gas prices or gas consumption behavior. It will simply give everyone a$100 bonus to do with as they see fit.

If the goal of the Senate is to reduce the burden on those spending the most on gas, a lump-sum rebate won't do it. IF the goal is to just give everyone $100 and see what happens, this looks like the perfect proposal. And as John has repeatedly and convincingly argued...IF the goal is to reduce dependence on gas powered vehicles, then we need an increase in the gas tax. This thing is dead in the water because the tax rebate proposal contains an amendment allowing drilling in ANWR. ## Party of Stupidity Watch I Party of Stupidity watch. The Democrats. John Whitehead is on the case: Environmental Economics: Dems propose a holiday: Right, it would be silly plus stupid (i.e., "inefficient" to an economist). But, who cares in an election year: Following President Bush's four-point plan outlined today, Democrats proposed legislation that would put a moratorium on the Federal gasoline tax for at least 60-days to provide consumers immediate relief at the pump. But the proposed legislation would also chop oil company tax benefits and burden refineries with unwarranted reporting requirements, making it unable to win enough support in Congress to have even a remote chance of passing... Remember: the Democratic position--and the correct position as far as the public interest is concerned--is that gasoline prices are not too high but too low. Global warming, road congestion, and a desire to curb the damage that can be done by the mess in the Middle East all mean that we should be providing incentives for Americans to wean themselves to a less oil-guzzling lifestyle. ## Why Oh Why Can't We Have a Better Press Corps? (Economist Edition) The cossacks work for the Czar, goddamit! We watch as the Economist continues its flame-out. Today it plays fast-and-loose with reality by trying to make Donald Rumsfeld the scapegoat for everything that has gone wrong in Iraq--for Cheney's and Bush's decisions as well as his own: Economist.com: September 11th transformed a has-been into a national hero. Mr Rumsfeld immediately captivated the country by running into the burning Pentagon to rescue the wounded. And he kept it captivated with a series of press conferences that projected a mixture of defiance and determination. This was American manliness at its best. The staid Wall Street Journal called him a "hunk"... The word "hunk" appears not in the--admittedly somewhat staid--news section of the Journal, but in the bizarre over-the-top wingnut-dominated editorial section, and it appeared in a column by Claudia Rosett that ran not in the main edition of the Journal distributed in New York and Washington but only in the European edition. "Lexington" knows full well that the editorial section of the WSJ is not "staid." Then came the Iraq war and the disgrace of Abu Ghraib; and this paper, among many critics, called for Mr Rumsfeld to go.... [T]he current furore can't be brushed aside.... The secretary of defence has become a liability that Mr Bush's troubled administration can no longer afford: a distraction at home and a barrier to success in Iraq. There is now widespread agreement on what he got wrong. His biggest mistake--the fons et origo of all the others--was to try to fight the war with too few troops. His second-biggest was to make no proper provision for restoring order afterwards. But there is no shortage of other mistakes. Mr Rumsfeld misread the intelligence in the build-up to the war, and much of it was simply wrong in any case. He failed to plan for the occupation. He ignored the growing insurgency. He disbanded the Iraqi army, scattering 300,000 armed and unemployed men into the population. But Rumsfeld did not decide to fight the war with too few troops. Cheney and Bush were his bosses, and decided with Rumsfeld to fight the war with too few troops. Rumsfeld did not misread the intelligence. Bush and Cheney decided to misread the intelligence. The more interesting question is why he messed up so comprehensively. The most obvious reason, of course, is arrogance. Mr Rumsfeld suffered from exactly the same problem as another whizz-kid CEO turned secretary of defence, Robert McNamara: iron self-confidence. He junked the army's carefully laid plans for invasion (General Zinni's plan called for at least 380,000 troops, for example, far more than Mr Rumsfeld sent). He dismissed warnings from General Shinseki that it would take hundreds of thousands of troops to win the peace. He ignored pleas for more troops on the ground. And he surrounded himself with similarly one-dimensional strategists such as General Franks and yes-men like General Myers. Another reason is bureaucratic turf wars. Henry Kissinger once described Mr Rumsfeld as the best practitioner of the art of bureaucratic infighting that he had ever seen, which is no mean compliment; and he certainly did a brilliant job of elbowing Colin Powell and the State Department aside, putting control of post-war reconstruction in military hands for the first time since the second world war. But he had no idea what to do with his new-found power. Without the State Department's experience of post-war reconstruction, gathered in Bosnia and Afghanistan, Mr Rumsfeld veered all over the place... Again: Bush and Cheney and Rice decided to place post-war Iraq in the hands of the Pentagon rather than Foggy Bottom. They agreed with Rumsfeld's assessment of the situation. The cossacks work for the Czar. The Economist plays journalistic three-card-monte in the hope that it can get its readers will forget that fact. Certainly George W. Bush doesn't forget that. As Tim Russert said, a source “close to the President” told him that Bush “won’t fire Rumsfeld because it would be the equivalent of firing himself.” ## Covering the Economy: Gasoline Prices Democrats are (because of the environmentalist wing of the party) generally in favor of higher gasoline taxes and higher gasoline prices--except when gasoline prices are high). Republicans are in favor of letting oil markets "work"--except when gasoline prices are high. Here's a sampling of stories: Here's AP: AP Josef Hebert | Plans Produced to Attack High Gas Prices : WASHINGTON — High gasoline costs and the political fallout they may create are producing a flurry of proposals from both Republicans and Democrats aimed at soothing motorists' anger. But nobody is predicting prices will ease anytime soon. Democrats are blaming Republicans, especially President Bush, while Republicans argue that congressional Democrats have stood in the way of more domestic oil production. Bush directed his environmental agency Tuesday to stand ready to ease clean air rules if they interfere in gasoline supplies this summer. Industry analysts said that likely would have only a marginal influence on prices. The president also announced that the government would not take 10 million barrels of oil out of the market for the U.S. emergency reserve as had been planned. Bush maintained that "every little bit helps," even though industry analysts said that was so little oil it would have no impact on prices. The president expressed frustration at his inability to force down prices. "What people are seeing at their gasoline pumps reflects the global economy in which we live," he acknowledged in a speech aimed at countering critics who have accused him of being soft on oil companies and ignoring high prices at the pump. Bush vowed to pursue any collusion or price gouging and directed the Justice Department to help states pursue allegations that "gas prices have been unfairly manipulated." But the White House opposes additional federal laws to address price gouging or strengthen antitrust laws as they pertain to oil companies, as some members of Congress have proposed. "There are very good laws on the books," said Al Hubbard, the president's chief economics adviser. "What's important is that those laws are enforced aggressively."... Here's Gary Richards from the Mercury News: MercuryNews.com | 04/26/2006 | Soaring gasoline prices forecast: By Gary Richards Mercury News: California's average gasoline price jumped two cents Tuesday to$3.14 a gallon, and some analysts said drivers could be paying $3.35 or more by Memorial Day, May 29. The gloomy forecast came on the same day President Bush announced measures he said could curb rising prices -- freeing up oil reserves and temporarily waiving regional clean-air requirements. Those moves may have calmed the energy market -- crude oil and gas futures fell slightly Tuesday. But most experts say they will provide little significant relief over the next few weeks. We wish we could tell you there's light at the end of the tunnel, but it's probably an oncoming train,'' said Sean Comey, spokesman for AAA of Northern California. Bush called for a nationwide probe into possible price manipulation. He directed the Energy Department to delay oil shipments this summer to the Strategic Petroleum Reserve, the government's fuel stockpile. The change would free up about 12 million barrels of oil over the summer, a small percentage considering the nation consumes 20 million barrels a day. It's more symbol than substance,'' said David Sandalow, an energy expert at the Brookings Institution. Skeptics, including Sen. Barbara Boxer, D-Calif., questioned Bush's call to investigate price gouging, saying the Federal Trade Commission is already probing the issue because of legislation Democrats pushed through Congress. The agency's findings are expected late in May. And here's Chris Cilizza from the Washington Post: The Fix -- Chris Cillizza's Politics Blog on washingtonpost.com: Parsing the Polls: The Politics of Gas Prices: You can't swing a cat in Washington, D.C., this week without hitting a politician talking about the rapid increase in gas prices and what should be done about it. President George W. Bush on Tuesday sought to address the problem, calling for an investigation into possible price gouging the increased in alternative fuels like ethanol. The president ruled out setting a fixed price for gas. The rising cost of gas -- now around$3 a gallon across the country -- has Republican strategists concerned (and Democrats elated) about its impact on the national political environment this fall. Already on the defensive over Iraq and the handling of Hurricane Katrina, congressional Republicans are seeking to project a proactive response to gas prices -- although most members admit that there is no quick or easy solution. (Expect GOP leaders to do a series of events on Thursday as Exxon Mobil announces its profits.) Democrats, for their part, have tried to tie gas prices to Republicans' alleged "giveaways" to oil companies over the past few years.

