Grasping Reality with Both Hands

Robert Skidelsky on the Pointless Pain Caucus

Robert Skidelsky:

Britain’s austerity apostles duck the debate: What macroeconomic theory do the budget hawks have to subscribe to, to believe that taking £100bn out of the economy in the next four years will produce recovery? And what do the budget doves need to believe to claim the cutters are wrong?

David Cameron, Mr Osborne, and Nick Clegg appear to believe in something called “crowding out”... for every extra pound the government spends, the private sector spends one pound less. Jobs created by stimulus spending are jobs lost by the decline of private spending. Any stimulus to revive the economy is doubly damned: not only does it fail to stimulate, but, because government spending is less efficient than private, it reduces the economy’s longer term recovery potential.... A refinement of this argument is “psychological crowding out”. In this version it is not a shortage of saving, but a shortage of confidence in the government’s creditworthiness – due to a fear of default – which causes interest rates to rise. Either way the deficit “crowds out” private investment. Net stimulus: zero. The supposed implication of this type of argument is that in the short-run the deficit can do no good; and that in the slightly longer term it harms the potential for recovery....

Keynesians say is that when resources are unemployed, government borrowing is not deferred taxation: it brings resources into use that would otherwise be idle.... When the government borrows money for which there is no current business use, this increases people’s incomes and therefore the saving needed to finance the borrowing without interest rates having to rise... the “crowding out” argument is false.... The deficit is the stimulant the economy needs to start growing again: its withdrawal guarantees stagnation or worse.

Why aren’t we having this argument? The reason is that, against its instincts, the last Labour government accepted the pre-Keynesian economics of the cutters.... To promise to cut a little less, and a little slower, than the coalition is an improvement, but not an alternative economic strategy. Only Ed Balls has the economic confidence and pugnacity to argue the Keynesian case. For political reasons he has been denied the shadow chancellor’s job....

[W]hen [an economy] has large unemployed resources, the Keynesian theory is best, and the government should not be ashamed of running a deficit. A properly Keynesian opposition would say that the budget balance should be dictated by economic circumstances, not by some arbitrary timetable.... But I doubt if this opposition will have the courage to do so.

The Underperforming U.S. Health Care System

Matthew Yglesias writes:

Yglesias » Life Expectancy at 65: Aaron Carroll looks instead at life expectancy at 65.... Strong evidence of systematic underperformance in the American system. And yet since we’re talking about Medicare-eligible people here that also suggests that the issue can’t be solved by messing with who has insurance or how insurance-provision is organized. You need to actually delve down into the delivery of health care services.

Liveblogging World War II: October 14, 1940

The Balham Blitz Tube Disaster:

The 14th of October 1940: On the night of October 14 1940 some 500 civilians were sheltering from the bombing in Balham tube station. Two minutes after eight o'clock a 1400kg armour-piercing fragmentation bomb blew a huge crater in Balham High Road above the northern end of the station. A bus then crashed into the crater and ruptured the water and sewage mains. Sand, sludge, sewage and water suddenly gushed into the station. Water-tight doors designed to keep such floods out instead kept this one in. The lights fused, adding to the chaos.

The station was a scene of panic, and though more than 400 managed to escape, 65 or by some account 68 people died in the disaster, most of them drowning. A rescue attempt with a boat sent from Clapham South failed to get through.

News of the event was as far as possible kept under wraps, the government fearing that the grisly death of so many would be a huge propaganda blow and possibly put civilians off using the underground as shelter. Word of mouth spread about the deaths, however, and the work to open the station again lasted until January of 1941, the last bodies being found at the end of December.

An account of the disaster features in Ian McEwan 's novel Atonement, and in the film.

Mortgage Markets: "A Mutant, 20-Tentacled Octopus of FAIL Squirting Poisonous Ink..."

I tell you, intellectual life is certainly more fun since the invention of weblogging...

Ryan Avent:

Mortgage markets: The tangled web they wove: IF YOU want to give yourself a headache and/or become both very confused and very concerned about the state of the financial world, I recommend you attempt to figure out the developing foreclosure mess. It's like a mutant, 20-tentacled octopus of fail squirting poisonous ink at those trying to pin it down.

Those interested in a relatively detailed account of the issues involved are encouraged to read through Mike Konczal's work on the subject. I'll give a ludicrously short version of the story here.

