Recession watch

My new column for National Journal is about mounting fears of recession next year. (lt starts with a discussion of a recent piece for the FT by Larry Summers. That article is here.)

Alarm about the state of the economy and the risk of outright recession next year continues to mount. In the Financial Times on November 25, former Treasury Secretary Lawrence Summers -- a more astute or experienced observer would be hard to find -- raised eyebrows when he seemed to put the chances of recession at better than 50-50, even assuming that policy is changed to address the danger:

Three months ago it was reasonable to expect that the subprime credit crisis would be a financially significant event but not one that would threaten the overall pattern of economic growth. This is still a possible outcome but no longer the preponderant probability. Even if necessary changes in policy are implemented, the odds now favor a U.S. recession that slows growth significantly on a global basis. Without stronger policy responses than have been observed to date, moreover, there is the risk that the adverse impacts will be felt for the rest of this decade and beyond.

Summers points to three main factors. First, the housing market continues to tank. There are signs (in derivatives markets) that house prices may eventually fall by a quarter from their peak -- about as big a drop as between 1925 and 1933, the only other housing-market crunch that comes close. So far, the market is not even halfway there. Second, the implications of all this turmoil have hardly yet begun to work their way through the economy. Mortgage foreclosures could double next year. Banks and other financial firms have to date acknowledged losses arising from the crisis of only around $50 billion; actual losses are undoubtedly much bigger, some think as high as $400 billion. Third, the flight to quality in credit markets continues, meaning that troubled banks will find it harder and more expensive to attract capital, just as their need to do so is at its greatest.

What, then, are the remedies? Summers wants the Fed to "get ahead of the curve" and ease interest rates more aggressively. He says that fiscal policy should be on standby to deliver a big new stimulus. And he wants new institutional measures to deal with the credit contraction. The Treasury sees the so-called superconduit as part of the answer -- in effect, a coordinated mutual support arrangement in which banks get together and acquire assets from the weakest -- but Summers is skeptical. He wants details: So far, he says, this plan is too vague.

In addition, Summers calls for bolder steps to keep finance flowing to creditworthy homebuyers, either through government-supported direct lending or through expanding the operations of Fannie Mae and Freddie Mac (the "government-sponsored entities" that channel finance to mortgage lenders). He also wants regulators to go further in helping distressed mortgage borrowers refinance their debts, for instance by establishing standard templates for restructuring, instead of treating every instance case by case.

The Summers agenda seems to make good sense, so one is bound to ask, why is all this not happening already?

The rest of my NJ column tries to explain. You can read the whole thing here (free link expires in a week).

Opportunity and equality

Thomas Sowell questions the current US preoccupation with inequality.

Americans in the top one percent, like Americans in most income brackets, are not there permanently, despite being talked about and written about as if they are an enduring "class" -- especially by those who have overdosed on the magic formula of "race, class and gender," which has replaced thought in many intellectual circles.

At the highest income levels, people are especially likely to be transient at that level. Recent data from the Internal Revenue Service show that more than half the people who were in the top one percent in 1996 were no longer there in 2005.

Among the top one-hundredth of one percent, three-quarters of them were no longer there at the end of the decade.

These are not permanent classes but mostly people at current income levels reached by spikes in income that don't last.

And Robert Samuelson takes a similar line.

Contrary to media coverage, the findings in three recent Pew studies qualify mostly as good news:

-- When compared with their parents in the late 1960s, families today have a median income that's 29 percent higher at $71,900 (and this understates gains in living standards, because families are about 25 percent smaller and the income figures exclude fringe benefits and non-cash government benefits).

-- About two-thirds of today's adults have incomes higher than their parents did -- a result that is roughly similar for both blacks and whites (the children of the middle-income group of blacks were not typical).

-- Almost 60 percent of the children born of the poorest families moved up the income distribution (23 percent into the second poorest fifth and 6 percent into the richest fifth).

Indeed, the high degree of intergenerational economic mobility is Pew's most interesting finding. What happens at the bottom of the income scale also happens at the top. About 60 percent of children born of the richest fifth of parents do not themselves end up among the richest fifth; about 23 percent drop into the next to highest group and 9 percent fall to the bottom. Parents influence their children's destiny but do not determine it.

Everyone knows that economic inequality has increased in recent decades. The richest 10 percent to 20 percent of Americans have gotten richer faster than the rest. But the people at the top are not all the same people or even the children of the same people. This vindicates one version of the American Dream. There is opportunity. People do move up -- in both total income and class rank. Economic success is not static.

All true, but as I have pointed out before, the most surprising evidence on economic mobility compares the United States with other countries. The findings do not give strong support to the idea that America is the land of opportunity. Movement out of the top and bottom quintiles  is lower than in many other countries, including Canada and (maybe) Britain. Yes, there is opportunity, and people do move up--but not as readily (out of the lowest quintile, anyway) as elsewhere.

Distance still matters

VoxEU has an intriguing post by Keith Head, Thierry Mayer and and John Ries, about their work on distance effects in trade in services. Surprisingly, they find some.

Using theory and estimated distance effects, we are able to measure the extent to which geographic separation insulates local workers from foreign competition. The calculations reveal that, from the point of view of a London service purchaser, workers in Oxford can be paid 99% to 373% more than workers in Bangalore in productivity-adjusted wages and yet still be more attractive, once service-delivery costs are taken into account. This is because the Bangalore workers are 100 times more distant from London than the Oxford workers.

Those results indicate that geographic barriers offer high-wage workers substantial insulation from low-wage competitors based in remote countries. Distance has long acted as a serious impediment to international transactions. Unfortunately, most of what we know about the effects of distance on international transactions is based on studies of trade in goods. A consensus appears to be forming that freight costs cannot explain the strength and functional form of the distance effect for goods. Instead, physical distance seems to be picking up some combination of the barriers imposed by cultural differences, the continued desire for face-to-face communication, and the geographically-biased structure of social and business networks. These factors apply to services as well as goods. Thus, there are two senses in which Mankiw is right to say it does not matter whether imports arrive by ship or by broadband. First, there will be potential gains from trade in either case. Second, there will be distance costs that limit the realisation of those gains.

How much should high-wage workers fear competition from much lower paid workers in India and China? Our findings suggest that distance still provides significant protection. Since these estimates reflect averages across a range of services, there are surely services where competition is especially acute. Moreover, service delivery costs associated with distance appear to have fallen over the last decade to a level that is slightly below the level estimated for goods. Unfortunately, the data do not clearly indicate whether distance costs for services will continue their downward trend or level off. We suspect that persistent cultural differences, as well as locally-biased social networks, will maintain distance costs at a high enough level to forestall the small, flat world envisioned by some journalistic accounts.

It makes sense of course that cultural differences and social networks should affect costs in delivering services. What I find a bit more puzzling is that those effects should be significantly correlated with distance. Isn't Britain closer in those dimensions to the United States or Australia, say, than it is to France? Well, maybe not.

Iraq and the Democrats

Fragile as the recent improvement in security in Iraq may be, it poses a problem for Democrats, as I argue in a new column:

The big question is whether the improving security now speeds America’s exit from Iraq, or strengthens its commitment to stay. You can argue it both ways. Lower levels of violence give cover for a withdrawal of troops without seeming to betray Iraqi victims of the war. Alternatively, diminishing violence shows that larger forces were needed – at the very least, it undermines the claim that America’s presence is making things worse – and thus lends support to the view that America should stay until the job is done. Pushing the same way, improved security lessens the American electorate’s opposition to staying engaged: losing a war, not fighting one, is what the country cannot tolerate. As the news from Iraq has improved (and as news on the economy has worsened), the war has begun to slip down the list of issues that voters say most concern them.

The gruelling option I reluctantly advocated before – a large continuing military commitment, in support of more modest goals – looks a little more feasible. Without delay, it needs to be supplemented with efforts to restore and improve Iraq’s economy. Electricity supplies have reportedly improved, but provision of water and sewerage has not. The health and education systems are in disarray. One in three Iraqis is unemployed. If the improvement in security persists, it offers an opportunity to begin addressing these issues. The aim should be to capitalise on Iraqis’ perception that their situation is at last improving.

The better news, though, poses a challenge for Democrats as the election approaches. Opposition to the war has been their chief theme. This still commands broad and strong support, of course, but the intensity could continue to fade. Republicans will seek opportunities to accuse Democrats of wanting the US to fail, or of wishing to snatch defeat from the jaws of victory – and those charges will acquire some force if the view that the surge has worked takes hold. For Democrats, even putting the recent fall in violence in its correct context poses a political risk, because it can be portrayed as failing to recognise the military’s efforts and achievements. If the Republican presidential contenders have any sense, they will tread very carefully here – while hoping that Democrats fall into the trap and helping them to if the opportunity presents itself.

You can read the whole column here.

Krugman and Krugman and Social Security

Ruth Marcus of the Washington Post launches an angry attack on Paul Krugman's recent column on Social Security, which accused Barack Obama of being played for a sucker on the issue.

The argument has two equally dishonest components. The first is to deny that Social Security faces a daunting financing problem -- one that will be much easier to fix (and less onerous for the low-income retirees that the head-in-the-sanders purport to care about) sooner rather than later. The second is to mischaracterize the arguments of those who advocate responsible action, accusing them of hyping the system's woes.

One prominent practitioner of this misguided approach is New York Times columnist Paul Krugman. "Inside the Beltway, doomsaying about Social Security -- declaring that the program as we know it can't survive the onslaught of retiring baby boomers -- is regarded as a sort of badge of seriousness, a way of showing how statesmanlike and tough-minded you are," Krugman wrote last week. "In fact, the whole Beltway obsession with the fiscal burden of an aging population is misguided."