Who will win this rhetorical fight? And is the public paying attention? Let's parse the polls to find some answers.

Two things immediately become apparent when examining recent polling on gas prices: Americans see the rising costs as a major burden and are generally unhappy about what the Bush administration has done to address the problem.... 70 percent of those tested said the "recent price increases in gasoline" have caused "financial hardship" for their families.... 23 percent of respondents said gasoline prices have caused "a severe hardship that affects your ability to maintain your standard of living," while 26 percent identified it a "moderate hardship that affects you somewhat but does not jeopardize your current standard of living." Just more than one-quarter of voters (28 percent) said the gas price increase has caused them no hardship.... [C]onsiderable anxiety exists in the general public about gas -- its price and availability. It is a prototypical pocketbook issue -- one that every American (Democrat, Republican and independent) can identify with and one that people want the government to address.... [T]he public is dissatisfied with the Bush administration's approach to solving the problem. In the Post-ABC survey, just 23 percent approved of the job the White House was doing on the "situation with gasoline prices," while 74 percent disapproved....

Putting aside the fact that more than one-third of the sample put the blame on President Bush, the finding that a near-majority of voters cite U.S. oil companies as the root of the problem should concern Republican strategists.... [V]oters are much more open to believe that Republicans are helping out their friends in Big Oil -- especially when the president and vice president have each served as high-ranking officials in oil or energy services companies.

Expect Democrats to hammer home those connections in the weeks and months ahead of the fall election, and they're likely to lay out a broad vision of their own on energy policy. These numbers seem to suggest a considerable opening for Democrats on the issue (much more so than corruption in Congress), but it remains to be seen if any alternative they offer will resonate with disgruntled voters. A plan should emerge before this summer, according to an informed party strategist...

## Covering the Economy: Julie Rovner

Julie Rovner:

NPR : Julie Rovner: Julie Rovner is a health policy correspondent for National Public Radio, specializing in the politics of health care. She is also a contributing editor for National Journal's CongressDaily. In 2005, she was awarded the Everett McKinley Dirksen Award for distinguished reporting of Congress for her coverage of the passage of the 2003 Medicare prescription drug bill and its aftermath...

One of her best:

NPR : Bush Skips White House Conference on Aging: Bush Skips White House Conference on Aging: All Things Considered, December 13, 2005· The once-a-decade White House Conference on Aging is meeting in Washington this week, with the future of Medicare high on its agenda. Medicare was on President Bush's agenda Tuesday, too. But he skipped the White House conference -- making him the first president not to speak to delegates in the event's half-century history.

While the conference on aging delegates was meeting in a hotel uptown, the White House motorcade set out in the opposite direction, to Greenspring Village, a high-end gated retirement community in suburban Virginia.

Once there, President Bush met with residents and staff to tout the new Medicare drug benefit he helped shepherd into law. "It's a good deal for our seniors, and so one of the reasons we have come today is to encourage people to see what is available in the new law."...

• Julie Rovner is on air for perhaps eight minutes a week
• 22 million afternoon listeners
• 14 million morning listeners
• Capitol Hill doesn't understand the reach of radio
• Differences--big differences--between Republican and Democratic attitudes, along the lines of what Bruce Barlett said: "if I had come across Gene Sperling, one of Clinton's closest economic adviser... he would have come straight at me with a laundry list of facts and arguments for why I was wrong to be critical. I would have been invited to the White House mess to carry on the conversation, and I would have left with an armful of studies and statistics explaining the virtues of whatever Clinton program I was attacking. By contrast, the Bush administration never provides its supporters with any ammunition... beyond the endless repetition of the day's talking points..."

## Cognition in Eight Month Olds...

Cognition in eight month olds:

Testing for Racial Differences in the Mental Ability of Young Children: Roland G. Fryer, Steven D. Levitt NBER Working Paper No. 12066 Issued in March 2006: Abstract: On tests of intelligence, Blacks systematically score worse than Whites, whereas Asians frequently outperform Whites. Some have argued that genetic differences across races account for the gap. Using a newly available nationally representative data set that includes a test of mental function for children aged eight to twelve months, we find only minor racial differences in test outcomes (0.06 standard deviation units in the raw data) between Blacks and Whites that disappear with the inclusion of a limited set of controls. The only statistically significant racial difference is that Asian children score slightly worse than those of other races. To the extent that there are any genetically-driven racial differences in intelligence, these gaps must either emerge after the age of one, or operate along dimensions not captured by this early test of mental cognition...

## The Impact of the Budget Deficit on the Current Account Deficit

Menzie Chinn critiques the Bush administration's latest Snow job:

Econbrowser: The Debate over the Impact of the Budget Deficit on the Current Account Deficit: In a recent Washington Post article, Treasury Secretary Snow was quoted as follows:

Speaking to the International Monetary Fund, Snow repeated the U.S. position that ratcheting down big imbalances in trade and capital flows "cannot be anything other than a shared responsibility" because no one country caused them.

Interestingly, this assertion is much less nuanced than the Treasury Occasional Paper on the subject released at roughly same time. That study cited point estimates for the response of the current account to GDP ratio to a a budget balance to GDP ratio ranging from 0.1 (Erceg et al.) to 0.44 (IMF).

Since the study also cited the 0.13 coefficient Chinn and Prasad (2003), it seems only natural to discuss what Hiro Ito and I have discovered in our updating of these estimates to 200.... The updated point estimate is 0.20 -- for a pooled panel cross section regression (where the observations are 5 year averages of annual data). Our fixed-effects regression estimates... the industrial country point estimate of 0.40. The estimate is significantly different from zero at the 10% marginal significance level. Why is this point estimate so different from the pooled panel-time series estimate? The biggest impact likely arises from allowing each individual country to have a different constant....

