The Resumption of The Big Dollar Slide?

The US dollar hit a record low against the euro today, of about .83 €/$. It’s been trending down for the last year and a half, so that’s not that surprising. But listen to what currency traders were saying today:

Traders cited two factors behind the dollar's fall.

First, Commerce Undersecretary Grant Aldonas told reporters that the Bush administration has decided to set new quotas on textile imports from China... The timing of the measure seemed odd, given that the World Trade Organization just ruled that the United States' steel tariffs are illegal and given that Treasury Secretary John Snow said yesterday that the United States wasn't headed into a "protectionist mode."

Okay, that’s not surprising either – neither the Bush administration contradiction of its own economic team, nor the protectionism. However, this definitely caught my attention:

[Second], the Treasury Department released figures showing that foreign investment in U.S. stocks and Treasurys slowed sharply in September -- which pressures the dollar since there's less apparent demand for U.S. assets.

Breaking down the numbers, foreign investors sold $6.3 billion worth of U.S. equities compared with $11.5 billion worth of equity purchases in August. They bought just $5.6 billion worth of Treasurys -- down sharply from the $25.1 billion they bought the month before.

The drop off in Treasury buying was especially notable since the Japanese government reported that it bought $40 billion of the U.S. currency in September in its efforts to stem the yen's strength. Much of that money would have gone into Treasurys. The suggestion is that some other country or countries were big sellers.

So, which foreign country could plausibly have sold $35 billion in US Treasury bonds in one month? Only one candidate immediately leaps to mind: China. Given the gigantic stocks of US Treasurys that China owns, this news reminds me of some of my long-standing concerns and makes me wonder if there isn’t worse to come in the months ahead for the dollar.

Kash

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Have We Passed the Cyclical Bottom?

The CPI report for October was just released this morning. The core rate (which is the important rate to check if you want to understand the underlying trend in inflation) of consumer price inflation was up .2% last month. That means that the 12-month core CPI inflation rate edged up from 1.25% to 1.30%. With the exception of last May, that's the first time we've seen the 12-month inflation rate rise in nearly 1 ½ years. (See this earlier post for a chart and a bit of context.) Is it time to say that we've passed the bottom of the cycle? The PPI report from last week also showed a slight uptick in core prices last month... So put that together with all of the good news on output lately, and one could start making the case that we’ve reached the bottom of the business cycle -- at least for now.

Kash

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Bush to Comply with the WTO?

Well, it looks like Bush may indeed lift the steel tariffs. Many (most?) of the relevant parties in the administration have wanted to lift them for some time, but now it may happen. To emphasize the point, Senator Charles Grassley (an unusually sensible Republican from Iowa who chairs the Senate Finance Committee) apparently wrote Bush a letter suggesting that he remove the tariffs, according to CBS Marketwatch:

"The purpose of the steel safeguard tariffs has therefore been met, but this has come at a heavy cost," Senate Finance Committee Chairman Charles Grassley, R-Iowa, wrote in a letter to Bush dated Friday.

The quasi-judicial U.S. International Trade Commission "estimates that the steel safeguard tariffs have already cost U.S. businesses and workers over $680 million since their imposition," Grassley added.

Bush is widely expected to lift the tariffs, according to administration sources speaking on condition of anonymity. But the president, who likes to make surprise announcements, has been guarded in the last few days about his intentions.

US Trade Representative Bob Zoellick has begun laying the groundwork by saying things like "the polictical climate has changed since the tariffs were imposed" and "the tariffs have already done their job." So why will Bush now remove the tariffs, after all of this time? A news item from Yahoo suggested one reason:

Grassley's letter gives the White House more ammunition for arguing it is lifting the tariffs for domestic reasons, rather than "buckling under" to the threat of EU retaliation.

But I don’t buy this line of reasoning. If the White House was looking for domestic reasons to remove the tariffs, they had plenty with the ITC report back in September. Plus, why remove the tariffs now, right after the WTO ruling, if you want to make it look like your decision has nothing to do with possible EU retaliation?

No, it doesn’t make sense. Instead, as I suggested earlier, I think Bush will use the WTO ruling as political cover that allows him to remove the tariffs while not admitting what the administration already knows – that the tariffs were a mistake. In the process, he might actually help the US manufacturing sector – something that would admittedly be an untested policy first for this administration. Even better, he gets to go to steel country in Ohio and Pennsylvania and blame the EU for the tariffs being lifted. After all, from Bush's perspective, what better scapegoat for this administration’s terrible economic policy-making than the EU? Unless you can somehow blame Saddam Hussein.

Kash

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Blogroll Down

It looks like someone hacked Blogrolling.com to make it replace all links with a link to someone's blog. To avoid promoting the hacker's blog, links are now down until blogrolling fixes the problem.

AB

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Bush in the UK

There's surely lots of interesting stuff for bloggers of all stripes in Salon's transcript of Bush's interview with the BBC's David Frost. But the following juxtaposition struck me as peculiar:

On Iraq's nonexistent biological weapons (page 2):

"And David Kay found evidence of weapons programs. He found some biological weapons - evidence of biological weapons."

On North Korea's nuclear weapons (page 3):

"And I would refer people to North Korea where we've got a multilateral attempt to convince Kim Jong Il to get rid of his nuclear ambitions ... But what I've done is I've convinced China and South Korea, and Japan, and Russia to speak with one voice to the North Koreans and say, 'Get rid of your nuclear ambitions.'"

Iraq has no WMD? Then they have WMD programs, or we have evidence of WMD, or perhaps evidence of WMD programs, though of course no actual WMD. North Korea announces that they have a nuclear deterrent ready to go, and the CIA believes the only thing stopping them from detonating a test bomb is the international backlash? That's merely ambitions.

AB

P.S. The Sun's interview is up now too (while visiting the illustrious Sun, reading the words of the leader of the free world, be sure to check out the latest Page 3 girl, "Sarina, 20, from London" (link on lower left sidebar) and learn about "Kylie's Flashy Show: Crowds roar at her fishnets."

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Clark 1, Russert 0

Appearing on Meet the Press with Tim Russert is basically mandatory for presidential candidates these days (though I think Bush will only do so again if he's forced to do so by very close polls). Dean tried and didn't do so well, though the attacks on his performance were largely unfair. Clark, on the other hand, didn't really seem to give much meat to his critics, and came across appearing much more knowledgeable on the issues than Russert (transcript here). Russert would throw out a quote and Clark responded ably. A quick check of the conservative National Review's blog, The Corner, and Instapundit support this take -- neither has posts criticizing Clark's appearance (though perhaps they are still waiting for the faxes from the RNC).

In any case, the following exchange was amusing and it illustrates the general give and take (and who was doing most of the taking) of the interview:

MR. RUSSERT: After the war was commenced in April, you did write an article for The London Times and you said, “Can anything be more moving than the joyous throngs swarming the streets of Baghdad? Memories of the fall of the Berlin Wall, and the defeat of Milosevic in Belgrade flood back. Statues and images of Saddam are smashed and defiled. ... President Bush, Tony Blair should be proud of their resolve in the face of so much doubt.”

GEN. CLARK: But, Tim, do you have the rest of the article with you?

MR. RUSSERT: I’ve read...

GEN. CLARK: The rest of the article you should show because what it says is: “You can have your victory parade. You can have the soldiers parade up and down. You can be proud of the fact that you commanded these troops and they crushed this Army, but you must recognize that the job isn’t done. It may be only beginning. You haven’t found the weapons of mass destruction. And you’ve got a long way to go to put anything in place in the postwar.”

I’m writing as a commentator. I’m fair, and I respect the men and women in the armed forces. I love them, I’ve spent my life there, and I’m proud of them. And they did, in their military duties, a fabulous job in following the orders of the commander in chief. I simply wouldn’t have given those orders at that time. Those weren’t the right orders. Diplomacy hadn’t been exhausted, we hadn’t brought our allies on board, and we didn’t have an adequate plan for what would happen next. You cannot go to war in those circumstances and be successful. In Kosovo, we had exhausted diplomacy. We had our allies on board and we had a plan for what we would do when the fighting stopped. It was exactly the opposite situation.

AB

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The Era of Big Government

It's been back since around early 2001, but here's some more:

Authors of the bill agreed to double the use of corn-based ethanol as a gasoline additive, a provision viewed as essential to building political support among farm state legislators. As part of that deal, producers of the additive MTBE, which has been blamed for groundwater pollution in many parts of the country, would gain immunity from product liability lawsuits and the substance would be banned nationwide as of 2015. The MTBE provision was a priority of Representative Tom DeLay, the House majority leader, and other lawmakers from Louisiana and Texas, where MTBE is produced.

... Lobbyists and lawmakers said the key to passage might be the Democratic leader, Senator Tom Daschle, who has pushed the ethanol plan to benefit corn growers in his home state, South Dakota, and across the Midwest.

... Republican tax writers were still working out some final details Friday, and no price tag for the tax incentives was available. But the bill was expected to provide $18 billion or more in tax breaks to promote greater use of coal in power plants, to renew interest in nuclear power, to encourage oil companies to drill in deep waters in the Gulf of Mexico and to expand the generation of power through wind, among other things.

AB

UPDATE: I can't disagree with Matt Y. 's assessment of Daschle:

I'm going to have to do more reporting on this Monday, but my understanding is that Tom Daschle is prepared to sell the country out on a really awful bill for the sake of ethanol subsidies.

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Leader of The Free World

Nice. In advance of his trip to London, the President found a publication worthy of an interview:

Press secretary Scott McClellan broke the news yesterday with nonchalance. "Good morning," he told reporters. "The president had his usual briefings this morning and just recently completed an interview with the Sun, for a discussion of his upcoming visit to the United Kingdom."

I went to the Sun's website and tried to find the interview, but I couldn't because I got distracted by the Sun's topless Page 3 Girls (no adult verification required), this story on "Heidi, Adriana and Tyra wing in as undie-clad angels," the "Be cheeky! Touch my bum... " story that had something to do with some sort of video game but was actually about pictures of "Transylvanian twins Monica and Gabriella" in short-shorts. Then I re-resolved to find the Bush article, but got distracted by "Victoria Newton's Bizarre Exposed," and then wandered over to "Dear Diedre" to read about some poor young woman's group-sex travails.

What could possibly possess Bush to grant an interview to this Newspaper tabloid and not the respectable but conservative Telegraph or the slightly less conservative but even more respectable London Times? Click here to learn the answer (Hint: the same person owns Fox News and The Sun).

AB

UPDATE: Via Nitpicker, I see that "[Bush lined] up interviews with the BBC's David Frost and the new Daily Telegraph editor Martin Newland."

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Ketch-ing Up

Or, Pouring Ketchup On An Over-cooked Campaign, or Ketchup Money to Help Campaign Catch Up, or some sort of bad pun involving Ketchup, money and catch up (bonus points if you can also work "kvetch" into the pun*):

Unlike Dean and Bush, Kerry said he will put his own money into the campaign, becoming the first Democrat in at least 20 years to do so. Kerry's wife, Teresa Heinz Kerry, is worth an estimated $500 million, but Kerry can contribute only money under his control and half of what he and his wife jointly hold.

Kerry could get about $18.6 m in federal matching grants if he agreed to both abide an overall $45m cap and to abide by state caps. Kerry's sitting on $8m and raised just $4m last quarter, so it would take a lot for him exceed the $45m primary limit.

One of two things must be true (or both): (1) He's willing and able to spend a lot of his wife's money (meaning a lot of it is held jointly) or (2) New Hampshire's spending limit of $729,000 is too low for what is a make-or-break state for Kerry. Personally, I think he's done already; but even Kerry must know that he's really done if he loses New Hampshire by more than a small margin. Iowa is going to Gephardt or Dean so if Kerry loses NH, the next feasible wins for him are on 2/3/04 in Delaware, New Mexico, Missouri, and North Dakota, and those only seem likely if he wins NH, or at least finishes a strong second. Even still, those wins will be offset by near-certain Kerry losses in Arizona, Oklahoma, and South Carolina on the same day.

Then things get better for Kerry, with Michigan, Washington, and Maine in the following week. The point: Kerry has to make it to Michigan on 2/7 with some appearance of viability. To do that he's got to eat into Dean's 10-12 point New Hampshire lead, and $729,000 isn't going to do the trick. So upon reflection, this may actually not be a sign of an impendingg injection of catch-up money from Teresa Heinz's fortune--Kerry may plan to empty his coffers in NH and then hope a win will accelerate fundraising. If so, things could turn ugly, fast.

AB

(*) How's this: Kvetching Campaigner Counts on Ketchup for Catch-Up.

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Those Partisan Relatives

Relatives of people who perished in the Sept. 11, 2001, terrorist attacks say a federal commission accepted too many conditions in striking a deal with the White House over access to secret intelligence documents. The Family Steering Committee, a group of victims' relatives monitoring the commission's work, criticized the agreement announced late Wednesday.

AB

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Explanations for The Jobless Recovery

Two of the world's leading economists publicly discussed possible reasons for the jobless recovery in the past week. In a speech on November 6, Ben Bernanke, Governor of the Federal Reserve Board, articulated the argument that the main culprit is high productivity growth in the US. On the other hand, Alan Krueger, one of the world’s leading labor economists and a professor at Princeton University, threw cold water on this explanation in a NYTimes column on November 13. Who’s right? They both make great arguments (you should read them in full), but if you keep reading, I’ll suggest a new possibility that neither of them addressed.

Let’s consider a few alternative explanations for the jobless recovery:

1. Maybe global political and economic uncertainty is keeping firms from hiring. The problem with this explanation? As Bernanke said:

The observations that workweeks have not risen and temporary employment have risen only modestly... is a bit of evidence against the uncertainty explanation. If firms needed more labor services but were reluctant to commit to new hiring, one would expect to see them lengthening workweeks and hiring temporary workers in large numbers, measures that increase labor input but are also easier to reverse.