Somebody should introduce Paul Krugman to . . . Paul Krugman.

"[A] decade from now the population served by those programs [Social Security and Medicare] will explode. . . . Because of those facts, merely balancing the federal budget would be a deeply irresponsible policy -- because that would leave us unprepared for the demographic deluge, with no alternative once it arrives except to raise taxes and slash benefits." (July 11, 2001)

[and so on]...

In addition to this fiscal amnesia, Krugman misrepresents responsible voices in the debate.

First, he quoted a new paper by Congressional Budget Office Director Peter Orszag and CBO analyst Philip Ellis. Notwithstanding "all the attention paid to demographic challenges," they conclude, "our country's financial health will in fact be determined primarily by the growth rate of per capita health care costs."

True, but Krugman omits any mention of Orszag's latest book, inconveniently titled "Saving Social Security." Orszag and co-author Peter Diamond wrote that "Social Security's projected financial difficulties are real and that addressing those difficulties sooner rather than later would make sensible reforms easier and more likely."

Paul Krugman replies on his blog, under the headline, "They hate me! They really hate me!":

What I was arguing then was not that Social Security itself was in crisis, but that the rest of the government budget should be run responsibly — basically, that the lockbox should be honored. As I explained later,

Four years ago, I and many other economists urged policymakers to think about the future cost of Social Security benefits, not because we thought there was anything wrong with Social Security itself, but because we regarded the future costs as a compelling reason not to cut taxes even if the overall budget was in surplus.

As for what I wrote in 1996: the world looked very different then. On one side, Social Security projections were much more pessimistic than they are now, basically because the projections assumed that the 1973-1995 era of very slow productivity growth would go on forever. On the other side, the 90s were the era of the great pause in health expenditures, the (it turned out) brief era in which the rise of managed care stabilized health spending as a share of GDP. So Medicare and Medicaid looked less important as sources of fiscal problems than they do now.

John Maynard Keynes is supposed to have said, “When circumstances change, I change my opinion. What do you do?”

I think Paul's rebuttal is correct, so far as the "circumstances" are concerned. But the circumstances are of course not the only thing to have changed since he opined on this topic in the past. His modes of analysis and expression have changed too, and radically, in ways that often seem calculated to obscure the fact that he is one of the four or five most brilliant economists of his generation. This is not incompetence or inadvertence on his part; it appears to be a conscientious choice. He wants to fuel the rage of the administration's opponents more than he wants to help people think through the arguments. He feels that this now serves the greater good. Bush and his people are too wicked for dispassionate analysis, he believes; there will be time for Seriousness later.

In my view, for what little it may be worth, this is a disservice to Paul's own remarkable talents as well as to the greater good. But this is a complaint which, by now, he has heard a thousand times.

Below the fold is my own view of the Social Security "crisis".

Continue reading "Krugman and Krugman and Social Security" »

Does the Fed now have an inflation target?

The rules of US monetary policy have changed: the Fed has revised its reporting procedures in a potentially significant way. The first set of the more detailed minutes of FOMC meetings that Ben Bernanke promised last week was published on Tuesday, covering the meeting that took place on October 30-31.

I'm still unsure whether it is correct to regard the new regime as de facto inflation-targeting, as many Fed-watchers are suggesting. The case for this interpretation is that (a) the Fed is now publishing three-year-ahead inflation forecasts; (b) these forecasts are conditioned on "appropriate monetary policy"; and (c) three years is long enough for "appropriate monetary policy" to get inflation to the desired rate. But there are a couple of complications. One is that the Fed publishes a range of inflation forecasts, encompassing the individual projections of FOMC members. For 2010 the range is 1.5 percent to 2 percent. But this does not quite mean that the FOMC collectively regards a range of 1.5-2.0 as appropriate. Even assuming that all the members agree with (c), which they may not, it means that at least one member thinks a rate of 1.5 percent is appropriate in 2010 under expected circumstances whereas at least one other thinks that a rate of 2.0 percent is appropriate.

Well, since the range is narrow, one could overlook this--especially if the spread continues to be just half a point in future. We will see about that. But I would still hesitate to call this even a de facto inflation-target regime. The big thing that is missing is accountability. There is no real pressure on the Fed to hit its supposed "target". When the Bank of England overshoots its inflation target, it has to explain itself, and it cannot tell the Treasury, "Well, it was only a forecast." If inflation in 2010 is less than 1.5 percent or more than 2.0 percent, I'm willing to bet that that is exactly what the Fed will say. Unless, of course Bernanke tweaks the rules again in the meantime.

James Hamilton has questions, too, though he definitely leans towards the inflation-target interpretation. I found his comments enlightening--and note that they have an actionable corollary.

[T]he FOMC is saying that, if the Fed...does what they [the FOMC] think it should, GDP is going to be growing more slowly and inflation is going to be lower three years from now than a forecast that did not condition on the assumption of such Fed behavior would have anticipated. I believe the spirit of this exercise is to communicate to us that if GDP is growing at 3% in 2010 but inflation is not under 2%, they intend to raise interest rates to bring both down.

For comparison, the 10-year expected CPI inflation implicit in the nominal-TIPS yield spread is over 2.3%. Taken at face value, the Fed is trying to warn us that it intends to be tougher on inflation than markets currently are betting on, and, as I commented last week, the market at the moment appears if anything to be surprisingly confident in the Fed's ability and commitment to keep inflation low.

Now, that raises the question-- If at some point in the future the Fed is going to surprise the market with a more hawkish policy than is currently anticipated, when will that surprise come? One obvious answer-- at the coming December 11 FOMC meeting, for which fed funds options and futures presently seem to be betting pretty heavily on seeing another cut in the fed funds target. If the Fed means what it says with these just-released minutes, the market is wrong to assume that the fed funds target will be lowered to 4.25% on December 11.

We will see what happens on December 11.

Nice drug, we'll see about the delivery system

I've just ordered my Kindle, and felt the world would wish to know. (Early-onset blogo-narcissism, clearly.) A strange name, don't you think? Burning books, as widely noted, does spring irresistibly to mind. And a peculiar-looking object too. I'm wishing the Apple design team had given it a once-over, as soon as they had stopped laughing. But the functionality is the draw, especially for one who, for the first time in his life, has finally run out of bookshelves and acceptable substitutes for bookshelves and, over the course of the cycle, is now having to discard a book for every new one he buys. Like pay-go rules for Congress, an intolerable state of affairs.

How much might a falling dollar hurt the US?

An interesting debate involving my FT colleague Willem Buiter, who thinks that a falling dollar could become very bad news for the US economy, and Paul Krugman and Brad DeLong, who are much more relaxed. Since all three know their international macro, I speculate that the difference turns not on economic insight but on a European as against an American perception of the issue. A currency depreciation as big as the one the dollar has already experienced--to say nothing of the prospect of a further drop--would be a big inflationary problem for a small, open economy like Britain (which still has a currency of its own). The effect is muted for the US, because its economy is bigger, less open (not because of import restrictions, but by virtue of its size), and because exporters selling to America are more inclined to price to market. Come to think of it, that is just three different ways of saying, "its economy is bigger".

Willem address the point explicitly:

With US long-term real interest rates now set largely by world markets rather than by domestic monetary and fiscal policy,  the US policy makers  will have to get used to operating in a setting that is quite unlike the closed economy paradigm that they grew up with, and more like like a small open economy.  On the financial side, it has, effectively, already happened.

Paul says:

One way [to argue that the results of a dollar fall might be very bad] is to argue that the Fed will have to raise interest rates more than is necessary to stabilize employment. The usual reason given is that the falling dollar will be inflationary, so the Fed will have to support the dollar with higher interest rates to ward off this inflation. OK, this could be right, but I have a hard time making the numbers look big enough to get worried about: imports are only 16 percent of GDP, and exchange rates are much less than fully passed through into import prices. The big dollar fall from 1985 to 1988 wasn’t notably inflationary.

Paul goes on:

Another argument I used to make was that a dollar plunge would pop the housing bubble, setting in motion a rapid fall in domestic demand that would outpace any rise in exports. But the bubble popped all on its own, so I don’t think this is still valid.

Finally, there’s a fairly subtle argument about term structure and timing.
You see, the Fed only controls short-term interest rates, while investment spending depends on long-term rates. Meanwhile, the effects of a weak dollar on exports take a while, maybe as much as two years, to take full effect.

So there’s a story that runs something like this: a plunging dollar will eventually be very expansionary, and will force the Fed to raise rates to cool off the economy — not now, but a year or two from now. But the expectation of this future rise in short-term rates will push up long-term rates now, causing a recession even if the Fed does nothing. This story depends on the effect of interest rates on demand working faster than the effect of the exchange rate on exports.

I guess this could work. But it’s a fairly tricky story, and a lot subtler than the alarm I’ve been hearing.

The American economy--to my British eyes--does seem astoundingly immune to the inflationary implications of currency depreciation. By itself, this would incline me to Paul's and Brad's view of the matter. But now add oil prices into the mix, and the risk that they might yet go higher. If nothing else, this adds another complication to the Fed's calculations. And the popping of the housing bubble is not an all or nothing thing, as Paul seems to say. Higher interest rates could turn the slump in the housing market into a rout; debtors are screaming already. However you look at it, this is an environment in which short-term interest rates are being asked to shoulder a much larger burden than they can carry. I think it would be better if an abrupt flight from the dollar stayed in the realm of thought-experiment. 

