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April 2008

A Pox on All the Candidates' Houses, But the Largest Pox on McCain's

John Berry is--rightfully--unhappy: >April 21 (Bloomberg) -- The three major presidential candidates, ignoring the tenuous outlook for federal finances, are making foolish, untenable promises not to raise taxes... are pretending the next president isn't going to have to make some politically painful choices about cutting popular programs, raising taxes or, most likely, both.... "Under any plausible scenario, the federal budget is on an unsustainable path -- that is, federal debt will grow much faster than the economy over the long run," CBO said in December in its most-recent assessment of the long-term budget outlook. That's the elephant in the room the candidates are ignoring, just as President George W. Bush has done year after year. >McCain's pledges are the more egregious because he wants major tax reductions in addition to extension of all the expiring cuts enacted during Bush's two terms. McCain is offering one really good idea: elimination of the alternative minimum tax, or AMT, though without saying how he would offset the revenue loss. He also wants to double the personal exemption from $3,500 to $7,000, cut the corporate income-tax rate to 25 percent from 35 percent and allow immediate expensing of business investment in new equipment.... McCain's proposals, which would lead to a big increase in debt service due to larger budget deficits, make that [fiscal] future worse by many trillions of dollars. His ideas for offsetting spending cuts are trivial in comparison, though he nevertheless also promises to balance the budget.... >[B]udget experts say his numbers don't add up, and they are right.... >The Democratic candidates, Clinton and Obama, didn't go that far in their April 16 debate in Philadelphia. Rather, they promised not to raise taxes on the middle class. That group was absurdly defined by Clinton as households with incomes of less than $250,000. Obama put the upper limit at between $200,000 and $250,000.... [T]here were 4.1 million income tax returns filed in 2006 with adjusted gross incomes of $200,000 or more. That was just over 3 percent.... Increasing tax rates for upper-bracket taxpayers won't raise a lot of revenue. The 2006 IRS tax data attributed about half of that year's total $1.07 trillion income-tax liability to taxpayers with $200,000 or more in adjusted gross income. The increase in payments from reimposing the higher tax rates probably would yield initially only an additional $60 billion or $70 billion annually. Clinton and Obama also have proposed new tax cuts that would reduce revenue by more than that each year.... >At the same time the two Democrats are promising no tax increases for all but a handful of Americans, they also want to establish some type of universal health insurance that would add significantly to federal spending.... >Of course, maybe being honest about the future is no way to get elected, and that's really sad. One quibble: eliminating the AMT with a plan to offset the revenue loss is a good idea. Eliminating the AMT with no such plan is an act of utter stupidity. John McCain's AMT plan falls into the second, not the first category.

Robert Waldmann Speculates on Basra and Sadr City

This makes more sense than anything else I have seen:

Robert's Stochastic Thoughts: Glanz and Rubin note "many Iraqis have recently speculated, Mr. Sadr's stock has recently fallen in Iranian eyes."... Still I note the extreme similarity of the position of the Mahdi army and the Islamic Republic of Iran. Neither denounces or resists the exercise of Iraqi sovereign authority in Basra. Each denounces and opposes the same in Sadr city. Ambassador Qumi went on to denounce fighting in Sadr City:


>>"The American insistence on coming and having a siege on a couple of million people in one area and striking them with warplanes and shelling them randomly -- many innocent people will be killed through this operation," Mr. Qumi said. "The result of this operation will be the sabotage and destruction of buildings, and many people will leave their homes."

The events in Basra, in contrast with the Mahdi Army's continued fighting in Sadr City, renewed questions about where the Sadrist movement stands in Iraq's unstable political landscape.

Glanz and Rubin note that, given the extreme closeness of the Iranian and Iraqi governments, it is very likely that Iran approved the Basra offensive including the initial unsuccessful Basra offensive

Because leaders of the council and its armed wing spent years and sometimes decades in exile in Iran during Saddam Hussein's regime, it was assumed that the silence of the Badr Organization during the Basra offensive indicated that Iran had given at least tacit approval for the move.

In fact, IIRC al Sadr didn't denounce it immediately but just warned that they Iraqi government forces better not mess with the Mahdi army.

That would leave criminal gangs and Fadhila as targets of the offensive. On March 26 Michael Kamber and James Glanz wrote in The New York Times

In the weeks leading up to the operation, Iraqi officials indicated that part of the operation would be aimed at the Fadhila groups, who are widely believed to be in control of Basra's lucrative port operations and other parts of the city. The ports have been plagued by corruption, draining revenue that could flow to the central and local governments. But the operation also threatens the Mahdi Army's strongholds in Basra.

This suggests an alternative interpretation of recent events (put your tinfoil hat on).

There was an agreement between the people who count in Iraq -- al Hakim, al Sadr, al Maliki, al Sistani and Khameini -- to do something about Fadhila. al Maliki and al Hakim tried to use the operation to weaken the Mahdi army too. Their representatives were called to Qom and called to order by the head of the Martyrs Brigade of the Revolutionary Guard. A second try at a reasonable operation in Basra in which only anti-Iranian militias will be disarmed is in course (this would mean UK soldiers just went into the field to support Iran in an Iran vs UK proxy war without understanding what was going on).

However, al Maliki and al Hakim are still making trouble in Sadr city. Iran and al Sadr firmly warn them to stick to the plan. This would make al Mahdi's threat not bluster to hide his weakness, but a reminder of an agreement: "If you do not stop we will announce a war until liberation."

The day's events would still be good news. The difference is really a difference in guesses about what role Iran sees for the Mahdi army. In any case, it would be good if Iran could prevent their many allies in Iraq from fighting each other. I don't like the idea of a major role for al Sadr but, hey, al Hakim and al Mailiki are almost equally horrible.

As for the possibility of an Iraq genuinely independent of Iran, well, I am willing to speculate, but not to fantasize.

Top Bush aides pushed for Guantánamo torture | World news | The Guardian

OGMB sends us to:

Top Bush aides pushed for Guantánamo torture: Senior officials bypassed army chief to introduce interrogation methods by Richard Norton-Taylor The Guardian, Saturday April 19 2008: America's most senior general was "hoodwinked" by top Bush administration officials determined to push through aggressive interrogation techniques of terror suspects held at Guantánamo Bay, leading to the US military abandoning its age-old ban on the cruel and inhumane treatment of prisoners, the Guardian reveals today. General Richard Myers, chairman of the US joint chiefs of staff from 2001 to 2005, wrongly believed that inmates at Guantánamo and other prisons were protected by the Geneva conventions and from abuse tantamount to torture. The way he was duped by senior officials in Washington, who believed the Geneva conventions and other traditional safeguards were out of date, is disclosed in a devastating account of their role, extracts of which appear in today's Guardian.




Myers was one top official who did not understand the implications of what was being done. Sands, who spent three hours with the former general, says he was "confused" about the decisions that were taken. Myers mistakenly believed that new techniques recommended by Haynes and authorised by Rumsfeld in December 2002 for use by the military at Guantánamo had been taken from the US army field manual. They included hooding, sensory deprivation, and physical and mental abuse. "As we worked through the list of techniques, Myers became increasingly hesitant and troubled," writes Sands. "Haynes and Rumsfeld had been able to run rings around him."


Larry Wilkerson, a former army officer and chief of staff to Colin Powell, US secretary of state at the time, told the Guardian: "I do know that Rumsfeld had neutralised the chairman [Myers] in many significant ways. The secretary did this by cutting [Myers] out of important communications, meetings, deliberations and plans. At the end of the day, however, Dick Myers was not a very powerful chairman in the first place, one reason Rumsfeld recommended him for the job". He added: "Haynes, Feith, Yoo, Bybee, Gonzalez and - at the apex - Addington, should never travel outside the US, except perhaps to Saudi Arabia and Israel. They broke the law; they violated their professional ethical code. In future, some government may build the case necessary to prosecute them in a foreign court, or in an international court."

Impeach George W. Bush. Impeach Richard Cheney. Impeach all present and former members of their personal staffs. Impeach Gonzales, Addington, Haynes, Feith, Bybee, and Yoo. Impeach every present and former cabinet and subcabinet official in the Bush administration.

Do it now.

Student Loans and the Mortgage Crisis

Pete Davis watches the congress

Student Loans May Be Impacted by the Mortgage Crisis | Capital Gains and Games: Just as students are about to apply for their loans for next fall, many lenders have stopped making student loans. This week, two of the largest, Citicorp and Bank of America, pulled out. Higher educational institutions are rapidly switching back to direct loans from the government, but the Department of Education may be swamped despite the fact that no student has been denied a loan yet and despite DOE's claims that it's ready to make loans that private lenders won't.

Sallie Mae's CEO Albert Lord wrote two days ago... "we can only meet the enormous student credit demands we are seeing at Sallie Mae if there is a near-term, system-wide liquidity solution." In other words, Sallie Mae's CEO called for a government bailout.

Yesterday, that's just what the House of Representatives passed in H.R.5715 by an overwhelming 383-27. The bill expanded the size and availability of student loans, and it made more explicit that the Department of Education, operating through state guarantee agencies, would operate as a lender of last resort. Senator Kennedy (D-MA) has proposed a similar bill, S.2815, which the Senate may take up soon. President Bush issued a Statement of Administration Policy (SAP) on H.R.5715, which promised students that they would get their loans and which promised to work work with Congress if that became necessary.

The House Education and Labor Committee hearing on March 16th and the Senate Health, Education, Labor, and Pension Committee hearing on March 17th offered detailed testimony on the situation, as not a crisis yet, but which could quickly become one in the future.

What's behind all of this?

First, the mortgage crisis has driven investors away from securitized assets, including student loans. That has driven up the cost of financing student loans beyond the interest income and fees from those loans. Second, last year, the law on student loans was changed, effectively cutting the federal subsidy in half. Third, a pitched battle has been fought mostly between Republicans and Democrats over who should make student loans. When President Clinton came to office in early 1993, he was able to establish direct lending from the taxpayers to students, but just about every student loan bill until last year's pared back direct lending in favor of private lending.

Now that the mortgage crisis has spilled over into student lending and private lenders are pulling, you have to ask yourself, "Why are we going through this?" Economists generally prefer market mechanisms to government programs, but there are market imperfections and externalities that can tip that balance back toward government programs. We got to this point after decades of debate over that issue with regard to student loans. Now that the mortgage crisis threatens, we will see if it ends private lending to students over the summer.

Washington Post Death Spiral Watch (George F. Will Edition)

Outsourced to Mark Thoma:

Economist's View:: George Will tries to talk about Fed policy, but if you don't understand the Fed's goals - and he doesn't - then the analysis of policy will be based on a faulty premise and reach incorrect conclusions. George Will thinks:


But that's wrong. As Mishkin says:



How concerned is George Will about the working class and employment? Should we use monetary policy to try to stimulate employment even if there's a chance of inflation? Not in George Will's world:


He ends his column by putting his analytical skills to work:

If Congress cannot suppress its itch to "do something" while markets are correcting the prices of housing and money, Congress could pass a law saying: No company benefiting from a substantial federal subvention ... may pay any executive more than the highest pay of a federal civil servant ($124,010). That would dampen Wall Street's enthusiasm for measures that socialize losses while keeping profits private.

First he tells us - incorrectly - that the Fed's sole job is to "to preserve the currency as a store of value." But now he tells us that government should not intervene when markets are "correcting the prices of housing and money." So which is it, do we let markets correct the price of money or not?