During the housing boom, there was an explosion in the process of mortgage securitisation.... [M]ortgages... would wind up at banks, who would group pools of mortgages together to be chopped up into securities... payments... were filtered through servicers and out to holders of various mortgage bonds. Each step of the way, a lot of paperwork was involved... as the boom geared up and the pace of buying and securitising became frenetic, this important trail of paperwork frequently fell apart.... This is a problem, because some of those documents become very important when a loan goes into default and a foreclosure is sought.... [M]any of the foreclosures... may have been done improperly, or without appropriate paperwork, or with improperly (or perhaps fraudulently) generated paperwork.

And so a real mess has developed....

All that is bad enough as it is. The situation is unlikely to inspire confidence in potential buyers, whom the housing market desperately needs. Congressional action may be necessary (which is a terrifying phrase to utter these days). And there is a very small but real chance that things could get really ugly...>.

And that's just one side of the problem.

The other side... concerns the mortgage securities.... If some share of the loans that went into a particular security weren't properly handled, then the bank that created it could be forced to repurchase it.... Banks could also be targeted in related lawsuits.... People are now spinning scenarios in which the mess adds up to another systemic risk crisis, complete with weekend crisis interventions and, one presumes, a nice blow to the real economy.

Estimates of what this all will actually mean for the broader American economy range from "nearly nothing" to "the end as we know it"...

Failure to Brainwash...

My last iClicker question from today's Econ 1: Principles of Economics lecture:

Ladies and Gentlemen, to your iClickers...

Suppose PDC—Production and Distribution Coordination—decided that we were going to offer four yoga classes at a price of $20/lesson for each student and $200/lesson for each teacher. As before, each class has a capacity of ten students. PDC finds that there are only 25 students and 4 teachers. What should PDC do?

A. Split up the students among the four teachers and announce that the teachers will only be paid $120/lesson.

B. Split up the students among the four teachers and announce that the students will each have to pay $32/lesson

C. Pick one of the teachers by lot and send him or her home, and then go draft 5 passers-by and force them to take the class, charging each student $20/lesson and paying each teacher $200/lesson

D. Draft 15 passers-by and force them to take the class, charging each student $20/lesson and paying each teacher $200/lesson

E. Lower the price charged to $19/lesson and the price paid to $190/lesson, and see if any more students are willing to pay that price and if any of the teachers say they would rather go do something else.

The answer I am looking for, of course, is that PDC should mimic the market by choosing option (E). It should use the price system because that way it can balance capacity and attendance by drawing those 5 potential students whose values of yoga classes are between $19/lesson taken and $20/lesson taken into the activity and excluding the one instructor whose reservation price is $200/lesson taught from the activity, and so be sure that (a) everyone taking yoga values it at more than $19/lesson and (b) everyone teaching yoga has a disutility of less than $190/lesson.

And so social surplus is maximized. (With distributional impacts to be cleaned up later on by other societal mechanisms.)

By contrast, all of the alternatives--down to and including the Stalinoid draft-fifteen-innocent-passersby-at-gunpoint-and-force-them-to-unwillingly-do-the-downward-facing-dog--involve (i) teaching the wrong number of classes and/or (ii) having the classes taught and taken by the wrong people who really would rather be doing something else.

Yet those alternatives attract 24% of responses, even after a full fifty-minute brainwashing session in Wheeler Auditorium.

I am clearly going to have to slow down, and try to brainwash them once again.

Next Monday I am going to have to hit them with the entire argument again, and add to it:

Properties of competitive market equilibrium:

• It is where the supply and demand curves cross
• Nobody who wants to pay or work is rationed out of the market (poor people may be rationed out because they have low money-metric willingness to pay even though they have high desire)
• It is stable
• It produces the maximum dollar-value social surplus
• Other arrangements have
  • Some of the wrong people teaching the classes
  • Some of the wrong people taking the classes
  • Too few classes being offered
  • Too many classes being offered

Other allocations leave open side-deals on the table:

• Some of them have some of the wrong people teaching the classes
  • Suppose Greg320--with his reservation price of $200/lesson taught--is assigned to teach one of the three classes.
  • Suppose Greg305--with his reservation price of $50/lesson taught--is not.
  • Then: "Psst. Will you teach my class?”
  • There’s $150 of surplus for them to split
• Some of the wrong people taking the classes
  • Suppose yogastudent#10 is not assigned to take a class
  • Suppose yogastudent#30 is
  • Then—“Psst. Will you take my place?”
  • There is $4 of surplus for them to split
• If too few classes are offered, there are side deals
  • Suppose only two classes are being offered
  • Then yogastudent#21 through yogastudent#30 meet Greg315 outside
  • They set up a class
  • There is $100 of surplus for them to split
• If too many classes are offered, there are side deals
  • Suppose four classes are offered
  • Yogastudent#31 through yogastudent#40 meet Greg320 for their class
  • They look at each other
  • They say: “Let’s just pretend we did this and go home”
  • And they split $20 of surplus
• Allocations that do not mimic the market allocation leave money on the table
• Allocations that do mimic the market do not leave any money on the table
  • You may not like where the money goes, but it is not on the table.