Is the pooled estimate for appropriate? It depends upon the question one is asking. If one wants to know something about the average response for an industrial country's current account balance to changes in the budget balance, assuming a high degree of homogeneity across the countries, then this is the correct number. If, on the other hand, one is interested primarily in how the United States behaves, allowing it to have a country specific constant, then the fixed effects estimate is more relevant....

[T]he question of whether fiscal policy would be effective in reducing the current account imbalance of the United States is an open one.... I would assert the empirical evidence... is on the side of effects greater than 0.2.... [W]hen the coefficient is 0.4 (remarkably close to the OECD's Interlink model, and similar to that in other estimated macroeconometric models), 0.4 means that a 6% percentage point swing in the budget balance -- like the one that took place after 2001 -- would result in a 2.4 percentage point swing in the current account balance. Not enough to eliminate the deficit, but certainly enough to make a substantial impact...

Menzie, however, is kind, relative to what the Washington Post did to John Snow. It got medieval on him, by putting this headline atop his argument: "Don't Blame Just Us."

## Why Oh Why Can't We Have a Better Press Corps?

The American Street watches Tony Snow beg and plead, "No sauce for the gander, please!":

Tony Is No Snow White: Poor Tony Snow. He just can't shut up about how people started saying bad things about him once it was suggested that he was in the running to replace Scott McClellan as the White House Press Secretary:

Helpful correspondents have told me where to go, what to use to fill various orifices, which pack animal I most closely resemble and my next-world destination. Sages from afar have ascertained that I'm a... BushBot, a puppet, a force of evil in the modern world, a White House mouthpiece-toady-stenographer merely seeking a change of station (and major cut in pay) and a toothy, well-coifed [sic] mediocrity....

We're already getting weary of the insult industry and the accompanying insinuation that one must view people with contrary views not only as political opponents, but as invading microbes, suitable for swift and complete destruction.

Tony [Snow] evidently has forgotten that he once said:

I mean, I love old fashioned eye-gouging, hair pulling, sucker-punching, full-contact politics.

And that he called Harry Reid "inane" and a "moonbat." The same Tony Snow who "Big Creep." Hillary Clinton, according to Tony, is a "race baiter." Tony's words for Ted Turner: "bigot" and "fool." Being called a "toothy, well-coiffed mediocrity" seems pretty tame in comparison. Apparently Tony tires of the "insult industry" only when he's on the receiving end.

This attitude that we-are-journalists-and-have-special-rules is remarkably common. One of the strangest moments I've had in the past year was trying to be polite listening to Time's Michael Duffy--he of the let's-mislead-our-readers-brigade--explaining to me that while everything I said to him was on the record until I went off, everything he said to me was off the record until he went on. Why? Because he was a journalist.

## Department of "Huh?"

Greg Mankiw today:

Greg Mankiw's Blog: Hubbard on the Fiscal Future: Economist Glenn Hubbard (who preceded me as CEA chair and is now back at Columbia) has an op-ed in today's Wall Street Journal. He reminds us that unless we see significant entitlement reform, taxes are heading higher:

Imagine the nightmare of a tax burden 50% higher -- not so farfetched as it sounds.... The Congressional Budget Office regularly quantifies these shadows of the Ghost of Tax Day Future. Their forecasts are not sanguine. A generation from now, absent any changes, increases in Social Security and Medicare spending alone are projected to consume 10 more percentage points of national GDP than they do today.

There is nothing very new here, but it is good to have Glenn saying it anyway. As George Orwell once said, "We have now sunk to a depth where the restatement of the obvious is the first duty of intelligent men"...

Greg Mankiw's and Glenn Hubbard's ex-Boss today:

WSJ.com - Bush Urges Congress To Extend Tax Cuts: Associated Press April 15, 2006 12:45 p.m.: "Monday is Tax Day, and that means many of you are busy finishing up your tax returns," Mr. Bush said in his weekly radio address. "The good news is that this year Americans will once again keep more of their hard-earned dollars because of the tax cuts we passed in 2001 and 2003."...

Mr. Bush said his administration has helped families by lowering tax rates and doubling the child credit, reducing the marriage penalty and cutting taxes on small businesses. "Tax relief has done exactly what it was designed to do: It has created jobs and growth for the American people," he said. "Yet some here in Washington are now proposing that we raise taxes, either by repealing the tax cuts or letting them expire."...

The tax cuts that reduced the top rate for capital gains and dividends to 15% are a centerpiece of Mr. Bush's tax policy. They are set to expire at the end of 2008. The bill being discussed would keep them in place through 2010. If they expire, the top tax rate for capital gains would increase to 20% and dividends would be taxed at marginal tax rates as high as 39.6%. "An important debate is taking place in Washington over whether to keep these tax cuts in place or to raise your taxes," he said. "For the sake of American workers and their families, and for our entrepreneurs, I believe Congress needs to make the tax relief permanent."

Perhaps the first duty of a CEA chair should be to state the obvious--that tax cuts that create permanent deficits are a bad idea--to the president in such a way that it sinks in?

## Corporate Control

Gretchen Morgenson on corporate control at Pfizer:

Investors vs. Pfizer: Guess Who Has the Guns? - New York Times: IF outsized executive pay has indeed become a source of outrage to American shareholders, then the contest this week between Pfizer Inc.'s investors and its board could prove the most compelling of the year. The battle lines have been drawn between Pfizer's owners and managers, who will assemble on Thursday at the annual shareholder meeting in Lincoln, Neb., at the Cornhusker Marriott hotel.

On one side stands Hank McKinnell, Pfizer's chief executive and chairman, recipient of $65 million in pay since he took the top job at the company in January 2001 and beneficiary of an$83 million pension when he retires. On the other are Pfizer shareholders, angry over the 46 percent decline in market value since Mr. McKinnell took the reins. Some shareholders are threatening to withhold votes for several Pfizer directors over Mr. McKinnell's pay. Pfizer, meanwhile, is fighting back in the proxy contest, working overtime to convince shareholders that its directors deserve support. Adding drama to this battle is the effect that withheld votes may have on Pfizer directors. Such acts of shareholder defiance are strictly symbolic; at most companies directors can win a seat if they receive one "yes" vote in an election. Last year, though, Pfizer changed its guidelines so that any director who received more "withhold" votes than "for" votes will have to resign. If the board rejects the resignation offer, it will publicly state why. Like many other companies, Pfizer has a mighty arsenal, backed by shrewd alliances and relationships with institutional shareholders. The Pfizer battle, governance experts say, illustrates an imbalance of power between company owners and managers that is prevalent today.

"The management has these unlimited resources to fight back, and the shareholders are pretty much powerless," said John C. Bogle, founder of the Vanguard Group. "The thing has gotten so out of hand that words almost fail me. The shareholders should not tolerate it." Institutional shareholders, who vote the stock on behalf of their individual investors, are supposed to act in the best interests of those who own the stock, and the institutions questioned said they were careful to avoid conflicts in proxy votes. But shaking up the status quo may not always be in their own interest....

Frederick E. Rowe Jr., chairman of Greenbrier Partners, a money management firm in Dallas, and head of the Texas Pension Review Board, is the point man for the grass-roots organization aiming at Pfizer. "It's not 80/20 or 90/10," Mr. Rowe said. "One hundred percent of the people we've talked to on the phone and on the Web are outraged at what has happened in executive compensation in general and at Pfizer in particular. I know Pfizer has long-term relationships with institutional holders and they have lots of business to pass around, but I am hopeful that the institutions will vote the way 100 percent of the true owners of Pfizer would want them to vote."... Gary Lutin, an investment banker at Lutin & Company in New York and an adviser in corporate control contests, said: "The Pfizer case shows that even prominent, good corporate citizens need to be monitored. All the best governance theories won't make any difference if investors don't bother to watch the people who are supposed to be guarding their property."