He doesn't think the Fed should do anything to help the working class stay employed, but that didn't stop him from trying to make the case in his last column that Democrats, Barrack Obama in particular, follow a "doctrine of condescension toward those people":


That is, of course, a crock, but what is the condescension here? I think making up Fed goals to support a policy that ignores working class' needs is the condescending act.

Why oh why can't we have a better press corps?

Argentina: We Have Seen This Movie Before

Dani Rodrik says that Argentina's future is bright--if only they could get their fiscal balance in order. Strangely, he doesn't seem to recognize that he is echoing every single Argentina-optimist for more than a century:

Dani Rodrik's weblog: Will Argentina waste a historic opportunity? Rarely do you see a country where the mood among business people tells such a different story than the statistics. Now, in Argentina there are statistics are then there are damn lies--inflation figures are made up--but the broad contours of the economic performance of the last few years are not in dispute. Argentina has been growing at Asian rates, its investment rate has risen to levels not seen in decades, national saving is at record levels, and TFP growth has been stellar. By their own admission, Argentine businessmen are making more money now than they ever have in recent memory.

Yet business people are somber, bitter, and angry at the government. The general sense, even among those that supported Nestor Kirchner's policies, is that the government is frittering away a golden opportunity. Worse, the government has authoritarian--some would say thuggish--tendencies that portend ill for the future of Argentina's democracy.

What is going on?

First, the good news. Recent economic growth, unlike that of the 1990s, is of the good kind and it not just the result of high commodity prices. The investment boom of the last few years is supported by high saving.... [R]ecent growth has been fueled by a competitive currency, which increased the relative profitability and output of a wide range of tradables.... Unemployment and poverty rates have come down.... The weak currency has stimulated the right kind of structural change--from lower productivity activities to higher-productivity tradables--which is the source of the economy-wide increases in TFP we have seen. This is a textbook illustration of the magic of sustained currency undervaluation....

Now the bad news. In a growing economy, the tendency for the real exchange rate is to appreciate.... While the peso is stable against the dollar in nominal terms, the overheated economy has generated inflationary pressures (over 20% annually at present) which are being grossly mismanaged.... [T]he government has been resorting to ad hoc and temporary measures: price controls, export taxes, and intervention in currency markets. It has no coherent plan to deal with inflation and no strategy for sustaining competitiveness in the face of the real appreciation that will take place even in the best of circumstances.

Even worse is the growing disconnect between the government and the business community. In its approach to the private sector, the government is developing a reputation for being abusive, threatening, and intimidating. The Kirchners' strategy seems to be to play to their main political power base while assuming that growth will continue. But in the current environment it is difficult to imagine that the private sector will continue to invest as strongly as it has.

In the early 1990s, after years of mismanagement and hyperinflation, the binding constraint on Argentinean growth was lack of confidence in macroeconomic policies. The Convertibility Law was an ingenious short-cut for overcoming this constraint. But as circumstances changed and the binding constraint became lack of competitiveness instead, the Convertibility Law turned into a liability.... The post-2002 policies were in turn successful because they removed the competitiveness constraint. But the growing gulf between the private and public sectors has put lack of confidence and credibility once again front and center--now as the binding constraint on sustaining Argentina's growth.

And that is a pity, because there is a lot that is going right with the Argentine economy today. The underlying model is much more sound than anything in memory. There is nothing wrong with it that a larger fiscal surplus and a bit of dialog between the public and private sectors would not cure.

Mark Kleiman on McCain's Lack of Character (Economic Policy)

Mark Kleiman writes:

Voodoo economics 3.0: Bloomberg does a job on McCain's Voodoo Economics 3.0. Again, it's couched in "objectivese":

Some economists and analysts say his numbers don't add up.

But they've got the numbers, and they catch McCain's economic guru, Douglas Holtz-Eakin, with his analytical pants down, making him look like both a fool and a liar:

Two Washington research groups said McCain's plan would cost more. The Center on Budget and Policy Priorities estimated his tax cuts would cost $5 trillion over a two-term presidency. The Tax Policy Center, run jointly by the Brookings Institution and Urban Institute, said they would cost $5.7 trillion.

McCain senior economic adviser Douglas Holtz-Eakin dismissed such estimates as "fantasy-land budgeting." McCain's proposals, Holtz-Eakin said, would balance tax and spending cuts to meet his balanced-budget goals.

In an interview yesterday on Bloomberg Television's Political Capital With Al Hunt, McCain said budget slashing is essential because "we Republicans presided over the largest increase in the size of government since the Great Society," referring to a series of government entitlements, including Medicare, enacted in the 1960s.

To help pay for the tax cuts, Holtz-Eakin said, McCain would save $30 billion a year by eliminating so-called rifle shot provisions. Those include items such as tax breaks for small insurance companies.

But a Treasury Department report Holtz-Eakin cited as the source of his estimate states that $27 billion could be raised by eliminating narrowly used tax preferences spread over a decade, not a single year.

When asked about the discrepancy, Holtz-Eakin said that McCain would start with those provisions and target others like them to recover $30 billion annually.

The voters got fooled by this stuff when Reagan was pushing it, and again when Bush the Second was pushing it. Let's hope that the third time is the charm. And let's not forget that attacking McCain's ideas is only half the battle. The key is to attack his character: it's not just that the plan is bad, it's that no competent and straight-talking person would even think of offering it. Robert Bixby of the Concord Coalition shows how it's done:

Once, McCain was a deficit hawk, Bixby said, but "strange things happen when people run for president."

To say that $3 billion a year of savings will pay for $600 billion a year of tax cuts is indeed a strange thing.


Matthew Yglesias protests: Is everyone really an Anti-Semite?

He writes:

Matthew Yglesias: Everyone an Anti-Semite: For reasons I can't quite comprehend, even some pretty hardened T[he ]N[ew ]R[epublic]-haters seem to see Leon Wieseltier as making a positive contribution to the world. Certainly, some very good stuff appears in the back of the book over there, but the man's own work is a kind of writing-as-thuggery. Anyways, it seems I have to add my colleague Andrew Sullivan to the ever-growing list of people TNR deems motivated by hatred of Jews. The context -- Bill Kristol sitting in his partisan hack armchair and determining that Barack Obama's Christian faith is insincere:


Um . . . really . . . noting the irony of Kristol's attack is now "Jew-baiting"? We seem to be defining our problems down here. But in Wieseltier's view, this is the equivalent of enslaving the entire people of Israel. And Wieseltier himself is, I guess, Moses? How preposterous. And this isn't a blog post -- Wieseltier has, nominally, an editor who ought to be able to engage in some quality control.

Now Andrew Sullivan is many things, many of them loathsome. But he is not an anti-semite.

The managing editor of the New Republic is Frank Foer, whom I would once have said had a better than even chance of being the first managing editor since Michael Kinsley to leave the job with a reputation.

IMHO, if everyone reading/subscribing to the New Republic were to stop this evening, and start reading/subscribing to some one or more than one of the Nation, the American Prospect, or the Washington Independent, then the world would be a better place and they would be better informed as well. So I encourage everybod to do so.

Confusion in Economic Policy

Dean Baker mocks Henry Paulson and Ben Bernanke:

The High Dollar: Wasn't Bernanke Trying to Stimulate the Economy?



There is a -- slight -- degree of non-insanity in what Paulson and Bernanke are saying. They want a weak dollar to stimulate exports, true. But they also want a dollar that is not expected to fall any further. In our economic models, the two automatically go together. But Paulson and Bernanke fear that in reality they do not.

McCain Doesn't Seem to Have the Character to Be a Good President

Dean Baker on John McCain's economic policies:

The Meltdown Lowdown | The American Prospect: 1. Confusing Tax Day and April Fools' Day 1: McCain's Tax Breaks: Some politicians have trouble distinguishing between tax day and April Fools' Day. After all, they both come in April -- it's so confusing. This year, Senator McCain pulled the best prank -- he proposed a huge tax break for Exxon and the other big oil companies. With a straight face he announced that he wanted to eliminate the gas tax during the summer driving season to save drivers money....

[P]rice is determined by demand, because supply is constrained by the refinery capacity of Exxon and the other big oil companies.... [With] fixed... supply, so the price will go as high as is necessary to eliminate any shortages. If the price of gas is determined by demand, then what happens to the price when we eliminate the gas tax? That's right, absolutely nothing. The price will stay exactly the same, drivers will pay as much for gas during the summer driving season as they would have paid if the tax was left in place. The difference is that instead of 18.4 cents a gallon going to the government to pay for maintaining roads and bridges, this money will go to Exxon to keep CEO pay high, and make Exxon shareholders happier.

Senator McCain had more too. In addition to extending President Bush's tax cuts, he wants to cut the corporate tax rate from 35 percent to 25 percent, eliminate the alternative minimum tax, [and] double the dependent exemption from $3,500 to $7,000.... These tax cuts will cost in the range of $400 billion to $500 billion a year (13 percent to 16 percent of the budget), and Senator McCain has no way to pay for them, other than a one-year freeze on domestic discretionary spending. That can maybe get you $10 to $15 billion, but where is the rest of the money?...

I am going to have to revise my (preliminary previous) judgment that economic policy in the McCain camp was under control and not-insane. I was clearly wrong.

Hoisted from Comments: Mark Graber, John Yoo, and the Problem of Academic Evil

Blissex writes:

Grasping Reality with Both Hands: Economist Brad DeLong's Fair, Balanced, and Reality-Based Semi-Daily Journal: I am awed and impressed by BDL's arguments about Taney and Graber, which need to be recounted, because they are the central axis of the difference between the two Americas, the America of winners who send plague blankets to "untermensch" natives or who fight wars to keep treating as animals millions of imported "untermensch", and the America of losers who fight bloody wars to free their cruelly imprisoned compatriots and create the Peace Corps and try to lift even foreigners out of their poverty.

But this comment seems to be, however well meaning, extraordinarily hypocritical:

And at what point did the American people have the opportunity to condone this conspiracy with their votes? I say 'never.' For many years, the Bush Administration went out of its way to make sure we, the people, had no idea what was being done in our names with respect to "enhanced interrogation techniques." And it pretty much held the line about whether anything was being done at all until Abu Ghraib, which was sold as the doing of a few rogue National Guardsmen. The Bush Administration maintained uncertainty and deniability about its role in such activities until it was too late for the voters to indicate their outrage at the ballot box.

To me and other foreigners it seems pretty clear that the huge re-election victories of Republicans in Congress and for the presidency post 9/11 were based on a campaign of well understood "whatever it takes" wink/nudge and that the American voters enthusiastically backed a strategy of "better safe than sorry" where the rights of a few thousand brown (instead of red or black skinned) "untermensch" are insignificant compared to the safety of terrified USA voters. Torturing un-persons "just in case" seemed such an attractive option.

Am I the only malicious mind who disagrees that innocent, well meaning USA voters were hoodwinked and they did not really mean to vote for more "whatever it takes" or "better safe thansorry"? Well, some others seem to have shared the same impression, for example this Financial Times commentator (in 2006, not the day after the WTC atrocity): But is clear leaders of both parties lack the confidence to challenge the mood of xenophobia that exists outside Washington. Instead they are fuelling it. In some respects the Democrats are now as guilty of stoking fears on nationalsecurity as the Republicans. Their logic is impeccable. A majority of Americans believe there will be another large terrorist attack on American soil. Such is the depth of anxiety that one-fifth or more of Americans believe they will personally be victims of a future terrorist attack. This number has not budged in the last four and a half years. Mr Bush has consistently received a much higher public trust rating on the war on terror than the Democrats. Without this -- without the constant manipulation of yellow and orange terror alert warnings at key moments in the political narrative -- Mr Bush would almost certainly have lost the presidential race to John Kerry in 2004.

