Matt Yglesias

Good Enough

Kevin Carey on UC Berkeley Law School Dean Christopher Edley’s drive to use information technology to educate many more students:

Unsurprisingly, Edley’s bold plan to reach students “from Kentucky to Kuala Lumpur” has garnered opposition. The thoughtful critique is that the Internet can’t replicate the intellectual and personal experience of going to college in person. That’s true (if overstated, and becoming more so as technology improves). But it’s also the wrong way to think about the issue.

The challenge isn’t to perfectly replicate the current UC experience, not all of which is ideal. The challenge is to create an educational experience that’s of high enough quality to be associated with the globally recognized academic tradition of the University of California. It can be different, as long as it’s good.

I would go stronger. It’s not just okay if it’s different, it’s okay if it’s actually worse. Historically, a lot of important improvements involve downgrades in technology. Ready to wear shirts are not as good as tailored or handmade ones. Nonetheless, developing the technology of mass produced ready to wear shirts was a huge advance in improving the world’s stock of apparel. Frozen vegetables aren’t as good as fresh ones, but again the advantages in convenience still make them an important advance. One very important reason we’ve seen such disappointing productivity in the health and education sectors over the past few decades is precisely that we’ve tended to lack these kind of quality-degrading innovations. But if you could find a means of educating students that’s 80% as good as what Berkeley currently does at 10% of the per capita cost, then you’d be opening up vast new frontiers of potential learning.

The Future of Growth

The long-term actuarial balance of Social Security is heavily dependent on assumptions about long-term economic growth. Thus, the actuaries report is an annual exercise in basically making things up about future population growth and productivity growth. Consequently, if you’re Jagadeesh Gokhale and your job is to be a professional complainer about how Social Security is doomed, you can always offer this kind of critique:

The trustees are discounting the possibility that the unemployment rate may remain higher than was assumed last year and that, therefore, earnings may not rebound any faster compared to last year’s assumptions. It appears that that incoming data on unemployment and GDP growth played little if any role in informing assumptions about future earnings growth rates.

Totally true. Conversely, the trustees are discounting basically all possibilities. Their projections about future productivity, future population growth, future disability rate, etc. are all extremely crude extrapolations that have no real basis. Which is why I think it’s perverse to spend a lot of time worrying about these things.

But one thing that I do think is worth keeping an eye on is people’s consistency about these kind of projections. I normally associate right-of-center people and institutions, like Gokhale’s Cato Institute, with an extremely sunny optimism about the future growth prospects of market democracies like the United States of America. But insofar as you’re sunny and optimistic about US long-term growth prospects, you should be quite sanguine about this Social Security situation. Conversely, if you think the Trustees are too sanguine you ought to be a pessimist about US growth prospects in general. And if you think the long-term growth outlook is bad, then that’s a huge problem for reasons that are much larger than Social Security.

Paul Ryan is a Fraud

Paul Ryan says he has a plan to balance the budget. He’s been saying this for months, and his proposals have been scrutinized by experts. So I see two possibilities. One is that Paul Ryan’s plan would balance the budget. The other is that Paul Ryan is dishonest. And yet while it’s uncontroversial among wonky center and center-left types in Washington DC that Ryan’s would not balance the budget, it remains bizarrely controversial whether he deserves a reputation for honesty.

Paul Krugman, standing up for common sense and citing a Tax Policy Center analysis of Ryan’s proposals says he is not honest. The Tax Policy Center, however, is standing up for Ryan before conceding the substance of his point:

TPC did analyze Ryan’s tax-specific proposals and found they would fall short of this revenue goal. For example, Ryan’s proposal would lead to federal tax revenue of approximately 16 percent of GDP, which amounts to a $4 trillion revenue shortfall over ten years compared to the alternative fiscal scenario. But that doesn’t mean that Ryan’s plan is a fraud. Instead, it shows that Ryan’s vision of broad-based tax reform, which essentially would shift us toward a consumption tax, needs to be adjusted in order to meet his stated goal of matching historical levels of revenue as a proportion of GDP. This indeed poses a challenge to Congressman Ryan to make specific changes to his tax reform plan in order to meet his revenue goal.