2. Maybe high productivity growth in the US is allowing output to rise without increasing employment. This is Bernanke’s preferred explanation:

In real terms manufacturing production in the United States has risen rapidly over the past fifty years. The recent recession has affected that trend only modestly. For example, although as of September 2003 U.S. manufacturing output was about 6 percent below its mid-2000 peak, it was also about equal to the level reached in 1999.

If manufacturing output has not declined in the United States, then what explains the sharp reductions in U.S. manufacturing employment? The answer is a stellar record of productivity growth. Over the years, new technologies, processes, and products have permitted manufacturing firms to produce ever-increasing output with ever fewer workers.

This observation brings me to my fifth and final possible explanation of the jobless recovery, which is the remarkable increase in labor productivity we have seen in recent years, not only in manufacturing but in the economy as a whole... Although other explanations for the jobless recovery – overstaffing in the boom, benefits costs, uncertainty, and structural change--have played a role, in my view the productivity explanation is, quantitatively, probably the most important.

However, Krueger disagrees with this explanation:

On examination, rapid productivity growth is unlikely to account for the dismal job picture in the United States over the last two and a half years.

Implicitly, this view argues that for some reason there are limits to how fast the gross domestic product (that is, output of goods and services) can grow, so, by definition, faster labor productivity growth results in slower job growth... There is no reason the gross domestic product could not have grown faster once productivity accelerated. Monetary and fiscal policy have not restrained growth.

Second, in the United States greater job growth tends to accompany faster productivity growth, over either a quarter or a year, as well as over longer periods. [It is normal for] productivity growth to surge at the beginning of a recovery – [only] the job losses are unusual this time. Furthermore, during the second-longest jobless recovery on record, which occurred during the previous Bush administration, productivity growth was lower than it is now, so accelerating productivity is not the only potential cause of a jobless recovery.

I have to admit that I find Krueger’s counterargument persuasive. I agree that there has to be more to the story than just the high rate of productivity growth. Such as? Citing Larry Katz, Krueger proposes numbers 3 and 4 on our list:

3. “Maybe recoveries that follow longer booms have weaker job growth initially because companies postponed restructuring during the boom. Therefore, more time is needed for companies to reorganize work, which spills over into the recovery phase.” Krueger goes on to cast doubt on this explanation, as well, however:

Indeed, the recessions in 1991 and 2001, notable for extended jobless recoveries afterward, both followed long booms. But in the eight earlier postwar recessions, longer booms were typically followed by shorter jobless recoveries, not longer ones. For example, after the recession following the 1960's boom - the second longest, after the Clinton boom - job growth resumed immediately.

Again, I agree with Krueger. I don’t think it has anything to do with the length of the boom that preceded the recession. Krueger’s next proposed explanation is:

4. Maybe jobs haven’t been created because the tax cuts were directed more at savings and consumption, rather than job creation. The problem with this idea? Even if they weren’t explicitly directed at job creation, the tax cuts still stimulated the economy, and caused GDP to grow rapidly. So we're still left wondering why a growing GDP isn’t accompanied by growing employment. Whether you subsidize the firm or the consumer through a tax cut shouldn’t matter – either way more economic activity is generated. Also, counterexamples abound. For example, the tax cuts of the early 1980s were also primarily in the form of reduced income taxes, yet led to a massive boom in employment.

So what’s my own theory? I think that there’s a crucial clue contained in #3, which I will use to propose my own explanation...

5. Maybe recoveries from milder recessions take longer to generate jobs. The two mildest recessions in postwar US history have been the two Bush recessions. And those are the two that took the longest to start generating new jobs. Why? I think it’s a variant on what Krueger said in #3: in a mild recession, there’s relatively little restructuring, and relatively little firing, so the economy doesn’t have as deep a hole to climb out of. Sharper recessions necessitate drastic actions by firms to stay alive – and those that survive are therefore strong and healthy from the very beginning of the recovery. But a mild recession doesn’t do as much to weed out the weaker firms, so you have more firms at the beginning of the recovery that still can’t afford to hire more workers.

Note that I’m not at all advocating sharp recessions over mild ones – mild recessions are still definitely preferable, in my book. But we may have to recognize that if the pain isn’t as severe, the bliss of job creation won’t be as great, either.

Kash

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Winning More Hearts and Minds in Iraq

The Guardian has these quotes about the CIA’s assessment of the Iraqi resistance:

One military intelligence assessment now estimates the insurgents' strength at 50,000. Analysts cautioned that such a figure was speculative, but it does indicate a deep-rooted revolt on a far greater scale than the Pentagon had led the administration to believe.

An intelligence source in Washington familiar with the CIA report described it as a "bleak assessment that the resistance is broad, strong and getting stronger".

As an example of why the resistance is growing, look to stories like this one:

FALLUJAH, Iraq (AP)--U.S. troops opened fire on a truck carrying live chickens near the tense town of Fallujah, killing five civilians aboard the vehicle, including a father and his two sons, relatives said Wednesday.

"They went to bring chickens ... and they came back at 9 or 10 at night and we were waiting for them,'' said Khalid Khalifa al-Jumaily, whose two nephews were killed on the truck. "The Americans fired on them.''

Add a few more to that 50,000. Sigh.

Kash

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Warren Buffett's Interesting Solution for the Trade Deficit

Note that I call it an ‘interesting’ solution, rather than ‘sensible’ or ‘good’. I like Buffett – he seems like a decent guy (for a billionaire) and his priorities are basically in the right place, in my opinion. But this idea has some serious problems.

In an article in Fortune magazine (subscription required), Buffett says that he is extremely worried about the US trade deficit. In particular, he is worried about the fact that by running trade deficits, and thus effectively trading US assets for foreign goods and services, the US is becoming too deeply indebted to the rest of the world. Here’s his solution:

The time to halt this trading of assets for consumables is now, and I have a plan to suggest for getting it done. My remedy may sound gimmicky, and in truth it is a tariff called by another name. But this is a tariff that retains most free-market virtues, neither protecting specific industries nor punishing specific countries nor encouraging trade wars. This plan would increase our exports and might well lead to increased overall world trade. And it would balance our books without there being a significant decline in the value of the dollar, which I believe is otherwise almost certain to occur.

We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties—either exporters abroad or importers here—wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.

To his substantial credit, by the way, Buffett began his piece with a disclaimer, acknowledging that he is not an economist and does not have a good record of macroeconomic forecasting.

But what about the substance of his suggestion? I find it fascinating to consider.

He’s basically completely right in everything he says. The US is indeed becoming more indebted to the rest of the world with every passing day. He’s also right that his plan would very quickly eliminate the US’s trade deficit. And he’s right when he says that his proposed solution functions essentially like an across-the-board tariff, though he doesn’t mention that it’s a peculiar type of tariff with the revenues being transferred directly into across-the-board export subsidies. It’s actually an extremely elegant way to simultaneously and uniformly tax imports and subsidize exports.

Now what about the question of whether it’s a good idea? Put aside the fact that it would be grossly illegal under WTO rules, and would therefore probably require the US to exit the WTO altogether. The problem is while he’s right that the trade gap is problematic in the long run, in the short run its a good thing. In this, it’s very much like the paradox of thrift.

In other words, there are substantial benefits to the US trade deficit in the short run. In particular, the trade deficit allows the US to have higher business investment (in addition to consumption) than it would otherwise. Without it, therefore, US firms would be investing in less productive capacity, making the US economy grow more slowly, be less productive, and therefore have lower wages over time.

Another problem is that without a trade deficit, the US would (by definition) no longer be attracting net capital flows. All of the money that is currently flowing into the US to purchase US assets would go elsewhere. This would probably lead to a substantial drop in asset prices. The stock market would fall, interest rates would have to rise sharply, and real estate prices would tumble.

His plan would also probably create all sorts of temporarily perverse incentives during its implementation, would wreak havoc on international financial markets, would lead to a sharp bout of inflation for the US, and probably cause a few other problems as well.

And yet, I completely agree with Buffett’s worries about the long-run implications of the US trade deficit. So while I can’t endorse Buffett’s solution, I’m sympathetic to his goals. As an alternative, I can repeat the tired old prescription of “higher savings, lower consumption” in the US – but that’s not really something that a policy-maker can do much about. So I have to admit that I don’t have a good solution of my own to offer. I wish I did.

Kash

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Bush Takes Advice from France

From today’s NYTimes:

WASHINGTON, Nov. 12 — The Bush administration, moving up its timetable for self-government in Iraq and yielding to its own handpicked leadership there, has decided to try to hold elections in the first half of next year and turn civilian authority over to a temporary government before a new constitution is written, administration officials said Wednesday.

Isn’t this exactly what the French have been advocating for the past several months? Let’s look back in time and see. From The Economist, September 19, 2003:

France wants the UN to play a bigger role in rebuilding Iraq. France is also agitating for self-government for Iraqis as quickly as possible. Mr Chirac has urged America to allow a provisional Iraqi government—more powerful than the American-backed all-Iraqi Governing Council—to take over [within months], with elections to follow next spring. America thinks this is ridiculous—it would, Washington argues, mean handing power to Iraqis before they are ready, and thus consigning the country to more chaos.

Of course, this doesn’t mean that the Bush administration has changed its mind. It always intended things to be this way, right? Because Team Bush never makes mistakes.

Kash

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The Republicans’ Senate Sleepover

Senate Republicans are holding a big PR event in the Senate tonight, with a 30-hour marathon session of sleeping on cots, hot chocolate, late-night gossip and camaraderie, and speeches about the treatment of Bush’s judicial nominations. They want to draw attention to the fact that Senate Democrats, through the use of filibusters, have blocked the nomination of 4 of Bush’s judicial nominees.

I feel no sympathy for them. This is why:



I'm not sure which phrase leaps to my mind first: something about dishing it out but not being able to take it, or the single word "hypocrisy." Click here for more specifics.

Kash

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Recession in 2004?

Okay, I don’t really think that we’re going to have a full-blown recession next year in the US. However, as I’ve alluded several times, I do think that economic growth in the US will slow considerably over the next 6-12 months. And in just the last week, I’ve encountered a raft of people who agree with me. Here are some examples that echo my fears about the US economy for 2004:

Stephen Roach, chief economist of Morgan Stanley:

In today’s US economy, there’s a veritable lack of pent-up demand in the two sectors that normally spark cyclical upturns; consumer durables currently stand at a record 11.4% of GDP versus a sub-7% reading in the early 1990s, and residential construction has moved up to a cycle high 4.3% of GDP versus a 3.3% reading a decade ago. Lacking in classic sources of pent-up demand, America is more than ever in need of new sources of growth.

Justin Lahart, commentator for CNN/Money:

Structurally the economy doesn't look the way it has at the beginning of past recessions. The current account deficit -- the gap in the United States' trade in goods and services with the rest of the world -- has risen to about 5 percent of the total economy. That's as high as it's ever been. In contrast, at the beginning of past economic expansions the current account has tended to be in surplus.

Housing prices usually get hurt during recessions. In this one, they did not. Consumer spending usually sees some sort of slowing. Again, didn't happen this time.

For some economists, these things represent structural flaws in the economy which will make the expansion less potent and less long than the ones that preceded it.

And finally, from The Economist:

The main reason for doubting that America is back on a path of strong, sustainable growth is that it has failed to purge the excesses of its previous boom. It is, to say the least, odd that at the beginning of an economic recovery many indicators—low saving, rampant household borrowing, record house-building and uncomfortably high stockmarket p/e ratios to name but a few—have more the look of a cycle that is drawing to a close.

I think the US economy is going to do fine in the short-run. But I do worry that these long-term imbalances are going to make it impossible for the US to enjoy a sustained boom over the next several years, as we would normally expect at this stage in the business cycle. And judging by some of the financial press recently, I am apparently not alone.

Kash

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At Least 14 Italian Soldiers Die in Iraq

As you’ve probably heard by now, a car bomb went off in the Italian base in Nasiryiah today, killing numerous Italian soldiers and Iraqis. As you may know, I like to understand what’s happening in the domestic politics of other countries. So here are some quotes of reaction from various Italian politicians, compiled from the BBC and The Guardian.

Pietro Folena of the main opposition party, the Democrats of the Left, said:

"They were sent to an Iraq in flames because the government wanted to do a favour for the Bush administration without taking risks into consideration. Now the Italian soldiers must come home. It is the only right thing to do at this moment."

Green Party leader Alfonso Pecoraro Scanio said troops should be pulled out of Iraq:

"It is immoral to put the lives of thousands of young Italians at risk for Bush's pre-emptive war.”

Prime Minister Silvio Berlusconi, after consulting with Interior Minister Giuseppe Pisanu, voiced his grief over the losses, but insisted the operation should go on:

"No intimidation should distract us from our will to help that country rise up again and build up self-government, security and freedom.”

The European Commission president, Italy's Romano Prodi, has called for peacekeeping operations in Iraq to be taken over by the UN:

"We must move on to a phase where the UN has a greater involvement in achieving peace, a phase in which greater weight and power must be given to the Iraqi people within the Iraqi Government.

"I had always thanked God because the Italians had been spared, but our fears were justified: this time it was our turn."

I'll be curious to see the sort of pressure that Berlusconi faces over the coming days. This is the sort of thing that can bring down governments, if not handled carefully.

Note that Nasiriyah was the site of the heaviest losses for US troops during the invasion or Iraq. A story from yesterday’s BBC provides one of the first comprehensive accountings of that day, in which 29 US soldiers were killed. It's a rather chilling story, not least because of the estimate that in addition to the US dead, over 1,000 Iraqis died during the fight for Nasiriyah.