But it is easy to dismiss all this as the inane gibbering of the foreign surrender monkeys that hate America and want the terrorists to win....

[Brad DeLong writes that he "doesn't see an argument" in Mark Graber's:]

[T]he Yoo memo provided constitutional justification for what may be the majoritarian constitutional understanding in the United States.... [A]s a legal matter, you could still confine conspiracy to Yoo and a few others, but there would be an awful lot of unindicted co-conspirators.... [T]he constitutional support for Yoo's position is gaining strength.... Constitutionalists who disagree had better spend more of their time explaining to their fellow citizens what is wrong with torture than suggesting the problem might be cured by better legal methods courses in the first year of law school.

But I do see TWO ARGUMENTS here, and [a third] implicit one.

Mark Graber's first argument is the same that he uses in the Taney case, and it is that Constitutions are not legal agreements, they are political and cultural ones, and that if they are not supported by the politics and culture of the majority. Nothing new there, except that Mark Graber makes a stronger case for this than is warranted. Anyhow see Tocqueville etc. quotes below.

The second argument is encapsulated in "Constitutionalists who disagree had better spend more of their time explaining to their fellow citizens what is wrong with torture."... [T]orture is wrong, but this is irrelevant if public opinions is in favour, and this follows from the previous argument, so changing public opinion is far more important than insisting on the respect of unpopular laws.

Both I think are fair points as far as they go -- because in the end unpopular laws can only be enforced with guns, "ultima ratio regum" and not just of kings.

Quotes from Tocqueville:


A striking example of the excesses which the despotism of the majority may occasion was seen in Baltimore during the war of 1812. At that time the war was very popular in Baltimore. A newspaper opposed to it aroused the indignation of the inhabitants by taking that line. The people came together, destroyed the printing presses and attacked the journalists' premises. The call went out to summon the militia which, however, did not respond to the call. In order to save those wretched fellows threatened with by the public frenzy the decision was taken to put them in prison like criminals.


I said to someone who lived in Pennsylvania: "Kindly explain to me how, in a state founded by Quakers and celebrated for its tolerance, free Negroes are not allowed to exercise their civil rights. They pay their taxes; is it not fair that they should have the vote?"

"You insult us," he replied, "if you imagine that our legislators committed such a gross act of injustice and intolerance."

"Thus the blacks possess the right to vote in this country?"

"Without any doubt."


"That is not the fault of the law," said the American to me. "It is true that the Negroes have the right to participate in the elections but they voluntarily abstain from making an appearance."

"That is indeed very modest of them."


"So you mean that the majority, which has the privilege of enacting the laws, also wishes to enjoy the privilege of disobeying them?"...

[T]he implicit one... is that instead of spending more money to gather intelligence, find proofs and thus raising taxes on USA voters, it is much cheaper to torture "people who do not look like us" as a cost-saving shortcut. Public opinion realizes that is much cheaper to torture a few thousand nobody-cares just in case, than to raise taxes on deserving, hard working "people who do look like us" to pay for better intelligence.

So those who think that the constitution is more than a piece of paper full of precatory verbiage should give that up and make the case for raising taxes on "people like us" to spare a few thousand nobody-cares "unpeople who are not like us" some cost-saving techniques.

Basically, the implicit argument is that USA voters care what's in it for them as to the case against torture, not what's in it for the potential victims of torture, who are all brown-skinned nobodies with funny foreign names, and this is what matters when one is against torture.

Finding the substantive argument against the "f*ck them, we are fully vested" position as to brown skinned suspects is more important than insisting on quaint notions like legalism which never had much traction in USA politics anyhow, except where it benefits the ruling classes...

Let me say just three things:

  • The crucial middle of the American electorate in 2002 and 2004 believed George W, Bush when he said that "we do not torture" and that only "harsh interrogation measures" that were effective were being used on a very few high-value guilty criminals. You can convict a majority of the American electorate of cowardice and stupidity, but not, I think, of willful criminality
  • All peoples, everywhere, are vulnerable to Reichstag Fire scenarios; we East Africa Plains Apes are who we are, and we need to try to build institutions to guard against our weaknesses.
  • Constitutions are not just cultural and political agreements; they are legal, cultural, and political acts that shape the thinking of the next generation, and of the generation after that. They are attempts to improve upon whatever decisions would be made by the majority of the moment--and so the argument that they are useless because they are illegitimate if they try to stand aginst the majority of the moment is funamentally incoherent.
  • Of all countries in the world, the United States is one of the leaders--when it is its bet self at least--in resisting the "f*ck them, we are fully vested" popsiiton

Our Political Press

Atrios on those whom our press corps condemns as "out-of-touch":

Eschaton: Deep Thought: After his disastrous campaign misstep of putting swiss cheese on a cheese steak, John Kerry won 81% of the vote in Philadelphia.

Why oh why can't we have a better press corps?

John McCain: An Absence of Character

John McCain--while much better than the other Republican candidates--does not have the character to be a good president.

Here are Michael Cooper and Larry Rohter. They should be ashamed of themselves for their "he said, she said" journalism, but the story gets through if you read their article recognizing that everything said by "the Bush administration" or "Kenneth Pollack" is a lie:

McCain, Iraq War and the Threat of "Al Qaeda": As he campaigns with the weight of a deeply unpopular war on his shoulders, Senator John McCain of Arizona frequently uses the shorthand "Al Qaeda" to describe the enemy in Iraq in pressing to stay the course in the war there.... Critics say that in framing the war that way at rallies or in sound bites, Mr. McCain, the presumptive Republican nominee, is oversimplifying the hydra-headed nature of the insurgency in Iraq in a way that exploits the emotions that have been aroused by the name "Al Qaeda" since the Sept. 11 attacks.

There has been heated debate since the start of the war about the nature of the threat in Iraq. The Bush administration has long portrayed the fight as part of a broader battle against Islamic terrorists. Opponents of the war accuse the administration of deliberately blurring the distinction between the Sept. 11 attackers and anti-American forces in Iraq. "The fundamental problem we face in Iraq is that there is not a single center of gravity, as in the cold war, but a whole constellation of contending forces," said Bruce Hoffman, a terrorism and counterinsurgency expert at Georgetown University.... The entity Mr. McCain was referring to... Al Qaeda in Iraq... did not exist until after the United States invaded Iraq in 2003....

[S]ome students of the insurgency say Mr. McCain is making a dangerous generalization. "The U.S. has not been fighting Al Qaeda, it's been fighting Iraqis," said Juan Cole.... the stew of competing Sunni insurgents, Shiite militias, Iranian-backed groups, criminal gangs and others that make up the insurgency in Iraq. That was vividly illustrated last month when the Iraqi Army's unsuccessful effort to wrest control of Basra from the Shiite militia groups that hold sway there led to an explosion of violence.

The current situation in Iraq should properly be described as "a multifactional civil war"... Ira M. Lapidus, a co-author of %u201CIslam, Politics and Social Movements%u201D and a professor of history at the Center for Middle Eastern Studies at the University of California, Berkeley... wrote in an e-mail message....

In recent months, Mr. McCain has also been talking more about the threat posed by Iranian influence in Iraq, bringing him in line with American military officials, who in the wake of the Basra fighting seem increasingly convinced that Iranian support for Shiite groups now constitutes the primary security threat in Iraq.... talking about both threats, Mr. McCain tripped up last month on a visit to the Middle East, when he mistakenly said several times that the Iranians were training Qaeda operatives in Iran and sending them back to Iraq.... And Mr. McCain went beyond what he usually says and what his foreign policy advisers believe during a back-and-forth with Mr. Obama at the end of February.... Mr. McCain... said at a town-hall-style meeting in Tyler, Tex. "Al Qaeda is in Iraq.... My friends, if we left, they wouldn't be establishing a base. They'd be taking a country, and I'm not going to allow that to happen."

Mr. Obama's views track with those of many independent analysts. In a speech last August, he criticized President Bush by saying: "The president would have us believe that every bomb in Baghdad is part of Al Qaeda's war against us, not an Iraqi civil war. He elevates Al Qaeda in Iraq -- which didn't exist before our invasion -- and overlooks the people who hit us on 9/11, who are training new recruits in Pakistan."...

Few, including Mr. McCain, expect Al Qaeda in Mesopotamia, a Sunni group, to take control of Shiite-dominated Iraq in the event of an American withdrawal.... Randy Scheunemann, Mr. McCain's senior foreign policy adviser, said during a recent conference call with reporters that in the event of an American pullout, "you might not necessarily see a single entity taking charge." But such a withdrawal could empower Shiite militias in the south and Kurds in the north, leaving Al Qaeda "free to try to impose its will" and lead to increased sectarian violence that "would be very likely to draw neighbors into the conflict," he said...

And Matthew Yglesias has a point to make about this, and about the ethics of Michael Cooper and Larry Rohter going to Kenneth Pollack for "balance":

Matthew Yglesias: Ken Pollack's Defense of Lying: This New York Times article about how John McCain's political strategy is based on fundamentally misleading people about the nature of the situation in Iraq, but that's okay with the media not because they're fooled but just because they like John McCain, has gotten a lot of attention, and rightly so. But this particular paragraph is especially telling:



The Brookings Institution is a nonprofit public policy organization based in Washington, DC. Our mission is to conduct high-quality, independent research [...] The research agenda and recommendations of Brookings experts are rooted in open-minded inquiry and our scholars represent diverse points of view. More than 200 resident and nonresident fellows research issues; write books, papers, articles and opinion pieces; testify before congressional committees and participate in dozens of public events each year. The Institution's president, Strobe Talbott, is responsible for setting policies that maintain Brookings's reputation for quality, independence and impact.

To me, that sounds inconsistent with offering a public defense of the practice of using the term "al-Qaeda" to refer to entities that are not al-Qaeda. High-quality research would be that if some large number of public officials and media personalities started referring to something as "al-Qaeda" when it was not, in fact, al-Qaeda you try to correct the record. Instead, Pollack seems to feel his job is to help push back against the people who are trying to correct the public record.

It's certainly an interesting development. A lot of very good people work at Brookings. I imagine they enjoy working at a place that has a reputation for "high-quality, independent research . . . rooted in open-minded inquiry" but it's a reputation they're in danger of losing. Strobe Talbott, who's "responsible for setting policies that maintain Brookings's reputation for quality, independence and impact" might want to think about some of this.

I don't think that it's a reputation Brookings is "in danger of losing" anymore. I think that it's a reputation that Brookings--outside of Economic Policy--has already lost. Certainly foreign-policy stuff from Brookings that shows up in my mailbox today goes to the bottom of the pile--intermixed with the stuff from AEI, well below the stuff from serious think-tanks.

It's probably too late for Strobe Talbott to think about this. But the Trustees of the Brookings Institution should be thinking very hard about this. Very, very hard.

Why Oh Why Can't We Have a Better Press Corps? (New York Times Edition)

At least four years late:

The Torture Sessions: Ever since Americans learned that American soldiers and intelligence agents were torturing prisoners, there has been a disturbing question: How high up did the decision go to ignore United States law, international treaties, the Geneva Conventions and basic morality? answer, we have learned recently, is that -- with President Bush's clear knowledge and support -- some of the very highest officials in the land not only approved the abuse of prisoners, but participated in the detailed planning of harsh interrogations and helped to create a legal structure to shield from justice those who followed the orders.