## Heckuva Job with Iraq, Rummy!

Gerald Ford talks about how great a guy Donald Rumsfeld was in the 1970s:

David Corn: Who wants to get into a cat-fight with former President Gerald Ford? But it does seem something of an act of desperation on the part of the pro-Rumsfeld camp that the 92-year-old Ford, who was the first president to hire Donald Rumsfeld as a defense secretary, issued a statement supporting Rummy. My hunch is that Ford wouldn't have done so without first consulting Rumsfeld, who also served as Ford's chief of staff at the White House. Below is the complete statement--and I have a reason for posting the whole thing, so read on:

I have been extremely troubled by the efforts of a group of retired generals to force the resignation of our Defense Secretary, Donald Rumsfeld. President Bush is right to keep him in his post. It is the President's decision -- and his alone.

Allowing retired generals to dictate our country's policies and its leadership would be a dangerous precedent that would severely undermine our country's long tradition of civilian control of the military. It would discourage civilian leaders at the Department from having frank and candid exchanges with military officers. And, today, at a time of war, such an effort sends exactly the wrong message both to our troops deployed abroad and to our enemies who are watching for any signs of weakness or self-doubt.

When I carried out my duties as Commander in Chief, I relied on a man who I appointed first as White House Chief of Staff and later asked to serve the country as Secretary of Defense. In those times, I needed someone with creativity, vision, and courage. And I found those qualities -- and much more -- in Don Rumsfeld.

President Bush came to office with an ambitious agenda to reform and modernize America's military. He knew that Don, who had been in the job before, was extremely well suited to take on this challenge and contend with a bureaucracy that has a built-in resistance to change. The President knew that successfully carrying out these missions, against stiff resistance, takes someone with a certain amount of steel.

When America's security remains under threat and terrorists plot to attack us at home, our country is fortunate that we have a Secretary and a Commander-in-chief in President Bush with the character and steadiness to hold firm to the right course.

Millions of Americans are proud and grateful for what they are undertaking. Betty and I count ourselves among them.

Pop quiz: how many times did Ford mention Iraq in that statement? Not once. If a Rumsfeld advocate cannot say, "he's done a heckuva job with Iraq," then there's no reason to view their praise of Rumsfeld as a true vote of confidence. Of course, anyone who did say such a thing about Rumsfeld and Iraq would not be credible. Sort of a Catch 22 for Rummy's side.

## Heh. Indeed

Lawyers, Guns, and Money attains the Fafblog zone:

Lawyers, Guns and Money: The Meeting: Rich Lowry's advice for the President: "Sit-down with conservative bloggers. They are some of his most loyal supporters--include them in the media out-reach." Imagine that.... just imagine that...

Scene: Oval Office. President Bush is meeting with John Hinderaker, Kathryn Lopez, Jonah Goldberg, Charles Johnson, John Derbyshire, Glenn Reynolds, and Roger L. Simon.

President Bush: Thank you all for coming. I just want you to know that Laura and I value your ideas and support.

Reynolds: Heh. Indeed.

Lopez: Mr. President, you are, like, a god to me.

Bush: Thank you...

Hinderaker: Mr. President, I believe that your speeches will be studied by historians for centuries to come. For now, the only advice that I can offer is to suggest that you should denounce Mahatma Gandhi.

Bush: Denounce Gandhi?

Hinderaker: Yes, sir, denounce Gandhi. And his rabble. Can't let the peaceniks get a foothold.

Reynolds: Heh. Indeed.

Simon: Mr. President, a lot of people are saying your administration has made mistakes in Iraq, but you shouldn't pay them any attention. I'd say that the Iraq War is at least as well conceived and executed as, say, Pajamas Media.

Bush: Well, thank you.

Goldberg: Mr. President, South Park is really big these days. I think that you should consider appearing on South Park. I'm sure that Parker and Stone would treat you with the dignity you deserve. The kids really like South Park these days.J

ohnson: Mr. President, have you considered giving a speech threatening to incinerate the entire islamic world? Some of my commenters think that would be a really good idea.

Reynolds: Heh. Indeed. Bush: Well, I'm not sure...

John Derbyshire: BLARG!!!! DJTNTHNNJJKKWWHEETT!!! Teh GAY!!! GSLDDEAAALLTTTHNEEIAA!!!!! Sixteen year old GIRLS!!!! DKTHEEKK!!

Reynolds: Heh. Indeed.

## I Am Sorry, But the Stupidest Man Alive Contest Is Closed!

John Tamny of National Review nevertheless submits his application--a fangs-bared leap-attack directed against Larry Lindsey:

John Tamny on the Yuan and Lawrence Lindsey on NRO Financial: To begin, just as Chinese authorities fix the yuan's value, so too do U.S. authorities fix the dollar's value. As the Journal's George Melloan noted in a recent editorial, "no currency actually 'floats.'" As opposed to commodities set by market forces, currencies today are merely paper concepts controlled by central banks through the creation of and extinguishment of that paper.

That the above is true calls into question Lindsey's assertion that the "Chinese clearly undervalue their exchange rate."