Tax cuts: myths and realities

Other things equal, I am a tax-cutter not a tax-increaser. The leftist instinct to regard a tax increase on the rich as a good thing in itself--that is, to see a tax increase on the rich as a good thing even if the revenues were spent uselessly--repels me. Having declared that prejudice, I find nothing to disagree with in this new appraisal of the Bush tax cuts by the (left-leaning) Center on Budget Policy and Priorities.

Since 2001, the Administration and Congress have enacted a wide array of tax cuts, including reductions in individual income tax rates, repeal of the estate tax, and reductions in capital gains and dividend taxes.  Nearly all of these tax cuts are scheduled to expire by the end of 2010.  Making them permanent would cost about $3.5 trillion over the next decade (when the cost of additional interest on the federal debt is included).

Because important decisions about these tax policies must be made in the next few years, it is essential to understand their effects on deficits, the economy, and the distribution of income.  Supporters of the tax cuts have sometimes sought to bolster their case by understating the tax cuts’ costs, overstating their economic effects, or minimizing their regressivity.  Here, we address some of the myths heard most frequently in recent tax-cut debates.

The center's analysis is well worth reading in full.

The euro: like it or lump it

Barry Eichengreen has a post on Voxeu about how difficult it would be for a country to make an orderly exit from the euro. (The column draws on a longer NBER working paper.) The strength of the euro is squeezing Europe, and especially Italy, very hard. There is some talk of pulling out of the euro system. If only. Italy would surely benefit if it could. But, as Eichengreen explains, it literally cannot without precipitating a really fearsome financial crisis.

In 1998, the founding members of the euro-area agreed to lock their exchange rates at the then-prevailing levels. This effectively ruled out depressing national currencies in order to steal a competitive advantage in the interval prior to the move to full monetary union in 1999. In contrast, if a participating member state now decided to leave the euro area, no such precommitment would be possible. The very motivation for leaving would be to change the parity. And pressure from other member states would be ineffective by definition.

Market participants would be aware of this fact. Households and firms anticipating that domestic deposits would be redenominated into the lira, which would then lose value against the euro, would shift their deposits to other euro-area banks. A system-wide bank run would follow. Investors anticipating that their claims on the Italian government would be redenominated into lira would shift into claims on other euro-area governments, leading to a bond-market crisis. If the precipitating factor was parliamentary debate over abandoning the lira, it would be unlikely that the ECB would provide extensive lender-of-last-resort support. And if the government was already in a weak fiscal position, it would not be able to borrow to bail out the banks and buy back its debt. This would be the mother of all financial crises.

What government invested in its own survival would contemplate this option? The implication is that as soon as discussions of leaving the euro area become serious, it is those discussions, and not the area itself, that will end.

A cynic's instinct would be to say that scholarly articles explaining why the euro system cannot break up mark the beginning of the end--but Eichengreen's logic seems impeccable. Italy would surely have been better off if it had never joined the system (an isssue Eichengreen does not go into here), but it is too late for regrets now.  The title of the column is the only mistake I can see. "The euro: love it or leave it?" That  surely ought to be: "The euro: like it or lump it [no question mark]."

Reforming Social Security

In my new column for the Financial Times, I try to restate the case for reforming Social Security:

Barack Obama has upset a lot of Democrats by bringing social security back into presidential politics. Paul Krugman of The New York Times is leading the charge. In Mr Krugman’s view, following the administration’s clumsy and aborted effort to reform the system – Democrats would say destroy it – leaving well alone makes best political sense. Mr Obama, sounding like a fiscal conservative, warns that retiring baby boomers are pushing the programme into the red and something must be done. He is, says Mr Krugman, being played for a fool.

Mr Obama’s fix, other things equal, ought to appeal to Democrats. He wants to raise or even abolish the upper earnings limit for the social security tax, at present just under $100,000. This would add six percentage points to the top marginal tax rate, even before you add in the promised unwinding of the Bush administration’s tax cuts. In a televised Democratic candidates debate, Hillary Clinton distanced herself from this “trillion dollar” tax increase on the “middle class”. Mr Obama underlined his point by saying that only the richest 7 per cent of taxpayers would be affected, and that is not the middle class.

We will see how this plays out. Democrats who would generally be in favour of unwinding the Bush tax cuts, abolishing the earnings ceiling on the social security tax and finding a few other ways to raise taxes on the rich, are mainly concerned to keep reform of social security off the agenda. It does not need fixing, they say, it is not broken. Any deviation from that gives Republicans an opening to renew their assault on one of America’s finest social-policy achievements. Why go there?

You can read the whole column here.

Hillary bounces back

She did well in Thursday night's debate, winning by a mile I'd say, partly because it was evidently a pro-Clinton crowd. Her bad performance in Philadelphia is, for the moment anyway, expunged. Her best (if not new) one-liner was to say, in reply to a question about her campaign's playing of the gender card, that she was being attacked not because she was a woman but because she was ahead. Good stuff, and it drew cheers. (The biggest of the night, I think, except for the refusal to countenance merit pay for teachers. Avoiding that is apparently a top priority in Las Vegas, along with prompt withdrawal from Iraq.) She looked relaxed and once more in charge.

Obama at one point had the crowd laughing at him, and at another Edwards was actually booed. The laughs came when Obama--incredibly--made a complete mess of the question that threw Hillary in the previous debate. The candidates were asked whether they were in favor of driver's licenses for illegal immigrants, yes or no. In the previous debate Hillary waffled this way and that and in the end refused to answer. She was punished for that in the debate and then again by the media: how like her to squirm and evade. In this debate, she simply said she was not in favor: one word, "No." So Obama decided to fill the vacuum by failing to answer the question, at length, three or four times--just like Hillary last time. Remarkable. Asked yet again, "are you in favor?" his answer was: "Yes. [Pause.] But...", at which part of the crowd cracked up. So much for "Clear Answers To Tough Questions", which I think was supposed to be his theme for the evening. (Incidentally, Kucinich had a novel view on the subject of illegal immigrants: there is no such thing. We must all say "undocumented workers" instead. Problem solved.)

Richardson gave the best answer to the driver's license question. He said he was in favor of granting them, had done so as governor of New Mexico, and explained why. His reasons seemed quite sensible, albeit politically unsellable. On a different question Richardson slit his other wrist, and gave an answer that was the worst of the night on every measure. "Which comes first, national security, or human rights [in Pakistan]?" He himself had prompted the question, I think by getting a bit muddled in an earlier answer. Wolf Blitzer pounced, demanding clarification, and instead of correcting himself, Richardson dug himself in. Human rights come first, national security second. I think I heard one person clapping. I almost joined in out of sympathy. Imagine taking that position into the general election. Well, no need, obviously.

What turned the crowd against Edwards was his answer on the "gender card" question. There's nothing personal about my attacks on Hillary, he said, before going on to accuse her of representing all that was most foul about the Washington political scene. He might have carried a different crowd, I expect, but not this one. They did not like it. Hillary hit back by accusing him of playing the Republicans' game. Applause.

Also notable: Hillary scored points against both Obama and Edwards on health care. She pointed out that Obama's plan, unlike hers, does not provide fully universal coverage. Obama replied that hers does not either, since her individual mandate is not really enforceable. That was true but he was hesitant and ineffective. Hillary's plan at least sets out to be universal. And in case Obama might be planning to adjust his policy, she also managed to remind the audience that back in 2004, Edwards had not been for universal coverage--but she said she was pleased he had changed his mind and now agreed with her.

I don't know whether these debates matter. They shouldn't. The whole circus is ridiculous. But if they do, Hillary won. A sympathetic audience makes all the difference--but still, it was an impressive performance.

The state of the economy

An excellent briefing on where things stand from John Williams of the San Francisco Fed. (Thanks, once again, to Mark Thoma at Economist's View.)

* The housing slump has deepened further. Sales of existing homes fell 8 percent in September and are down 19 percent over the past 12 months. New-home sales rebounded in September, but are still down 23 percent over the past year. Inventories of new and existing homes for sale are at high levels, putting downward pressure on house prices and building.

* House prices in ten metropolitan areas fell on average about 5 percent in the 12 months through August, according to the Case-Shiller Index. Futures contracts on this index imply investors expect house prices in these cities to decline about 8 percent over the next 12 months.

* With demand soft and supply plentiful, housing starts plummeted 10 percent in September, bringing the year-over-year decline to over 30 percent. Housing permits likewise are in a deep descent, falling 7 percent in September and down 26 percent over the past year.

* Despite the bad news in the housing market and the turmoil in financial markets, consumers continued to spend in September. More recent data, however, suggest consumers may be tightening their grips on their pocketbooks. Sales of motor vehicles ticked down in October. Readings of consumer confidence and sentiment have moved down considerably over the past few months. Moreover, the recent surge in energy prices should damp consumption in coming months.

Saving and security

The Aspen Institute's Initiative on Financial Security is trying to build support for new policies to promote saving for those on low or moderate incomes. At a roundtable today the possibilities were discussed with a range of interested parties, including finance-industry types and Congressional staffers. (You can download a copy of the group's recent report, "Savings for Life", here.)

One idea is "child accounts", similar to those launched in Britain in 2005. At birth, each child would be given a $500 investment certificate. Deposited with a participating financial institution, the investment would grow tax-free. Friends and family could add up to $2,000 a year, and the children of low-income families would get matching contributions of up to $1,000 a year from the government. Fees and expenses would be capped. At 18, the account could be drawn down for any purpose. The hope would be to teach the habit of thrift, and to equip young adults with a modest but useful capital sum at a time when they are likely to need it.