Kash

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Well Said!

From Slacktivist:

Don't forget about the schools -- that's what this war has always been about, the centers of mass instruction. And the Good News is that the schools are open. Mission Accomplished, schools-wise.

AB

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It's Been Awhile

But I can, in good conscience, link to and endorse this Instapundit post. (Click here for the context).

AB

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Soros and Large Political Donations

Today’s Washington Post has a great piece about the recent donations that George Soros has begun making to liberal advocacy groups.

NEW YORK -- George Soros, one of the world's richest men, has given away nearly $5 billion to promote democracy in the former Soviet bloc, Africa and Asia. Now he has a new project: defeating President Bush.

"It is the central focus of my life," Soros said, his blue eyes settled on an unseen target. The 2004 presidential race, he said in an interview, is "a matter of life and death."

Soros, who has financed efforts to promote open societies in more than 50 countries around the world, is bringing the fight home, he said. On Monday, he and a partner committed up to $5 million to MoveOn.org, a liberal activist group, bringing to $15.5 million the total of his personal contributions to oust Bush.

My favorite quote comes at the end of the piece, however:

Asked whether he would trade his $7 billion fortune to unseat Bush, Soros opened his mouth. Then he closed it. The proposal hung in the air: Would he become poor to beat Bush?

He said, "If someone guaranteed it."

It’s gratifying to see what happens when the anger that many of us feel toward the Bush administration is shared by one of the richest men in the world: it gets translated into massive political donations. The only catch is that those donations can’t go directly to the Democratic Party, thanks to the McCain-Feingold campaign finance act of 2002 (M-F). His big donations have to go to unaffiliated groups that aren’t governed by M-F.

This is also a good illustration of why M-F has hurt Democrats more than Republicans. Perhaps counter intuitively, Dems have recently (i.e. the last 10 years or so) gotten more of their money from a few giant donations than Repubs.

This matters, because the Supreme Court is due to issue its ruling about M-F within the next month or so. If the campaign finance law is found illegal, expect a huge surge in soft money donations to Democrats (and a large, but somewhat smaller surge for Republicans), one that could substantially level the financial playing field between the two parties. Of course, I also believe strongly in campaign finance in principle. So I’m left very torn about what to wish for from the Supreme Court – a dilemma faced by many others on both sides of the aisle, I’m sure...

Kash

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Leave California. Now.

Ok, it's not that bad. But I see via Digby that Gov. Schwarzenegger hired Stephen Moore (see this post for background on Moore) as an advisor. Apparently, the US Newswire lets people write the headlines for articles that mention them:

Gov. Schwarzenegger Names Stephen Moore to Calif. Audit Committee; Noted Economist and Activist to Help Solve Golden State Fiscal Crisis

Moore's Club for Growth is the last bastion -- other than a few people at the AEI and in the current administration -- of the theory that tax cuts will increase general revenue.(*)

AB

(*) Yes, tax cuts will increase general revenue when rates are near 100% (because if taxes are 100%, then revenue will be near zero as almost nobody will work), but given modern tax rates, that's a non sequitur.

UPDATE: Upon closer inspection, the US Newswire piece is a press release, so Moore or one of his agents is responsible for referring to Moore as a "noted economist." The last line, which says "For more information or to schedule an interview with Stephen Moore, please contact Kevin McVicker at 703-739-5920," gave it away.

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Bush’s Steely Dilemma: The tariffs are illegal

So says the WTO. Actually, it was back in July that the WTO initially said that the steel tariffs, imposed in early 2002, contravene WTO rules. But the US appealed that decision. According to WTO rules, any country has one chance for an appeal, and the ruling of the appeal is final. The AP is now reporting that the WTO appellate panel is going to issue a verdict later today affirming the initial WTO ruling – that is, ruling against the US.

What does this mean? It means that the EU countries (along with a few other) are legally allowed to impose tariffs on a number of US products. Being politically savvy, the products that they intend to target come from a few key swing states, like Ohio and North Carolina. Actually, the EU already won permission to impose some tariffs on US goods for an unrelated WTO decision that went against the US (that one was about US tax laws that unfairly subsidize exports), but they haven’t imposed the tariffs yet. I wouldn’t be surprised if this time they fire away, however.

The steel tariffs are pretty widely acknowledged as an economic blunder, done for purely political purposes, but which is providing less political benefit than Rove had hoped for. As I discussed several weeks ago, the Commerce Department’s International Trade Commission finds that the steel tariffs are costing US jobs in other manufacturing industries. And now, if the steel tariffs are maintained, the new tariffs that the EU imposes will cost more US jobs.

So the question is this: what does the Bush administration do? There’s a faction in the administration that has wanted to get rid of the tariffs for months, for the reasons mentioned above (plus, Bush is supposed to be a free-trader on principle, isn't he?). But they were overruled, presumably by Rove and others who are still hoping for some political benefit of maintaining them. Actually, I think that this is a classic case (as with a lot of Bush’s policies) where the administration can’t admit they’ve made a mistake and change policies, even when it’s clear to everyone that they should.

So, will Bush's fear of admitting a mistake beat economic common sense? Another possibility is that the administration will see the WTO ruling as some convenient political cover for dropping the tariffs. It certainly will strengthen the hand of the anti-tariff faction within the administration. On the other hand, taking orders from a multinational institution that the US doesn’t have complete control over will certainly rankle a lot of people in the administration (particularly over in the Vice President's office, I would imagine). So who will win? Stay tuned.

Kash

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More Freeway Blogging

The latest from Scarlet Pimpernel:

Brought to you by http://www.freewayblogger.com/ (where you can find an array of pictures taken from the highways of Southern California).

AB

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It Must Be True What They Say About Absolute Power

From the Washington Post:

Angry about a leaked Democratic memo, the Republican leadership of the Senate yesterday took the unusual step of canceling all business of the committee investigating prewar intelligence on Iraq.

Majority Leader Bill Frist (R-Tenn.) called on the author of the memo -- which laid out a possible Democratic strategy to extend the investigation to include the White House and executive branch -- to "identify himself or herself . . . disavow this partisan attack in its entirety" and deliver "a personal apology" to Sen. Pat Roberts (R-Kan.), chairman of the Select Committee on Intelligence.

Only if those steps are taken, Frist said, "will it be possible for the committee to resume its work in an effective and bipartisan manner -- a manner deserving of the confidence of other members of the Senate and the executive branch."

Get it? Democrats write a memo outlining concerns that Republicans will stonewall the investigation and describing possible responses. The Republican response? Halt the investigations. I guess the memo was a pure flight of fancy.

AB

UPDATE: CalPundit parses the text of the memo and concludes, "There's nothing wrong with this, and it wouldn't have happened if Republicans had been willing to conduct a fair and thorough investigation in the first place. So let's save the mock outrage, OK?" Note: Sincere outrage over Republicans' mock outrage is fine.

UPDATE 2: Marshall has the right analogy on this one:

Two guys walk into a ring for a fight. One knows he’s about to get creamed. But he can’t bear the shame and humiliation of walking away from a fight. So at the very last moment he whips out some phony claim that the other guy’s cheating.

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Greens

Via Joe Conason:

[Nader friend Robert McChesney speaking] "I don't think Ralph should run. It would be bad for him personally; I doubt he would get half the number of votes he got in 2000. And it would be bad for the Greens ... Core elements of progressive constituencies, exactly the groups that the Greens need to build upon, will revolt with open contempt -- far worse than 2000 -- to anything that helps keep Bush in office ... Running a presidential candidate in 2004 for the Greens is probably a quantum leap off a cliff. It is the Greens' Jonestown."

I made a commitment in my now-vanished comments to be nice to Greens, to avoid the "see what the differences between the parties are now?" lines of reasoning and instead focus on "here's why Democrats want your vote." And I'll stick to that commitment. Nevertheless, this will sound more disparaging than it is: a Nader run in 2004 will set the Green Party back, substantially. He will get a much smaller amount of the vote in what is shaping up to be another close race. So the only two options are to again be the spoiler (goodbye Clean Air and Water Acts, hello Halliburton contracts), or to run and fail to stop the Democrat anyway, thereby ensuring that Democrats are hostile to Greens.

AB

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God Dammit, this Pisses Me Off

Where are my libertarians at on this one? I can't really even blame Bush, because it was just about as bad under Clinton. That is, things are in fact worse now than under Clinton, but it seems like the result of following a linear trend that started in the early 1980s. In any case, watch the video available here the next time you've got a broadband connection.

Via, like most things that piss me off like this, Atrios.

AB

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And Reagan Became President of the United States in 1981, and It Was Good. The End.

Education in Iraq:

The first indicator of what a Saddam-free education will look like is arriving this month, as millions of newly revised textbooks roll off the printing presses to be distributed to Iraq's 5.5 million schoolchildren in 16,000 schools. All 563 texts were heavily edited and revised over the summer by a team of US-appointed Iraqi educators. Every image of Saddam and the Baath Party has been removed.

But so has much more - including most of modern history. Pressured for time, and hoping to avoid political controversy, the Ministry of Education under the US-led coalition government removed any content considered "controversial," including the 1991 Gulf War; the Iran-Iraq war; and all references to Israelis, Americans, or Kurds.

"Entire swaths of 20th-century history have been deleted," says Bill Evers, a US Defense Department employee, and one of three American advisers to the Ministry of Education.

Via Atrios.

AB

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Imminent Threat Winner

Josh Marshall's been running a contest in which he asked his readers to submit the best quotes showing that the Administration did in fact state that the threat from Iraq was "imminent." The competition was fierce, as exemplified by the various quotes in Marshall's post. I won't give away the winner, but here's the runner-up:

Facing clear evidence of peril, we cannot wait for the final proof -- the smoking gun -- that could come in the form of a mushroom cloud.

AB

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Bishop Takes Reverend

... members of the church's executive committee were told Thursday night that Bishop Douglas Thuener had removed the Rev. Don Wilson. Wilson opposed the consecration last weekend of Bishop V. Gene Robinson, as do many of the church's roughly 60 members.

AB

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Good Job News, at least

Assuming it's not revised downward, it's a vindication of massive Keynesian spending (demand side stimulus), not supply side economics. From Forbes:

Just a day after Fed Chairman Alan Greenspan expressed hope the labor market would start to improve, the October payrolls report showed a 126,000 gain, more than double analysts' forecasts. Dramatic revisions to previous data showed three consecutive months of gains.

Jobs growth had been the missing element in an otherwise robust recovery but economists are gaining conviction that all the pieces of the puzzle are now falling into place.

Some now wonder how much longer the Fed will consider its benchmark rate, at a 45-year low of 1.0 percent, appropriate, even with low inflation.

Barring actual, not potential, inflation, my guess is that the Fed isn't too likely to raise rates in the next, say, 11.5 months.

AB

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6 Soldiers Die in Helicopter Crash in Iraq
2 Others Killed in Separate Attacks in Mosul.

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Blog Highlights

I've been too busy to blog much for the last few days, but now I have a little time to catch up on my blog reading. Here are some highlights:

• Via The 18½ Minute Gap, I see that Howard Dean "secured a critical endorsement from the most diverse labor group in the country, the 1.6-million-member Service Employees International Union," which is clearly good news for him.

  The 18½ Minute Gap also reports that anti-evolutionaries lost the latest battle over Texas textbooks (Thank God!).

• CalPundit endorsed Gen. Clark earlier this week; he gives a bit more detail here. Though, he hastens to add, "So how about the rest of the field? I want to make it clear that I have nothing against any of the major candidates and would support any of them against George Bush. In other words, I'm not trying to smack any of them down." The highly sought Angry Bear endorsement remains up for grabs.

• Via just about every blog, CBS and the Senate are both full of cowards. CBS for caving on the sure-to-be-crappy-anyway Reagan miniseries and the Senate for not recording the votes on the President's $87.5 billion for Iraq (six Senators showed up voted; five yes and one, Robert Byrd, no).

• Speaking of CBS and Reagan, last week while visiting a blog that I can't remember right now, I commented that "conservatives won't be happy until CBS yanks the movie and names something after Reagan," or something very similar. Digby gives some background on the Reagan Legacy project, which spearheads efforts to name stuff after Reagan ("The Ronald Reagan Legacy Project's mission is to honor and memorialize the historic achievements of President Ronald Reagan. It aims to do so by naming at least one notable public landmark in each state and all 3067 counties after the 40th president." Question: could they name something after Reagan in all 3067 counties while not having each state covered?)

• Charles Kuffner spots Tom DeLay "sticking in an amendment about trademark infringement into a defense bill ... And that if he's thwarted this time, he'll be back again, like mold on a shower curtain, right? That says all you need to know about Tom DeLay."

• Slacktivist excerpts some words of wisdom from Tony Kushner in the current issue of the very liberal Mother Jones:

  Anyone that the Democrats run against Bush, even the appalling Joe Lieberman, should be a candidate around whom every progressive person in the United States who cares about the country's future and the future of the world rallies. Money should be thrown at that candidate. And if Ralph Nader runs -- if the Green Party makes the terrible mistake of running a presidential candidate -- don't give him your vote.

  Listen, here's the thing about politics: It's not an expression of your moral purity and your ethics and your probity and your fond dreams of some utopian future. Progressive people constantly fail to get this.

• I was going to read the U.S. News cover story on Katrina Leung to see how much emphasis was placed on her work as a Republican fundraiser. But Nick Confessore saves me the time:

  Did U.S. News manage to publish an entire cover story on alleged Chinese spy Katrina Leung that only mentioned her work as a Republican fundraiser once, in passing, and did not mention the names of any of the politicians for whom she raised money? Yes. Yes, it did.