Those who have followed the story of the administration's policies on prisoners may not be shocked. We have read the memos from the Justice Department redefining torture, claiming that Mr. Bush did not have to follow the law, and offering a blueprint for avoiding criminal liability for abusing prisoners.


We have questions to ask, in particular, about the involvement of Ms. Rice, who has managed to escape blame for the catastrophic decisions made while she was Mr. Bush's national security adviser, and Mr. Powell, a career Army officer who should know that torture has little value as an interrogation method and puts captured Americans at much greater risk. Did they raise objections or warn of the disastrous effect on America's standing in the world? Did anyone?




Four years ago, this would have been a useful editorial. Today? And not even now can they nerve themselves to call for the impeachment of George W. Bush.


Stupidest Man Alive Nomination: Larry Kudlow

One would think that National Review would want to maintain a smidgeon of a reputation, and hence at least edit Larry Kudlow for his biggest howlers. But no.

Eschaton reader js informs Atrios of the stupidity:

Eschaton: Fixing the Internets: Larry Kudlow:


The FICA cap is an individual cap, unaffected by income earned/payroll taxes paid by your spouse.

Why oh why can't we have a better press corps?

Investing for Non-Dummies

Buce of Underbelly writes::

Underbelly: What Would Warren Do? A Valediction: A backward-glance reflection, as the semester winds down. I've enjoyed teaching this class this year (I usually do), but there is one systematic problem. That is: some students come in here every year hoping they'll find out how to get rich investing. And I always have to tell them: look, I don't really know how to get rich investing. Getting rich investing is hard work. Unless you are willing to be disciplined and systematic and pretty much full time (and it probably helps to have a knack), you are better off not trying. Stick to low-cost mutual funds--maybe index funds--with diversified portfolios. This is a game for professionals, and in a game for professionals, amateurs are going to get beat up. Just think of the "outsiders" who win poker championships: they don't just drop through the transom, they have worked and worked and worked to polish their skills. Tastes differ, but my mortgage is paid, and my retirement is (more or less!) secure--I'd rather read a book, or go to the opera.

You don't believe me? Okay, believe Warren Buffett. There's a wonderful new interview with Warren in the current Fortune. Here's the takeaway paragraph:






The On-the-Run Premium on Treasury Securities

Felix Salmon argues, contra Paul Krugman:

The TED Spread and the Flight to Liquidity - Finance Blog - Felix Salmon - Market Movers - Well, yes, up to a point. But "liquidity issues" includes a hell of a lot more than just credit risk, otherwise there wouldn't be any spread between on-the-run and off-the-run Treasuries. (Which spread, as I recall, was in large part responsible for the implosion of LTCM)...

Here is what he is talking about:

The on-the-run U.S. Treasury bond is the bond issued at the most recent auction. The off-the-run bonds are the bonds issued at all the other auctions that are still outstanding. The on-the-run bond has a higher price--a lower yield. The yield-to-maturity of the on-the-run bond averages some ten basis points--some one-tenth of a percentage point--lower. If you are thinking of buying-and-holding the ten-year on-the-run Treasury to maturity, you can buy-and-hold the off-the-run and then rollover your money for the few months until the on-the-run matures, and wind up on average some eight-tenths of a percent richer: the on-the-run bond costs an average of eight-tenths of a percent more than it "should."

The magnitude of this on-the-run premium is made even more awkward for those of us who worship at the altar of the efficient market hypothesis by the short duration of the premium. Every three months the on-the-run Treasury is replaced by a new issue at a new auction. This suggests a trading strategy: (1) sell the on-the-run issue short, (2) buy the first off-the-run issue with the proceeds, (3) hold for three months, (4) liquidate, and (5) repeat. This strategy would appear to promise an average pre-expenses return of three percent of your gross position a year with (a) very little initial capital outlay (your short sale pays for the long leg), (b) very little risk (fluctuations in the on-the-run premium are the only source of risk), (c) low administrative costs, and (d) low transaction costs (the bid-ask spread on the ten-year Treasury is typically 1/32 of a percent of value, less than 1/20 of the on-the-run premium.

So why is this money left lying on the sidewalk? What risks and costs shut down this trading strategy that are not obvious to me?

Whenever I talk to people on the Street or to academics (see, for example, Krishnamurthy (2002) I seem to understand their explanations of the on-the-run premium while they are making them, but afterwards I am once again dazed and confused. Explanations in terms of "special repo" costs seem inadequate--that they are not causes but rather consequences of the off-the=run premium.

At the very least the U.S. Treasury should be making a pretty penny off this premium, for it can construct out of its own bond inventory synthetic securities with exactly the same payment characteristics down to the day and the penny as the on-the-run security: it can go short the on-the-run with no risk at all whatsoever.

Note: In journalism speak, "up to a point" means "no." In Evelyn Waugh's novel Scoop, there were only two things you could say to Lord Copper, proprietor of the daily Beast: "definitely, Lord Copper," or "up to a point, Lord Copper."

Why Oh Why Can't We Have a Better Press Corps? (ABC News Edition)

Shut down ABC News now. Replace it with another local-access public channel, and so improve quality.

Henry Farrell expresses my thoughts exactly:






Paul Krugman on Youngstown, Ohio

Paul Krugman writes:

Dying Midwestern city blogging: Youngstown, Ohio, is the poster child for towns where the factories left and aren't coming back.... Yet there have been better and worse periods. Nonfarm employment in the Youngstown-Warren-Boardman metro area actually rose in the 1990s, before falling again this decade (I'd add pre-1990 data, but the BLS doesn't have it.) And small-town Americans, contrary to myth, do drink lattes (small luxuries are sometimes all they can afford). The Starbucks store locator shows 5 in the metro area...

Mark Graber, John Yoo, and the Problem of Academic Evil

Law professor Mark Graber--who we last saw using Martin Luther King Day weekend to blog about how Dred Scott was rightly decided by Roger Taney, and how Taney's opinion was legally correct when it stated that no Black man had any rights that the white man was bound to respect--pokes his head out of his whatever-it-is and becomes the first man I have seen who comes to the substantive defense of John Yoo:

Balkinization: Having just excerpted the Yoo memo... let me suggest that the claims are constitutionally plausible or as plausible as most of what I read when I read legal materials.... I was no more impressed by the Roberts opinion in Parents Involved (the Seattle school district case) then the Yoo memo.

The notion that Yoo ought to be disciplined for his involvement in a criminal conspiracy also strikes me as a bit strange. I confess to thinking that both that Yoo probably knew he was facilitating torture, but that there was no conspiracy in the non-legal sense of the word.... President Bush and the Republican Party, however, repeatedly and publicly declared that their philosophy during the war on terrorism was "whatever it takes." Of course, there were occasional denials... but I suspect they were not believed or even intended to be believed.... If there is a conspiracy, we probably should arrest about 60% of the country.... [T]he Yoo memo provided constitutional justification for what may be the majoritarian constitutional understanding in the United States.... [A]s a legal matter, you could still confine conspiracy to Yoo and a few others, but there would be an awful lot of unindicted co-conspirators.... [T]he constitutional support for Yoo's position is gaining strength.... Constitutionalists who disagree had better spend more of their time explaining to their fellow citizens what is wrong with torture than suggesting the problem might be cured by better legal methods courses in the first year of law school.

I confess I don't see an argument here.

Of course, I didn't really see an argument in Graber's applause for Roger B. Taney either. If there was an argument it seemed to be: "The southern slaveholder aristocracy would never have ratified the Constitution if they had thought that its proper interpretation would ever piss them off, so the first principle of interpreting the Constitution of 1789 must be to interpet it in a way that doesn't piss the southern slaveholder aristocracy off." And this was profoundly stupid--it leads to the conclusion that no constitution can ever be interpreted to mean anything that pisses anybody off (except slaves, women, the propertyless, subsequent immigrants, etc.--all those who didn't get to vote on it--it's OK to piss them off). And this was empirically false: in the Nullification Controversy Andrew Jackson and the Democratic congress interpreted the tariff clause in a way that pissed the slaveholding aristocracy of South Carolina off mightily--and made it stick, with President Jackson reportedly swearing that if the legislature of South Carolina did not back down he would seize its leading politician and his own Vice President John C. Calhoun and hang him on the south lawn of the White House.

Time to hoist my earlier views of Mark Graber from the archives:

Mark Graber is back: This time it is one of the most bizarre ripping-of-quotations-from-context I have ever seen, asserting that the differences on slavery between Roger B. Taney and Abraham Lincoln were "almost trivial." In making this argument, Graber lets Lincoln speak for one single clause before silencing him and hustling him offstage:

Balkinization: A good case can be made for tearing down the bust of Roger Brooke Taney that stands in front of the city hall in Frederick.... Taney wrote the opinion for the Supreme Court in Dred Scott v. Sandford (1856)... that persons of color could not be American citizens and that slavery could not be prohibited in American territories.... While the bulldozers are rented, we might get our money’s worth and tear down all statues honoring Abraham Lincoln. Lincoln insisted he "never complained especially of the Dred Scott decision because it held that a negro could not be a citizen..."


Let us bring Abraham Lincoln back on stage, and let him say more than the nineteen words from his Alton speech that Graber lets him say. Here is what Lincoln said about the "almost trivial" differences between him and the anti-anti-slavery Democrats like Stephen Douglas (let along the pro-slavery Democrats like Roger Taney):

Last Joint Debate, at Alton. Mr. Lincoln's Reply. Lincoln, Abraham. 1897. Political Debates Between Lincoln and Douglas: Judge Douglas... says he “don’t care whether [slavery] is voted up or voted down” in the Territories. I do not care myself, in dealing with that expression, whether it is intended to be expressive of his individual sentiments on the subject, or only of the national policy he desires to have established. It is alike valuable for my purpose. Any man can say that who does not see anything wrong in slavery; but no man can logically say it who does see a wrong in it, because no man can logically say he don’t care whether a wrong is voted up or voted down. He may say he don’t care whether an indifferent thing is voted up or down, but he must logically have a choice between a right thing and a wrong thing. He contends that whatever community wants slaves has a right to have them. So they have, if it is not a wrong. But if it is a wrong, he cannot say people have a right to do wrong.... You may turn over everything in the Democratic policy from beginning to end, whether in the shape it takes on the statute book, in the shape it takes in the Dred Scott decision, in the shape it takes in conversation, or the shape it takes in short maxim-like arguments, it everywhere carefully excludes the idea that there is anything wrong in [slavery].


Mark Graber may think this difference is "almost trivial." I cannot find anybody else who does.

"To Secure the Blessings of Liberty" by reiterating his claims that (i) Dred Scott v. Sanford was rightly decided, and (ii) it was Lincoln and the Republicans in the 1850s--rather than either Roger Taney with his southern power grab in 1857 or the slavemaster secessionists firing on Ft. Sumter in 1861--who broke the constitutional order set up in 1857. It's an interesting way for him to celebrate Martin Luther King holiday weekend

As you may or may not remember, I read Mark Graber's Dred Scott and the Problem of Constitutional Evil as making seven claims:

  1. The 1787 Constitution intended "contested constitutional questions... be settled by the bisectional coalitions."
  2. The framers thus set John C. Calhoun's principle of "concurrent majorities" in the Constitutional bedrock
  3. The Republicans of the 1850s, who stuck to the letter of the Constitution, refused to admit that they were undermining its spirit.
  4. In Dred Scott, Roger B. Taney replaced failing the political protections of slavery provided by sectional balance in numbers of states and populations per section with legally-enforceable protections.
  5. In violating the letter of the Constitution, Taney was being faithful to the spirit of the Constitution, and so was preserving it.
  6. In criticizing Taney for violating the letter of the Constitution, Lincoln was being unfaithful to the spirit of the Constitution, and so was destroying it.
  7. Dred Scott was rightly decided.