For Ryan’s plan to work, he needs 19 percent of GDP, which is what he claims to have. The Tax Policy Center pointed out months ago that he has 16, not 19. And Ryan hasn’t offered any new ideas. Instead, he’s still walking around DC dining out on his reputation for honesty and bold thinking. But to offer an honest plan to balance the budget your plan needs to balance the budget. I don’t really understand why this has become the subject of dispute. It seems to me that the 90 percent of members of congress who don’t claim to have a 70-year budget plan are the honest ones. For one thing, they’re not lying! For another thing, why do we even care about Paul Ryan’s plan to balance the budget in 2080? Ryan will almost certainly be dead in 2080. But of course maybe by 2080 we’ll all be disembodied immortals, with our consciousnesses downloaded into computers. It’s bizarre to make (pretending to) tackle this pseudo-issue the prime criterion for serious policy thinking.

Consistency

Republicans who’ve availed themselves of lame duck sessions of congress before are now loudly objecting to the idea of Democrats holding a lame duck session. This is often described as “hypocrisy” but I actually think it isn’t.

Something I really like and respect about Republican members of congress is that on issues of political process they maintain an admirable level of consistency. Their view is something like “one should do whatever one can within the bounds of the law to ensure that the right substantive outcome happens.” So if holding a lame duck session produces more conservative policy, they hold one. But if stigmatizing a lame duck session would block progressive policy, they stigmatize. It seems to me that this is how politics ought to be done. No country has competing political coalitions organized around rival views of process issues, they’re organized around rival views of important questions of substance. One problem with the structure of American politics is that we only have one team that plays this way. But the fault for that lies with the Democrats, who it seems to me have a tendency to not take their own jobs and ideas seriously, rather than with Republicans.

Politics in a democracy isn’t a blood sport. We don’t kill members of the other side or intimidate them with violence. But it’s not a parlor game either. It’s serious stuff, and it deserves to be taken seriously. Republicans do a good job of that, and their approach to process “hypocrisy” merely reflects the fact that they have a reasonable sense of priorities.

Progressive Consumption Taxes

Something I’ve mentioned a few times is that it would be better to finance the government through a progressive tax levied on consumption rather than the combination of FICA and a progressive tax on income. You can understand the virtues of this idea in moralistic terms (John Rawls says he prefers it “since it imposes a levy according to how much a person takes out of the common store of goods and not according to how much he contributes”) or in economic ones as laid out by Karl Smith. But what does that mean in practice? Fortunately, Dylan Matthews did a post yesterday laying out some options.

The one that’s easiest to explain, and I tend to think best, is Robert Frank’s idea. This would work exactly like the current income tax, except instead of a crazy patchwork quilt of tax-subsidies for savings you’d just exempt all savings from taxation. That would leave you with a simpler, more efficient, but less progressive tax code that also doesn’t raise adequate revenue. You need to respond by adjusting the rate structure to restore adequacy and progressivity. The resulting scheme is more conducive to long-term economic growth than our current system, equally progressive, and also somewhat simpler. And, importantly, the added simplicity doesn’t come from heroic assumptions about congress wiping away all deductions and exemptions and never putting any new ones in. It’s just simpler because it does something our tax code already does—try to encourage saving—in a simpler way.

Unfortunately, the functioning of our political system makes it difficult to do any kind of tax reform unless you have consensus on the appropriate level of revenue and we’re miles away from that.

Zakaria Returns ADL Prize

Fareed Zakaria is a mensch:

Five years ago, the ADL honored me with its Hubert H. Humphrey First Amendment Freedoms Prize. I was thrilled to get the award from an organization that I had long admired. But I cannot in good conscience keep it anymore. I have returned both the handsome plaque and the $10,000 honorarium that came with it. I urge the ADL to reverse its decision. Admitting an error is a small price to pay to regain a reputation.

The details of the return aside, just think about the fact that the Anti-Defamation League has traditionally been in the business of doing things like handing out first amendment awards named after Hubert Humphrey to dudes with names like “Fareed Zakaria.” Point being that it was a Jewish organization, but one not a narrow Jewish nationalist outfit. Rather it was one that that believed Jews could and would prosper in a country and a world that lived up to high-minded liberal ideals. This characterizes the vast majority of the ADL’s work historically and even today, and it’s what’s garnered admirers for the organization.