• TBogg read the "Partial-Birth Abortion Ban Act of 2002", and finds that "the husband or the woman's parents (if she is not eighteen) can sue her for having an abortion." Health exceptions? Out. Husband suing? In.

AB

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Voter Turnout

Everyone knows that voter turnout is down, and that it's due to increased apathy. As often as not, when "everybody knows" something, it's actually not true. I just heard a commentator on NPR claiming that voter turnout, when computed in the usual fashion (as a percentage of the voting-age population) is in fact down. However, the decline is not caused by fewer eligible voters choosing to vote.

Instead, it's the result of the decline in the number of people eliible to vote. In fact, the percentage of voting-eligible people who do vote has been steadily at about 55% since 1968. But the portion of the voting-age population that is not eligible to vote has increased from 2% in 1970 to 10% now, causing the decline in measured turnout. It's partly the result of increased immigration and partly the result of the increase in the prison population and the number of felons ineligible to vote.

I can't say for sure that this is true but it seems plausible. If true, the 10% number is disturbing.

AB

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Where's the Filter?

The media should be bringing us the happy news from Iraq. Instead, we get this:

Last weekend, Penisten, 28, had just begun his long journey home from Iraq for a two-week furlough. He was going to marry Loia, 25, this Friday in Pueblo, Colo., her hometown. Then the couple would travel to Penisten's hometown of Fort Wayne, Ind., to surprise his parents.

But on Sunday, an Iraqi guerrilla missile shot down the Chinook helicopter carrying Penisten, a mechanic. He and 14 other soldiers were killed. Twenty-five others on board were wounded.

This war is not an abstraction. Schools opening and deposing dictators are both great things, truly so. But the essential question for Bush and the NeoCon's legacy is whether the war was undertaken at minimum cost or maximum hubris.

AB

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Dean Update

I'm on Dean's side on this one now:

Dr. Dean, the former governor of Vermont, turned to Mr. Sharpton and responded: "We're not going to win in this country anymore as Democrats if we don't have a big tent. And I'm going to tell you right now, Reverend, you're right, I am not a bigot."

Mr. Edwards, who was born in South Carolina, then bounded across the stage wagging a finger. "Unless I missed something, Governor Dean still has not said he was wrong," he shouted. "Were you wrong, Howard? Were you wrong to say that?"

Dr. Dean responded: "No I wasn't, John Edwards. Because people who fly the Confederate flag — I think they are wrong, because I think the Confederate flag is a racist symbol. But I think there are a lot of poor people who fly that flag because the Republicans have been dividing us by race since 1968."

It seems legitimate to appeal to those with Confederate flags on their trucks, as long as you aver that they're misguided racists and that you would like to bring them to the side of goodness -- racially and politically. But good luck.

AB

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Comment News

Good news and bad. Haloscan is accepting new users, so I've switched comment providers to Haloscan--that's the good news. More good news is that comments can now exceed 1000 characters. The bad news is that all the old comments are gone. I restore them by switching back when my old comment provider's server (blogextra) is back up, but I don't think I can export them to the new comment provider. If anyone knows a way around this, please let me know.

AB

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Political Compass

While of questionable relevance, the politicalcompass.org survey is quick fun and it wasn't way off the mark on where I'd place myself (my results are here).

But I bet you've been wondering where all your favorite (and most-hated) bloggers lie on this spectrum. Tim Lambert has taken some time off from "stalking" the fraudulent John Lott/Mary Rosh to show where all the bloggers he can find who've taken the test lie on the political compass. Who knew till now that Unlearned Hand, who scored a full unit to my Left, was a raving communist?

If you're a blogger and you scroll down a bit, you can add your own scores to the table.

AB

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No Comment

Comments are down for a while. The problem was making the entire page load slowly so I took the comments out. I'll check periodically until they're back up.

AB

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Belated Congratulations

To Mr. and Mrs. Kos on the birth of their son, Aristotle.

AB

P.S. Sorry about the extra $33,000 in "birth tax" debt young Ari will have to bear. I voted for the other guy.

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Why Jamal Can't Get a Job

That's the title of a story in the current issue of the Chicago Graduate School of Business magazine. The article summarizes the results of a novel study by the auspiciously named Prof. Marianne Bertrand of U Chicago and Senhil Mullainathan of MIT's Economics department. Here's their experiment:

Between June 2001 and May 2002, they sent out about 5,000 resumes in response to 1,300 help-wanted ads in Boston and Chicago. They found that resumes with white-sounding names received 50 percent more calls than those with African American-sounding names, despite identical qualifications.

A few methodological details: the resumes were taken from resumes careerbuilder.com and americasjobbank.com, but the names were changed to represent either white or black names. To determine which names went with which races, they culled names from birth records between 1974 and 1979 to find the most common names for each race, and followed that up with "man on the street" interviews to verify that perceptions matched the data.

In practice, some high schools are better than others, so identical numerical GPAs might not necessarily mean the same thing on two resumes. In other words, it's possible that the call-backs were skewed white not due to racial discrimination per se but rather because whites disproportionately come from good high schools. To control for this, they used addresses from mixed-race neighborhoods and high schools in Boston and Chicago. In a nutshell, the applicants truly are identical on paper, except for their names. The result: black names get 1/3 less call backs.

In the second phase of the study, they also boosted the resumes (adding experience, honors, ...) of matched pairs of resumes and found that a better resume increased the odds of a call back for a white name, but not for a black name.

But at least there's some bad news for everyone who's poor:

"Whoever you are, whatever your resume is, we find people who live in 'worse' neighborhoods -- meaning low income, black, low education – those people had lower response rates ... Living on the South Side of Chicago hurts you whether you're white or black.

Speaks for itself. The full paper is available here.

AB

P.S. Speaking of race, see Dwight Meredith's deft dissection of Jane Galt's silly allegation that "Democrats are pretty clearly trying to keep conservative minorities off the appellate bench."

UPDATE: Reader Bo emails an alternative hypothesis, that's definitely not without merit:

It could be that people discriminate not against black names but against unusual names. They should have sent out resumes with typical black names as well as unusual Jewish, Indian, etc. names to get a better idea of whether they were seeing true racial discrimination or wierd-name bias.

Here's my response:

That's a decent point, and the authors mentioned that they'd like to replicate it with other races. So it was probably a matter of time and money and there's likely more to come.

Interestingly, to my mind, the "black last names" are actually not particularly unusual. They are: "Jackson, Jones, Robinson, Washington, and Williams". So any non-black minority is bound to have even more unusual last names.

I suppose that to confirm the racism hypothesis, they'd need to find little effect from, say, clearly Jewish names. So if Shlomo and Ehud get the same number of callbacks, while Jamal and Tyrone can't, then you have an issue. Stay tuned.

In the interim, I'll apply Occam's Razor and accept the simplest explanation.

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Digby on Dean

Digby at Hullabaloo gives his take on the issue, which is similar to mine, but a bit more irate:

I'm more pragmatic than I've ever been about presidential politics, and I know that he wasn't actually endorsing the confederate flag, but antipathy to this symbol is embedded in the DNA of African Americans since the civil war (and liberals everywhere at least since the civil rights movement) so I can't quite figure out why he would think it was ok to use it. Appealing to racist sympathy, which is what the confederate flag symbol is really all about, cannot coexist with the Democratic party of 2004. It's not the same as supporting the NRA or being for free trade or once voting Republican. The issue of civil rights is the moral center of our party. It's not negotiable.

Sure, we must try to boost our appeal in the South, but we must be very, very careful never to do it that way. It's not only wrong, it wouldn't work anyway. For every yahoo who wudda, cudda, shudda voted Democratic if we accept the symbol of their (racist) "heritage," there will be 5 southern African Americans who will just stay home[emphasis mine].

There's a lot more, read the whole thing (Digby also got a lot of action in the comments, on both sides of the issue but on balance tilting critical of Dean).

Digby also points to this CNN story containing Dean's clarification:

"I want people with Confederate flags on their trucks to put down those flags and vote Democratic."

Let's hope that that's the end of it. Dean essentially repudiated the appeal to the Confederate flag and should now return to appealing to both minorities and rural whites -- and everyone else -- on policy issues: progressive taxes, education, health care, and jobs. Coming soon: evidence that race still matters in American life.

AB

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I’m 30% Poorer!

Tomorrow I leave for a short trip to Europe for a conference. I just checked the latest exchange rates, and am now cursing Bush’s incompetently executed weak dollar policy. Take a look at the graph below of the euro/dollar exchange rate:



The dollar has lost nearly 30% of its value against the euro over the past 18 months. That means that a lunch at a café that used to cost me about $15 will now cost me about $20. A night in a hotel that used to be $90 will now be about $120. In other words, compared to the last time I was there, in the spring of 2002, I will be 30% poorer!

This highlights a significant downside of a weak dollar policy. Yes, it does help to make exports more competitive. It also makes imports more expensive, presumably shifting some consumption away from imports and toward domestically produced goods. So if your goal is tilt your trade balance toward a surplus, the weak dollar helps. And if your goal is to shift domestic resources toward the manufacture of import-competing goods, the weak dollar also helps. (Whether or not those goals are sensible ones is another subject.)

But these benefits come with a cost: in real, tangible terms, Americans are unambiguously poorer with a weak dollar. Our real incomes fall every time the dollar falls. Mind you, one could argue that this may not be a bad thing, for various reasons. However, I've always thought that one could make an argument that Americans feel more confident and optimistic about the future when the dollar is stronger (e.g. mid 1980s and late 1990s) -- primarily because when the dollar is stronger Americans are simply richer. I'm not sure how well this hypothesis would stand up to serious empirical scrutiny, but it has always seemed plausible to me.

Regardless, it's worth keeping this in mind: if you’re someone that has been applauding a weak dollar in the hope that it will help US manufacturing, you are also cheering for Americans to be poorer.

Kash

p.s.: To AB and everyone else, have a good week. I’ll be back in about 7 days.

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Explaining Hussein’s Thinking

This morning’s Washington Post has a fascinating report on the results of a set of interviews with, among others, Tariq Aziz. The overarching theme of the interviews is: “What the heck was Hussein thinking???”

Specifically:
- Why didn't Hussein didn’t fight back against the initial US invasion in March?

Hussein concluded after private talks with French and Russian contacts that the United States would probably wage a long air war first, as it had done in previous conflicts. By hunkering down and putting up a stiff defense, he might buy enough time to win a cease-fire brokered by Paris and Moscow.

- If Hussein had no WMDs, why didn’t he simply reveal that to the US to avert war?

Hussein was afraid to lose face with his Arab neighbors. Hussein concluded, these prisoners explained, that Saudi Arabia, Kuwait, the United Arab Emirates and other countries paid him deference because they feared he had weapons of mass destruction. Hussein was unwilling to reveal that his cupboard was essentially bare, these detainees said, according to accounts from officials.

Such explanations may go a long way toward explaining some of the outstanding mysteries of the Iraq war. The article is worth reading.

Kash

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What did they know that we didn't?

Via Yahoo News:

Last year the monkeys made their presence felt by hanging from window ledges and screeching at reporters arriving for a news conference with visiting U.S. Defense Secretary Donald Rumsfeld.

AB

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Dean's Southern Strategy?

This statement by Dean is clearly not as bad as his rivals are making it out to be:

"I still want to be the candidate for guys with Confederate flags in their pickup trucks," the former Vermont governor said in an interview published Saturday in the Des Moines Register. "We can't beat George Bush unless we appeal to a broad cross-section of Democrats."

I suspect Dean was just looking for a way to say "poor, rural, white voters" and this is what came out. His earlier invocation of the Confederate flag shows this more clearly:

"White folks in the South who drive pickup trucks with Confederate flag decals on the back ought to be voting with us, and not [Republicans], because their kids don't have health insurance either, and their kids need better schools too."

Even though I don't think this is some nefarious Dean version of Atwater's "Southern Strategy," he should stop for two reasons. First, it's wrong. The Confederate flag is a symbol of racism. Second, let's face facts: if he wins the primary, Dean's not going to win any Southern states in the general election, with the possible exception of Florida, where the Confederate flag is not nearly as much of an issue. So he stands little to gain by mentioning it again.

Incidentally, this is precisely the reason I see no ill intent in Dean's misguided Confederate flag references. He has nothing to gain in the national election, and actually stands to lose in the primaries (gains in, say South Carolina primaries -- where Clark now leads -- would be offset in other states). He does, however, need to find another way of referring to low-income rural white voters. I don't have a recommended replacement phrase, but I strongly urge the Dean campaign to avoid any phrases involving the words "red", "neck", "hillbilly", and "hick", or gratuitous references to Deliverance.

AB

UPDATE: Matt Yglesias initially agrees with my assessment of Dean's chances in the South, but then points out that "On the other hand, the important thing to keep in mind about the Dean campaign is that it's beaten expectations at every turn so far so even though he obviously can't win in the South, maybe he can."

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Lou Dobbs Smackdown

Julian Sanchez administers a nice one, along with a solid argument for free trade, here. My favorite part comes at the end:

When it comes to trade, Dobbs' one-sidedness gets things even more dramatically backwards. I had always been under the naive impression that we have jobs in order to be able to buy the stuff that we want. Whether I consider my salary "low" or "high" then depends on how expensive that stuff is. Dobbs, apparently, is inspired by a more Puritan work ethic. On his account, we want jobs for their own sake; if other people are willing to offer us goods more cheaply than we can make them ourselves, this cruelly robs us of the opportunity to work longer and harder.

Dobbs, of course, is an educated fellow, and presumably familiar with these arguments. But providing a voice for those eager to blame a Dark Other for the world's ills can only be good for ratings. And that, at least, ensures that Lou gets to keep his job.