David Romer: Ed Glaeser had some nice stuff about this--where he did random assignment in markets with excess demand and showed the Posner rectangles of welfare loss as well as the Harberger triangles. I think it had some very nice graphs...

Brad DeLong: Should I Google it? Or email Ed?

Christy Romer: (Walks in.) Neither. I can put my finger on it in fifteen seconds. Here it is.

Yep. Ed Glaeser and Erzo Luttmer (2003), "The Misallocation of Housing Under Rent Control" http://www.aeaweb.org/articles.php?doi=10.1257/000282803769206188:

Extra Credit Question: If you want to put your finger on a piece of the literature quickly, you should:

A. Email the author
B. Google it
C. Hope Christy Romer is walking by

All R Investment Banks May Belong to Bankruptcy Court...

Felix Salmon:

The enormous mortgage-bond scandal: [M]ortgage-bond documentation generally says that if more than a minuscule proportion of notes in a mortgage pool weren’t properly transferred, then the trustee for the bondholders can force the investment bank who put the deal together to repurchase the mortgages. And it’s looking very much as though none of the notes were properly transferred. But that’s not even the biggest potential problem facing the investment banks who put these deals together. It also turns out that there’s a pretty strong case that they lied to the investors....

[T]he risk to investment banks isn’t only one of dodgy paperwork; there’s also a serious risk of massive lawsuits.... The key firm here is Clayton Holdings, a company which was hired by various investment banks — Goldman Sachs, Bear Stearns, Citigroup, Merrill Lynch, Lehman Brothers, Morgan Stanley, Deutsche Bank, everyone — to taste-test the mortgage pools they were buying from originators. Here’s how it would work....

[T]he bank would put in a winning bid for the pool of mortgages, with the intention of slicing it up into mortgage bonds and selling those bonds off to investors at a profit. After submitting the winning bid, the bank would commission Clayton to take a closer look at a representative sample of loans in the pool. Clayton controlled as much as 70% of the market for this service, which is known as third-party due diligence. But Clayton’s not at fault here, and the problem is likely to apply no matter who performed this service.... Clayton would go back to the loans, one by one, and re-underwrite them after the fact, checking that the originator’s underwriting standards were in fact being upheld. Clayton would either accept or reject the loans it was looking at, according to whether or not they met underwriting standards....

I’m just using Citi as an example, here; all banks behaved in basically exactly the same way.... Clayton reviewed 1,280 loans on behalf of Citigroup in the first quarter of 2006. Of those, it accepted 554 outright: they lived up to the originator’s underwriting standards. It also waived another 144, on the grounds that there were mitigating factors (a large downpayment, say). And it rejected 582 for a rejection rate of 45%. This kind of information was valuable to Citigroup: it showed them that the quality of the loan pool.... Armed with this information, Citigroup would do two things.... [I]t would take those 582 rejects and put most of them back to the underwriter.... But remember that Clayton had tested only a small portion of the loans in the pool. So Citi knew that if there were a bunch of bad loans among the loans that Clayton tested, there were bound to be even more bad loans among the loans that Clayton had not tested.... If there had been any common sense in the investment banks, that would have been the end of the deal. But... the investment banks would instead renegotiate the amount of money they were paying for the pool....

The investment banks didn’t mind buying up loans they knew were bad, because they considered themselves to be in the moving business rather than the storage business.... Now here’s the scandal: the investors were never informed of the results of Clayton’s test. The investment banks were perfectly happy to ask for a discount on the loans when they found out how badly-underwritten the loan pool was. But they didn’t pass that discount on to investors.... I talked to one underwriting bank — not Citi — which claimed that investors were told that the due diligence had been done: on page 48 of the prospectus, there’s language about how the underwriter had done an “underwriting guideline review”, although there’s nothing specifically about hiring a company to re-underwrite a large chunk of the loans in the pool, and report back on whether they met the originator’s standards.... [B]anks had price-sensitive information on the quality of the loan pool which they failed to pass on to investors in that pool. That’s a lie of omission, and if I was one of the investors in one of these pools, I’d be inclined to sue for my money back.... The bank was essentially trading on inside information about the loan pool: buying it low (negotiating for a discount from the originator) and then selling it high to people who didn’t have that crucial information...