Hillary Clinton has advocated an idea along these lines, but now appears to have backed away from it. That seems a pity. Her plan called for a much bigger initial public outlay: $5,000 per child and no mention of subsequent saving. Apparently it was too expensive to command  political support. (According to a telephone poll after she floated the idea, 60% of voters opposed it and only 27% were in favour.) Britain's plan was dismissed in some quarters, I recall, as empty-gesture politics--as a gimmick. But because it was seen as a modest proposal it was enacted without arousing much opposition. Already the idea seems quite well-entrenched and appears to be working as intended. I can imagine this little scheme being looked back on as the most important thing New Labour did. There is something to be said for reform by stealth. 

Bernanke's new-look Fed

Ben Bernanke gave the Cato Institute a handsome anniversary gift for their 25th annual monetary conference this morning. He used the occasion to announce new procedures for  disseminating information about Fed policy. Starting with the release of the October 30th FOMC minutes (due on November 20th) the Fed will provide "a fuller discussion of the projections", projections for a slightly different set of  variables (add PCE inflation, subtract nominal GDP), an outlook that extends three years instead of just two, and a quarterly publication schedule instead of semi-annual. Read the text of Bernanke's talk here.

It is all in the interests of fuller disclosure. Bernanke has often emphasised the benefits of  providing more information about the Fed's thinking--a point on which he and Alan Greenspan (champion of turgid opacity) do not see quite eye to eye--and, for related reasons, has long been on record as preferring an explicit inflation-target regime. The new procedures are not that, by a long way, though they could be construed as a step in that direction. In any event, good for Bernanke.

One questioner asked whether the new releases would include a "fan chart" of the Fed's inflation forecast, like the one produced by the Bank of England. Bernanke said there would be a chart that looked like that, but that it would be a quite different thing.  The Bank publishes a single consensus forecast, with confidence bands around it. The Fed will publish a range of forecasts based on the individual projections of FOMC members--so the chart will indeed look like the Bank's fan--together with an indication of central tendency. Not the same thing at all. An oddity, to my mind, of the Fed's approach is that  each FOMC member makes  his inflation forecast on the basis of his own assumption about what "appropriate monetary policy" would be. I'd say it is debatable whether folding this extra variable into the mix adds to or subtracts from the information content of the release. The answer, I suppose, will depend on how much extra detail the promised "fuller discussion" goes into.

Another questioner asked why the Fed was dropping nominal GDP as an indicator--the question I would have asked had I been able to squeeze into the auditorium rather than settling for more space in an overflow room. I learned more of my macro than I should admit from devoted reading of Sir Samuel Brittan in the FT, and so I have a sentimental as well as intellectual attachment to nominal GDP. Out of habit, when I look at an economic forecast, it is still the number I check first. The questioner, Mickey Levy of Bank of America, pointed out (very much in the spirit of Sir Samuel) that dropping nominal GDP might encourage commentators to believe that monetary policy can independently influence real and nominal quantities  (ie, output and inflation), whereas in the short run it acts on both simultaneously, and this is a key constraint on the Fed's ability to steer the economy. Bernanke said the Fed would wait to see if people missed the nominal GDP number. So far as he was concerned, it didn't add much to what the Fed would be releasing. Humph, I thought.

Land of opportunity

The Wall Street Journal's editorial writers are impressed by a new study on income mobility:

The Treasury study examined a huge sample of 96,700 income tax returns from 1996 and 2005 for Americans over the age of 25. The study tracks what happened to these tax filers over this 10-year period. One of the notable, and reassuring, findings is that nearly 58% of filers who were in the poorest income group in 1996 had moved into a higher income category by 2005. Nearly 25% jumped into the middle or upper-middle income groups, and 5.3% made it all the way to the highest quintile.

Of those in the second lowest income quintile, nearly 50% moved into the middle quintile or higher, and only 17% moved down. This is a stunning show of upward mobility, meaning that more than half of all lower-income Americans in 1996 had moved up the income scale in only 10 years.

I would call this a case of being prematurely stunned. Studies of this kind always and everywhere show people rising out of lower quintiles and dropping out of higher ones: this pattern merely reflects the ebb and flow of income during the course of a typical career. Students or the unemployed in the lowest quintile subsequently get jobs; the highest-earners subsequently retire. By themselves these numbers tell you very little about the life-chances of people who are born poor compared with the life-chances of people who are born rich (mobilty) or for that matter about the gap between rich and poor (inequality).

Changes over time in the ratios tell you more. The WSJ notes that the study finds no great change in relative income mobility over the past ten years. But, concentrating on mobility, international comparisons are what you need to test the view that the United States really is the land of opportunity, as compared with other places. What do those comparisons say? Thank you for asking:

Most researchers now give America much lower marks than they used to for intergenerational economic mobility—the ease with which successive generations move up or down relative to their parents. As flaws in early postwar studies have been addressed, estimates of mobility have fallen. Before the 1990s, researchers tended to put the correlation between parents’ incomes and their children’s at around 20 percent, implying a high degree of mobility between generations. (Zero would imply no connection at all; a correlation of 100 percent would imply that parents’ incomes entirely determined the incomes of their children.) In the 1990s, using better data and techniques, experts tended to put that figure at about 40 percent. Recent estimates run as high as 60 percent. The finding is not that mobility has fallen since World War II—the studies point to no clear trend. It is that as methods of measuring mobility have improved, the result, across a span of recent decades, has gotten worse. The earlier view that postwar America was an economically mobile society is less and less borne out. Perhaps it was once (before data became available to track such things accurately); but it isn’t now.

More telling, maybe, is the international comparison. America stands lower in the ranking of income mobility than most of the countries whose data allow the comparison, scoring worse than Canada, all of the Scandinavian countries, and possibly even Germany and Britain (the data are imperfect, and different studies give slightly different results).

Strikingly, the research suggests that mobility within America’s middle-income bands is similar to that in many other countries. The stickiness is at the top and the bottom. According to one much-cited study, for instance, more than 40 percent of American boys born into the poorest fifth of the population stay there; the figure for Britain is 30 percent, for Denmark just 25 percent. In America, more than in other advanced economies, poor children stay poor. Other data show that in America, more than in, say, Britain, rich children stay rich as well.

You can read the rest of my recent Atlantic Monthly column on the subject here (subscription required).

We have ways of making you happy

Great news. 'Happiness research" might be having an effect on policy in just a few more decades, according to the New York Times. Instead of pursuing happiness, we will be entitled to it, and guided to it by wiser minds. 

The era of laissez-faire happiness might be coming to an end. Some prominent economists and psychologists are looking into ways to measure happiness to draw it into the public policy realm. Thirty years from now, reducing unhappiness could become another target of policy, like cutting poverty... [I]f the object of public policy is to maximize society’s well-being, more attention should be placed on fostering social interactions and less on accumulating wealth. If growing incomes are not increasing happiness, perhaps we should tax incomes more to force us to devote less time and energy to the endeavor and focus instead on the more satisfying pursuit of leisure.

Thirty years gives me plenty of time to collect my own thoughts on the subject, assuming that's OK with the authorities. Meanwhile, Martin Wolf's take on the subject gives me a warm contented feeling. Why strive to say it any better? Spare me another intellectual arms race and all the negative externalities that go with it.

Where, then, does this new line of analysis take us? Personally, I find its philosophical and scientific underpinnings far from persuasive. But even if one goes along with it, the implications for policy seem far more ambiguous than social democrats believe. The findings are an assault on modernity itself, not just the forms of modernity the left dislikes.

I also see little here to undermine core principles of classical liberalism: people should be largely free to make their own choices, mindful of their obligations to others, except where those choices are harmful; gross domestic product should not be the overriding objective of policy; a big effort should be made to eliminate extreme poverty from the world; and the state should focus on remedying harms, while avoiding adding to them. But governments cannot make us happy. Happiness is something we have to pursue - and perhaps never find - for ourselves.

The academy as ruthless market process

A student at Columbia defends the character of American academia as the outcome of a ruthless market process in which excellence prevails (link via Economist's View):

In reality, conservatives ought to appreciate academia, because it’s a vicious market system. Professors have absurdly specific training in tiny career fields. A guy who spends years writing a dissertation on the importance of beads to indigenous tribes in Brazil really wants the world’s other bead expert to fail. If he doesn’t get tenure, there’s a good chance he won’t find a decent job anywhere else ever. He doesn’t care whether bead-man number two is a Republican; he could be left of Castro and the first guy would still spend days writing scathing articles blasting his shoddy bead analysis.

Similarly, Columbia isn’t going to refuse to hire a conservative who has done prominent work, because rich people like prominence, and we at Columbia need rich people to send us their progeny. You could argue that conservative professors have a more difficult time becoming prominent, but if most professors are liberal, then a conservative doing convincing research or writing influential journal articles would probably just be more conspicuous. You might also argue that the liberal environment at Columbia makes conservatives less inclined to work here, but that just sounds like a way of saying that conservatives are pansies who can’t handle disagreement, which seems unfair to me.

A counter-reading from Stuart Taylor:

Perhaps I should confess my biases. I do dislike extremism of the Left and of the Right. But I have never been conservative enough to vote for a Republican presidential nominee. And the academics whose growing power and abuses of power concern me are far to the left of almost all congressional Democrats.

They are also ruthless in blocking appointment of professors whose views they don't like; are eager to censor such views; and in many cases are determined to push their own political views on students, who have few reality checks in their course material and are often too innocent of the world to understand when they are being fed fatuous tripe.