Sanchez is a noted Libertarian. As I argued before, Libertarians stand to get a lot more of what they want -- or at least a lot less of what they don't like -- by supporting the Democratic candidate in 2004. This is probably more important than it sounds at first glance. First, Libertarian votes for the Democratic candidate will likely come mostly from votes that would otherwise go Republican, as opposed to coming from non-voters, so their impact is doubled (see this earler Sanchez editorial on this point). Second, Libertarian support might help convince moderate center-right Republicans who are distrustful of the current administration's fundamentalist base and growth of government policies to vote for a centrist Democrat, which the primary winner will surely be (yes, I include Dean in this category).

AB

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Krugman on The Summer Boom

Kash goes a long way towards explaining the summer boom in the previous post, and he makes a good case that it's likely to be revised down toward a still-meaty 6%. Here's Krugman's take from today's NYT:

...This time around growth has a much better foundation: final demand — demand excluding changes in inventories — actually grew even faster than G.D.P. So it's unlikely that growth will drop off as sharply as it did back then.

But — you knew there would be a but — there are still some reasons to wonder whether the economy has really turned the corner.

First, while there was a significant pickup in business investment, the bulk of last quarter's growth came from a huge surge in consumer spending, with a further boost from housing. These components of spending stayed strong even when the economy was weak, so there shouldn't have been any pent-up demand. Yet housing grew at a 20 percent rate, while spending on consumer durables (that's stuff like cars and TV sets) — which last year grew three times as fast as the economy — rose at an incredible 27 percent rate last quarter.

This can't go on — in the long run, consumer spending can't outpace the growth in consumer income. Stephen Roach of Morgan Stanley has suggested, plausibly, that much of last quarter's consumer splurge was "borrowed" from the future: consumers took advantage of low-interest financing, cash from home refinancing and tax rebate checks to accelerate purchases they would otherwise have made later. If he's right, we'll see below-normal purchases and slower growth in the months ahead.

[snip]

Still, it's possible that we really have reached a turning point. If so, does it validate the Bush economic program? Well, no.

Stimulating the economy in the short run is supposed to be easy, as long as you don't worry about how much debt you run up in the process. As William Gale of the Brookings Institution puts it, "Almost any tax cut or spending increase would succeed in boosting a sluggish economy if the Federal Reserve Board follows an accommodative monetary policy. . . . The key question is, therefore, not whether the proposals provide any short-term stimulus, but whether they are the most effective way to provide stimulus." Mr. Gale doesn't think the Bush tax cuts meet that criterion, and neither do I.

To put it more bluntly: it would be quite a trick to run the biggest budget deficit in the history of the planet, and still end a presidential term with fewer jobs than when you started. And despite yesterday's good news, that's a trick President Bush still seems likely to pull off.

AB

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Explaining the GDP Boom

Further insight into yesterday’s big GDP numbers was provided by the release this morning of the September personal income and spending data by the BEA. Both income and spending were sharply lower in September compared to August. The reason? Overwhelmingly, it was because of the end of the one-time tax rebates sent out over the summer. In the graph below, you can see the big bump in both disposable income and consumer spending in July and August, which was almost entirely due to the tax rebates.



What does this mean? Three things.

First: this provides strong evidence that the huge increase in GDP last quarter, which was powered largely by consumer spending, was largely due to the tax cut. Good old fashioned Keynesianism, as AB pointed out. The mortgage refinancing boom helped some, too, but the lion’s share of the credit goes to the tax cuts.

Second: this suggests that last quarter’s GDP figures were an aberration. The fourth quarter will most likely not be nearly as good, since the tax rebates have now been spent and their impact on the economy is pretty much gone. So expect GDP growth to slow.

Third: we can also expect the third quarter GDP growth figure of 7.2% to be revised downward when the updated estimate is released on November 25. The advance figures, which we got yesterday, are mostly based on July and August economic activity. The revisions will take September more into account, and thus will be lower. When all is said and done, we may well find that 3Q GDP growth was around 6%.

One last point about yesterday’s GDP report. Don’t spend too much time looking for a downside to it. Even if it's only 6%, it's a genuinely good report. The economy is indeed slowly improving (though there are reasons why I think the economy will slow down again in another 6-12 months). Those are real gains, which we can’t ignore, as much as we want to see W. crash and burn. The important question to ask about the economy’s growth is whether it's sustainable. As this post indicates, I tend to think that it’s not.

Regardless, I think that AB is right that the Democrats shouldn’t be putting all of their hopes on a poor economy giving them the election next year. The economy won’t be great, but it won’t be terrible, either. With each passing week, it becomes more clear to me that the way to beat Bush is with his disastrous foreign policy, his secrecy, and his lies.

Kash

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300% More Libertarian!

Wasting time, I took this political views quiz, which reveals that I am precisely as liberal as Matt Yglesias (we're both two units left of center, placing us in the neigborhood of Jean Chretien), but two units more Libertarian (scoring a 3 vs. a 1). Hey Matt, why do you want government in our bedrooms?

AB

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It's not my fault, unless the issue is GDP growth, in which case I get all the credit

As evidenced by this week's flap over the Navy forcing the White House to put up the Mission Accomplished sign, this administration is great at buck-passing (Tresy at corrente has an excellent summary). But that only applies to bad news.

Today, CNN has a story headlined, "Bush claims credit for third-quarter boom":

"That's [the 7.2%] the fastest growth we've had in nearly 20 years," Bush said in a speech before workers at Central Aluminum Co., in Columbus. "Exports are expanding, investment is rising, housing construction is growing. The tax relief we passed is working."

Now Bush is right that that's a big number (even Kash agrees). But at least since the time of Keynes, we've known that a massive expansion in net government expenditures (i.e., spending increases and tax cuts) will lead to a short run boom. So it's a bit of a surprise that jobs haven't improved yet, and it's possible that they still will (Democrats be warned: focusing all your criticism on the jobs picture may be risky). Still, this surge is pure-Keynesianism demand-side stimulus, which can be good in the short run, but carries long-run risks (inflation, mostly) that a macroeconomist (Kash? Brad?) can speak to better than I can.

AB

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Kudos to Republican Senators

I'll give Sen. Pat Roberts, who until now has seemed basically like a White House shill, a little credit for this:

To Tenet, the senators wrote, "You must expedite our access to the current list of outstanding documents and interview requests."

"This information was to have been provided to the committee five months ago," they wrote.

The senators' letter also complained about the failure of the agency to provide the committee "with an explanation of the various disconnects and inconsistencies in the assessments concerning the Niger uranium issue."

In the letter to Rice the senators wrote, "We have made numerous requests for documents which we have not yet been provided and we have sought to interview a member of your staff without success. Some of these requests have gone unanswered since July. You must expedite our access to the outstanding documents and immediately make available the individual identified. You must also lift your objection to the Central Intelligence Agency providing the committee with certain documents and allowing us to interview individuals involved in briefing senior administration officials."

To Rumsfeld and Powell, the two senators wrote, "The credibility of the government with its people and the nation with the world is at stake. Incomplete answers and lingering doubts will haunt us for many years."

The story also says that "Officials said Tenet is willing -- indeed eager -- to appear before the committee and explain why, before the war, U.S. intelligence said Iraq had weapons of mass destruction." Now that would be interesting to see.

While I'm giving out credit to Republicans, John Warner deserves some for urging Gen. Boykin to step down (as undersecretary of defense for intelligence, not his rank). Still though, it's a bit annoying that most stories on Boykin's remarks, including the one just cited, don't contain his actual statement, much less this disconcerting detail:

Martin reports Boykin has shown church groups photos he took of Mogadishu with black slashes in the sky which he says did not come from any defect in the camera or film.

"Whether you understand it or not, it is a demonic spirit over the city of Mogadishu. Ladies and gentlemen, that's not a fake, that's not a farce," Boykin said.

In college, we used to maintain a "Satan Watch", which was basically a collection of photos from The Enquirer and other tabloids purporting to show the face of Satan in the clouds, or the smoke enveloping a burning building. Little did we suspect that that qualified us to be an Defense undersectretary.

AB

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Best Take Yet on the Stalker

I'm sure most of you have seen that self-proclaimed poor, stupid, and Krugman-stalking Don Luskin had his lawyer send a letter to Atrios demanding that Atrios remove a post that (accurately) mocked Luskin, and that the accompanying comments also be removed. I don't have much to add on this; Luskin is both clearly an idiot and clearly wrong.

The Poor Man, however, has the best take yet on this. Go read it.

AB

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Up is Down

Here at Angry Bear, when we make reference to "up is down" or "down is up," we're usually referring to some new Orwellian step by the administration (seriously, Karl, 1984 was a warning, not an instruction manual).

This morning, Kash showed how "... the BLS has magically discovered a way for jobless claims to drop week after week, without the number of jobless claims ever actually falling." When I first read that, I thought to myself, "hey, that defies logic." But my confusion was due to a lack of vision, as demonstrated by this illustration that reader Jason G. sent me today:

AB

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The Daily Show
Thursday night:

JOHN: Isn't a mistake for the President to blame the Navy for hanging the "mission accomplished" sign up there.

ROB:Absolutely not, John. The President didn't even want it up there at all. But, as you know, he's got no control over the Navy.

JOHN: Rob, he's the Commander in Chief, he's got complete control of the Navy.

ROB: Yeah, the regular Navy. Yes. But not the elite Sign Hanging Units. Those guys are cold-blooded sign-hangers, John. Put a sign out there and they'll hang it whether you like it or not.

AB

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Treasury's Nonsense about China’s Exchange Rate

The Treasury Department issued their annual report this morning examining whether any countries are using their exchange rates to unfairly take advantage of the US. Unsurprisingly, the report discusses the politically important issue of China’s exchange rate vis-à-vis the US in some detail. (If you want some background on the China exchange rate issue, go to earlier posts here and here.) The report contains some rather disingenuous tidbits.

China has pegged its currency since 1994 at 8.28 to the dollar. This policy is not appropriate for a major economy like China and should be changed.

I’m slightly puzzled as to why a fixed exchange rate is no longer “appropriate” for a major economy. Depending on the situation, there can be perfectly good reasons to have a fixed exchange rate, just as there are sometimes perfectly good reasons to have a flexible exchange rate. It’s interesting to note that the US had a fixed exchange rate with its largest trading partner through most of the 19th century, and again during the period of remarkable economic growth from 1945-1970. Here’s a helpful graph:



The bits on the graph that are essentially flat represent periods when the US had a fixed exchange rate. Judging by how long the fixed exchange rate was maintained and how much the US economy grew during those periods, a reasonable conclusion is that fixed exchange rates worked pretty well for the US during its development.

Another bit of misdirection contained in the report is this:

Greater exchange rate flexibility would also allow China greater scope to maintain a low-inflation, pro-growth monetary policy.

I’d be very curious to know why they think that China needs a flexible exchange rate in order to achieve low inflation and high growth. Over the last 3 years China’s GDP growth has averaged about 7% per year. It’s inflation rate has averaged about 0%. Does China really need help achieving high growth with low inflation?

There may well be some valid reasons that China should change its peg, but let’s be honest here. The reasons contained in this Treasury report are nonsense.

Kash

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The Perpetual Declining Unemployment Machine

This week’s initial unemployment claims, in another report released this morning, were 386,000. Since the revised figure for last week is 391,000, headlines can justly read “Jobless Claims Drop,” even though last week’s initial estimate was 386,000.

Interestingly, “Jobless Claims Drop” is exactly what the headlines also read last week, when the number of unemployment claims was... 386,000. The week before, the headlines also read “Jobless Claims Drop,” since initial unemployment claims were 384,000. The week before that? You guessed it, “Jobless Claims Dropped” down to a level of 382,000. We’ve now had 4 weeks in a row with headlines stating that “Jobless claims drop,” though the initial estimate of claims has gone from 382,000 to 386,000 over that period.

The reason? Every week the number from the week before is revised up to a number higher than the current week’s initial estimate. So the BLS has magically discovered a way for jobless claims to drop week after week, without the number of jobless claims ever actually falling.

By the way, I wonder if it’s worth mentioning to the BLS that they should probably revise their methods for reaching a preliminary estimate. Over the past 4 weeks, the estimate has been revised up by 6 thousand, 6 thousand, 6 thousand, and 6 thousand. Anyone detect a pattern?

Kash

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GDP Shocker

The GDP numbers were really impressive this morning. The preliminary estimate of overall level of GDP growth during the period July-September was 7.2%, which is the fastest rate of GDP growth since 1984.

It’s worth checking out the original report for some details. What caused such rapid GDP growth? Surprisingly, it was pretty broad based. Here’s the breakdown:

Change due to:
- Increased consumer spending: +4.66%
- Increased housing construction: +0.92%
- Increased business spending: +1.12%
- Decreased inventories: - 0.67%
- Increased net exports: +0.84%
- Increased government spending: +0.27%
TOTAL: +7.2%

A lot of this GDP growth seems to be due to the tax cut, since the biggest increase by far was due to higher purchases by consumers. But business spending was also growing robustly, so some of it is probably also due to improved business expectations. The big question is whether consumers and businesses will keep spending at these extremely high rates for more than a quarter or two...

I would definitely not want to be in the bond market today.

Kash

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Deeply Conflicted 4th Circuit Nominee

Under questioning from Democrats yesterday, Claude Allen said he did not intend to insult homosexuals when as a campaign press aide to then-Sen. Jesse Helms (R-N.C.) he referred to "queers." He also said he was "deeply conflicted" about a Helms filibuster against creation of a federal holiday for the Rev. Martin Luther King Jr., saying King was "a hero for me and my family."

AB

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By The Current Metric...

...things must be even better now than they were before.