Matthew Yglesias: Steve Pearlstein Doesn't Understand the Economics of Exchange Rates

Indeed. Exchange rate depreciation is the best solution to a country that has priced itself out of export markets. I wonder why Steve Pearlstein doesn't say that a weaker dollar is in America's interest?

Matthew Yglesias comments:

Yglesias » Pearlstein on Wage Cuts: [A] lot of people are going to despite today’s Steven Pearlstein column advocating lower wages for American workers especially since he throws in a gratuitous paragraph suggesting that highly compensated newspaper columnists are the reason the US outperformed the USSR. But this is the paragraph with analytic weight:

Which brings us back to the story of GM’s Orion plant. There are lots of reasons why American companies like GM have lost market share (yes, I wrote about currency manipulation last week), but one is that in too many industries, our labor costs are now too high to be globally competitive. Reducing wages and benefits in those industries would not only help to create and save jobs, but would also force a further reduction in consumption and living standards that is necessary to bring the U.S. economy back into balance....

Pearlstein... [does not] understand that Yuan revaluation is the same thing as lower wages for American workers.... [I]f dollars become less valuable relative to other important currencies, our real compensation declines. By the same token, if the Federal Reserve succeeds in raising the price level, our real compensation declines. These are all related concepts.... [O]f the three, nominal wage cuts are... least attractive.... If you force nominal wage cuts on an indebted population, you get an unbalanced deflation where existing debt obligations come to consume a larger and larger share of income. Alternatively, if you reduce real compensation via currency devaluation or higher inflation you reduce income and debt alike, allowing us to dig out of the balance sheet hole more quickly.

It is getting to the point where I don't believe that Matthew Yglesias wasn't an economics major...

Steven Pearlstein Wages Class War!

Hoo boy. The usually reliable Steve Pearlstein strikes out:

Wage cuts hurt, but they may be the only way to get Americans back to work: I'm sure many of you are reading this and thinking that if anyone is forced to take a pay cut to rebalance the economy, surely it ought to be overpaid investment bankers, corporate executives and newspaper columnists. That's how things would work in a socialist paradise, but not in market economies, which are much better at producing efficiency than fairness.

I must say that when I look at the Washington Post's newspaper columnists, I see no efficiency there.

The public debate would be more elevated and do much less harm to America if all of them were fired immediately.

Indeed, only the subsidy from Stanley Kaplan keeps Steve Pearlstein employed today--and I see no strategy open that gives the print Post even a 50% chance of ever returning to permanent profitability.

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

Linda Beale: Boost Greg Mankiw's Marginal Tax Rate. Andrew Gelman: I'm Not Impressed with an Argument That Doesn't Work on Its Example

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

There were many things wrong with Greg Mankiw's "Going Galt" column in the New York Times. They biggest was that Greg blames high future tax rates on his income on Obama, rather than piercing the veil--that is, noting that to spend is to tax--and blaming the true architects of higher future taxes: Greg Mankiw himself and the others in the Bush administration who unbalanced America's public finances in the 2000s with Medicare Part D and their wars of choice.

Those of us who worked very hard in the 1990s for eight long years to try to bring America's fiscal policy back toward long term balance did not like Greg Mankiw and company's casual destruction of our extremely valuable work. And we like his current evasion of responsibility for his role in our admittedly dismal fiscal future even less.

Linda Beale, however, thinks that it is socially optimal to raise Mankiw's marginal tax rate. If he works less, more young economists have an opportunity to build their own sklls and their own reputations so they can add to the public debate.

Linda Beale:

ataxingmatter: Greg Mankiw's anti-tax arguments: [H]aving a bigger tax bite should work as an incentive to work more, not less, if his goal is really to provide more for his kids. 

But let's assume... he would turn down more... were an incremental increase in his tax rates.... [D]oes that mean that the economy suffers...?  He suggests that when stars turn down additional earning opportunities, the not-rich bear the burden because the service provided is simply not available.  But in fact that is when competition increases.... For every speaker who turns down a speaking engagement, another with competent qualifications is waiting in the wings to become a star (or at least receive this incremental increase to compensation).  The economy is in fact served by spreading the service opportunities across more people and allowing more people to develop a level of expertise that is worthy of higher compensation, instead of allowing a few "stars" to garner all the income.  That is the way we achieved dramatic growth in the post-war years. 

So go to it, Mankiw.  Turn 'em all down, so that budding young economists--maybe even some women and people of color for a change--will have their chance in the limelight.