Another thing working in insurance companies' favor is that cancer patients rarely have the energy to argue about such nickel-and-diming. I recently managed to spend a morning forcing my way through multiple disconnects and transfers on the Blue Cross 800 number, but I was eventually told that the company would probably reimburse me for the extra $90 a month I was paying for that weekly anti-nausea drug if I filled out the right forms. My far bigger worry is that out-of-pocket cap, which is essentially what insurance is for. To drastically raise it seems the definition of bad faith. Or so I thought — until I began getting letters from Blue Cross in February announcing that it was retroactively disallowing the anti-cancer drug Avastin treatments it had been paying for since October, at$5,000 a pop every other week. It seems Blue Cross decided this new and expensive targeted therapy is experimental. (It looks as if Blue Cross is not asking to be repaid for my relatively unexperimental chemo, which had been costing about $2,500 every single week, but who knows?)... Cathy Seipp's major weekly outlet is her "From the Left Coast" Column for National Review. I think her National Review readers really need to hear her views on how market-based health insurance is working--need to hear her much more than the average Los Angeles Times reader needs to hear her on this topic. Yet so far this year, here's what she's written on for National Review: Patterico's critiques of the LA Times, Richard Feynman, right-wing columnists on the take, high school math, ex-Moynihan aide Lawrence O'Donnell, laundry, how Westside kids are regarded as freaks if they don't have their own cars at 16, HBO's polygamy series, bilingual education, how UCSD has a healthy College Republican chapter, "Pepper Dennis" vs. "Gidget," gay marriage, earthquakes, and Patterico vs. Hiltzik. If she would write for National Review what she writes for the Los Angeles Times, maybe some of National Review's readers would start thinking that blanket Republican opposition--opposition sight unseen--to proposals for health care reform is kind of stupid. ## One State, Two State, Red State, Blue State With 46 blue states right now, red/blue loses must of its punch. But Glaeser and Ward have some very interesting things to say: Mark Thoma reports: Economist's View: Myths and Realities of American Political Geography: Edward Glaeser and Bryce Ward on myths and realities regarding changing political geography over time in the U.S. and the validity of the "red state/blue state" paradigm: "Myths and Realities of American Political Geography," by Edward L. Glaeser and Bryce A. Ward, NBER WP No. 11857, December 2005: But despite the myths surrounding the red state/blue state paradigm.... America is a country with remarkable geographic diversity in its habits and beliefs. People in different states have wildly different views.... The distribution of states along all dimensions is continuous, not bimodal.... Moreover, America's ideological diversity is not particularly new.... The extent and permanence of cultural divisions across space is one of America's most remarkable features... twenty-three percent of respondents in Oregon, Washington and California thought that Saddam Hussein was personally involved in the September 11, 2001, attacks. Forty-seven percent of respondents in Texas, Oklahoma and Arkansas had that view.... 56 percent of Mississippi residents think that AIDS is God's punishment for immoral sexual behavior. Only 16 percent of Rhode Island residents share that view.... We find little support these cultural differences represent long-standing differences in religiosity or the legacy of slavery.... Blue State culture reflects primarily the legacy of different ethnicities working together at high densities: the most important historical explanatory variables are the share of the labor force in manufacturing in 1920 and the share of the population that was foreign born in 1920 strongly predict liberal beliefs and voting for John Kerry. ... The second important truth captured by the red state/blue state framework is that political parties and politicians have had an increasing tendency to divide on cultural and religious issues rather than on economic differences. Again, in historical perspective, cultural politics is not unusual. In the late 19th century, "Rum, Romanism and rebellion" were the core issues that determined the Republican Party. The true aberration was the midtwentieth century era of economic politics... ## William Saletan: Unclear on the Concept of "Reality" (Why Oh Why Can't We Have a Better Press Corps?) Ezra Klein notices that Slate's William Saletan has no ability to distinguish between things that really happen and fictional things that happen on TV. I agree with Ezra: this shows that Saletan is more than a few centimeters short of a full meterstick: Ezra Klein: Misunderstanding Big Love: Misunderstanding Big Love: This is a very weird column by Will Saletan on Big Love: It's hard to sustain a polygamous household. It's not for everybody. Most of us are too jealous. But some people aren't, the show suggests. And for them, maybe we should tolerate or legalize plural marriage. So, let's look at how this on-air experiment is going. Talented writers and actors are trying to make plausible the idea that American women raised in an age of sexual egalitarianism are bighearted enough to share a husband. Saletan then goes on to list instances in the show that prove pleasant polygamous relationships inevitably crumble amidst jealousy, hierarchy, and wifely overreach. But read that line again: instances from the show. Saletan's arguing that a team of committed, capable screenwriters wanted to normalize polygamy and argue for its viability, but accidentally came up with a program proving just the opposite. In which case, there are three explanations: 1. The writers are talented, but polygamy is so inherently unworkable that even a fantasy-land conception somehow mutates into a tangled web of interpersonal conflict and sexual unworkability; 2. The writers are not talented, and simply failed in their quest; 3. The writers are not trying to burnish polygamy's credentials, never sought to show it as workable, and Saletan is simply assuming intentions that aren't there, which explains why the narratives concocted by the writing staff all argue against polygamy's desirability. Which seems likeliest to you? ## Economics of Publishing The marginal cost of printing an extra copy of a book is really cheap: alg: P&Ls and how books make (or don't) money: part the first: the mass market original complete failure: The [paper, printing, and binding cost]... also includes the cost of printing the cover, so it changes depending on the cover's special effects. Spot gloss, embossing, debossing, foil, print over foil -- it's all special effects and it costs extra. A cover that is printed with an entirely glossy finish does not cost extra. A cover printed with an entirely matte finish does not cost extra. Embossing and foiling type on a cover can cost up to 25 cents extra per copy. For a 320 page book with no effects on the cover, PP&B for 35,000 books costs$19,295. Not included in the PPB is the manufacturing cost -- fixed cost to keep the lights on in the factory, pay the workers, move the machines. This is covered under "typesetting and design" though...

55 cents a book...

More than 90% of the cost of the book is made up of (a) the fixed cost of producing the first copy, and (b) the complicated distributional and informational process that gets it into the hands of somebody who wants it.

## A Morning Coffee Non-Videocast

From a mailing list that I know:

From: xxxxxx

Of course, I usually just drink instant coffee from one pint mug, taking water from hot water tap and warming the coffee up a bit in microwave after adding milk and some black molasses sugar. However, I am partial about instant coffee brand: I tried many, but it seems that Nestlé knows something that others don't. Classic gusto forte, Espresso and Cap Colombie are particularly good.

UGH ugh ugh ugh ptui must wash out mouth after reading! How could a post that started that way, have ended that way?

Oh, it gets worse. I've found that for those hard to resist MMM (Monday morning meetings) that a sprinkling from the handy jar of Nescafe sitting on the ledge in the shower mixes quite quickly in a small glass tea cup with the shower water. Awake in 5.

Friends have named this beverage 'mud'. Apologies.

## Why Oh Why Can't We Have a Better Press Corps? (Fred Barnes Edition)

Jonathan Chait reads the Weekly Standard so that the rest of us don't have to, and concludes that Fred Barnes has the morals of a Maoist apparatchik:

FRED BARNES SLAMS ... FRED BARNES:

For those connoisseurs of Fred Barnes's brand of sycophancy journalism, today's offering is a special treat. Barnes begins his piece, of course, by insisting that the administration's move to strip Karl Rove of his title as deputy chief of staff is not a demotion at all. "The mainstream media may have trouble resisting the temptation to declare that Karl Rove has been demoted, but the truth is quite the contrary," writes Barnes, "By giving up his role as deputy White House chief of staff, Rove has been freed to do what he does best: shape big issues and develop strategies to win elections." Indeed, it's actually a promotion: "In the mini-shuffle announced yesterday, Rove was a winner. No longer will he have to honcho a tedious policy process at the White House, which he's been doing in President Bush's second term. He now will resume the freewheeling role and significant, but limited, responsibilities he held during the first term."

I'd expect no less than this sort of spin from Barnes, whose dispatches, shall we say, tend to closely track Rove's view of the world. What gives today's piece its special status, perhaps marking it as the best Barnes piece ever, is the twist at the end. Barnes congratulates Bush for ignoring the advice that he, Fred Barnes, had given him. A few weeks ago, Barnes urged in print that Bush carry out a dramatic staff shakeup. Today Barnes acknowledges that Bush has not done so and, in the style of a Maoist self-criticism session, praises him for doing it:

The changes are not likely to constitute a facelift that gives the Bush administration an entirely new look. Such a makeover would risk making the president appear desperate. A far-reaching transformation had been proposed--by me, anyway--as a way to rejuvenate the Bush presidency, shock the media and the political community, and dominate the news for weeks. Instead, Bolten is taking a more prudent, gradual and, in the cases of Rove and McClellan, sensible approach.

Got that? If he followed Barnes's advice, Bush would look "desperate." So instead he's taking a more "prudent" and "sensible" course than the one urged by Barnes himself. All hail the maximum leader!

--Jonathan Chait

I'll stop calling this crew "Orwellian" when they stop using 1984 as an operations manual.