AB

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Falsifiability and Pangloss

First, you weren't seeing enough of the good news. Now, the bad news is good news. Here's President Bush, implying that the attacks are a sign that things are going well:

"The more progress we make on the ground, the more free the Iraqis become, the more electricity that's available, the more jobs are available, the more kids that are going to school, the more desperate these killers become"

Bush also directly stated a causal relationship between success on the ground and more resistance:

"The more successful we are on the ground, the more these killers will react."

I know science and the scientific method are not a high priority with this administration (e.g., see Salon today), but seriously, come on. We can all agree that no attacks would in fact constitute good news. We are now told that the current level of attacks is also good news, and that when the attacks escalate, that's a sign of more success on the ground. Bertrand Russell and Karl Popper had it wrong, while Candide's devoted advisor Pangloss had it right the whole time:

"It is demonstrable," said he [Pangloss], "that things cannot be otherwise than as they are; for as all things have been created for some end, they must necessarily be created for the best end. Observe, for instance, the nose is formed for spectacles, therefore we wear spectacles. The legs are visibly designed for stockings, accordingly we wear stockings. Stones were made to be hewn and to construct castles, therefore My Lord has a magnificent castle; for the greatest baron in the province ought to be the best lodged. Swine were intended to be eaten, therefore we eat pork all the year round: and they, who assert that everything is right, do not express themselves correctly; they should say that everything is best."

New and improved epistemology coming soon to science textbooks near you!

AB

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Daily Howler

Somerby is good today, if I bit more perturbed by the media than usual ("EXTRA! IT’S TIME FOR NAGOURNEY TO GO: Adam Nagourney needs to be fired for his work in this morning’s New York Times"). Why? Nagourney, whose work I often like, is faking quotes. Here's what Nagourney has Clark saying (quote doctored to make it look like Clark "appeared to struggle"):

"No, I always — I'm a fair person. And when this administration's done something right, well, if they were Russians doing something right, Chinese doing something right, French doing something right or even Republicans doing something right, I'm going to praise them.

"Right after 9/11, this administration determined to do bait and switch on the American public," he said. "President Bush said he was going to get Osama bin Laden, dead or alive. Instead, he went after Saddam Hussein. He doesn't have either one of them today."

Note that not only are there no ellipses anywhere, the closing quote in the first paragraph is also missing. Why no ellipses? Because ellipses do not imply time travel.

From the transcript of the debate, the latter half of the quote ("Right after 9/11 ...") precedes the first half of the quote and is in response to a different question!

Now let's take a look at Nagourney, as he "struggles" to make sense. This is an exact quote of Nagourney's first paragraph in the article:

Rough and intensively, and if the congress should have authorized $87 billion which would help the democratic candidates of president, here discussing, other Sunday one harms on the intelligence to maintain president Bushs of the invasion making of Iraq the effort of war.(*)

AB

(*) Actual text, translated into German, then French, then back to English using BabelFish. With sufficient creative license, it's easy to make anyone sound like they're "struggling."

UPDATE: Thanks to Jay, I see that the NYT has added this "correction":

An article on Monday about a debate in Detroit by Democratic presidential candidates referred incorrectly to a response from Gen. Wesley K. Clark: "Right after 9/11, this administration determined to do bait-and-switch on the American public. President Bush said he was going to get Osama bin Laden, dead or alive. Instead, he went after Saddam Hussein. He doesn't have either one of them today." The comment responded to a question about where he stands on the war in Iraq, not to the question "Are we to understand that what you're saying now is that those things you have said that were positive about the war was not what you meant?"

I think that's a pretty sorry excuse for a correction in that it completely mis-states the original error and hides the intentional mendacity of the authors.

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MemoryHole.txt

If you know what a robots.txt file is, take a look at the White House's. Why would they do this [disable outside searching and archiving of White House material related to Iraq]? Here's a tidbit from Google's FAQ [emphasis mine]:

Google takes a snapshot of each page examined as it crawls the web and caches these as a back-up in case the original page is unavailable. If you click on the "Cached" link, you will see the web page as it looked when we indexed it. The cached content is the content Google uses to judge whether this page is a relevant match for your query.

When the cached page is displayed, it will have a header at the top which serves as a reminder that this is not necessarily the most recent version of the page. Terms that match your query are highlighted on the cached version to make it easier for you to see why your page is relevant.

The "Cached" link will be missing for sites that have not been indexed, as well as for sites whose owners have requested we not cache their content.

Thus, absent someone or some organization periodically visiting and cataloging the contents of the White House's web page, you won't know the next time that "combat operations" magically becomes "major combat operations" (see also Spinsanity). Nice. I should learn to never go to work without my copy of 1984--I'm sure I could quickly find some parallel scene. Via CalPundit.

AB

UPDATE: Via Amazon's new super-cool search inside the book feature:

Winston dialed "back numbers" on the telescreen and called for the appropriate issues of the Times, which slid out of the pneumatic tube after only a few minutes' delay. The messages he had received referred to articles or news items which for one reason or another it was thought necessary to alter, or, as the official phrase had it, to rectify. For example, it appeared in the Times of the seventeenth of March that Big Brother, in his speech of the previous day, had predicted that the South Indian front would remain quiet but that a Eurasian offensive would shortly be launched in North Africa. As it happened, the Eurasian Higher Command had launched its offensive in South India and left North Africa alone. It was therefore necessary to rewrite a paragraph of Big Brother's speech, in such a way as to make him predict the thing that had actually happened.

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Conventional Distortion

David Broder, alternatively heralded as the Dean of the Washington Press Corps or the Standard Bearer of Conventional Wisdom, is really stretching logic in his column in today's Washington Post. It's not quite an attack on Dean, but it's a clearly intentional distortion of facts that's fairly obviously intended to belittle Howard Dean's support and advance GOP strategy.

First, Broder comments on Dean's prodigious lead in New Hampshire (38% Dean, 21% Kerry, 11% Clark), and then adds this:

By contrast, Dean was essentially tied with Rep. Dick Gephardt of Missouri among prospective Iowa caucus-goers.

Is that really such a contrast? Iowa is tailor-made for Dick Gephardt (he has the backing of Iowa unions, has long professed his love of ethanol, is from a neighboring state, and won the Iowa caucus when he ran in 1988). Sure, Dean also supports ethanol, but I doubt that Dean ever addressed the issue until this year (you can't win in Iowa if you're not big on ethanol, which in no small part explains Lieberman and Clark skipping Iowa). The point: being tied with Gephardt in Iowa is quite an accomplishment for a governor from the Northeast. But this point is minor in comparison to Broder's next bit of silly reasoning:

Since Dean has emphasized his early opposition to the war in Iraq as his calling card in the race, it is easy to assume that his antiwar stand and his criticism of Lieberman, Gephardt, Kerry and Edwards for supporting the resolution authorizing the use of force must account for his strong showing -- especially in New Hampshire.

Wrong.

[snip--Broder talking about how New Hampshire is not a pacifist hippy commune]

The fact that Democratic primary voters in New Hampshire are not reflexively opposed to our involvement in Iraq is underlined by the poll finding that, by a margin of 54 percent to 38 percent, they favor a nominee who "reluctantly supports" Bush's $87 billion aid request over one who opposes it -- while Iowa and South Carolina voters lean slightly the other way.

If it's not his early antiwar stand that is powering Dean, what explains his lead in the Jan. 27 primary? The Democracy Corps poll strongly suggests it is the fact that the New Hampshire primary electorate -- including many of those independents -- is overwhelmingly liberal on social issues on which Dean has identified himself. By a margin of 76 percent to 18 percent, they favor civil unions giving gay couples the same legal rights as married couples. Dean signed the first such law as governor of Vermont. Two-thirds of those likely to vote in New Hampshire also approve of gay marriage.

[snip]

In short, it is cultural forces -- far more than anything else -- that explain Dean's appeal in New Hampshire, forces that may tug the other way when the race moves to more typical battleground states.

Get it? New Hampshire voters like Dean in spite of his Iraq position! Broder intentionally conflates Dean's pre-war opposition with "reflexive opposition to our involvement in Iraq." Wrong. That's Dennis Kucinic's view, not Dean's. Broder says that New Hampshirites' views on Iraq differ from Dean's, but let's listen to Howard Dean, in his own words:

DEAN: We have no choice [but to approve the $87 billion for Iraq], but it has to be financed by getting rid of all the president's tax cuts. Even though I did not support the war in the beginning, I think we have to support our troops. The $87 billion ought to come from the excessive and extraordinary tax cuts that this president foisted upon us, that mainly went to people like Ken Lay who ran Enron.

That sounds a lot like, perhaps even exactly like, "reluctant support" to me.

Broder wants you to think New Hampshirites like Dean primarily because he is in favor of gay marriage. Why would Broder bend, stretch, and distort to make such a point? Apparently, because the GOP wants him to. From Saturday's Washington Post:

Republican lawmakers and conservative activists are making plans to turn gay marriage into a major issue in next year's elections ... Party strategists said the issue could be a bonanza for mobilizing conservatives to fund campaigns and turn out to vote, particularly in the South.

Note that I agree with Atrios, that this position may cost the Democratic candidate some votes, but that they "can't out-gaybait the Republicans" and that they should therefore "Do the right thing, and explain why." My point is that for Broder to claim that this issue is the source of Dean's support is, at best, feebleminded.

AB

P.S. Speaking of Dean's avowed support for ethanol subsidies, Matt Y. has an interesting take on Dean's free trade views: Dean is a free-trader at heart, as evidenced by his record, but he's paying lip service to protectionist sentiment to keep Gephardt from getting the still-open AFL-CIO endorsement. Matt might be right--Dean just needs to stall till Gephardt drops out. Assuming the field narrows to Dean, Clark, Lieberman, and Kerry, Dean is surely the front-runner for the endorsement.

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Un-Tubular

A story in today's Washington Post, Iraq Survey Fails to Find Nuclear Threat: No Evidence Uncovered Of Reconstituted Program, should put the final nail in the bogus aluminum tubes for uranium-enriching centrifuges claim. As the story makes clear, US experts opined before the war that the tubes were neither suitable for, nor intended for, use in such centrifuges.

According to records made available to The Washington Post and interviews with arms investigators from the United States, Britain and Australia, it did not require a comprehensive survey to find the central assertions of the Bush administration's prewar nuclear case to be insubstantial or untrue. Although Hussein did not relinquish his nuclear ambitions or technical records, investigators said, it is now clear he had no active program to build a weapon, produce its key materials or obtain the technology he needed for either.

Among the closely held internal judgments of the Iraq Survey Group, overseen by David Kay as special representative of CIA Director George J. Tenet, are that Iraq's nuclear weapons scientists did no significant arms-related work after 1991, that facilities with suspicious new construction proved benign, and that equipment of potential use to a nuclear program remained under seal or in civilian industrial use.

Throughout, the story is consistent with claims made by former State Department Director of the Office of Strategic Proliferation and Military Affairs Greg Thielmann on 60 Minutes II last week (which I excerpted here). The Post story is also a compelling addition to Sy Hersh's in-depth piece last week for the New Yorker.

As numerous observers (most vigorously, Bob Somerby) point out, the primary bias in the media is laziness--it's much easier to write a story that someone else has already written. So expect more articles similar to this one. In this case I think that the White House, by not releasing the Kay Report, is adding a layer of intrigue and thereby fueling the media flames.

AB

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Dwight's Back

Making my regular visit to Wampum to skim this week's Flashback Friday, I see good news. In addition to the usual top-notch material from MB, Dwight Meredith is now contributing to Wampum. He's got a great post up on why Bush should lose, but may nevertheless win (no primary opponent; tons of cash; fractured opposition).

Near the end, Dwight makes a point I've tried to make before, but with more eloquence:

Let me make it perfectly clear. Howard Dean can not beat George Bush without the money, activism, energy and support of the DLC Democrats. John Kerry can not win without the active support of labor union members now in the Dick Gephardt camp. Joe Lieberman can not win without African Americans. Wes Clark can not win without the support now held by Howard Dean. A southerner like John Edwards can not win without the support of the Greens. None can win without the support of all of the others. The margin for error is just too thin.

Ben Franklin, at the signing of the Declaration of Independence said, "We must all hang together, or most assuredly, we shall all hang separately." That was true for all Americans in 1776. It is true for all Democrats and liberals in 2004.

Some might deride this as an "anyone but Bush" strategy, but let's instead call it the "every single Democrat/Liberal counts" strategy.

AB

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Unintelligently Designed Policy

Time to check in on the goings on in my home state. This update on Texas' latest antics comes via Bob Park's weekly newsletter:

3. INTELLIGENT DESIGN: URGENT APPEAL TO TEXAS SCIENTISTS.

The Texas Board of Education has scheduled the science textbook vote for November 6. The books they approve will be used by Texas students for several years and will influence the choice in many other states. The Discovery Institute, based in Washington state, pushes I.D., and seeks to dilute arguments for evolution. C.A. Quarles, the Chair of the Texas Section of APS, is gathering signatures on a letter to the Texas Board of Education. For info Texas scientists and teachers should e-mail slakey@aps.org.

I wonder, if an intricate and complex universe is "proof" of "Intelligent Design", then what does the existence of asinine policies like this prove?

If anyone has a website for the petition drive, let me know and I'll link to it.

AB

P.S. Here's Park on the elevation of Mother Theresa to sainthood (this can be taken as evidence of witty design):

So the Vatican sent a crack team of investigators to India, where a woman said a beam of light from a picture of Mother Teresa had cured her of cancer. The team pronounced it a genuine miracle. But her doctor says no one asked him. He insists it was a cyst, not cancer, and he cured it with medicine. Who's right? I asked an old classmate, Dom Credulo, who knows a lot about miracles. "Do you think this is a miracle?" I asked. "Of course it's a miracle," Dom snapped, "how many times have you seen a picture emit light and cure cancer?" He had me there.