Andrew Gelman:

Mankiw's marginal tax rate (which declined from 93% to 80% in two years) and the difficulty of microeconomic reasoning: First, the good news! Obama's tax rates are much lower than Mankiw had anticipated! According to the above quote, his marginal tax rate is currently 80% but threatens to rise to 90%. But in October 2008, Mankiw calculated that Obama's would tax his marginal dollar at 93%.... According to Mankiw's calculations, he is currently keeping almost three times the proportion of his income that he was expecting to keep under the Obama administration....

Now, the bad news. I don't think Mankiw has fully thought this through. He writes as if he's writing newspaper articles for the money.... I think he's writing the articles because he has views that he thinks are important and he wants to share them with the world. Like blogging, but with more readers. As you all know, we blog for free. And, for people like Mankiw (or even me), when we write newspaper articles it's pretty much for free too.... [T]he marginal tax rate doesn't have anything to do with it....

The last time this came up, a couple of years ago, Mankiw wrote the following in response to Obama's threatened 93% marginal tax rate:

The bottom line: If you are one of those people out there trying to induce me [Mankiw] to do some work for you, there is a good chance I will turn you down. And the likelihood will go up after President Obama puts his tax plan in place. I expect to spend more time playing with my kids. They will be poorer when they grow up, but perhaps they will have a few more happy memories.

And here's what I wrote at the time:

To start with, it does sound like Mankiw's kids are already well provided for, and, although I'm sure they'd disagree with me on this, it's not clear that they would benefit from having more money in the bank when their parents are gone. So, from that point of view, the question is why Mankiw isn't already spending more time playing with his kids?

I can't speak for him, but for me, I have to say that it can be fun to work (or even to write blog entries). But, more than that, I feel a sense of obligation to get things done...

[H]is division of waking hours into "working" or "playing with kids" is, I would guess, not very sensitive to the marginal tax rate....

The irony is that Mankiw (like so many people, particularly economists!) is conditioned to be hard-headed and think that it's all about the benjamins, when, really, he's writing newspaper articles for the completely sane reason that he wants to make the world a better place, and he'd like to do this by presenting cogent arguments that can help convince people that his views are correct. I assume that Mankiw sincerely believes that higher taxes on the rich are a bad thing and will ultimately make everyone less well-off (just as Krugman, say, believes the opposite). But he feels uncomfortable characterizing his actions as idealistic and, as a result, ends up placing his work and child-care decisions into a nearly nonsensical framework of dollars and cents.

Andrew Gelman:

Update on Mankiw's work incentives - : The discussion of Mankiw's column seems to have caused him to rethink one of his ideas. Two years ago, he framed his decision as follows:

On a regular basis, I am offered opportunities to make some extra money. It could be giving a talk, writing an article, editing a journal, and so on. . . . The bottom line: If you are one of those people out there trying to induce me to do some work for you, there is a good chance I will turn you down. And the likelihood will go up after President Obama puts his tax plan in place. I expect to spend more time playing with my kids. The choice was clear: make money or play with the kids. At the time, I suggested that perhaps Mankiw is working not for the money but for the fun and also out of some sense of moral obligation (for example, to do his part to stop a proposed government policy that he opposes).

For whatever reason, Mankiw has added some of these motivations into his calculus and now writes:

I [Mankiw] face a choice among a wide range of activities, each of which offers some combination of pecuniary and non-pecuniary benefits. . . . When the government taxes pecuniary benefits, I spend more time on those activities that yield non-pecuniary benefits. Some of those activities may look like leisure, but others may be better described as "fun work" rather than "income-producing work."

I think he's most of the way there. But he still needs to recognize that he does some things for motivations that are neither familial (saving money for his kids), pecuniary, or for fun. Again, I think his formal framework is too narrow and I would find it refreshing if he were to state that he does some things (such as column-writing) because he thinks they will benefit the public good. I'm not saying he needs to be taxed at 93% on these efforts, though; he could perhaps set up a special cookie jar for his extra income and spend it in a productive way on his research so it won't get swallowed up by inheritance taxes in 30 years. He could, for example, set up a nonprofit foundation for economic analysis, or endow a fellowship at the American Enterprise Institute, or something like that. This could have the effect of furthering his advocacy and policy goals and give him the sense that his extra money is going somewhere useful.

P.S. Cowen argues that details-oriented commenters like me are missing the point: the issue is not Mankiw's particular circumstances but rather the larger issues of the efficiency and morality of high tax rates. I take Cowen's point, but, as a statistician, I'm not impressed with an argument when it doesn't work on the example it's been applied to.

Somehow I Am Now Wishing I Had Read More Nietszche When I Was Younger...