Delaware students have been not only inculcated with the lunatic view that all white Americans are racists (and that "REVERSE RACISM" is a "term ... created and used by white people to deny their white privilege") but also:

* Told to confess their "privilege" or lament their "oppression";

* Informed that "white culture is a melting pot of greed, guys, guns, and god";

* Required to "recognize that systemic oppression exists in our society" and "recognize the benefits of dismantling systems of oppression" (whatever that means);

* Instructed to purge male residents' "resistance to educational efforts" and "concepts of traditional male identity";

* Challenged to "change their daily habits and consumer mentality" for the sake of "sustainability";

* Pushed to display on their dorm doors politically approved decorations proclaiming support for (e.g.) "social equity" (whatever that means);

* Subjected to other "treatments" designed to alter their beliefs and behaviors and inculcate university-approved views on politics, sexuality, moral philosophy, and more;

* Ordered to attend residence-hall training sessions and submit to one-on-one sessions with RAs, who filed reports to their superiors about individual students' "level of change or acceptance" of the thought-reform program.

One such report, for example, classified a young woman as one of the "worst" students in the residence life education program for saying that she was tired of having "diversity shoved down her throat" and responding "none of your damn business" when asked "when did you discover your sexual identity?"

I don't know if that's a market process, but it certainly sounds pretty ruthless.

And speaking of movies...

I loved this column by the ever-stimulating George Will, comparing "American Gangster" and "The Godfather":

In spite of its self-conscious coldbloodedness, the "Godfather" movie is sentimental. Its picture of Don Corleone judiciously administering the common law of gangsterdom is about as accurate a portrayal of organized crime as Sir Walter Scott's "Ivanhoe" is an accurate portrayal of the unwashed brutes who made the Middle Ages a good epoch not to have lived in.

"American Gangster," like "The Godfather," invites viewers to admire business acumen for its own sake -- when Lucas was brought down, the government seized assets worth $250 million -- and entices viewers into the moral vertigo of forgetting the human carnage among users of the high-quality heroin that Lucas's organizational skills enabled him to sell cheap. But the movie, to its credit, repeatedly and abruptly halts its manipulation of viewers by roughly yanking them back to the reality of suppurating needle sores.

In "The Godfather," the visible victims were, so to speak, all in the family; they were criminals who had chosen their line of work because they liked it. In "American Gangster," the visible victims include the crying infant on the filthy mattress, next to the mother who has nodded off on a heroin high.

The labored and familiar facets of "American Gangster" -- facile cynicism about commercial practices and "family values" -- echo "The Godfather." The realism of "American Gangster," which is the more mature movie, is its own.

It is hard for me to see any movie compared favourably with "The Godfather", but I was glad to have the column remind me of the epigraph from Mario Puzo's novel (hat-tip to Balzac): "Behind every great fortune there is a crime." I have an ongoing beef with Hollywood and with popular culture in general for the way it sees commerce as kind of lightly regulated criminality. Mafia, General Electric...what's the difference, really?

Here is a piece I did for The Atlantic on the subject:

Seen a movie lately? Watched television or read a newspaper? The culture that speaks to Americans, and hence to the Western world, radiates suspicion of free enterprise—cordial and restrained, as a rule, but dubious nonetheless. Yes, the system does work, says this culture, and there appears to be no alternative. But what a shame this is, it continues, because capitalism rewards our worst and most selfish instincts. “Greed is good” may stock the shelves, but is somewhat less than inspiring.

Popular culture understands that the market economy creates material prosperity, albeit for some more than others. It seeks out and worships business celebrities. But at the same time it sees the system as spiritually—and politically—corrupting. As viewed from Hollywood, workers are usually downtrodden, bosses are usually grasping, consumers are usually gulled, and shadowy global finance is always calling the geopolitical shots. We manage to prosper, most of us, but this system of ours is not very noble.

What is most striking, so far as the movies’ treatment of capitalism goes, is not the hostility of films whose main purpose is actually to indict corporate wickedness (Wall Street, Erin Brockovich, A Civil Action, The Insider, The Constant Gardener, and so forth). It is the idea of routine, reckless corporate immorality—maintained as though this premise were inoffensive, uncontroversial, and hardly worthy of comment—that drives movies whose principal interest lies elsewhere, whether in the human drama of contemporary geopolitics (Syriana, to cite a recent instance), knockabout comedy (Fun with Dick & Jane), children’s fantasy (Charlie and the Chocolate Factory), star-crossed romance (In Good Company), or, classically, in some dystopian near or distant future (Alien, The Terminator, Blade Runner, Robocop, and many others).

The point is not that such movies, or the culture more generally, argue that capitalism is evil. Just the opposite: it is that they so often merely assume, innocently and expecting to arouse no skepticism, that capitalism is evil.

And another, if you want more, that I did for National Journal:

I have long been intrigued by the way films deal with capitalism in general and with Big Business in particular. For the past few decades I have been collecting movies that cast Big Business in a good light. Strictly speaking, I should say, I don't yet have an actual collection, because in 30 years I haven't been able to find one. (If you know of an instance, I'd love to hear from you. There might be a prize.)

In the meantime, what I have culled from the countless movies I have seen that innocently and unthinkingly cast private enterprise in a bad light are a few dozen that do this in a fresh or comically incompetent way. And my newest award in that category goes to Man of the Year.

The film's plot twist relies on the fact that a private company has just been granted a national monopoly to install and operate electronic voting machines. It turns out that the programming (or something) is broken, and that the vote counts are all skewed. A sweet blonde working for the company discovers this -- the wrong man is going to be elected! -- and alerts her superiors. She naively expects them to correct the fault. (Obviously, she doesn't see many movies.) Instead, they wage a campaign of intimidation, reckless physical assault, and forcible injection of narcotics (if this weren't a comedy, there would presumably have been torture) to fuddle her brain and shut her up. All in a day's work for the head office. In case this should seem at all far-fetched, a character in a dark suit radiating sinister intelligence (Jeff Goldblum) lays out the irresistible corporate logic behind this self-evidently suicidal cover-up. As far as market forces are concerned, it all makes sense -- and what else matters really?

The search for a movie that quietly regards business as an honorable undertaking goes on. This blog is open for nominations.

Kite Runner: The Movie

I went to a preview of the movie based on Khaled Hosseini's "The Kite Runner" this weekend (thanks for the tickets, Sandy). This from Amazon, about the book, if you need reminding:

The Kite Runner follows the story of Amir, the privileged son of a wealthy businessman in Kabul, and Hassan, the son of Amir's father's servant. As children in the relatively stable Afghanistan of the early 1970s, the boys are inseparable. They spend idyllic days running kites and telling stories of mystical places and powerful warriors until an unspeakable event changes the nature of their relationship forever, and eventually cements their bond in ways neither boy could have ever predicted. Even after Amir and his father flee to America, Amir remains haunted by his cowardly actions and disloyalty. In part, it is these demons and the sometimes impossible quest for forgiveness that bring him back to his war-torn native land after it comes under Taliban rule.

The excellent Rory Stewart ("The Places In Between" and "The Prince of the Marshes") was there to introduce the film. He gave an affecting talk abut his experiences in Afghanistan, and appealed in a gentlemanly way for support for his own charity, the Turquoise Mountain Foundation (the site is worth a look for the photography alone), and for the Aschiana Foundation.

The film's theatrical distribution has been delayed over fears for the safety of child actors involved in the film's pivotal (and discreetly filmed) rape scene. The movie is a worthy endeavour, and I wish I could be more enthusiastic about it. I thought it was disappointing--though bear in mind that I was one of apparently very few people who did not think much of the book, either. (Towards the end, I tossed it across the room in exasperation.) I felt that book and movie both had the same two lethal defects: a psychologically vacant central character, difficult to like or believe in; and an almost comically overburdened plot, which, especially at the end, piles coincidence on message-laden coincidence. The movie, though, is admirably non-Hollywood in its casting of relative unknowns and in its low-key, entirely believable, depiction of pre- and post-Taliban Kabul. Fans of the book ought to enjoy it.   

Universal coverage and medical innovation

The New Republic's Jonathan Cohn has written a new piece on health reform, recognising and then questioning what he calls the best argument against universal coverage--the risk that it would suppress medical innovation. Cohn writes:

More than a decade ago, Michael Kinsley, the journalist and former editor of this magazine, developed Parkinson's disease--a degenerative condition that impairs motor and speech  control, producing tremors, rigidity, and eventually severe disability. While the standard regimen of medications helped, he knew that his symptoms were bound to get steadily worse with time. He needed something better--something innovative--before the disease really progressed. In 2006, he got it at the famed Cleveland Clinic in Ohio

The treatment Mike received is called Deep Brain Stimulation, or DBS for short. It began with a physician--one of the world's top Parkinson's specialists--drilling two holes in his head, into which were implanted two thin electrodes made of titanium. The electrodes were attached to wires, which the physician threaded behind the internal portions of Mike's ear, down his neck, and eventually into his chest cavity, where they were connected to a pair of tiny battery-powered controllers. After the surgery, the doctor activated the controllers using a remote device, unleashing a steady pulse of small electrical shocks that ran across the wires, through the electrodes, and--finally--to the part of the brain that regulates movement. DBS doesn't cure Parkinson's, but it has been shown to control the symptoms for extended periods of time. And that's what happened for Mike (who is also, full disclosure, a friend).

DBS represents the cutting edge of Parkinson's treatment; the Food and Drug Administration approved it only ten years ago. It is also very costly. Medtronic, a company that makes the electrodes, says the whole procedure costs between $50,000 and $60,000. And, because the treatment's main effect is to suppress and delay the onset of symptoms, rather than cure the disease, Mike started wondering whether a system of universal health insurance would pay for it--and, if so, in which cases.