UPDATE: Charles Kuffner has this posted now too, and he has some links that put it into context.

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Cutting Corporation Taxes

As reported in today’s NYTimes, congressional Republicans want to reduce the top corporate tax rate. The result would be to reduce federal tax receipts by $60 billion.

I won’t even get into the problems associated with increasing an already massive budget deficit. However, it is worth noting other two points. First, collecting a smaller share of tax revenues from corporations effectively means a lower tax rate on the individuals who own those corporations. We all know who they are. Is this really what we want to do?

Second, take a look at these historical trends in corporate tax collections, from the Center on Budget and Policy Priorities.





The pictures speak for themselves, I think. The CBPP has a nice summary of the issues involved with corporate taxes in the US. Check it out if you’re curious to know more.

Kash

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How Much was Really Pledged in Madrid?

Powell has done some serious arm-twisting, and numerous Iraqis have been running around like hucksters in Madrid over the past two days to wring some pledges of money out of the rest of the world to go toward Iraq’s reconstruction. Typical headlines are now reading “Iraq donations reach $19 billion,” and that impressive sounding figure is what the Bush administration will certainly push. Added to the US’s $20 billion, it sounds like they made it a good portion of the way to their goal of $55 billion.

But there’s something funny about that number, because it largely consists of loans, not grants. The Bush administration is fighting tooth and nail with the US Congress to get the US’s $20bn to consist entirely of grants, with no loans (an issue discussed in this earlier post). They argue that loans don’t do Iraq any good – what they need is outright grants. In fact, they feel so strongly about it that they’re threatening to veto.

But most of the $19bn figure pledged in Madrid is also in loans. Of the $19bn, the IMF has pledged $4.3bn in loans, the World Bank $5bn in loans, Japan $3.5bn in loans, and Saudi Arabia $500 million in loans. Several other pledges were not specified as to whether they are grants or loans, which suggests that they may well also be loans. But according to the Bush administration, loans are of no use to Iraq. Furthermore, the $19bn total includes $400 million ‘pledged’ by Canada and Korea that has already been spent.

So the real pledges may not even reach $5bn. The Bush administration worked hard to lower expectations as far as possible in the days before the conference – a figure as low as $6bn was quitely voiced before the meeting. So not even meeting this very low goal makes the Madrid fund-raiser look like a pretty miserable failure.

Kash

Update: News reports are now saying that only $13 billion were raised from sources other than from the US, not $19 billion. I'm not sure which of the loan committments mentioned above they've started excluding, but I would guess that some or all of the IMF and World Bank's offers are no longer being counted in the total.

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Who Won in Tuesday's Abortion Vote?

We know who lost: women. But who won, politically? Republicans or Democrats? Barry, at Alas! a blog has a series of intriguing posts on the latest "partial-birth" abortion ban and abortion in general. (For your reading convenience, Barry also has the posts indexed here.)

In this post, Barry makes a decent case that this will harm Republicans by shifting the debate to the first trimester, where abortion rights have much stronger support. If this happens, Republicans will face a tough choice: anger their fundamentalist base (they have the numbers and the motivation) or suburban supporters (they have the money):

What's going on is, "partial-birth" abortion is a great issue for Republicans, and they donÂ’t want it to go away. It lets Republican Congresscritters show their pro-life base that they're fighting the good fight and trying to save babies. It lets them portray Democrats who favor banning late-term abortions, but who want a health exemption, as extremist baby-killers. And by concentrating their fire on "partial-birth" abortions, the Republicans get to avoid dealing with the controversial and electorially dangerous issue of first-trimester abortions.

You see, as long as the fight against "partial birth" abortion consumes pro-life attention, Republican politicians get a pass from proposing any serious legislation attacking first-trimester abortion rights in the states. And that's very important to the GOP, because a serious fight against first-trimester abortions would be terrible for the Republicans; it would not only galvanize Democrats, it would create a serious split in the Republican party between pro-life and pro-choice Republicans.

There's a lot more at Alas.

AB

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Insurance and Lemons

Atrios is starting a series on insurance markets and common misperceptions about them. Part 1, here, discusses insurance in general and introduces two topics that are crucial to any discussion of insurance: moral hazard and adverse selection. Atrios' Part 2 is forthcoming, but will address the specifics of health insurance; it should be interesting. And if I had to guess, he'll be tying it to the current grocery workers strike in California, and perhaps more broadly into an argument for national healthcare.

AB

P.S. Here's my version of Atrios' primer:

Adverse selection basically reflects the observation that people will make choices in rational ways. For example, healthy people choose managed care plans; unhealthy choose plans with more extensive coverage. So, managed care companies will have lower costs, at least in part, because they are insuring a non-random sample of patients that is disproportionately healthy. This does not mean that managed care is not efficient, but it means that any study claiming that managed care is more efficient must control for the selection issue.

Moral hazard refers to the observation that people will take more risks when they do not, because of insurance, bear the full costs of that risk. Here's a simple analogy: consider fire insurance for your home.

For example, adverse selection says smokers will buy more insurance than non-smokers, because the smokers have private information that their house is more likely to burn down. Moral hazard says that smokers are more likely to be careless about leaving lit cigarettes lying around, precisely because they are insured--so much of the cost of that negligence is born by insurers.

UPDATE: Why do I mention "Lemons" in the title? Atrios' insurance discussions are likely to draw on the famous work of Nobel Laureate George Akerlof and his result from the classic, The Market for Lemons, that asymmetric information can lead to market failure. Akerlof alse recently made this statment:

"I think this is the worst government the US has ever had in its more than 200 years of history It has engaged in extraordinarily irresponsible policies not only in foreign policy and economics but also in social and environmental policy."

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Center for American Progress

That's the name for Podesta's new liberal think tank, which basically opens today. I don't particularly love the name, but I suppose it's not too bad--after all, who can be against "American Progress." More interestingly, they are supposed to announce their first nine fellows today, so assuming some of them are economists, I'll update when the list is released. In the meantime, there are already some columns, a mission statement, and some reports.

Hopefully, this institute will involve substantially less hackery and fraud (e.g., Lott and Murray--see Murray shredded in Slate and by Nobel Prize winning economist Jim Heckman here.) than its right wing counterpart, AEI.

AB

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Resource Allocation

In a series of arrests spanning 21 states, the feds are apparently rounding up illegal aliens working for WalMart, or rather, aliens working for a subcontractor hired to clean WalMarts. The immigrants are reportedly mostly Eastern Europeans.

Is it possible that a 21 state operation to nab 300 people in the country illegally cleaning WalMarts is the best allocation of Federal resources?

AB

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Some or All?

Today, Clark announced his tax plans:

Clark vowed to repeal or modify the Bush tax cuts for families making at least $200,000 annually, repeating a promise he made a few weeks ago, and the scheduled reductions for those families making less than $200,000 would be protected under his plan. Clark is taking a similar position as Democratic presidential candidates Sens. John F. Kerry (Mass.) and John Edwards (N.C.) and breaking with former Vermont governor Howard Dean and Rep. Richard A. Gephardt (Mo.), both of whom want to repeal all of the Bush tax cuts.

I'm assuming that all the candidates are including the estate tax among the to-be-repealed cuts

AB

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Baseball and Efficient Markets

CBS Marketwatch reports on a recently circulated research paper by Ronald Kahn at Barclay’s Capital that makes a very good analogy between investing and baseball:

The New York Yankees and Florida Marlins may match swings on the field, but given what they spent on player salaries to get to the World Series, the two rivals couldn't be more different in their investment styles.

The miserly Marlins, with the fifth-lowest payroll among 30 major league franchises, are typical of price-conscious value-stock buyers. The team's $48 million salary budget averages $1.7 million a year for each player.

The freewheeling Yankees, in contrast, are the big league's big spenders. The club's $150 million payroll comes to more than $5 million on average for each player. The Yankees' investing behavior is more akin to a growth-stock buyer who looks to capture a stock's momentum regardless of price.

"The way investors succeed is not through emotion and gut instinct," Kahn explains. "It's through a very logical, rational, scientific approach." Trouble is, most investors don't embrace this strategy, creating opportunities in the marketplace for those who do, Kahn says.

That's the secret to the Oakland A's success, and why the one of the poorest teams in baseball -- with a $50 million payroll -- has consistently outperformed wealthier teams, Kahn says. The [A’s have] reached the American League playoffs in each of the past four seasons, even though its thin wallet would suggest otherwise. Only the Yankees can also make that claim.

"[The owner of the A's] didn't have the money to go out and pay any amount for the players he wanted," Kahn says. "The way he was going to build a team is similar to what value investors do -- to try to identify stocks that are mispriced."

Just as a keen value buyer scours the market for mispricings and unrealistic assumptions, Beane discovered that professionals in his business frequently failed to properly value a player's true worth -- what a value investor would call a stock's intrinsic value.

I like this example. Unfortunately for many economists, however, it provides evidence against the efficient markets assumption that economists typically make.

The efficient markets notion can be summed up by the following joke: An economist and his daughter are walking down the street one day, when the girl sees a $100 bill lying on the sidewalk. “Dad, look, a hundred dollars!” the daughter says. “Nonsense,” the economist replies, continuing with his daughter past the bill. “There can’t be $100 lying there, or someone would have already picked it up.”

The A’s – and now the Marlins – are apparently finding $100 bills all over their sidewalks.

Kash

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Snow Learns His Lesson... Sort Of

US Treasury Secretary John Snow, when asked today about future interest rates, gave the right answer this time. Contradicting evidence from earlier this week (described in my earlier post), Snow replied “I don't really comment on interest rates. Interest rates are a matter for the Fed.” Well done. He has apparently realized that his answer to the same question three days ago was a mistake.

Of course, then he went on to say that higher rates next year wouldn’t hurt the US economy, suggesting that he won’t mind if they go higher. While that might be true, this qualification injected a bit of confusion into his clear initial statement, and has lead to at least one major financial news source to report the headline “Snow: Higher Rates Okay; Official says rate hike won't hurt." That's probably not the headline he was hoping for. Perhaps he’ll get it completely right on his next attempt.

Kash

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A Telling Slip of the Tongue?

Something that Bush said during a press conference with the President of Indonesia today struck me as a bit odd. I just went and checked the transcript, and discovered what it was about Bush’s phrasing that seemed slightly unsavory to me:

Bush: Americans hold a deep respect for the Islamic faith, which is professed by a growing number of my own citizens.

Americans are now George Bush’s citizens? Shouldn’t it be “my fellow citizens,” or “my own country's citizens,” or at least "our own citizens?" I know it’s nitpicky, but to me such phrasing makes it sound like we belong to him. Either that, or it’s a case of "L’etat, c’est moi." Regardless, I don’t like what such slips -- inadvertent though they may be -- reveal about Bush’s mindset.

Kash

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Politicians Making Ethics Decisions

Can someone explain to me why some politicians feel that it’s their place to make the decision in cases like this?

TALLAHASSEE, Fla., Oct. 21 — Six days after the feeding tube of a brain-damaged woman was removed in a case that pitted her husband against her parents, Gov. Jeb Bush ordered it reinserted on Tuesday after the Legislature empowered him to do so. The extraordinary step overrides years of court rulings… [Her husband,] Mr. Schiavo has sought the removal of his wife's feeding tube since 1998, testifying that she told him she would never want to be kept alive artificially.

I honestly don’t understand why this decision is anyone’s business but the family’s. Or why politicians feel that they understand ethics better than other people. Anyone care to explain it to me?

Kash

p.s. You can add this to the Libertarians for Dean list.

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Reproductive Freedom

A "partial-birth" abortion ban, without exceptions for the health (there's an exception for the "life" of the mother, but an amendment to add "health" failed to pass), passed 64-34. I put "partial-birth" in quotes because what was really banned was a specific dilation and evacuation procedure that is similar to one used in midterm abortions. That is, expect Republicans -- either in court or with further legislation -- to quickly move to extend this first restriction into months 4-6, and continue from there (In Tom DeLay's words, "This is not the end of the abortion debate").

Green voters, Libertarians, and non-voters: Happy yet?

TBogg has the list of Yeas and nays, with Democrats who voted for the ban bold-faced (an ironic turn of phrase, but I guess there's no such thing as 'craven-faced' text). Given the overwhelming margin, there was little Democrats could have done to stop it, so I understand but don't particularly respect Democrats in conservative states who voted for it (Blanche Lincoln, Evan Bayh, Daschle, Landrieu, and a few others).

On the other hand, kudos to Republicans Susan Collins and Olympia Snowe. Now, someone remind me why are these two are still Republicans? On which major policy issue do they agree with their party?

AB

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Is the Democratic Party in Decline?

Here’s what Fred Barnes has to say about the subject in this week’s Weekly Standard:

AFTER THE 1972 AND 1980 ELECTIONS, Republicans said political realignment across the country would soon make them the dominant party. It didn't happen. Now, despite highly favorable signs in the 2002 midterm elections and the California recall, Republicans fear a jinx. Karl Rove recently told a Republican group that the realignment question won't be decided until 2004.

There's really no reason to wait. Realignment is already here, and well advanced. In 1964, Barry Goldwater cracked the Democratic lock on the South. In 1968 and 1972, Republicans established a permanent advantage in presidential races. In the big bang of realignment, 1994, Republicans took the House and Senate and wiped out Democratic leads in governorships and state legislatures. Now, realignment has reached its entrenchment phase. Republicans are tightening their grip on Washington and erasing their weakness among women and Latinos. The gender gap now exposes Democratic weakness among men. Sure, an economic collapse or political shock could reverse these gains. But that's not likely.

I could point out how several of the pieces of evidence he mentions are pretty flimsy. On the other hand, one fairly persuasive item he mentions is simply the increasing percentage of the American public that identifies themselves as Republican. But let’s hold off on trying to figure out if Barnes is right for a moment, and suppose that he is.