Last week I spent some time with a group of people I don't usually spend much time talking to. They were not rich--by which I don't mean that they had overstretched themselves by buying a seven-figure principal residence but rather that they weren't rich: their household income was in the five or, for some of them, perhaps the very low six figures. And (which is unusual for Berkeley) they were not lefties, neither cultural nor sociological. They were deeply concerned with the future of our country. And they were desperate to figure out how to engage in effective political action--but had few illusions that the politicians they would vote for in November were their kind of people with their interests at heart.

I suppose that in a previous era, back when there were private-sector unions, they might have been union stewards. But now we have no private-sector unions.

And so they are activists from the California Tea Party.

So I went through my standard spiel. Housing bubble. 5 million excess houses built in the desert between Los Angeles and Albuquerque, and on all of them the least $100K of mortgage debt will not be repaid. A $500B loss in an $80T world economy. Shouldn't have been a problem—securitization exists to spread risks. But the banks pretended that the AAA MBS issued by other banks were high-quality Basel capital even though they knew full well the dreck that they were issuing. A financial multiplier of 40. A flight to safety. A big shift away from spending on currently-produced goods and services and on currently-employed labor as people tried to build up their stocks of safe assets. A multiplier as people who lost their jobs stopped spending, and the situation snowballed.

It could have been worse, I said. Without all of the rescue policies we would probably now have an unemployment rate of 16 percent rather than 10 percent.

But they question is what to do now with the economy. The idea is not to go to socialism—not to nationalize large chunks of the economy and have everybody work for the government—but to conduct strategic interventions in financial markets. Relieve the excess demand for safe high-quality assets and you remove the pressure on people to spend less than they earn as they try to build up their stocks of safe assets, and you get a virtuous circle of strong recovery.

So, I said, the right thing to do is the Bagehot rule: lend freely at a penalty rate. The government should throw huge amounts of money at the financial markets and in the process take a large chunk of the upside in equities and options.

SOCIALISM, they said. We don't want SOCIALISM.

But it's not socialism, I said. It's an attempt to avoid socialism—it's an attempt to conduct a strategic intervention into the market economy so that it can rebalance itself.

SOCIALISM, they said.

Well, I said, how about lending freely to the financial sector but forget Bagehot's "penalty rate" stuff?

BAILOUT, they said. BAILOUT OF CORRUPT FINANCIERS WITH WASHINGTON CONNECTIONS, they said. WE LIKE THAT EVEN LESS.

Well, I said, how about pushing off taxes into the future, bringing forward infrastructure spending we know that we will want to do, and financing it by issuing more government debt? The spending should put some people to work, and the extra government bonds we print up will increase the supply of safe assets, decrease the excess demand, and so remove some of the downward pressure that is inducing people to spend less than they earn/

DEFICIT, they said. DEFICIT BAD. MUST REDUCE THE DEFICIT. GOVERNMENT MUST LIVE WITHIN ITS MEANS.

But, I said, the U.S. government now can borrow at unbelievable terms. If you could borrow at such terms, you would bust out the top of your house and add a second story immediately.

GOVERNMENT MUST LIVE WITHIN ITS MEANS.

OK, I said. How about having the federal government aid the states. We want to keep our police and our fire and our road maintenance and our schools running at their efficient levels, don't we? It's stupid to cut back on the long-term foundations of our economy and its growth because of recession, isn't it. How about a large program of federal aid to the states so that teachers, sewer workers, police officers, and firefighters can keep their jobs, keep protecting us—and keep spending and so provide employment for the rest of us?

ARE YOU KIDDING? THEY HAVE KEPT THEIR UNIONS. WE HAVE LOST OUR UNIONS. WE HAVE LOST OUR JOBS. THEY HAVE GONE TO CHINA. THEY HAVE VANISHED. WE ARE UNEMPLOYED. IF WE ARE EMPLOYED WE HAVE NO BARGAINING POWER WITH OUR BOSSES. IT IS NOT FAIR FOR STATE WORKERS TO NOT ONLY HAVE UNIONS, BARGAINING POWER, AND PENSIONS, BUT FOR THEM TO HAVE THEIR JOBS TOO. SINCE WE ARE LOSING OUR JOBS THEY SHOULD LOSE THEIR JOBS TOO. IT IS NOT FAIR.

Oh.

EVERYTHING YOU PROPOSE TAKES OUR HARD-EARNED MONEY, TAXES IT AWAY FROM US, AND GIVES IT TO SOMEBODY ELSE.

Oh.

BERKELEY SOCIALIST.

So what do you think we should do?

GET US JOBS!

But you have just rejected every idea I have for boosting employment—short of nationalizing the means of production and employing everybody by the government, that is. What are your ideas?