## What a Long Strange Trip It's Been...

Back in the old days--when Donald Luskin, Andrew Sullivan, and Mickey Kaus first decided that there were reputations to be made and Republican brownie-points to be earned by attacking Paul Krugman as "shrill," and when you could (well, maybe not you, but one, or some of those one might call "one") using only the suckers of one's tentacles count us few members of the Ancient and Hermetic Order of the Shrill as we gathered in the night psychotically ululating shrill screeds of Bush hatred at the dead, uncaring stars, having been driven into shrill unholy madness by the incompetence, mendacity, malevolence, and sheer disconnection from reality of George W. Bush and his administration--back in those old days, as I was saying, few would ever have thought that we would ever have the privilege of being led in Evensong here at Order of the Shrill headquarters here at Miskatonic University by tonight's fine and harmonious quartet, made up of Newsweek's Howard Fineman, the Wall Street Journal's Peggy Noonan, Meet the Press's Tim Russert, and the New York Times's John Tierney.

Welcome, friends! We are happy to give you your robes and your copies of the Krugmanomicon as we formally induct you into the Order! It's been a long strange trip, and you are late to the party, but you are very welcome now that you are here!

Now we will sit back and listen as your shrill ululating harmonies fill the sky beneath the dead, uncaring stars with that old favorite melody of Aaaiii! Ph'nglui Mglw'nafh Krugman R'lyeh Wagn'nagl Fhtagn! Aaaiii!!!

## Rising Oil Prices...

Nominal oil prices rise:

WSJ.com - Oil Price Reaches $71.35 a Barrel Over Concerns of a Nuclear Iran: By MASOOD FARIVAR April 19, 2006: Oil prices on the New York Mercantile Exchange topped$71 a barrel, the latest in a series of exchange records triggered by nervousness over Iran's nuclear program and falling gasoline supplies ahead of the summer.... The May crude contract on Nymex jumped as high as $71.60 before settling 95 cents higher at$71.35 a barrel, the highest level for a front-month contract since crude futures began trading on the Nymex in 1983. Crude futures for delivery beyond May were much higher, reflecting worries about a possible disruption later in the year....

The rally in oil prices has been driven by at least three fundamental forces: real production problems in major producing countries such as Nigeria and Norway; anxiety about the Iran nuclear row; and concern about shrinking supplies of gasoline ahead of the peak summer driving season. Gasoline inventories have fallen nearly 18 million barrels over the past six weeks as refiners have reduced operations to conduct seasonal maintenance.