Claim number two, especially, struck me as simply weird. Read John C. Calhoun's Discourse. John C. Calhoun himself did not believe that his principle of concurrent majorities was part of the 1787 constitutional order. He believed that it would have been wise for the framers to have made it part of the order. He believed that the constitution should in his day be amended to make it part of the order. He believed that without this principle the country might disintegrate. But he did not believe that the North had any sort of constitutional responsibility or obligation to treat his principle of concurrent majorities as part of the 1787 constitutional order.

Mark Graber has gotten himself to the right of John C. Calhoun. This is a position painful and ludicrous for a twenty-first-century American legal academic to assume. It is a position so painful and ludicrous that it should induce any twenty-first-century American academic to undertake an agonizing reappraisal--particularly over Martin Luther King holiday weekend.

But Mark Graber doesn't. Let's turn the mike over to him:

Balkinization: [A] fundamental principle of an empirically realistic constitutional theory ought to be that constitutional bargains survive only when interpreted, however creatively, in ways that create opportunities for mutually beneficial cooperation.... Of course, members of [the North] will have the luxury of knowing, as civil war wracks their country, that [the slavemasters of the South] was the party responsible for abandoning the constitution. This, however, is unlikely to reduce their casualities....

[C]onstitutional bets made by one generation... should not be enforceable against the next when the result is a sharp imbalance in the benefits... constitutions are best interpreted in ways that enable all parties... to believe that they are better off continuing to cooperate than going at matters alone (or engaging in civil war)....

I think DeLong is mistaken when he insists that northerners ratified on the basis of their belief that slavery would diminish over time (while most hoped so, the best evidence indicates that concerns with slavery were not central for most northern proponents of ratification). But even conceding the point for argument's sake, the more vital constitutional consideration is that as a political matter people are not going to pay off constitutional bets made by their ancestors when the payment requires a sacrifice of crucial interests with inadequate present payoffs.... [T]he constitutional bargain was likely to continue only if the winner, in this case the free states, did not collect. The Constitution of the United States... could survive only when all crucial parties believed that cooperative served their interests, as they presently defined their interests...

I want to make two points in response.

My first point: pacta sunt servanda. Agreements should be kept. We use analogies derived from the law and practice of private contracts in our reasoning about public moral and legal constitutional obligations. Whether it makes sense for us to use these analogies is a deep question well above my pay grade. But we do use them: it is the style of constitutional reasoning that we have. And it tells us that pacta sunt servanda: agreements should be kept.

Oftentimes prudence, empathy, the desire to make additional agreements in the future, et cetera will lead both parties to agree to renegotiate a contract when circumstances change. But that doesn't mean that a dissatisfied party has the right to unilaterally change it. In private law a dissatisfied party's options are to fulfill the terms, to breach and renegotiate, or to breach and litigate. The breach-and-renegotiate option between say, Target and a supplier of electric toothbrushes entails an acknowledgement of breach and negotiations among the parties, with mediation a welcome aid. It doesn't entail the guy who has the job of monitoring compliance--the guy driving the truck and checking in the shipment at Target's loading dock--saying "There are only 100 gross of toothbrushes here, but we'll say there are 144 gross because the original contract turns out to have been unfair."

In this analogy, Roger B. Taney in Dred Scott is not the mediator at the renegotiation. He is the truck driver checking in the shipment. He was not acting as the agent of the High Contracting Parties in their renegotiation. If he were, there would not have been such anguished cries from the free-soil north in resonse to his ruling.

My second point: Go back to how Mark Graber opens his post this Martin Luther King holiday weekend. He opens with an analogy. He sets forth what he regards as a situation capturing the key aspects relevant to Dred Scott of the evolution of the United States over 1787-1860. Here's what he says:

Suppose two tribes who have some reason to cooperate but whose members do not like each other very much ratify a constitution that grants the northern half of their territory to Tribe A and the southern part to Tribe B. Each party is rather happy with the bargain. Each believes that, in the next hundred years, climate changes are likely to enhance the value of their land and make the other tribe’s land nearly uninhabitable. As a result of this constitutional bargain, members of both tribes are able to form an army that provides for the common defense and make mutually beneficial trade agreements with other nations.

After 100 years of no apparent changes, evidence conclusively indicates that Tribe A has won the constitutional bet. The soil on the northern half of the continent is becoming increasingly fertile, while the soil of the southern half of the continent (for natural reasons) is slowly killing the members of Tribe B...

There are two parties to the constitutional contract in Mark Graber's imagination. There is Tribe A--the North. There is Tribe B--the slaveholders of the South. Notice anybody missing? Yep. There is no Tribe C--the slaves. One of the most ancient principles of any law worthy of the name is that, at some appropirate level, quod omnes tangit ab omnibus approbari debet. And the slaves of the United States America were certainly in the direct object of the verb tangit, as far as contemplated revisions of the 1787 constitutional order were concerned.

Mark Graber says that if changes in circumstances greatly disadvantage how a constitution impacts some group, that constitution should be revised and amended so that the losers should not have to pay up the full amount of the constitutional bet that they have lost. Well, there were powerful changes in circumstances from 1787 to 1860. In 1787, with the exhaustion of tobacco soils, Thomas Jefferson believed he would someday free all his slaves. In 1860m, with with the profits of cotton and sugar, Jefferson Davis was damned sure he would not free any of his. These changes in circumstances greatly, greatly disadvantaged Tribe C. Does not Graber's argument that the free-soil North should not have collected on its victorious bet from the slavemasters of the South have further consequences? Doesn't it carry with it a much stronger argument about relations between slavemasters and slaves? Doesn't it entail that the slavemasters of the South--transformed by the profits of cotton from seeing slavery as a temporary evil to seeing slavery as a permanent good--should not have collected on their victorious bet from the slaves?

But in the world of Mark Graber's imagination there is no "Tribe C." There are only Tribes A and B: only free-soil Northerners and slavemaster Southerners. The slaves have vanished. They are socially dead. They, you see, have not made a constitutional bet because they are not parties to the constitution. They are not and never can be citizens of the United States. They are not among the people who have inalienable rights. Governments are not instituted to secure their rights to life, liberty, or the pursuit of happiness: they have none. Their claim that they are among the "we the people" for whom the constitution is supposed "to secure the blessings of liberty" is null and void, if not simply laughed out of court.

We don't have to think about the impact on Tribe C. For, as Roger B. Taney wrote, African-Americans are:


But I maintain the contrary. I maintain that we do have to think about Tribe C. I maintain that everybody doing politics and law in the United States--today or in the 1850s, whether Roger B. Taney or Mark Graber--ought not to pretend that Tribe C is absent from the table. Tribe C has a seat at the table, for as Abraham Lincoln said in 1858:

I agree with Judge Douglas that [the Negro] is not my equal in many respects, certainly not in color--; perhaps not in intellectual and moral endowments; but in the right to eat the bread without the leave of any body else which his own hand earns, he is my equal and the equal of Judge Douglas, and the equal of every other man.

Consider Mark Graber (2006), Dred Scott and the Problem of Constitutional Evil. At the start of his book, Mark Graber sets out seven propositions:

  1. The original Constitution of 1787 intended that "contested constitutional questions... be settled by the bisectional coalitions."
  2. The framers thus set John C. Calhoun's principle of "concurrent majorities" in the Constitutional bedrock: the framers regarded it as substantively unconstitutional for legislation affecting slavery to be passed by a section-specific majority.
  3. The Republicans of the 1850s, who stuck to the letter of the Constitution, refused to admit that they were undermining its spirit, which was the "original constitutional commitment to bisectionalism."
  4. In Dred Scott, Roger B. Taney replaced failing the political protections of slavery provided by sectional balance in numbers of states and populations per section with legally-enforceable protections acceptable to the "Jacksonians" (who were the people who counted).
  5. In violating the letter of the Constitution, Taney was being faithful to the spirit of the Constitution, and so was preserving it via his little Constitutional Moment.
  7. Dred Scott was rightly decided.

For example, see pp. 4-5, 12-13:

Confident that population was moving southwestward, the persons responsible for the Constitution assumed that representation by population, the electoral college, and the three-fifths clause would ensure Southern control.... [T]he antebellum regime disintegrated when an unexpected northwestward population explosion undermined these power-sharing arrangements....


The framers expected that contested constitutional questions would be settled by the bisectional coalitions they anticipated would be elected.... The framers never considered [that]... the letter of the constitutional rules [might subvert]... the bisectional contitutional purposes underlying those rules.... [The] real debgate [in the 1850s] was whether the original constitutional commitment to bisectionalism should be modified or abandoned.... In Dred Scott the Supreme Court fostered sectional moderation by replacing the original Constitution's failing political protections for slavery with legally enforceable protections acceptable to Jacksonians.... Republicans[']... refusal to acknowledge the constitutional commitment to bisectionalism... [was] a de facto renunciation of the original constitutional understanding that slavery would never be left to the mercy of Northern majorities.... Taney was more faithful to the original Constitution [than Lincoln] when [Taney] championed policies that could be supported by Jacksonians throughout the nation...

But there is an alternative, a more conventional story: that at the original Constitutional Moment slaveholders were betting that their power would increase over time (hence the Constitution was worth ratifying even though it did not include unneeded long-run explicit protections of slavery) and those who wanted to preserve the possibility of future abolition were betting that slaveholders' power would diminish over time (hence the Constitution was worth ratifying as long as it did include dangerous long-run explicit protections of slavery). According to this more conventional story, the abolitionists won their bet and the slaveholders lost theirs. According to this more conventional story, there was nothing in the Constitution that said that slaveholders got a "do over" if they lost their bet. In this story, Roger B. Taney's little Constitutional Moment in Dred Scott was illegitimate: an effective amendment of the Constitution that did not have the overwhelming support that whatever your theory may be of "Constitutional Moments" requires.

This more conventional story seems much stronger to me than Graber's story. At least, I didn't find anything in Graber's book that seemed inconsistent with it. And on p. 101 ff, Graber appears to sound a lot like this alternative, more conventional story--the story not of a bedrock constitutional principle of concurrent majorities but of different expectations about what the future was likely to hold:

The framers thought it "wrong to admit in the Constitution the idea that there could be property in men."... Slavery was [thus] protected by political arrangements.... [F]ramers... assumed that population increases would be greatest in the South and Southwest... [and] guarantee to the slave states the control of the House of Representatives and the executive branch necessary to secure slaveholding interests.... [T]he framers self-consciously rejected more explicit textual restraints on federal power over slavery... opposed Roger Sherman's proposal... that "no state shall without its consent be affected in its internal police."... [I]n the bill of RIghts, no slave state's representative demanded a ban on federal laws interfering with slavery....

The confidence with which the most fervent supporters of human bondage believed population was flowing southward explains their willingness to accept a mere twenty-year moratorium on federal laws banning the international slave trade.... Federalists in some Northern states and in Virginia declared that this clause [allowing the Congress to prohibit slave imports in 1808 and thereafter] doomed slavery, which required continuous importation.... Deep South representatives expected their political strength in 1808 would render unnecessary the legal protection for slavery demanded in 1787....