CUT TAXES. ABOLISH THE EPA. REPEAL HEALTH CARE REFORM. KEEP GOVERNMENT'S HANDS OFF OF MEDICARE. RAISE SOCIAL SECURITY PAYMENTS. CUT THE DEFICIT.

Joachim von Ribbentrop Liveblogs World War II: October 13, 1940

Letter from the German Foreign Minister to Stalin (excerpts), Oct. 13, 1940:

My Dear Herr Stalin : Over a year ago, through your decision and the Führer's, the relations between Germany and Soviet Russia were examined and put on a completely new basis. I believe that the decision to reach an understanding between our two countries—which resulted from the realization that the Lebensräume of our peoples adjoin each other but need not necessarily overlap, and which led to a delimitation of mutual spheres of influence and to the German-Soviet Russian Nonaggression and Friendship Treaties—has proved advantageous to both sides. I am convinced that the consistent continuance of this policy of good neighborliness and a further strengthening of the political and economic collaboration will redound to the greater and greater benefit of the two great peoples in the future. Germany, at any rate, is prepared and determined to work to this end. With such a goal, it seems to me, a direct contact between the responsible personalities of both countries becomes particularly important. I believe that such a personal contact through other than the customary diplomatic channels is indispensable from time to time in authoritarian regimes such as ours. Today I would, therefore, like to review briefly the events since my last visit to Moscow. Because of the historical importance of these events and in continuation of our exchange of ideas of last year, I would like to review for you the policy which Germany has pursued during this period.

After the conclusion of the Polish Campaign we became aware—and this was confirmed by many reports which were received during the winter—that England, faithful to her traditional policy, was building her whole war strategy on the hope of an extension of the war. The attempts made in 1939 to win over the Soviet Union to a military coalition against Germany had already pointed in this direction. They were frustrated by the German-Soviet Russian Agreement. Later on, the attitude of England and France in the Soviet Russian-Finnish conflict was similar.

In the spring of 1940, these concealed intentions became quite evident. With this began the active phase of the English policy of extending this war to other peoples of Europe. After the end of the Soviet Russian-Finnish War, Norway was selected as the first target. By the occupation of Narvik and other Norwegian bases, Germany's iron ore supplies were to be cut off and a new front established in Scandinavia. It was only due to the timely intervention of the German leadership in Berlin and to the quick blows of our troops—who chased the English and the French out of Norway—that all of Scandinavia did not become a theater of war.

Several weeks later this Anglo-French game was to be repeated in Holland and Belgium. And here, too, Germany was able at the eleventh hour to prevent the contemplated thrust of the Anglo-French armies against the Ruhr Region (of which we had been informed some time before) by decisive victories of our armies. Today, even France, "England's continental sword," it has become apparent to most Frenchmen that their country in the last analysis had to bleed to death as a victim of this traditional "humanitarian" policy of England. As to the present English rulers, who declared war on Germany and who thereby plunged the British people into misfortune, even they themselves were finally no longer able to conceal their traditional British policy and their contempt for their own allies. On the contrary, when fate turned against them, all their hypocritical protestations ceased. With true English cynicism, they have treacherously forsaken their friends. In fact, in order to save themselves they slandered their erstwhile allies, and later on they even openly opposed them by force. Andalsnes, Dunkerque, Oran, Dakar, are names which—it appears to me—could sufficiently enlighten the world on the value of England's friendship. However, on this occasion we Germans, too, learned a lesson: that the English are not only unscrupulous politicians, but also bad soldiers. Our troops have routed them wherever they accepted battle. The German soldier was superior to them everywhere...

[...]

In this final phase of the war, to guard against any moves which England might yet make in her desperate situation, the Axis, as an obvious precaution, was forced to secure its military and strategic position in Europe as well as its political and diplomatic position in the world. In addition, it had to safeguard the requirements for maintaining our economic life. Immediately after the end of the campaign in the West, Germany and Italy started with this task, and now they have carried it out in its broad outlines. In this connection there may also be mentioned the—for Germany—unprecedented task of securing her Norwegian coastal positions all the way from the Skagerrak to Kirkenes. Germany has therefore entered into certain purely technical agreements with Sweden and Finland, of which I have already fully informed you through the German Embassy. They are exclusively for the purpose of facilitating supply of the coastal cities in the North (Narvik and Kirkenes)—which are difficult for us to reach by land—by shipping supplies via the territory of these countries...

[...]

In summing up, I should like to state that, in the opinion of the Führer, also, it appears to be the historical mission of the Four Powers—the Soviet Union, Italy, Japan, and Germany—to adopt a long-range policy and to direct the future development of their peoples into the right channels by delimitation of their interests on a world-wide scale.