Some market analysts blame the Iran nuclear dispute for adding as much as 10 a barrel to oil prices since the start of the year. Others, however, played down the likelihood of an Iran supply disruption this year and said speculators have used the Iran story as an excuse to bid up futures. I wonder what Masood Farivar thinks he means by "speculators have used the Iran story as an excuse to bid up futures"? Speculators who are buying now want to pay more in order to diminish the chances they'll profit when they sell later on in the year? It's not something an economist can make sense of. ## Why Oh Why Are We Ruled by These Morons? (Trade Policy Edition) Dan Drezner: danieldrezner.com :: Daniel W. Drezner :: So I'm thinking Doha is dead: This morning George W. Bush announced a new director of the Office of Management and Budget... U.S. Trade Representative Rob Portman.... As Portman's replacement as trade representative, Bush chose deputy trade representative Susan Schwab.... Portman has done an excellent job at USTR for the brief time he was there, and his move to OMB might be, on the whole, a good thing for fiscal policy. That said, Bush and Bolten have decided to switch teams at USTR in the weeks before various deadlines for the Doha round of trade talks come up. This is a bad, bad sign for the likelihood of those negotiations to succeed. I don't see how you can be said to have done a "good job" at any job that you leave after less than two years. The costs of getting first you and your successor up to speed are simply too large. The excellent Paul Blustein reaches a similar judgment: Paul Blustein: Hopes for Trade Talks Dim After Personnel Switch: By switching his chief trade negotiator yesterday, President Bush sent a gloomy signal.... The announcement that Bush was naming Rob Portman to become head of the Office of Management and Budget... just 11 months as U.S. trade representative... as global trade negotiations are in serious trouble, with a major deadline just weeks away... widely viewed as indicating that the administration holds little hope for securing a far-reaching deal in the talks this year and possibly for much longer than that.... Yesterday's news fueled worries that the talks might collapse or at least fall into a long state of paralysis.... "For this administration, it is important to get its act together, and that trumped the WTO negotiations," said Claude Barfield, a trade specialist at the American Enterprise Institute. "The White House must think that Portman brings something to the team that is beyond trade... changing leaders at a critical time is bound to have some impact."... The E.U. reacted to word of Portman's reassignment with a caustic suggestion that Washington had diminished the chances for a deal. "We will, of course, manage without him, but at this stage in the round, it would have been easier to manage with him," said Peter Mandelson, the E.U. trade commissioner, in a statement... Lots of other people would make good OMB Directors. Nominating any of them would not have further disrupted the Doha Round--if anyone in the Bush administration cared, which they don't. ## Department of "Huh?" Josh MIcah Marshall reads Dan Balz in the Washington Post: Talking Points Memo: by Joshua Micah Marshall: April 16, 2006 - April 22, 2006 Archives: In his front page piece in Thursday's Post, Dan Balz writes: "Realigning the White House staff and bringing in new faces appear central to [the] effort ... to revitalize this presidency quickly enough to avoid crippling GOP losses in November that could thrust Bush into instant lame-duck status." And Josh's jaw drops as he asks the natural question: I can't get past this point of, where are the new faces? It's like they cannot take on anyone who hasn't a) already taken the Bush omerta or b) works currently for Fox News. Josh is right: there are no new faces: Chief of Staff out, OMB Director to Chief of Staff, STR to OMB, Deputy STR to STR, Press Secretary out. Why--aside from the fact that "new faces" is an administration talking point--does Dan Balz write "new faces"? Why oh why can't we have a better press corps? ## Why Oh Why Can't We Have a Better Press Corps? (Tom Friedman Edition) Tom Friedman wakes up and has a rendezvous with reality--three years late and half a trillion dollars short. Eric Alterman snarks: Eric Alterman: Hey look, you can fool thirty-five percent of the people all of the time. But Tom Friedman gets off the boat here: I look at the Bush national security officials much the way I look at drunken drivers. I just want to take away their foreign policy driver's licenses for the next three years. Sorry, boys and girls, you have to stay home now — or take a taxi. Dial 1-800-NATO-CHARGE-A-RIDE. You will not be driving alone. Not with my car. Um, Tommy boy. Maybe we should retire that foreign policy guru title, since this insight comes say, three years, tens of thousands of lives and about a trillion dollars too late. Still wondering what that invasion was about, Tommy? "Three years after a U.S.-led invasion toppled Saddam Hussein, only one major U.S. building project in Iraq is on schedule and within budget: the massive new American embassy compound." ## Involuntary Organ Donors Jockey of Norfolk, be not bold, for Dickon thy master is bought and sold: BBC NEWS | Asia-Pacific | China 'selling prisoners' organs': By Jill McGivering BBC News: Top British transplant surgeons have accused China of harvesting the organs of thousands of executed prisoners every year to sell for transplants. In a statement, the British Transplantation Society condemned the practice as unacceptable and a breach of human rights. The move comes less than a week after Chinese officials publicly denied the practice took place. In March, China said it would ban the sale of human organs from July... Professor Stephen Wigmore, who chairs the society's ethics committee, told the BBC that the speed of matching donors and patients, sometimes as little as a week, implied prisoners were being selected before execution.... "The weight of evidence has accumulated to a point over the last few months where it's really incontrovertible in our opinion. We feel that it's the right time to take a stance against this practice." The emergence of transplant tourism has made the sale of health organs even more lucrative. Patients increasingly come from Western countries, including the UK, as well as Japan and South Korea. Professor Wigmore... and his colleagues, he said, had all seen cases of British patients who had considered going to China for transplants. He really hoped, he added, that people would think very hard about whether they should. Secrecy surrounding executions in China has always made it difficult to gather facts. The Chinese authorities recently announced steps to tighten regulations. From July, selling organs will be illegal and all donors must give written permission. But the practice is lucrative and critics say much will depend on how well those rules are implemented. Gives new meaning to the phrase, "worth more dead than alive." ## Covering the Economy: April 19, 2006: Fiscal Policy Plus Loose Ends Greg Mankiw has a weblog, which he is using--among other things--to try to nudge the budget debate along: Greg Mankiw's Blog: Greg Mankiw I teach introductory economics at Harvard University. I use this blog as a way of communicating with my students. Students and teachers at other schools, as well as others interested in economic issues, are welcome to use this resource. Here's some of the nudging: Greg Mankiw's Blog: Is Social Security Income Risky?: A new paper by John Shoven and Sita Slavov, however, points out that our current Social Security system is far from risk-free: Pay-as-you-go Social Security is typically characterized as a universal defined benefit pension program. Implicit in this characterization is a sense that the participant's investment in future benefits is somehow guaranteed, or safe from risk. This study develops the concept of "political risk" as the possibility that some future legislature will be forced to change the tax and benefit provisions of pay-as-you-go social security programs, when there are changes in the demographic and macroeconomic variables that support it. Thus there is a "political risk" to participants that might be compared to the "market risk" in a personal accounts retirement scheme.... The debate over personal accounts, therefore, is not one of "safe" versus "risky" benefits, but one of portfolio choice... Greg Mankiw's Blog: Hubbard on the Fiscal Future: Economist Glenn Hubbard (who preceded me as CEA chair and is now back at Columbia) has an op-ed in today's Wall Street Journal. He reminds us that unless we see significant entitlement reform, taxes are heading higher: Imagine the nightmare of a tax burden 50% higher -- not so farfetched as it sounds.... The Congressional Budget Office regularly quantifies these shadows of the Ghost of Tax Day Future. Their forecasts are not sanguine. A generation from now, absent any changes, increases in Social Security and Medicare spending alone are projected to consume 10 more percentage points of national GDP than they do today. There is nothing very new here, but it is good to have Glenn saying it anyway. As George Orwell once said, "We have now sunk to a depth where the restatement of the obvious is the first duty of intelligent men." http://online.wsj.com/article/SB114522990077327169.html?mod=opinion_main_commentaries Greg Mankiw's Blog: AMT: Catalyst for Tax Reform?: The Panel recommended repealing the AMT. By itself, repeal is very expensive. To make the reform revenue-neutral, the Panel also recommended broadening the base of the income tax by eliminating the deductibility of state and local taxes (as well as many other changes, such as cutting back on the mortgage interest deduction). There is a certain rough justice in this recommendation: The taxpayers in high-tax states would lose more from eliminating deductibility of state and local taxes, but they would gain more from repealing the AMT.... Question for ec 10 students: Should people living in high-tax states pay less in federal income taxes than other people with the same income living in low-tax states? Current law answers YES to this question, while the Panel answered NO. What do you think? Greg Mankiw's Blog: How to Increase National Saving: Brad DeLong (econ prof at Berkeley, former ec 10 student and assistant prof at Harvard, and super-blogger) welcomes me to the blogosphere at his blog and then complains about my post on the trade deficit. He thinks that I am being "elliptical" for saying I would like to see an increase national saving. I thought that my statement was pretty clear, but I am happy to explain to Brad what I mean. I suppose Brad wants to know how I would increase national saving. Part of the answer is that tax policy could do more to encourage private saving. I have long been an advocate of moving the tax system in the direction of a consumption tax. The Hall-Rabushka flat tax or the Bradford X tax would be ideal. But one can also do incremental reform within the current tax structure. I would, for example, vastly expand the opportunities for tax-deferred saving, such as IRAs and 401k plans. I would like to move toward allowing corporations to expense all capital investments.I also think there is some compelling evidence coming out of the behavioral economics literature that the details of savings plans matter a lot for how successful they are. My colleague David Laibson has put together some persuasive evidence that the default is crucial. If workers are automatically enrolled in 401k plans, and have the option of opting out, participation is much higher than if workers have to actively opt-in, as is usually the case today. The other piece of the national saving picture is public saving. A smaller federal budget deficit would mean more national saving, less reliance on foreign capital flows, and a smaller trade deficit. The trade deficit and the budget deficit are not twins, but they are cousins. As anyone who has looked at the numbers knows, the federal government's current budget deficit is, in a sense, only the tip of the iceberg of the fiscal problems to come. The federal budget is on an unsustainable path. When the baby-boom generation retires and becomes eligible for Social Security and Medicare, all hell is going to break loose. The policy options aren't pretty--either large cuts in promised benefits or taxes vastly higher than anything ever experienced in U.S. history. The stalemate over Social Security reform that we have seen over the last year suggests that the Washington establishment is not ready for the bipartisan consensus that will be necessary to put the budget on a sustainable path. In my view, there is plenty of blame on both sides of the aisle. The Democrats are not willing to entertain significant cuts in entitlement programs, but they are also not willing to admit that large tax increases that would be necessary to fund those programs as they currently exist. They talk as if reversing the Bush tax cuts on those making over200,000 would solve the problem, even though the funding gap is far too large for such an easy fix. Similarly, the Republicans will not entertain talk of any tax increases, even as they expand entitlement spending with a costly bill to expand Medicare spending to cover prescription drugs...

Greg Mankiw's Blog: Are the Rich Paying Enough?: Now that it is tax season, there is sure to be a bunch of articles and op-eds on the question of whether the rich are paying their fair share in taxes.Before one starts expressing opinions, it is good to look at the facts. The Congressional Budget Office is one place to look for the data on such issues. Here is the Total Effective Federal Tax Rate (all federal taxes divided by income) for different income groups, according to a CBO report, for 2005:

Lowest quintile 5.5 percent
Second quintile 12.0
Middle quintile 15.6 Fourth quintile 19.6 Highest quintile 26.3

Top 10 percent 27.8
Top 5 percent 29.0 Top 1 percent 31.1

Does the average tax rate not rise sufficiently with income? Or does it rise too much? Or is it just right? Economics alone does not provide the answer. But when thinking about the issue, these are the key numbers that people should focus on.

Dean Baker joins the 4th Journalistic Overwatch Keyboarding Taskforce:

Beat the Press: Dean Baker is an economist and co-director of the Center for Economic and Policy Research. He was author of the Economic Reporting Review, a commentary on economic reporting in the New York Times and Washington Post, from 1996-2006. He holds a Ph.D. in economics from the University of Michigan.