Paths to Voter Choice

Perhaps nobody cares, but I think Neil Sinhababu is right to say that America’s system of fairly wide-open primary elections serves many of the same kinds of functions as the existence of multiple political parties in proportional parliamentary systems.

The interesting thing is that they’re not all that often actually used in this way. In continental Europe there’s usually a “liberal” party that would attract the votes of America’s “libertarians.” In the Netherlands (and perhaps elsewhere) there are even two liberal parties, one a market liberal “fusionist” party and one that’s a social liberal “liberaltarian” party. In the United States it would be possible in principle for self-identified libertarians to attempt an entryist strategy where they get deeply involved in organizing for primary candidates. But in practice they don’t. When primaries with ideological content happen, they tend to pretty generically pit a “more conservative/liberal” candidate against a “more moderate” alternative rather than really reflecting different potential ideological configurations and coalitions.

Endgame

There’s nothing to do:

— Why Peter Diamond matters.

— Why deficit hawks should love the Affordable Care Act.

— Deficit hawks don’t love the Affordable Care Act because “deficit hawks” are generally just orthodox conservatives playing pretend.

— Orthodox conservative Paul Ryan is only pretending to have a plan to balance the budget.

— Anthony Weiner’s curious stance on religious freedom.

Going to see Arcade Fire play tonight. Here’s “Suburban War”.

Dodd on Warren

I’m not sure I grasp the logic here:

“What you don’t need to have is an eight-month battle for who the director or the head or chairperson of this new consumer financial protection bureau will be,” Dodd, a Connecticut Democrat and chairman of the Senate Banking Committee, said in an interview on Bloomberg Television’s “Conversations with Judy Woodruff,” to be broadcast today.

Considering Mitch McConnell’s apparent reluctance to allow anyone to be confirmed to anything, I don’t see any particular reason to believe Michael Barr or anyone else will have a smooth confirmation process. And under the circumstances, isn’t an eight-month battle over the confirmation of a charismatic consumer champion exactly what you need? Realistically, the macroeconomic trends portend doom one way or the other, but that seems like about the best political fight you can imagine.

A cynical colleague suggested that Dodd is just looking to set himself up as a bank lobbyist. But my cynical colleagues aren’t cynical enough! Putting Warren in office will massively increase the market for bank lobbyists since you can tell people that the CFPB is going to come up with all kinds of nutty ideas that more “reasonable” members of the administration will be willing to overrule if you hire the right former Senator to make the case.

Most Arabs Ready for Peace

Matt Duss runs down a recent poll of Arab public opinion which shows that 86 percent of respondents across various countries want to see peace “if Israel is willing to return all 1967 territories including East Jerusalem.”

Perhaps of even greater interest to those who follow the ins and outs of this debate is that few Arabs place a high premium on the “right of return” issue:

There’s a lingering question out there about how the “contiguous” issue can be fudged since a look at the map will quickly confirm that Israel and Palestine can’t both be contiguous in a traditional literal sense. But this is not a very big deal, in my view—you’d have some kind of special access road and you’d need some verbiage about sovereignty.

Now that’s not to say that Arab public opinion doesn’t in some sense “support” the idea of a right of return. But there’s a difference between saying you agree that people evicted from homes on the Israeli side of the border decades ago ought to have a moral right to move back home and saying you’d want to fight on this point of principle rather than free Palestinians from foreign occupation. Point being, in terms of Arab public opinion we’re really still where we were ten years ago when the prospects for peace looked good. The idea that Arabs don’t want peace is perhaps comforting to people who don’t approve of settlements but aren’t particularly eager to see Israel confront settlers, but there’s little basis for it.

Policy Response to Unexpected Developments

Monica Potts explains how we got to the point of cutting nutrition assistance programs to pay for improved child nutrition programs:

It’s worth noting that the increases in the food stamp program were designed in the stimulus bill to be phased out once food price inflation caught up to the expanded benefits, but because inflation was lower than expected, the benefits were going to last longer than anyone originally expected. It’s hard to imagine a situation in which politicians wouldn’t view those bigger-than-expected increases as free money. And it’s a small comfort to know the pot was raided for good rather than for ill.