I thought it was an excellent article, but needlessly confusing about the distinction between universal coverage and single-payer. The idea that universal coverage might threaten innovation arises out of that confusion.

Universal coverage, in its own right, poses no threat to innovation  or to the availability of expensive and exotic treatments for people who can afford to pay. America can achieve universal coverage by filling gaps in  its existing system--in much the way that the Democratic presidential candidates are now suggesting, and as Mitt Romney did as governor of Massachusetts. Reforms like this pose no threat to the incentives that drive medical innovation in the US. The trade-off between universal coverage in its own right and innovation is a straw man.

What might pose a threat to innovation, depending on the details, is new attempts at cost-control. A highly centralised single-payer system like Britain's or Canada's presses down on costs partly by denying expensive or otherwise cost-ineffective treatments (in the judgement of the system's administrators) to patients, and by other forms of rationing. Trade-offs between economy on one side and innovation and access on the other inevitably start to bite. The results may be better or worse  for citizens as a whole--but once you start to curb costs from the top down, the trade-offs are inescapable.

Centralised single-payer systems are apt to be uniform-access systems as well, since they are politically directed. (Canada's private health-care system has been regulated out of existence; Britain's is quite small.) So curbing access to expensive new treatments for the majority becomes curbing access for (almost) everybody. But the key thing is, you don't need single-payer to achieve universal coverage. Cohn frequently uses those terms as if they are interchangeable--which is hard to understand, now that all the Democratic candidates are in fact proposing universal coverage not based on single-payer.

All of the reform plans now on the table for the US are multi-payer systems--hence unequal-access systems. The rich will be able to buy better insurance and treatments that are not covered even by the best insurance. The Mike Kinsleys of this world (Mike is a friend of mine, too, by the way) will still be able to buy the best, newest, most sophisticated and most speculative treatments. There is the spur for innovation. And universal coverage does nothing to put it in jeopardy. Single-payer--together with the principle of equal access to medical technology--might indeed put it in jeopardy, in its effort to curb costs. But no Democratic candidate is suggesting such a thing.

This is not to say that controlling costs doesn't matter, of course. It matters very much. But it is cost-control that may jeopardise innovation, not universal coverage.

Column: The limits to partisan rage

My Monday column for the print FT:

For the Democratic party’s most energetic supporters, consensus and bipartisanship have become dirty words. In this, the party’s activists are following the lead of the Bush administration, which feels just as strongly about compromise with opponents. But it is a mistake for the left, just as it was for the right – as a matter both of intellectual vitality and of hard-nosed political calculation – to indulge this aversion to doing business with the enemy.

“Bush started it,” goes the thinking. So he did. George W. Bush was elected president, if you recall, as a “compassionate conservative”. His record as governor of Texas, he insisted, showed he could work productively with both sides: it was all about getting things done. On top of that, he won the election of 2000, putting it charitably, because of an anomaly in the way the US adds up the votes in its presidential contests and, putting it less charitably, through outright theft. All the more reason, any disinterested observer would have said, for him to govern with restraint from the centre. He subsequently embarked on one of the most divisive and partisan periods of rule in modern American history, disdainful of co-operating not only with his political opponents, but even with his allies in Congress.

Read the rest of the column here.

Was Sarkozy in Washington?

The historic visit of Nicolas Sarkozy to the nation's capital, to address both houses of Congress and seal a new rapprochement ("bringing together") of France and the United States, caused no undue excitement in the New York Times and Washington Post. The Times's front page had market jitters,  Pat Robertson's endorsement of  Giuliani,  Musharraf, protections for gay workers, and "Ohio Goes After Charter Schools That Are Failing". The new Franco-American alliance made page 10. Not even page 3, opposite the news summary, you say? No, that was "Romanian Premier Tries to Calm Italy After a Killing".

In the Post it made page 2--albeit as an amuse-gueule ("tasty morsel") all about how Sarkozy is not Lafayette and Bush is not Washington:

Sarkozy picked up the theme yesterday. "What could possibly have brought together two men who were so different in terms of age and of origin, Lafayette and George Washington? It is their common values," he declared. Sarkozy was so eager to please his hosts that he neglected to mention a word about Iraq.

From there, the neo-Lafayette left for Mount Vernon, where the stage for the press conference was as cold as winter at Valley Forge. Fortunately, the two leaders, unlike Washington and Lafayette, had propane heaters to keep them warm as they traded platitudes.

"We want a democratic Iraq," Sarkozy said.

"Freedom's happenin' in Iraq," Bush said.

Bush liked what he heard from the new French leader. "I have a partner in peace," he concluded as he cut the press conference short.

Departing in Marine One, Bush and his entourage spewed dust and fumes on Sarkozy and his entourage as they took off.

It was a 21st-century end to an 18th-century day.

History in the making.

Dershowitz on torture

Alan Dershowitz advises the Democrats not to look soft on national security--and not to rule out torture in all conceivable circumstances. He approves of the (Bill) Clinton doctrine on the issue:

Consider, for example, the contentious and emotionally laden issue of the use of torture in securing preventive intelligence information about imminent acts of terrorism--the so-called "ticking bomb" scenario. I am not now talking about the routine use of torture in interrogation of suspects or the humiliating misuse of sexual taunting that infamously occurred at Abu Ghraib. I am talking about that rare situation described by former President Clinton in an interview with National Public Radio:

"You picked up someone you know is the No. 2 aide to Osama bin Laden. And you know they have an operation planned for the United States or some European capital in the next three days. And you know this guy knows it. Right, that's the clearest example. And you think you can only get it out of this guy by shooting him full of some drugs or waterboarding him or otherwise working him over."

He said Congress should draw a narrow statute "which would permit the president to make a finding in a case like I just outlined, and then that finding could be submitted even if after the fact to the Foreign Intelligence Surveillance Court." The president would have to "take personal responsibility" for authorizing torture in such an extreme situation. Sen. John McCain has also said that as president he would take responsibility for authorizing torture in that "one in a million" situation.

I disagree with that solution, for reasons I have already discussed--though Dershowitz is certainly right about the danger Democrats face if they seem soft on security. This is the Republicans' best hope next year. But what I found most interesting about Dershowitz's article was the paragraph that follows the ones I just quoted:

Although I am personally opposed to the use of torture, I have no doubt that any president--indeed any leader of a democratic nation--would in fact authorize some forms of torture against a captured terrorist if he believed that this was the only way of securing information necessary to prevent an imminent mass casualty attack. The only dispute is whether he would do so openly with accountability or secretly with deniability. The former seems more consistent with democratic theory, the latter with typical political hypocrisy.

"Although I am personally opposed to the use of torture..." What an extraordinary evasion. Talk about ethical dissonance. He is opposed to torture--apparently in all and any circumstances--but urges the next president not to be!  Truly, lawyers are not like the rest of us.

Biofuels are the future?

Ricardo Hausmann, director of Harvard University’s Center for International Development, says that biofuels can be (and maybe already are) competitive with fossil fuels at "something like current prices":

Brazil has been exporting ethanol to the US at an average delivery price of $1.45 for an amount with the energy equivalence of a gallon of petrol. It is doing so profitably and in increasing amounts, in spite of a 54 cents a gallon tariff to protect American maize-based ethanol producers. Many countries are following suit.

Ethanol is an inconvenient chemical compound that is corrosive and soluble in water, thus limiting its immediate market to that of a gasoline additive. However, this is just the Betamax phase of the industry. There is plenty of private venture capital money being poured into finding more efficient ways of extracting energy from biomass and delivering it to transport and power systems. Over time, the technology will also become more flexible, allowing more crops to be used as feedstock, not just the current choice of sugarcane, maize and palm oil. New technologies will be able to extract energy from cellulose, allowing the use of pastures such as switch grass as well as the refuse of current food production. The cheque is in the mail.

Another very striking prediction:

[The] increase in the price of agricultural land and of food will relieve governments from the current political pressure to protect the agricultural sector. Governments that, as a consequence of the land glut, have been protecting and subsidising farmers will see them grow rich either because they “plant” biofuels themselves or because other producers switch into them, lowering the supply and increasing the price of other crops.

By contrast, consumers will be less enthusiastic and demand that something be done about the price of food.

The obvious solution will be to cut back on protectionism and liberalise trade in agriculture.

Read the rest of his column for the FT here.

I wonder if agricultural protection will surrender so easily. As I noted in my previous post, Hillary Clinton is as keen as Ricardo Hausmann on biofuels--but she went out of her way to specify home-grown biofuels. There's saving the planet and protecting farmers: it's a question of priorities.

Hillary's climate-change plan

Hillary Clinton has been promising strong action on climate change if she is elected. Now she has made some detailed commitments. (See Edward Luce's report of her latest speech on the subject here. Details of her proposals are here.) Her goal will be to reduce US greenhouse gas emissions by 80% from 1990 levels by 2050. She says she will negotiate a successor to the Kyoto Protocol in double-quick time. And that's not all. The plan also proposes:

A new cap-and-trade program that auctions 100% of permits alongside investments to move us on the path towards energy independence;

An aggressive, comprehensive energy efficiency agenda to reduce electricity consumption 20% from projected levels by 2020 by changing the way utilities do business, catalyzing a green building industry, enacting strict appliance efficiency standards, and phasing out incandescent light bulbs;

A $50 billion Strategic Energy Fund, paid for in part by oil companies, to fund investments in alternative energy.  The SEF will finance one-third of the $150 billion ten-year  investment in a new energy future contained in this plan;

Doubling of federal investment in basic energy research, including funding for an ARPA-E, a new research agency modeled on the successful Defense Advanced Research Projects Agency;

Aggressive action to transition our economy toward renewable energy sources, with renewables generating 25% of electricity by 2025 and with 60 billion gallons of home-grown biofuels available for cars and trucks by 2030;

10 “Smart Grid City” partnerships to prove the advanced capabilities of smart grid and other advanced demand-reduction technologies, as well as new investment in plug-in hybrid vehicle technologies;

and more besides.