And my best friend since second grade, Michael Froomkin, reveals his true colors: he's with the ink-stained wretches who spend every night wrestling with hot lead:

Discourse.net: Dean Baker Wants Numerate Reporting: [Dean Baker's] inaugural posting asks, reasonably enough, why most economic journalism fails to put raw numbers in context.... In this case, though, it seems to me that this question actually answers itself: $285 billion sounds like a front-page headline; "approximately 1.7% of federal spending over the next six years" sounds like what William Safire used to call a "nine-point MEGO" where the MEGO stood for "my eyes glaze over."... And while I'm carping at my betters, let me point out that telling people that the new transportation bill will be 1.7% of federal spending or even "approximately 4.6 percent of projected discretionary spending" won't tell most readers all that much either...unless you tell them how it compares to transportation spending last decade, whether it covers deferred maintenance, current expenditures or new capital projects, and what it does to the deficit... And your economic journalist has, what, fourteen column inches on a good day? The Washington Post vs. the Internet, Round XXXIV? This story in last Saturday's *Post* is being played up as Round XXXIV of the Wahington Post vs. the Internet. I don't think that's what's going on. Look here: http://delong.typepad.com/sdj/2006/04/covering_the_ec_2.html ## Covering the Economy: The Washington Post vs. the Internet, Round XXXIV? This story in last Saturday's *Post* is being played up as Round XXXIV of the Wahington Post vs. the Internet. I don't think that's what's going on. Amanda Marcotte reacts to this Washington Post story about Maryscott O'Connor by dismissing the Washington Post's David Finkel as a "passionless toady." She writes: And everyone else joins our other club, The Pissed Off Club at Pandagon: [N]ow I get to enjoy a bunch of bloggers that actually seem a little hurt that the WaPo did an article on the left blogosphere that featured Maryscott O’Connor and basically made the argument that being pissed off about evil things is somehow an argument for said evil things.... Like Shakes says: [The Washington Post's] Finkel mistakes passion for poutiness, and that’s what made me squirm. There are a lot people who feel disenfranchised and disheartened right now, and that’s why they’re angry.... The GOP leadership has been a disaster, and most of us who respond with righteous anger aren’t throwing tantrums like two-year-olds denied what we want; we’re doing the hard work of responsible citizenry—-trying to hold to account a failed administration that’s bad for our country. In other words, don’t let passionless toadies [like Finkel] tell you what to feel... And Glenn Greenwald writes: Unclaimed Territory - by Glenn Greenwald: Mistaking caricature and generalization for journalism: The article's principal tactic -- really, its sole tactic -- is to search through hundreds of comments on O'Connor's site and sites like Eschaton, pick out the most extreme ones, and then feature them as representative.... The words and attitudes of Maryscott O'Connor and the handful of comments which the reporter searched out and found aren't representative only of them. Rather, they demonstrate what "the left" in this country -- a term never defined but seemingly inclusive of all opponents of the Bush administration -- has become. The tactics in the article are as intellectually lazy and empty as they are transparently deceitful and trite. There is no cheaper or emptier form of argumentation than to isolate a specific individual, describe her, and then, without any basis, ascribe those attributes generally to some larger group -- in this case, a much, much larger and more diverse group -- of which she is ostensibly a part.... [Maryscott] O'Connor has posted on her blog an account of the experience she had with Finkel, and it contains two revealing though unsurprising facts. First, before writing this article, Finkel "had never been to a blog before." Gee, what a surprise -- more journalists who have no idea what blogs are writing articles on the blogosphere like they are experts. Second, before writing the article, Finkel hilariously said that he "didn't have in mind any angle." But "[h]e did have a phrase weaving in and out of his mind: 'The Angry Left.'" To recap: Finkel had no angle in mind for the article beforehand - merely a phrase floating around.... How to respond to a proposition that negates itself? The scariest part: none of this is unusual. It is not an unrepresentative picture of how much of our "journalism" is produced... I don't think Finkel was trying to make a political point here--I don't think he had a political hit piece in mind. Remember, this is not the only story he has written with the subtext of this-is-a-strong-willed-woman-with-issues-who-is-a-few-hoppers-short-of-a-full-carload. I remember an earlier story that equally grated on me--ah, here it is, from last January 31: Utah Town Has Question About President: 'What's Not to Like?': Author: David Finkel Date: Jan 31, 2006 Start Page: A.01:To get to the place where they like George W. Bush more than any other place in America, you fly west for a long time from Washington, then you drive north for a long time from Salt Lake City, and then you pull into Gator's Drive Inn, where the customer at the front of the line is ordering a patty melt. "Patty melts! No one makes patty melts anymore," she is saying to the counterman, Ryan Louderman, who knew she wasn't local as soon as he heard the sound of a car being locked. "Can I get it without onions?" she says. "And can I get mustard? On the side? Dijon mustard?"... "No onions? With mustard?" says Orton, who voted for Bush in 2004 and 2000. "Oh, God, we get some weird ones" -- but she cooks it anyway, as requested, and passes the non-patty melt out to the woman, who takes a bite, declares it "fabulous" and wraps up the rest to go. She's on her way to a ski resort. She is going to be lifted by helicopter to the top of a mountain with untouched snow, and then she is going to ski down.... "Dijon mustard," Louderman says as the woman drives away. "I don't know what Dijon mustard is. Don't care to find out, either."... In Randolph... where Bush received 95.6 percent... the mind-set is even more specific to a place that seems less a part of the modern United States than insulated from it. It isn't just mustard, but everything.... Terrorist threats? That's anywhere but here. Iraq? That's somewhere over there. Hurricane Katrina? That was somewhere down there. Illegal immigrants? Not here.... As for racial diversity, everyone says there are three African Americans in the county.... One main road that is 1.3 miles long.... One church.... One post office, with one full-time employee.... [Orton] turns off the "open" sign and starts adding up the day's receipts. It isn't much. She netted$10,000 last year, if that. She has no savings. She has no retirement plan. She works seven days a week, 12 hours a day. Her last vacation was a quick trip last Thanksgiving to see her in-laws.... Somewhere out there are the sounds of chattering terrorists, and shivering homeless people, and helicopters ferrying soldiers, and a president rehearsing a vitally important speech. Here in 71.5 percent Utah, though, and 95.6 percent Randolph, and 100 percent Gator's, the only sound is of a believer explaining why, come Tuesday night, she doubts she will bother to listen.

"I don't think there's anything he could say that would make me dislike him," she says.

Amanda Marcotte thinks that David Finkel is making the argument that "being pissed off about evil things is somehow an argument for said evil things." David Finkel, by contrast, thinks that he is making no argument at all: "You can't tell anything about what I think from the article. You can't tell anything about me other than that I am male and write for the Washington Post."

The most curious thing of all is that David Finkel really believes what he says he does.

## Like Being Trapped in a Very Tiny Room Being Hectored by Your Clone...

Gene Healy is horrified by his archives:

AFF's Brainwash :: Gene Healy :: Happy Blogiversary to Me: Four years ago today, I started this humble site. I'm not always happy I did.... Blogs do a lot of good things, but they also bring out the worst in people. There are the folks whose idea of a good time is to jump into a comments section and shove some other kid: "You want some? Hah? Whatta you lookin' at?" What's the point? And then there's just the whole blogosphere itself.... Have you ever spent an hour or so reading through your own archives? It's like being trapped in a very tiny room being hectored by your clone. You don't look like you think you look, sound like you think you sound. The effect is probably something like the dysphoria Nixon experienced when he had to read through the transcripts of his Oval Office tapes: "[expletive deleted]: is that really me?"...