Certainly John C. Calhoun did not believe that the 1787 Constitution enacted his principle of "concurrent majorities." He thought that the principle of concurrent majorities was wise. He believed that it was probably necessary if the United States were to survive. He believed that the framers had made a mistake by not incorporating it--perhaps through a two-person presidency. But he was very clear in his Discourse that he did not believe that it was a bedrock principle of the pre-Civil War Constitution: he believed that the Constitution ought to be amended to enact it.

Mark Graber, in his assertion that Calhoun's concurrent majority principle--"bisectional coalitions" he calls it--was bedrock in the pre-Civil War Constitution has managed to get himself to the right of John C. Calhoun. Whenever any modern academic gets himself to the right of John C. Calhoun, it is time to check your wallet and count the spoons. Nice try.

What was really going on? Those who set up our original Constitution had lots of hopes. To create a fit instrument of government for the advance of human liberty was one. To avoid sectional strife was a second. There were a lot of others. Lots of unexpected things happened between 1787 and 1860 that caused Constitutional history to flow in unforeseen channels. Let me list four:

  1. Many more people than expected voted with their feet for the institutions of the free-soil North than of the slave-soil South.
  2. The coming of the cotton gin and the British industrial revolution greatly raised the value of American slaves and thus greatly increased the attachment of slaveholders to their Peculiar Institution: Thomas Jefferson wanted to emancipate his slaves; Jefferson Davis did not.
  3. The existence of a written Constitution and the structure of the Supreme Court, coupled with the difficulties of formal amendment, created a situation in which by far the easiest way to amend the Constitution is to choose five justices who then have a Constitutional Moment.
  4. Even after the abolition of the international slave trade in 1808, the slave population of the United States continued to increase as births to slave women outnumbered deaths, manumissions, and runaways--something few if any expected beforehand, as history teaches that slave populations do not maintain themselves.

Each of these caused American constitutional history to flow in different channels than the framers of 1787 had expected, and presumably called for some adjustment to bring the Constitution back to its intended order and purposes. So what are the principles to guide that adjustment? Which of these hopes were the bedrock principles that determine the Constitution's intended order and purposes? There is only one paragraph that tells us:


I read this paragraph and see "secure the blessings of liberty to ourselves and our posterity" as having pride of place. Abe Lincoln thought so too. Mark Graber and Roger B. Taney have a different view. I'm happy where I am.

links for 2008-04-18

Why Oh Why Can't We Have a Better Press Corps? (ABC Edition)

From all accounts ABC disgraced itself at last night's debate in a manner much worse than the manner in which the substance-free and ignorant network questioners usually disgrace themselves.

Greg Mitchell:

Clinton-Obama Debate: ABC Decides Top Issues Facing Americans Are Gaffes, Flag Pins and '60s Radicals: In perhaps the most embarrassing performance by the media in a major presidential debate in years, ABC News hosts Charles Gibson and George Stephanopolous focused mainly on trivial issues as Hillary Clinton and Barack Obama faced off in Philadelphia. Wars in Iraq and Afghanistan, the health care and mortgage crises, the overall state of the economy and dozens of other pressing issues had to wait for their few moments in the sun as Obama was pressed to explain his recent "bitter" gaffe and relationship with Rev. Wright (seemingly a dead issue) and not wearing a flag pin while Clinton had to answer again for her Bosnia trip exaggerations. Then it was back to Obama to defend his slim association with a former '60s radical -- a question that came out of rightwing talk radio and Sean Hannity on TV, but delivered by former Bill Clinton aide Stephanopolous. This approach led to a claim that Clinton's husband pardoned two other '60s radicals. And so on...

Tom Shales:

In Pa. Debate, The Clear Loser Is ABC: When Barack Obama met Hillary Clinton for another televised Democratic candidates' debate last night, it was more than a step forward in the 2008 presidential election. It was another step downward for network news -- in particular ABC News.... Charlie Gibson and George Stephanopoulos, turned in shoddy, despicable performances...

I propose that everybody associated with the debate at ABC leave journalism and find another job where they can be socially productive--replacing bunnies as animal testing subjects for cosmetics comes to mind as perhaps the best use...

Food Riots

Jim Hamilton has some smart things to say about food riots and U.S. agricultural and energy policy:

Econbrowser: Food prices: How should a well-fed American react when some of the world's poorest citizens in Haiti and Bangladesh riot over the rising price of food? be sure, there are many factors influencing food prices. But to me it's natural to begin with the element that represents a deliberate policy choice on the part of the United States. I refer to America's decision to divert a significant part of our agricultural production for purposes of creating a fuel additive for motor vehicles. USDA Chief Economist Joseph Glauber predicts that 4.1 billion bushels, or 31% of the entire U.S. corn crop, will be devoted to ethanol production for the 2008/09 season.



Wouldn't it be refreshing if one of them actually tried to make this a campaign issue?

John Yoo Supports Mike Dukakis...

Showing good judgment, I must say:


Dukakis is the only candidate who has run a government... balanced a budget, formulated a legislative program, led a cabinet, and acted as an executive. He has learned the need for compromise and agreement, which will serve him well in Washington. He has drawn his experience from the act of governing, not sitting in a comfortable Washington office building worrying about PACs and interest groups.


Dukakis has moved to develop a coherent foreign policy, one that recognizes that America can no longer dictate to the rest of the world.... Perhaps what we need now is a president who can bring intelligence and good sense to foreign policy.... On many issues Dukakis shows fundamental disagreement with other candidates and he emerges with more of a discernable identity than others. He repudiates Gore's militaristic foreign policy...

Oil Price $$$

Not unexpected--with the falling dollar, $115 doesn't buy what it used to.

Moming Zhou:

Crude-oil inventories contract, with oil spiking to new highs - MarketWatch: SCrude-oil inventories made a surprise drop for the second week, the Energy Department said Wednesday, as weaker demand failed to translate into higher boost U.S. stockpiles. The report pushed oil prices to another new high. The nation's crude inventories fell to 313.7 million barrels, down 2.3 million barrels, in the week ended April 11, said the Energy Information Administration, a statistical arm of the Energy Department. Analysts surveyed by energy information provider Platts had been expecting an increase of 1.5 million barrels. Energy traders quickly pushed the benchmark crude contract to a new record high above $115 a barrel on the New York Mercantile Exchange. See Futures Movers....

This past week was the second time that crude inventories ran counter to market expectations. Last Wednesday's EIA report showed the nation's stockpiles of crude fell 3.2 million barrels to 316 million barrels in the week ended April 4. U.S. crude inventories thus have dropped about 5 million barrels in the past two weeks. The U.S. is the world's top oil consumer, absorbing about a quarter of the 86 million barrels the world produces every day.... Petroleos Mexicanos, the country's state-owned oil giant, shut its export terminal Monday. With another closing on Tuesday, five terminals were closed. But refiners also played a role in reducing oil imports, said Williams. U.S. refiners were running at 81.4% of their operable capacity last week, the lowest in nearly 30 months...

The Collapse of Construction Investment

Greg Robb reports:

U.S. March housing starts down 11.9% to 947,000: WASHINGTON (MarketWatch) - New construction of U.S. houses plunged to the lowest level in 17 years in March, the Commerce Department estimated Wednesday. Starts fell 11.9% in March to a seasonally adjusted 947,000 annualized units weaker than the 988,000 pace expected by economists surveyed by MarketWatch. This is the lowest level of starts since March 1991. Starts are dpwn 36.5% year-on-year. Starts of new single-family homes fell by 5.7% to 680,000 in March, while starts of large apartment units fell 24.6% to 267,000. Building permits, a leading indicator of housing construction, fell 5.8% to a seasonally adjusted annual rate of 927,000. This is the lowest level of permits since April 1991...

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U.S. March housing starts down 11.9% to 947,000 - MarketWatch

The 100 Best Bay Area Restaurants

While the notorious boulevardier Ogged takes his mother to the French Laundry, my wife and I go to Vik's Chaat House. We were very pleased. Some reactions:

  • The food is really good.
  • The food is really, really good.
  • The food is so good and so cheap I feel guilty, and want to give them more money.
  • The lack of atmosphere is utterly charming.
  • Why haven't we been here before? Why don't we come here every time we go to Fourth Street? It's on Fourth Street! Yet nobody ever told us "if you're on Fourth Street you must duck under the bridge over to Vik's Chaat House." Why not?

Another Journalistic Buyout...

There was once a Dilbert cartoon about buyouts: "management says we have to pay the competent people to leave."

At coffee I discover that David Cay Johnston had taken a buyout from the nyt and is now out on his own as an independent journalist.

Four thoughts:

  • I understand why neither the journal news nor the ft news pages have picked him up--both organizations are under pressure, psychological-organizational benefits of growing your own, etc. But why hasn't Bloomberg? There's a lot of value there, and it is still expanding.
  • Somebody--the Prospect?--should get this man a weblog.
  • His next big project is going to be a look at global water. He asks: why aren't we already shipping water around the globe on supertankers for pennies a gallon? Why doesn't this market exist (yet)? Very good question.
  • If water becomes expensive, some of the poor will have no income and die of thirst. Cf. Amartya Sren on the Bengal famine. Gf. recent global food price runup.
  • Another good question: there is now a lot of money locked up in db pensions: cash-flow rights with no control rights st all. When will the raids on them to tunnel them out begin--leaving the pbgc holding the bag? Can anything stop these raids?

Note to Self: What the Federal Reserve Has Been Doing...

Steve Cecchetti writes:

Federal Reserve policy responses to the crisis of 2007-08 | vox - Research-based policy analysis and commentary from leading economists: Central bankers are conservative people. They take great care in implementing policy; they speak precisely; they explain changes completely; and they study the environment trying to pinpoint where the next disaster looms. Good monetary policy is marked by its predictability, but when the world changes, policymakers change with it. If a crisis hits and the tools at hand are not up to the job, then central bank officials can and will improvise....

For some time now, there has been a consensus among monetary economists... policymakers' operational instrument should be an interest rate; and officials need to be transparent and clear in communicating what they are doing and why they are doing it. Furthermore, there is agreement that the central bank is the right institution to monitor and protect the stability of the financial system as a whole.


On 9 August 2007, the crisis hit and central banks swung into action, supplying large quantities of reserves in response to stresses in the interbank lending market. The spread on 3-month versus overnight interbank loans exploded. And, as problems worsened into the winter, the spread between U.S. government agency securities -- those issued by Fannie Mae, Freddie Mac and the like -- and U.S. Treasury securities of equivalent maturity rose as well. Investors shunned anything but U.S. Treasury securities themselves.... Reductions in the target federal funds rate, the objective of Federal Reserve policy in normal times, had little impact on interbank lending markets... the purchase of securities through open market operations enabled policymakers to inject liquidity... [but] could not insure that it went to the institutions that needed it most.

In response... Fed officials created... the Term Auction Facility (TAF) and the Primary Dealer Credit Facility (PDCF), and... the Term Securities Lending Facility (TSLF). The TAF... seeks to eliminate the stigma attached to normal discount borrowing. The PDCF extends lending rights from commercial banks to investment banks... the TSLF allows investment banks to borrow Treasury bills, notes and bonds using mortgage-backed securities as collateral.... [T]he Fed made adjustments to existing procedures... extended the term of their normally temporary repurchase agreements to 28 days... accepted mortgage-backed securities rather than the normal Treasury securities.... extended swap lines to the European Central Bank and the Swiss National Bank that allowed them to offer dollars to commercial banks in their currency areas... provided a loan that allowed the investment bank Bear Stearns to remain in operation and then be taken over by JP Morgan Chase.