She cannot be faulted, at any rate, for lack of ambition. The plan is comprehensive (to a fault) and the target for reductions in emissions is demanding. To get there, the proposed cap-and-trade regime would have to bite very hard, notwithstanding the effort and resources she proposes putting into promoting energy efficiency. Full marks for saying that she would want all of the emission permits to be auctioned. But deduct some for failing to acknowledge what this regime would do to the price of energy.  Her policy document even cites high gasoline prices as part of the energy problem she is setting out to solve (so far as climate change is concerned, high gas prices are of course part of the solution). The strategy is win-win all the way, based on an original screenplay by Al Gore: more jobs, higher wages, faster growth, and all without greenhouse gases. She is cool on nuclear too, saying no expansion will be needed, and correspondingly keen--keen is putting it  mildly--on biofuels. Home-grown biofuels, by the way.

As I say, it is bold, with lots of detail for critics to pick apart. This is hardly the vagueness and evasion of which she is being accused by Barack Obama and John Edwards (both of whom have ambitious plans of their own for climate-change mitigation). And the contrast with the leading Republican candidates on this subject could hardly be greater. That makes her stance on the issue quite a risk, though no doubt a carefully calculated one. The polls say that voters are increasingly anxious about climate change. They want promises of action. How much they are willing to pay for those promises is something we will find out.

A reading on school choice

For those following the debate on school choice, a useful reading from an FT correspondent who went to school in both Britain and the Netherlands. The Dutch system combines publicly financed school choice and academic streaming.

Dutch parents can indeed choose their children's school. The schools are good, even though the country spends less on education than the OECD average. And, crucially, Dutch schools are selective - something that Britain supposedly lost when it abolished most grammar schools in the 1960s and 1970s. Whereas British kids used to be selected for life aged 11, in Dutch schools selection never stops. At any age pupils can rise or fall a track. In theory, you can enter the VMBO [schools in the lower academic tier] aged 12 and end up a professor. This flexibility is crucial, because schools are society's best means of redressing the inequality with which children start life. "The Netherlands combines both school choice and academic selection in what many see as an ideal education system," concludes Reform, the British free-market think-tank.

The Dutch system has its problems, as the article explains, but seems more successful than most.

Solow on Clark

Robert Solow has a lengthy and very interesting review (subscription required) of Gregory Clark's "A Farewell to Alms: A Brief Economic History of the World" in the New York Review of Books. Anything Solow writes on growth is compulsory reading, as far as I am concerned. He summarises Clark's main thesis like this:

According to the now traditional view, the presence of institutions with the required qualities serves to create and maintain incentives that favor innovation, enterprise, and trade. Clark claims that these prerequisites were adequately present in medieval England, China, and Japan, but without the expected result. Something must have been missing, and he identifies it as the capacity or willingness of people to respond effectively to economic incentives. You might think of these as bourgeois virtues. So why were late-eighteenth-century Englishmen able and willing while medieval Englishmen and eighteenth-century Chinese and Japanese were not?

Clark resolves the puzzle in a novel way. In England—and everyplace else —in those early days before the demographic transition, the better off had more children than the less well off. More of the well-off women married; they lived longer and survived childbirth better; they were healthier and cleaner, and more of their children survived to grow up. Clark calls this pattern of differential fertility of the well off the "survival of the richest." It is a neat phrase that may seem to have the right Darwinian overtone, though not as cute as the title of the book itself. Demographic statistics for China and Japan are not nearly as good as for England, but they seem to exhibit the same pattern. However, the pattern of differential fertility in favor of the well-off appears to have been much more pronounced in England than elsewhere

...

Clark's pessimism about closing the gap between the successful and less successful economies may derive from the belief that nothing much can change unless and until the mercantile and industrial virtues seep down into a large part of the population, as he thinks they did in preindustrial England. That could be a long wait. If that is his basic belief, it would seem to be roundly contradicted by the extraordinary sustained growth of China and, a bit more recently, India. Embarrassingly for Clark, both of those success stories seem to have been set off by institutional changes, in particular moves away from centralized control and toward an open-market economy.

Solow concludes as follows:

Toward the end of his book Clark spends a few paragraphs in stereotypical complaint about how modern economic theory has lost touch with any reality; its endless refinements are useless for dealing with the basic problems of economic growth that engage him and the world. This amounts to a severe bite at the hand that feeds him, since much of this sometimes fascinating and thought-provoking—and sometimes irritating—book is based quite precisely on applying the insights and methods of modern economic theory.

I reviewed the book in the FT. I found it fascinating and thought-provoking throughout, not just in parts--and, unlike Solow, I never thought it irritating. But I agree with Solow in finding the main thesis unconvincing, and the more I have reflected on the book since reading it, the less convinced I am.

Update: It depends what you mean by torture

Stuart Taylor on the criticism Michael Mukasey, the White House nominee for attorney-general, has faced over his reluctance to say that waterboarding is torture, and hence illegal. (The whole column is here; it disappears behind National Journal's lofty pay barrier next week.)

The surge of Democratic opposition to President Bush's nomination of former Judge Michael Mukasey to be attorney general says a lot about certain Democrats, especially after the initial bipartisan applause for a superbly qualified man who has clearly repudiated Bush's previous claims of near-dictatorial powers.

It is especially telling that the main congressional objection to Mukasey has been his unwillingness to declare illegal an interrogation technique that Congress itself has assiduously and repeatedly declined to declare illegal.

The technique, called "waterboarding," involves simulated drowning. Congress could seek to explicitly ban it, along with other highly coercive techniques. It has not done so, because it does not want to take the blame for any future terrorist attacks that might have been prevented by highly coercive interrogation.

The attacks on Mukasey are an exquisite example of Congress's penchant for avoiding accountability by leaving the law unclear and then trashing the executive for whichever interpretation it adopts whenever something goes wrong.

The point about the Congressional hypocrisy is well-taken. Elsewhere in the column, however, Stuart goes further and agrees with Mukasey that waterboarding is not necessarily torture.

I look forward to hearing Sen. Hillary Rodham Clinton, D-N.Y., Sen. Barack Obama, D-Ill., and others who oppose Mukasey's nomination because of this issue explain why the undoubted moral and diplomatic benefits of a blanket criminal prohibition of waterboarding would outweigh the possible costs, which might be zero but just might be thousands of lives.

But, one might reasonably ask, isn't torture by CIA interrogators already a crime? And isn't waterboarding a form of torture? The answer to the first question is yes, under a 1994 criminal law implementing the U.N. Convention Against Torture and Other Cruel, Inhuman, or Degrading Treatment or Punishment. The answer to the second question is more debatable.

Of course, being strapped to a board with a cloth over one's face and enough water running over one's nose and mouth to create the sensation of drowning sounds horrible and has been deemed illegal in various contexts by past administrations. But not every interrogation practice that sounds horrible or has been deemed illegal in some contexts clearly meets, in all contexts, the vague but narrow definitions embedded in the 1994 ban on "torture," or in the December 2005 McCain amendment's ban on "cruel, inhuman, or degrading treatment or punishment."

The 1994 law defines torture as including only practices "specifically intended" to inflict "severe physical ... pain or suffering" and certain other practices that cause "prolonged mental harm" (emphasis added). Under this definition, deliberately inflicting pain that is not quite "severe," or mental harm that is not quite "prolonged," is no crime.

To be sure, the 1994 definition is not so narrow as to justify the claim that only the pain associated with "death, organ failure, or serious impairment of body functions" would qualify as "severe," as the Bush Justice Department asserted in an infamous, now-repudiated August 1, 2002, memo. But the definition is certainly narrow enough to leave room for doubt whether it would be torture to waterboard a high-level terrorist for, say, 15 seconds. Indeed, U.S. military and intelligence agencies have reportedly waterboarded their own people as part of their training on how to resist interrogation.

Whether the law leaves room for doubt about whether waterboarding is torture is one thing; whether the law ought to leave room for doubt on that point is quite another. In my view, the law should be clear: waterboarding is torture, and all torture is illegal.

Continue reading "Update: It depends what you mean by torture" »

Update: Punch and Judy and inequality

I promised to revisit Robert Wade's comments about my column on inequality. My article was mainly concerned with the causes of rising inequality within and between countries, drawing attention to recent IMF findings that liberal trade was not to blame--just the opposite in fact, liberal trade is equalising--and that the main culprit is technological change. In passing I observed that "one world" inequality--that is inequality across all the world's people, as if there were no national boundaries--is "almost certainly" falling. Robert pointed out that this is disputed.

Unfortunately I cannot post the galleys Robert sent me of his chapter ("Globalization, Growth, Poverty, Inequality, Resentment, and Imperialism") for the forthcoming second edition of "Global Political Economy" (John Ravenhill, ed). It is good, careful, heterodox stuff (I doubt that Robert will object to the term), covering a lot of ground, but on this particular point I cannot see that the debate has advanced much from where it was when I was last paying close attention.