David Brooks picks up on this theme in his column in today’s NYTimes. Brooks argues that the crux of the problem for the Democrats is that the average voter no longer feels that Democrats share their value system. As he put it, “they didn't trust Al Gore because they thought he looked down on them. They felt Bush could come to their barbershop and fit right in.”

But even if Brooks is onto something (and as I said, I’m not sure that the premise of realignment is right in the first place), what he’s describing is not a function of differing values between Democrats and Republicans. He’s describing a difference in marketing. Al Gore would have had the best interest of the people in the neighborhood barbershop at heart much more than Bush has. And that’s precisely why I would argue that any perception that Republicans share middle American values is a fictional creation of a tremendous, decades-long marketing campaign. A very successful one.

Kash

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White Collar Flight... to India

Today’s Guardian contains a provocative commentary by George Monbiot on a theme that we’ve touched on before here. The piece begins:

If you live in a rich nation in the English-speaking world, and most of your work involves a computer or a telephone, don't expect to have a job in five years' time. Almost every large company which relies upon remote transactions is starting to dump its workers and hire a cheaper labour force overseas. All those concerned about economic justice and the distribution of wealth at home should despair. All those concerned about global justice and the distribution of wealth around the world should rejoice. As we are, by and large, the same people, we have a problem.

I like this piece because it raises several very interesting issues, which I’m going to mention here but not answer in this post. First, is it really likely that millions of service jobs will move to India? In August, Forrester Research released a report that said yes. Their prediction?

Over the next 15 years, 3.3 million US services industry jobs and $136 billion in wages will move offshore to countries like India, Russia, China, and the Philippines. The IT industry will lead the initial overseas exodus.

Sounds like a significant number of jobs... though I'd be curious to know how they arrived at their number.

Second: suppose predictions like Forrester’s come true? Would that mean serious trouble for white collar workers in the US? Would it have a noticeable negative impact on our economy?

Third: I like Monbiot’s honesty in the last sentence quoted above. So many of the people who oppose international economic integration do so on the grounds of helping domestic (i.e. US) workers, and also on the grounds of helping workers in developing countries. Monboit correctly points out that those two are often mutually inconsistent goals. So what’s the resolution? If you want to help both groups, where should you stand on this issue?

More food for thought, and comments. I’ll pursue these issues in detail in later posts.

Kash

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In Fairness to the TSA...

...I probably would let this guy through with minimal screening, too.

A bit of advice to Tucker Carlson: you may want to start arriving at the airport a bit earlier.

AB

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Food for Thought

And lot's of it, from Matt Stoller over at the ClarkSphere. It starts as a jeremiad, as Matt recounts his interactions with political consultants and the experiences that took him from Kerry to Dean and then to Clark, but he ends upbeat and very pro-Clark.

Also noteworthy are the numerous positive things Matt says about Dean. Reading between the lines, Matt's saying that Dean is great, but he thinks Clark is even better.

AB

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Another Treasury Gaffe

The record of ineptitude by Bush’s Treasury secretaries continues. Yesterday, Snow said that he’d be “frustrated and concerned” if interest rates didn’t rise next year. For a short list of reasons why it’s really, really bad for Treasury secretaries to make statements about future interest rates, visit Brad DeLong’s blog.

So today it was left to people who understand how the financial markets work to clean up the mess that this statement left in the financial markets, as reported by CNN/Money:

Officials at the Treasury Department and the White House quickly moved to clarify Snow's remarks, saying they weren't meant to hint at future Fed policy but were just musings on the typical relationship between economic growth and interest rates.

This statement settled things on the financial markets, but some permanent damage has been done.

What really concerns me about this, however, is that these sorts of instances reflect more than just inept media management. They really betray a fundamental lack of understanding of the relationship between economic policy making and the financial markets. So once again, I’m forced to conclude that the Bush White House really doesn’t know what it’s doing when it comes to economics.

Kash

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Gen. Boykin

I came across this article, titled "FIRST-PERSON: Stabbed in the back." It's from something called BP News, which appears to be news for Baptists, and it's a defense of Gen. "My God is bigger than yours, idolator" Boykin. Here's the thrust:

Gen. MacArthur and Gen. Patton and multiple others called on God, prayed to God, gave God praise and glory for victories and called upon God to defeat their enemies. Not a single one of those military leaders ever was belittled, harassed or chastised for speaking out about their spirituality.

Now, Patton liked coining quotes (e.g., "The object of war is not to die for your country but to make the other bastard die for his") about as much as Ben Franklin ("They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety"), but I don't think Patton's in Boykin's league when it comes to invoking the wrath of God. Here's a prayer by Patton, and it's not even close, rhetorically, to Boykin:

God of our fathers, who by land and sea have ever lead us to victory, please continue your inspiring guidance in this the greatest of all conflicts. Strengthen my soul so that the weakening instinct of self-preservation, which besets all of us in battle, shall not blind me to my duty to my own manhood, to the glory of my calling, and to my responsibility to my fellow soldiers. Grant to our armed forces that disciplined valor and mutual confidence which insures success in war. Let me not mourn for the men who have died fighting, but rather let me be glad that such heroes have lived. If it be my lot to die, let me do so with courage and honor in a manner which will bring the greatest harm to the enemy, and please, oh Lord, protect and guide those I shall leave behind. Give us the victory, Lord.

But this post isn't about which general is most religious (though Boykin is surely tops the above list), it's about the empirical validity of this statement by Gen. Boykin about his victory over a Somali Warlord:

I knew my God was bigger than his. I knew that my God was a real God and his was an idol.'

Let's take a look at Boykin's track record. Again, this is from the BP News article [emphasis mine]:

An evangelical Christian, Boykin has been in the Army since 1971, serving in such key operations as the 1980 rescue attempt of U.S. hostages in Iran and in 1993 in Somalia.

So, if success and failure indicate the size of one's god, and given the outcome of Operation Desert One, Gen. Boykin must admit that Ayatollah Khomeini's god is bigger than Boykin's? And if so, then it's only good policy to remove Boykin from the OBL hunt, and from any operations in the Middle East.

AB

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Addendum on the Deficit

As AB mentions below, the final tally of 2003’s budget deficit was $374 billion. Yes, that’s a lot, and yes, it’s a record deficit by far. The next closest deficit in US history was $292 billion, under Bush 41. However, it is lower than the White House’s mid-year estimate of $455 billion, and that’s the emphasis that the Bushies are certainly hoping for in the media.

Why was the deficit smaller than predicted 4 months ago? If you look at the breakdown, it turns out that the biggest single reason is because when they made the mid-year estimate, the White House was expecting spending on Iraq and Afghanistan to be higher than it actually was. Put another way, it looks like the White House was banking on part of their $87 billion request to be approved in 2003. Instead, of course, all of the $87 billion will be spent in 2004. That means that, while the deficit was lower than predicted this year, it will be higher than predicted next year. So don't get carried away with thoughts of fiscal happiness at the "lower than expected" reports that you'll read about.

By the way, given that the predicted deficit for next year was $475 billion, it looks pretty safe to guess that 2004’s deficit will pass $500 billion, as White House Budget Director Josh Bolten discreetly mentioned today. And don’t look for it to get a lot better in 2005.

Kash

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Biggest Deficit, Ever

At least, until next year:

WASHINGTON (Reuters) - The U.S. government posted its largest budget gap in history in the just-ended 2003 fiscal year, $374.22 billion in red ink, the Treasury Department said on Monday.

That broke the previous record of more than $290 billion in the 1992 budget year. As a percentage of the economy, the deficit totaled 3.5 percent, the largest since 1993. In its final monthly budget statement for fiscal 2003, the Treasury also said the government posted a $26.38 billion surplus in September.

The deficit number that will be released next October will be over $500 billion.

AB

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Why Is Inflation Falling?

In a pair of previous posts about the CPI and PPI, I pointed out that inflation is still falling in the US, with no sign yet of stabilization. I didn’t really address the reasons why inflation is falling so persistently, however. The most important reason, I think, was given in another data release last week: the Fed’s estimate of Industrial Production and Capacity Utilization. While the headlines generally focus on IP, it’s actually CU that’s more interesting to me. Because our CU is low – very low – and that’s exactly what is pushing the US economy dangerously close to deflation.

Over the weekend, the NYTimes provided a story about this phenomenon with some illustrative anecdotes. But as the old economists’ adage goes, the plural of anecdotes is data, and that’s what can really make a story convincing. So here’s a graph showing CU from 1985 to today:



The pink line, scaled on the right axis, shows the total capacity in the US, and reveals that firms added an astonishing amount of productive capacity during the late 1990s. They've continued adding to capacity since then, leaving the US able to produce 50% more than we did just 6 years ago. In other words, the US economy can produce much more stuff than there is demand for.

This is reflected in the blue line, which shows capacity utilization – the percent of the US’s industrial capacity that is working – and is measured along the left axis. The striking thing about it is that it has been unprecedentedly low for the past 2 years – and hasn’t started improving yet. With all of that excess capacity, firms have no choice but to offer sales and otherwise keep their prices low, in order to try to boost their businesses and get a reasonable return out of their existing assets. Based on how high the total capacity index is, it looks like it will take years more of low growth in capacity before the productive overhang disappears.

That's why my bet is that we will continue to see disinflation for some time to come. Prices won't start rising until our capacity utilization index starts really increasing. And as far as that goes, the US economy has yet to show the first signs of improvement.

Kash

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Keep Your Eyes Open…

…for some upcoming developments in this story: The independent 9/11 investigative commission, headed by Republican Thomas Kean, is having serious difficulty in getting the documents that it has requested from the Bush administration. Things may be coming to a head this week.

From Newsweek, a couple of weeks ago:

Sept. 24 — A long-running and largely behind-the-scenes struggle by an independent commission to gain access to some of the most sensitive White House documents about the September 11 terror attacks may be heading to a public showdown in the next few weeks, creating potential political problems for the Bush administration.

And from the Washington Post, last week:

Oct. 15 – Yesterday's hearing [of the bipartisan commission investigating the Sept. 11, 2001, terrorist attacks] -- the fourth held publicly since the panel was formed last year -- was interrupted by a lengthy emergency meeting that involved a "remarkable development" related to disputes over access to documents between the commission and the Bush administration, according to chairman Thomas H. Kean.

A commission spokesman said the development involved an agency other than the White House, but Kean and other members declined to reveal any other details. Kean said the panel will release more information by today. Several administration officials declined to comment or said they were unaware of the dispute. Kean, a Republican former New Jersey governor, and the commission's vice chairman, former representative Lee H. Hamilton (D-Ind.), have said that the panel's work would be harmed if it does not receive access to crucial administration documents immediately. The commission has subpoena power.

This story disappeared in the end of last week, but I wouldn't be surprised if it resurfaces with some new information this week. It's just a hunch, but stay tuned…

Kash

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Plame Still On

While the NYT continues to studiously minimize coverage of the Plame outing and investigation, Time Magazine keeps pounding the administration:

Security agencies all over the world are now quietly running Plame's name through their data banks, immigration records and computer hard drives as the White House leak scandal continues to percolate. Officials with two foreign governments told TIME that their spy catchers are quietly checking on whether Plame had worked on their soil and, if so, what she had done there. Which means if one theme of the Administration leak scandal concerns political vengeance — did the White House reveal Plame's identity in order to punish Wilson for his public criticism of the case for war with Iraq?--another theme is about damage. What has been lost, and who has been compromised because of the leak of one spy's name? And who, if anyone, will pay for that disclosure?

and

Some Bush partisans have suggested that the outing of Plame is no big deal, that she was "just an analyst" or maybe, as a G.O.P. Congressman told CNN, "a glorified secretary." But the facts tell otherwise.

There's a lot more, do check it out (no subscription required!).

AB

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Whaaaa?

When I first saw this at Blah3, I had to check and make sure it wasn't a link to a story from the Onion. Then a quick Google search and I found this from the Washington Times (scroll down to "Unlikely recipient"):

Sen. Edward M. Kennedy, Massachusetts Democrat, who recently accused President Bush of perpetrating a fraud on the American people in regard to the prewar threat from Iraq, will receive the 2003 George Bush Award for Excellence in Public Service.

...Former President Bush will present the award, which previously went to former Soviet leader Mikhail Gorbachev and former German Chancellor Helmut Kohl, the Associated Press reports.

Former President Bush has sole discretion on who receives the award, said Penrod Thornton of the George Bush Presidential Library Foundation.

Blah3 has more excerpts from the Boston Globe, excerpts with a lot of speculation that this is tantamount to a public paternal rebuke of Bush II's foreign policy.

That seems like a stretch, but I'm at a loss for a better interpretation. If Kennedy had simply gone along with the Leave No Child Behind stuff and then kept his mouth shut, that would be one thing. Instead, since that time, he's been one of the administration's loudest and most direct critics (which explains the 78% increase in references to "Mary Jo Kopechne" this year).

AB

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State Department Predicted Post-War Trouble

According to today's NYT:

"The period immediately after regime change might offer these criminals the opportunity to engage in acts of killing, plunder and looting," the report warned, urging American officials to "organize military patrols by coalition forces in all major cities to prevent lawlessness, especially against vital utilities and key government facilities."

Unfortunately, post-war planning was apparently mostly in the hands of Don "Were there that many vases?" Rumsfeld. The Times story recounts how State's expert, Tom Warrick, impressed Army staffers in charge of post-war planning so much that they brought him onto the reconstruction team--until, according to State sources, "top Pentagon officials blocked Mr. Warrick's appointment, and much of the [post-war planning] project's work was shelved."

Stuff like this really puts the Angry in Angry Bear.

AB

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