In order further to clarify issues of such decisive importance for the future of our peoples and in order to discuss them in concrete form, we would welcome it if Herr Molotov would pay us a visit in Berlin soon. I should like to extend a most cordial invitation to him in the name of the Reich Government. After my two visits to Moscow, it would now be a particular pleasure for me personally to see Herr Molotov in Berlin. His visit would then give the Führer the opportunity to explain to Herr Molotov personally his views regarding the future molding of relations between our two countries. Upon his return, Herr Molotov will be able to report to you at length concerning the aims and intentions of the Führer. If then—as I believe I may expect—the opportunity should arise for further elaboration of a common policy in accordance with my foregoing statements, I should be happy to come to Moscow again personally in order to resume the exchange of ideas with you, my dear Herr Stalin, and to discuss—possibly together with representatives of Japan and Italy—the bases of a policy which could only be of practical advantage to all of us.

With best regards I remain

Respectfully yours,

Ribbentrop

What Law Is This? It's Not Godwin's Law. It's Not Gresham's Law. But It Is Somebody's...

Joseph Nocera once again proves that all columns accusing others of engaging in breaches of ethical conduct will themselves be a breach of ethical conduct--in this case, Joseph Nocera's breach.

Seems to me that there is not "the appearance of a conflict of interest" here. Seems to me that Nocera has a genuine conflict of interest here...

We pick up the story at TalkingBizNews:

NYT columnist Nocera adds conflict note to Saturday column: New York Times business columnist Joe Nocera, who wrote his Saturday column about the new Hewlett Packard CEO and his involvement in an intellectual property theft lawsuit, has had to add an editor’s note to the column on Tuesday. The reason? His fiancee is director of communications for the law firm that is involved in suing the CEO.

The editor’s note states:

In the Talking Business column in Business Day on Saturday, Joe Nocera wrote about a lawsuit by Oracle against a division of SAP, claiming theft of intellectual property. Mr. Nocera learned after the column was published  that Oracle was represented by the law firm of Boies, Schiller & Flexner, where his fiancée works as director of communications. To avoid the appearance of a conflict of interest, Mr. Nocera would not have written about the case if he had known of the law firm’s involvement.

John Paczkowski of All Things Digital writes:

Odd to learn that Nocera, the Times’ star business columnist, was unaware that his own fiancée was a flak for the law firm repping Oracle in the suit (see screenshot above) that provided so much of the subject matter for his column. But it seems he was not, up to today, when he made a CNBC appearance on the subject...

We continue the story with John Paczkowski:

HP Scandal Sucks in New York Times Columnist Over Conflict of Interest: Another reputation smeared in the Hewlett-Packard/Oracle slag-fest. Turns out Joe Nocera... penned that scathing piece on former SAP chief and incoming Hewlett-Packard (HP) CEO Léo Apotheker... has a conflict of interest. Nocera’s fiancée, Dawn Schneider, is director of communications for Boies, Schiller & Flexner, the law firm that just so happens to represent Oracle in its very same suit against SAP...

And Joe Nocera:

Talking Business: For H.P. Board, a Double Standard: And so it came to pass that on the 55th day — 55 days, that is, after firing its chief executive, Mark V. Hurd, for playing footsie with a consultant and fudging his expense accounts — the board of directors at Hewlett-Packard proudly announced it had found a new man to lead the company out of the wilderness. His name is Léo Apotheker, a suave European — how many American C.E.O.’s have an accent aigu in their name? — who had spent most of his career at SAP, the giant German maker of business software. SAP has one primary competitor: Oracle, the very same company that hired Mr. Hurd barely a month after H.P. let him go, in a move clearly intended not only to bolster Oracle but to humiliate H.P....

There were other things about the appointment that seemed a bit odd.... [H]aving written two unflattering columns recently about the H.P. board, I was inclined to take a pass on Mr. Apotheker’s hiring. But then I learned something about him that caused me to shake my head in disbelief. Next month, Oracle and SAP are scheduled to go to trial in a case involving the wholesale theft of Oracle’s intellectual property by an SAP division. SAP has acknowledged its guilt; the only issue being litigated is the size of the damages. (Oracle is asking for $2 billion; SAP says it should have to pay only “tens of millions” of dollars.) As a member of SAP’s executive board, Mr. Apotheker clearly knew about the theft.

It takes your breath away, really: the same board that viewed Mr. Hurd’s minor expense account shenanigans as intolerable has chosen as its new C.E.O. someone involved — however tangentially — with the most serious business crime you can commit. If it were anybody besides the H.P. directors, the situation would be unbelievable. With these guys, though, it’s all too believable...