I'll allow that my "almost certainly" was a little exuberant. This is a methodological maze, with patchy and unreliable statistics. According to one school of thought, one-world inequality fell during the 1980s and 1990s. According to another , looking at a shorter timespan, it has zig-zagged, rising between 1988 and 1993, falling between 1993 and 1998, and rising again to 2002. Readers who care enough to read both papers can make their own minds up. If you want a non-technical summary of the wider debate, you could read this piece (pdf) I wrote for The Economist in 2004, and this subsequent reply (pdf) (focused on poverty not inequality) by Martin Ravallion of the World Bank.

Within-country inequality is increasing in much of the world, and so is between-country inequality (because the poorest countries are growing slowly). Unlike more triumphant globalists I do not regard these trends as matters of no concern. But I take heart from the fact that the proportion of people living in extreme poverty around the world is falling fast (so far as I know, this is not disputed). And as I contemplate the economic miracles in India and China, population 2bn-plus, I continue to think it very likely, at any rate, that one-world inequality is falling too.

Health-care misconceptions

Liberal bloggers are taking Greg Mankiw to task for his piece in the New York Times this weekend analysing  some popular--and, according to Greg, partly fallacious--statements about US health-care. Greg argues that superior life-expectancy figures for Canada and other countries are misleading; that the numbers for the US uninsured are in some ways exaggerated; and that the anomalously high cost of US health care may be, in part, a sign of success.

I agree with Greg much more often than I disagree, and his site is one of only three or four where I am careful to read every post, but we part company on this subject. What he says about those three statements is correct, of course, as far as it goes--but as an overall assessment offers little reassurance that all is well, so far as I am concerned.

Even if American health-care is better than Europe's most successful systems--which is debatable at best--one surely cannot argue that at current outlays it delivers equal value for money. And on the numbers of uninsured, I agree with Dean Baker that one might just as easily argue that the usually cited figure of 47m is understated. First, because it does not capture all those who are uninsured at some point during the year. More important, because it says nothing about the justified anxiety suffered by Americans who worry about losing their coverage in future, when they most need it. I think this last point is crucial to the politics of the whole debate. It is an anxiety that tenured academics doubtless feel less acutely than most others.

Greg says:

Any reform should carefully focus on this group [the uninsured] to avoid disrupting the vast majority for whom the system is working. We do not nationalize an industry simply because a small percentage of the work force is unemployed.

If a good part of that vast majority is troubled by the fear that their coverage may evaporate, the system is not working for them as well as it could. And who any longer proposes nationalising the system? Not the  Democratic presidential candidates. They want to do for the country what Mitt Romney did for Massachusetts: universal coverage based on the existing mostly-private model. Does Greg (one of Romney's advisers) regret that reform? 

A weakened America's choices on Iran

My Monday column for the print FT:

The best course in dealing with Iran is not hard to see. The difficult thing is having to accept that its chances of success are poor. If the US and others do all they sensibly can, Iran will probably acquire nuclear weapons anyway. This prospect, much as one might prefer not to think about it, is terrifying. How can such a policy be right in that case? All one can say is that the alternatives are worse.

The right thing is to increase the diplomatic and economic pressure on the Iranian government, to make the threat of military action if that fails more credible and to offer Iran more attractive exits from the confrontation. The right policy, as the cliché has it, is a bigger stick and more carrots.

Continue reading "A weakened America's choices on Iran" »

Why Democrats are winning on health care

This is from my latest column for National Journal. The piece does not so much as mention Giuliani's prostate.

The politics of the issue has moved a long way in the Democrats' favor. Public opinion has shifted, the polls say, in favor of universal coverage as a goal. Worries over the rising cost and availability of health insurance are a big part of the wider trend of rising economic anxiety. Americans' desire to see this problem fixed is greater now than it was in the early 1990s, when Hillary Rodham Clinton's previous health reform proposal was shot down.

At the same time, the Democrats -- and, above all, Clinton herself -- have radically altered their approach to the issue. Look at the way she pitches her plan on her campaign website. If you are happy with your existing health insurance arrangements, she insists, nothing will change. After the "Hillarycare" fiasco, that reassurance is crucial.

The Democrats' schemes all envisage an expanded government role -- as they must, if universal coverage is to be achieved -- but they are not single-payer "socialized medicine" plans. Moreover, that fact is obvious. The Republicans' insistence that these schemes amount to socialized medicine is implausible and smacks of desperation. The voters are not buying it.

You can read the whole column here.  In two weeks the link will point to a new article, and this piece will disappear behind the NJ's subscription barrier. One more thing. The column refers to brilliant reporting by NJ's Marilyn Werber Serafini. Her cover package on all the main candidates' health-care proposals can be reached through this link, which (I think) does not expire.

Hillary's bad night

Occupied elsewhere on Tuesday night, I watched a recording of the Democrats' Philadelphia debate, and by the time I got around to it I had already read a lot of the commentary. That may bias my view, but the consensus seems right to me: Hillary made a hash of it. Under real pressure from the other candidates for the first time, the charm slipped. She was tetchy, evasive and most of all uncomfortable. I recall writing of the first debate that the other candidates deferred to her, and that she relaxed into the leadership role. No deference on Tuesday--far from it--and no relaxation either. Once or twice her jaws were clenched so tight I thought something would snap.

Here's a sample on the issue of driver's licences for illegal immigrants, though in defence of her stumbling performance in this instance I have to say it was not an easy question.  (Chris Dodd evaded as much as she did, but got away with it. "There are ways of dealing with that." Such as what? Tim Russert took Hillary to task for her equivocation but let Dodd off the hook.)

So who won? Not Obama, though he did get better as the debate went on. His delivery is still hesitant and unconfident. His mannerisms are getting tiresome. He is over-rehearsed: he defaults too obviously and too quickly to grand pre-cooked lines (and improbably lame jokes). Edwards, on this occasion, was the winner, and by some distance. Much less waffle than Obama, far more focused and concise, and much more relaxed than either of the two front-runners. Of course, unlike Clinton, he wasn't getting stamped on by everybody else.

The question is, when Edwards does well, who does that hurt more, Clinton or Obama? On balance, it may make Clinton even safer for the nomination. Still, if Giuliani was watching, he must have loved every minute. Not many people bother to watch these debates, but this time those who did are finding it easier than before to imagine how Hillary might still screw this up..   

Cap-and-trade bookkeeping

In testimony today to the House budget committee, Peter Orszag, the head of the Congressional Budget Office, makes an interesting point about the fiscal implications of a cap-and-trade regime for carbon emissions. Suppose carbon permits are given away to suppliers and industrial users of energy. The proper way to score them in that event--"a solid case can be made", is how Orszag puts it--would be to count the value of  the permits as both revenues and outlays, as though the beneficiaries had bought the allowances at value and then been handed the money straight back. What difference would that make? None to the budget deficit, or to the price signal for carbon abatement. But it would show a rise in public spending in the form of grants to the companies concerned. That would presumably alter the politics, and for the better.

Thanks to Greg Mankiw for the CBO link. Greg sums the issue up this way, in his "fundamental theorem of carbon taxation":

cap-and-trade = carbon tax + corporate welfare

So those who say a carbon tax is politically impossible are not quite right. If we go to cap-and-trade, we will have one. It will be hidden, and most likely badly designed, but we will have one. That is why an even more solid case can be made for auctioning the permits, rather than giving them away. And the most solid case of all is the one for a straightforward carbon tax.

Update: A test case for the media

A third and I pray final post on Rudy Giuliani's prostate.  David Gratzer, the doctor who provided Giuliani with his disputed numbers on cancer survival rates in the US and Britain--numbers which provoked an assault from Paul Krugman and others, and a characteristically calm and judicious response from this desk--has posted his reply at City Journal (an excellent publication, by the way). He's not backing down, which I think is a mistake. Nothing he says makes me wish to revise my posts one and two.

Punch and Judy and inequality

My friend Robert Wade censures me in this note (posted with his permission) about my FT column of a couple of weeks ago on globalisation and inequality.

I hate to spoil your fun as you throw bricks at "critics of globalisation", but some of your empirical statements are open to challenge. You say (repeating the IMF's International Economic Outlook) that trade barriers inhibit growth and worsen inequality, in rich countries and poor countries. Many independent analysts cannot confirm this finding.

To give just one example,  a study of the whole literature on the relationship between globalisation, poverty and inequality concludes, "any claims regarding growth and poverty, or trade liberalization (even globalisation) and poverty, should be interpreted with extreme caution.... If we achieve no more than to convince readers to interpret cross-country evidence on inequality, growth and poverty with extreme caution and to eschew generalisations based on such evidence, we would be content." (Mbabzi, Morissey, and Milner, 2003, "The fragility of empirical links between inequality, trade liberalization, growth and poverty," in Rolph van der Hoeven and Anthony Shorrocks (eds.) "Perspectives on Growth and Poverty". United Nations Press.)

Likewise, you say that global income inequality in the "one world" sense "is almost certainly falling".  In fact, studies which attempt to measure income distribution among all the world's people show widely varying results, depending on the  measure of inequality, country sample, time period, and data source. But several careful studies find that inequality increased over their time period, within the past two to three decades.

Your Punch and Judy show--good pro-globalisers against bad anti-globalisers--makes for entertaining reading, but it does not advance the cause of understanding.

My unguarded reaction is that "extreme caution" is a lot to ask of a commentator, but I don't deny that advancing the cause of  understanding is my larger purpose. Robert sent me galleys of a chapter he has written for the forthcoming second edition of "Global Political Economy" edited by John Ravenhill. Moving with extreme caution, I will read those for his latest thinking on this subject before saying any more.