These new programs are very different from the ones that had been in place prior to the crisis.... By changing the level of the monetary base (really commercial bank reserve deposits at the central bank) Fed officials keep the market-determined federal funds rate near their target.... Given the quantity of assets it owns, the Fed can decide whether it wants to hold Treasury securities, foreign exchange reserves, or a variety of other things.... By the end of March 2008, the Fed had committed more than half of their nearly $1 trillion balance sheet to these new programs:

  • $100 billion to the Term Auction Facility,
  • $200 billion to the Term Securities Lending Facility,
  • $36 billion to foreign exchange swaps,

Changes in the composition of central bank assets are intended to influence the relative price a financial assets -- that is, interest rate spreads. So, by changing its lending procedures, Fed officials hoped that they would be able to reduce the cost of 3-month interbank loans and the spread between U.S. agency securities and the equivalent maturity Treasury rate. At this writing, these programs have met with only modest success.

As I have said before, I find it helpful to group all the things the Fed does and might do into three baskets, each corresponding to a different stage of the seriousness of the financial crisis and the soundness of the financial system.

Stage I policies are "Bagehot rule" policies: the central bank acts to keep the economy at the good equilibrium in a panic when multiple equilibria are possible by lending freely to solvent but illiquid institutions at a penalty rate. Emergency discount window operations are of this kind--and the conventions that the discount rate should be higher than the bank-to-bank federal funds market rate and that borrowing from the discount window should create a stigma and a presumption of a higher degree of future regulatory and counterpary scrutiny are part of the "penalty rate" charged for asking for such help from the central bank. The idea is that institutions that have gotten themselves underreserved and need emergency liquidity should feel some pain as a result of the systemic risk they caused.

Stage II policies are conventional consensus monetary policies: the central bank uses open-market operations to buy Treasury securities for cash in order to flood the market with liquidity--so that nobody will be illiquid--and also to push down real borrowing costs (thus encouraging investment) and push up the cash values of all kinds of debt. If there was worry about the liquidity or solvency of the system before, the hope is that these open-market purchases will drive such worry away.

Then comes stage III. It comes after stage I policies aimed at curing a temporary inability to turn assets into cash at any but fire-sale prices have failed to repair matters. It comes after stage II policies of lowering interest rates across the entire spectrum and flooding the system with liquidity have failed to ease worries that one's counterparties are still insolvent or still at risk of becoming illiquid at an awkward moment. The purpose of stage III policies is to boost relative demand for risky assets and thus to opeate on the margin that is the spread in prices and yields between safe assets like Treasury securities and the risky assets whose falling prices are threatening the stability of the financial system and the macroeconomic flow of investment.

Since last fall the Federal Reserve has done eight things:

  1. five cuts in the target federal funds rate totaling 225 basis points, or 2¼ percentage points;
  2. a drop in the premium on primary (discount) lending from 100 to 50 and then to 25 basis points, above the federal funds rate target;
  3. the creation and then enlargement of the "Term Auction Facility" (TAF) ($100 billion);
  4. the extension of collateral status for 28-day repos to mortgage-backed securities ($100 billion)
  5. the extension of credit to the European Central Bank and the Swiss National Bank ($36 billion);
  6. the change in the preexisting securities lending program to initiate the "Term Securities Lending Facility" (TSLF) ($200 billion);
  7. extension of credit to primary dealers through the newly created "Primary Dealer Credit Facility" (PDCF) ($30 billion)
  8. the authorization of lending to support the JP Morgan Chase purchase of Bear Stearns ($29 billion)

Policy move (1) is conventional stage II open-market operation monetary policy: flood the system with liquidity and tilt the intertemporal price system to the advantage of financial institutions that borrow short and lend long in order to boost investment spending and relieve fears of counterparty illiquidity or insolvency that might lead to financial meltdown. Policy moves (2) and to some degree (3) are attempts to take stage I tools and use them for stage II purposes by removing the stigma and penalty rate attached to discount borrowing. This reflects a decision that the time to punish the underreserved for their fecklessness has passed and is an obstacle to effective monetary policy.

The rest of (3)--and (4) through (8)--strike me as stage III policies of various kinds, aimed at boosting demand for and the prices of risky assets more directly, given that stage II policies have failed to fix the problem. But I have a hard time analyzing exactly how these programs should be expected to have meaningfully different effects, or how effective they could possibly be.

Paul Krugman is very pessimistic:

The Fed Funds Market since Last June

It find this graph from Steve Cecchetti very frightening indeed:

Steve comments: These data regularly are remarkable. Historically, the open market trading desk in New York has been very good at keeping the market-determined federal funds rate close to the target, and the range of trading has been a narrow band around that same target. "Normal" behavior is what we see in the left-hand portion of the figure. Suddenly, beginning on 9 August 2007, the effective rate is much more variable around the target and there is a clear tendency to come in below the target. Not only is the market "soft" in mid- to late-August, but the trading range explodes. The daily low is often well below the target, while the daily high is frequently above the primary lending rate. Prior to the cri- sis, the high end of the federal funds trading range exceeded the discount rate roughly one in ten business days. Since the start of the crisis, the rate has gone up to one in three days. If anything, it looks as if the stigma associated with borrowing increased during the crisis...

Fafblog Justifies Saving the Universe from the Moon

Giblets explains:

Fafblog! back to save the universe.: Giblets is a patient Giblets... willing to entertain even the most tedious requests... especially if it gets him published columns in Slate and The New York Times. So was Giblets really wrong? Was the war a mistake? Were we right to blow up the moon?

Oh sure, it's easy to look back now with our twenty-twenty hindsight and our armchair quarterbacking and whine and moan about how it all went wrong. But what about the case for blowing up the moon at the time? For literally dozens of years the moon had menaced Western Civilization with its eclipses and its werewolf hordes and its sinister seduction of our seas, all the while dangling its massive stony bulk above us with nothing but universal gravitation standing between the free world and a cold and moony end! Oh, the usual crowd of peaceniks and anti-kill killjoys would have had America stand idly by and do nothing, leaving frightened children and Brookings scholars to tremble under their beds at night while our nation's nocturnal nemesis threatened once again to plunge from the heavens and squish us all, but 9/11 taught us that we can't wait for danger to become dangerous before we pre-re-endanger it back! And by defeating the moon America would ensure not only its own security, but the destruction of al Qaeda's deadly space laser, the liberation of the moon men from the terrible tyranny of the Crater King, and the second coming of Astro-Jesus!

Of course by now everybody thinks they're an expert.... Oh, we didn't send enough troops, oh, we didn't plan for the aftermath, oh, the explosions launched millions of tons of radioactive moon rock into the atmosphere and killed hundreds of thousands of people. Well, boo hoo hoo! Nobody said this war was gonna be perfect. It's true, if Giblets had to blow up the moon all over again he would have made some changes, like firing Donald Rumsfeld and putting more boots on the ground and getting more international support. But would he oppose the moon war altogether? Well that's the kinda crazy talk we were only hearing from namby-pamby pot-smoking puppet-wielding moon hippies like Al Gore and Zbigniew Brzezinski....

The point is, we saw a problem and we dealt with it. Did the problem actually exist? Who knows! Did our solution end up killing lots of people who'd otherwise be alive? Who can say! We could spend all day long pointing fingers and arguing over who slaughtered millions of what, but where will that get us?... Giblets and the rest of America have a war to win. There's still a lot of the moon left to blow up, people - and now it's even more dangerous than ever, because it's been raining this deadly shower of moon rocks down on us ever since some crazy bastards started blowing it up! It's time to stop this pointless bickering over who was "right" and "wrong" and get back to fighting the war we started back when we were obviously wrong. And then we can move on to the real threat by invading the sun.

Positive-Feedback Trading

There has to be an opportunity for somnebody patient with resources to make enormous fortunes in this situation. Doesn't there?


Some credit-default indexes have morphed into what Wachovia Corp. analysts led by Glenn Schultz call Frankenstein's monster'' because they now often drive prices in the so-called cash bond market, rather than the other way around....The indices are just trading on their own account with no relationship whatsoever to an underlying cash market that's ceased to exist,'' Jacques Aigrain, chief executive officer of Zurich-based Swiss Reinsurance Co., said at a March 18 insurance conference in Dubai.... The last thing the securitization market needs is another no-cash-upfront instrument that people can use to knock the markets about with,'' said Andrew Dennis, the London-based head of the asset-backed debt syndication group for UBS AG of Zurich.... Accounting rules require companies to estimate a value for some assets that are seldom traded and to record any change as an unrealized gain or loss. Where quoted prices aren't available, companies are required to use other measures, such as indexes of credit-default swaps.The dealers got caught in a vicious cycle,'' said Schultz, head of asset-backed bond research at Wachovia. ``They did a great job of selling the indexes. At the end of the day, they had to mark their own books to the prices on the indexes. They fell victim to their own sales job.''...

The latest version for AAA rated subprime mortgage bonds slumped by 43 percent since it began trading in August, according to Markit, as rising U.S. home loan delinquencies triggered a surge in the cost of credit-default swaps. That implies a 53 percent loss on the underlying mortgages, according to Schultz, almost four times the 13.75 percent rate predicted by Wachovia.... ``ABX, CMBX, any kind of X you like, are totally uncorrelated to any kind of underlying market,'' Swiss Re's Aigrain said at the Dubai conference....

``In a volatile market, this mark-to-market process becomes a self-fulfilling prophecy, driving prices down based on index trading activity rather than asset fundamentals,'' wrote Dottie Cunningham, chief executive officer of the New York-based CMSA.

links for 2008-04-15

Marginal Revolution: John Edwards and the virtues and limits of democracy

From <>:

Marginal Revolution: John Edwards and the virtues and limits of democracy: John Edwards and the virtues and limits of democracy

Mark Thoma writes: "I'm getting pretty tired of Democrats caving in on important issues rather than standing up and fighting for their core principles..." The lesson is that politicians' core principle is reelection and pandering, not promoting the ideas of Mark Thoma or Paul Krugman or for that matter Milton Friedman or Tyler Cowen.

I find the (former) support for John Edwards to be one of the most striking features of the primary season. Although Edwards ran an explicitly progressive campaign, a great deal of his (meager) support came from Democrats in lower socioeconomic strata. They were voting their demographic, or perhaps their feelings of victimization, rather than their ideology. (Here is Chris Hayes on John Edwards, worth reading.) There is no large-scale progressive movement coalescing around stagnant median wages and the inequities of skill-based technical change. Instead we have Hillary Clinton insulting Barack Obama, and maybe it is working.

The lesson is this: democracy is a very blunt instrument. Especially as it is found in the United States, democracy just isn't that smart or that finely honed or that closely geared toward truth or "progressive" values. (NB: Democracy in smaller, better educated, ethnically homogeneous nations is, sometimes, another story.)





Here is Matt Yglesias on libertarianism and democracy. Here is a Hilton Root review of the new Michael Mandelbaum book praising democracy.

The Duties of Vocational School Professors

James Wimberly writes:


All teaching carries with it a minimum set of professional standards on plagiarism, harassment, favouritism and so on. Nobody has suggested John Yoo has violated these. But vocational education should also inculcate the specific ethical standards of the trade in question. It seems at least arguable that Yoo's probable professional misconduct as legal enabler of war crimes taints his ability to train future advocates and judges. Should a flying school for airline pilots keep an instructor guilty of reckless flying in his own weekend plane? But the same conduct would be irrelevant to the employment of a professor of surgery.

I know I'm advocating a double standard here, but with reasons...

Phillip Carter on Chris Edley and John Yoo

From <>:

Convictions : Blame Berkeley: With all due respect to Chris Edley, whom I admire, and the University of California, to which I owe a great deal, I think Edley's position on John Yoo gets it exactly wrong -- and epitomizes why people deride the "Ivory Tower" as insulated from reality.   Law schools have an obligation to do more than teach lawyers to offer legal advice without regard for the consequences of their counsel.  I also think that law schools ought to model behavior for their students, and think very seriously about the pedagogical impact of retaining a man on the faculty whose legal advice and scholarship produced such disastrous policy, to say nothing of the suffering of those on the receiving end of Yoo's ideas.   And, I think Edley's position wrongfully absolves lawyers, and the legal academy, of responsibility for when they get things wrong -- or when their counsel produces terrible outcomes.  As my colleague Deborah Pearlstein points out, we wouldn't accept that result in molecular biology or medicine or many other disciplines.   I don't think we should accept it in the law either -- not in practice, and not in law school either.  Academic freedom should not be a dodge for personal or professional responsibility.

links for 2008-04-14

Jim Henley on Bush Appointees' Travel Plans

He writes:

: The safest vacations for Bush Administration officials may be domestic ones.... Philippe Sands... reports that the military commissions act of 2006 may increase the likelihood of a future foreign war-crimes prosecution for those in the torture chain-of-command. Sands glosses a European prosecutor saying that "it would make it much easier for investigators outside the U.S. to argue that possible war crimes would never be addressed in their home country."

Which is true enough! Time was, I could mutter darkly about the arrogance of universal human rights violations and "rule from Brussels" and all of that. Now I say, bring it on. My own country has asserted its own universal jurisdiction, but a much more grandiose and damaging version of it. You don't see Belgian judges conquering entire countries in the name of "freedom" or "benevolent hegemony." Given a choice between grabbing the odd retired official from an airport, jailing him in comfort and allowing him access to counsel and a public trial, and triggering the killing of tens to hundreds of thousands and the displacement of millions, while shoving hundreds of prisoners into legal black holes for abuse, the lesser evil kind of jumps out at me.

What the Raw Story gloss on the article doesn't go into is whether the Military Commissions Act itself might constitute a criminal conspiracy under international law.

Kissing the Duke of Exeter's Daughter, or De Laudibus Legum Angliae...

William Blackstone, IV, 25, 326:

The rack, or question, to extort a confession from criminals, is a practice of a different nature [than pressing with stones until the torturee either offers a plea or is dead]; this having been only used [for procedural purposes] to compel a man to put himself upon his trial; that being a [substantive] species of trial in itself. And the trial by rack is utterly unknown to the law of England; though once, when the dukes of Exeter and Suffolk, and other ministers of Henry IV, had laid a design to introduce the civil law into the kingdom as a rule of government, for a beginning thereof they erected a rack for torture, which was called in derision the Duke of Exeter's daughter, and still remains in the Tower of London; where it was occasionally used as an engine of state, not of law, more than once in the reign of queen Elizabeth. But when, upon the assassination of Villiers, duke of Buckingham, by Felton, it was proposed in the privy council to put the assassin to the rack in order to discover his accomplices, the judges, being consulted, declared unanimously, to their own honour and the honour of English law, that no such proceeding was allowable by the laws of England.

It seems astonishing that this usage of administering the torture should be said to arise from a tenderness for the lives of men; and yet this is the reason given for its introduction into the civil law, and its subsequent adoption by the French and other foreign nations; viz., because the laws cannot endure that any man should die upon the evidence of a false, or even a single, witness, and therefore contrived this method that innocence should manifest itself by a stout denial, or guilt by a plain confession. Thus rating a man's virtue by the hardiness of his constitution, and his guilt by the sensibility of his nerves!...

Interesting phrase that: "...used as an engine of state, not of law..."

John Yoo and FDR...

Sandy Levinson writes:



I thought that this was pretty clear. Neacessity is a defense or an excuse or a justification (whatever of those applies) for illegal actions. But it is necessity that is required-- not "I believed it was necessary," not "some unqualified bozo with bad judgment above me in the chain of command said he thought it was necessary."

If John Yoo had written "this is illegal but necessary" and if it had in fact been necessary for the safety of the world and the American people that we routinely torture goatherds sold to the CIA for cash by clan enemies claiming they belonged to Al Qaeda on the one-in-a-million chance that one of them knows something, I wouldn't have a problem with John Yoo.

But he did not write "this is illegal but necessary." And the torture of goatherds has made the world and the American people much less safe.

And, to say the least, I have grave doubts that anybody ever believed that the situation facing the United States after September 11 was as dire as that facing England and the United States in 1939-40.

New York Times Death Spiral Watch: ar, Peter Goodman, Friedman Would Have Welcomed the Fed's Intervention in Bear Stearns

Peter Goodman of the New York Times writes that Milton Friedman "would surely be unhappy with this turn" of events as the Federal Reserve intervenes in financial markets to cushion the impact of things like the collapse of Bear Stearns.

No, Peter Goodman, you are wrong. Friedman would have welcomed the Fed's intervention in Bear Stearns as a way of preventing a downward move in the deposit-currency ratio and thus a fall in the money stock.

On a deeper level, I really think that Peter Goodman of the New York Times gets Milton Friedman wrong. Milton Friedman said that prosperity springs from markets as long as:

  • The government is not allowed to establish and maintain islands of monopoly power.
  • The government stabilizes the money stock and keeps the economy liquid--keeps the stock of assets people can readily spend growing at a steady pace.

Had Peter Goodman actually read anything Milton Friedman wrote about the Great Depression, Goodman would know that when Milton Friedman "attributed the worst economic unraveling in American history to regulators," he placed special stress on Depression-era regulators' refusal to move aggressively to handle bank failures--in Friedman and Schwartz's The Great Contraction, the moment when a normal recession becomes the Great Depression comes about when the Bank of United States fails and the Federal Reserve refuses to step in to handle the situation. Friedman was very much pro-bailout as far as bank depositors were concerned when a failure to do so would lead to a systemic reduction in the money stock.

And Friedman's line was always not that market are perfect, but rather that while markets can and do fail governments have more common and worse modes of failure--except for a narrow range of core functions: rule of law, systemic financial stability, increasing-returns infrastructure, et cetera.

There are tens of thousands of people--left, right, and center--who know Milton Friedman's work, and who would not have committed the elementary error of writing "Friedman... would surely be unhappy with this turn" of government--chiefly the Federal Reserve--working to contain and stem the current financial crisi.

So why is ink given to Peter Goodman, far out of his depth? Why oh why can't wett have a better press corps?


Just as the Depression remade government’s role in economic life, bringing jobs programs and an expanded welfare system, the current downturn has altered the balance. As Wall Street, Main Street and Pennsylvania Avenue seethe with recriminations, a bipartisan chorus has decided that unfettered markets are in need of fettering. Bailouts, stimulus spending and regulations dominate the conversation. In short, the nation steeped in the thinking of a man who blamed government for the Depression now beseeches government to lift it to safety. If Mr. Friedman, who died in 2006, were still among us, he would surely be unhappy with this turn....

Mr. Friedman’s brand of libertarianism rested on the assumption that economic and political freedom were one and the same. It meshed with and fed the cold war thinking of his time, as the United States offered up capitalism as liberty itself in contrast to the authoritarian Soviet Union. Among professional economists, Mr. Friedman’s analytical mastery was near-universally admired.... His greatest contribution came the following decade, when Mr. Friedman dismantled the consensus view that inflation was a tolerable byproduct of high employment. He demonstrated that high inflation would eventually cost jobs, as businesses were discouraged to invest by the higher wages they had to pay.



Paul Krugman has his own complaint about Goodman:

Paul Krugman: [O]n behalf of economists everywhere, I want to protest about [Goodman's] description of [Friedman's] natural rate hypothesis:


This is deeply unfair to Friedman -- it makes a quite profound insight sound like nothing more than a rant.

Here's how I described the natural rate hypothesis in the NYRB piece:


What would Friedman be thinking now, if he were still alive? He would be worried about regulatory overreach. He would be conflicted because he would also be well-aware that organizations capable of generating systemic risk need to be regulated in some way in order to diminish the scope for moral hazard (hence Friedman's calls, at times, for extremely strict banking regulation: 100% reserve banking, in fact).

He would mostly, however, be focused on two graphs of the behavior of the money stock:

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And he would have been approving of Federal Reserve policy as long as it kept both these lines from either (a) falling or (b) exploding upward.


Theda Skocpol Is Shrill!

She writes in to Josh Micah Marshall:

Talking Points Memo | For it, Before She Was Against It: I have been in meetings with the Clintons and their advisors where very clinical things were said in a very-detached tone about unwillingness of working class voters to trust government -- and Bill Clinton -- and about their unfortunate (from a Clinton perspective) proclivity to vote on life-style rather than economic issues. To see Hillary going absolutely over the top to smash Obama for making clearly more humanly sympathetic observations in this vein, is just amazing. Even more so to see her pretending to be a gun-toting non-elite. Give us a break!


Yes, she wants a big break, she desperately wants the nomination she and Bill believe is hers by right. We all know that. But where is her authenticity and her dignity and her sense of any proportion?

This has to be one of the few times in U.S. political history when a multi-millionaire has accused a much less wealthy fellow public servant, a person of the same party and views who made much less lucrative career choices, of "elitism"! (I won't say the only time, because U.S. political history is full of absurdities of this sort.) In a way, it is funny -- and it may not be long before the jokes start.

New York Times Death Spiral Watch: Tanta of Calculated Risk Is Extremely Unhappy

Downright shrill. It is Gretchen Morgenson on home equity lines:

Calculated Risk: HELOC Nonsense: [Morgenson's] whole article... depending on Kratzer's unsourced assertion of "common fees" and his innuendoes about lender valuations... begs the question: this is "unfair" because the equity is there, even though the lenders say the equity isn't there. There isn't one homeowner quoted who actually got an appraisal or AVM that shows something other than the bank's valuation. Kratzer seems to think the bank is obligated to pay for a new appraisal and send you a copy when they lower your line limit. For him, I got bad news: that would, indeed, bring average closing costs on HELOCs up to 300 bps....

Claiming or implying that the only reason a lender can or should reduce or freeze a HELOC is when the borrower's ability to repay has changed is not just a total misunderstanding of federal banking regulations, it's dumb. The "HE" in "HELOC" stands for Home Equity. This is not just any old revolving line of credit, it's secured credit.

If you have problems with paying a grand or two for a line of credit you may never use, I suggest not doing it. If you wish to consider that you paid an option fee and your option expired, well, you can feel like one of the professional hedgers. If you think any closing costs you paid should be refunded to you because you're now "out of the money," I posit that you do not understand finances enough to get quoted in a newspaper.

Why do banks reduce or cancel home equity lines rather than just raising the interest rate? Because they fear that the borrowers who will stick around at a higher interest rate are just the guys the bank will ultimately end up losing money on: bad risks.