If you want some anti-comfort, consider that the original proposal was to pay for it by trimming farm subsidies but I believe that died in committee.

But I think the important thing to note here is a point about the appropriate policy response to unexpected development. A lot of people are taking the opportunity today to revisit the moment when Christina Romer said we needed $1.2 trillion in stimulus, Larry Summers said that was overblown, and political strategists said a lower “ask” would make more sense. She was right, Summers was wrong neener neener. But realistically, the nature of the world is that policymakers are going to frequently make inaccurate forecasts. The question is what do you do next? When problems turn out to be worse than you thought they would be, what’s the response?

This ties into the food stamps thing, because the slower-than-expected increase in food prices has been, in part, a symptom of the unexpected depth of economic problems. By making these cuts, congress is acknowledging that the state of the world is not what they thought it would be. But they’re not doing nearly enough about it.

Is There a Peter Diamond Problem?

Kevin Drum’s view on Peter Diamond’s nomination is that Richard Shelby is “just being a prick”. Maybe. Certainly that’s the administration’s view. But I worry that the White House is actually underestimating its problem here. What if the right is genuinely trying to kill the nominations in hopes of keeping the Fed paralyzed?

It sounds a bit outlandish. But everyone knows that politicians care about electoral politics. And as Brendan Nyhan says when you break it down “[a]s bizarre as it sounds, there is no bigger issue in American politics right now in terms of the potential effects on future electoral outcomes” than the composition of the Fed’s Open Market Committee. The weird thing is that nobody recognizes that this is the case. But I do. And Brendan Nyhan does. Does Richard Shelby? If he does, how many other Senators do? Just because you’re paranoid don’t mean they’re not after you.

Meanwhile, read Krugman on why Diamond has just the right academic expertise for the job.

Who Made the Administrators Legislators?

By Ryan McNeely

Kathryn Jean Lopez of National Review tweeted this column by Charles Krauthammer and asks, “Who Made the Administrators Legislators?” In a long piece that decries everything from the $20 billion BP escrow fund to TARP, Krauthammer concludes:

Everyone wants energy in the executive (as Alexander Hamilton called it). But not lawlessness. In the modern welfare state, government has the power to regulate your life. That’s bad enough. But at least there is one restraint on this bloated power: the separation of powers. Such constraints on your life must first be approved by both houses of Congress.

That’s called the consent of the governed.

It’s hard to know where to begin here. First, Krauthammer and National Review didn’t utter a peep of protest when George Bush’s DOJ was issuing secret legal opinions that argued that laws against torture were irrelevant and that the Geneva Conventions — ratified by legislators — were “quaint”. In fact, they actively supported such actions using utterly twisted ends-justifies-the-means rhetoric and basically told Congress to take a hike.

But setting this aside, who did make the administrators legislators? Well, the Senate GOP Caucus did, by basically grinding all Senate business to a halt:

In other words, the Republican party — which overwhelmingly lost the last two elections — has orchestrated a grand strategy to cripple the Congress and prevent legislating. They won’t lay out an agenda for the upcoming November elections. They claim that regardless of the results of those elections, they will only accept conservative policy “compromises.” They won’t even permit the staffing of the Federal Reserve during a major economic crisis. They are, in essence, arguing that Congress should do nothing.

Ironically, in the tweet immediately following a link to Krauthammer’s piece, Lopez says, “every democrat and retiree, especially, should be pressured to agree to not be lame” and links to this pledge by Rep. Top Price that demands that Congress literally not even hold a session after the midterm election before the new Congress is convened. So if Lopez and Krauthammer want to speculate about why it is that the Congress seems to be increasingly irrelevant to policymaking, they should start by taking a long, hard look in the mirror.

Climate Change Not Working Out So Well For Drought- And Fire-Ravaged Russia

One superficially convincing thing you sometimes hear from the right about climate change is that we need to think about the upsides. Russia and Canada are giant, and they’re also cold. If the world got warmer, maybe good things would happen. The problem is that actual human civilization, including in Russia and Canada, is currently adapted to things being the way they are. When the climate shifts, it wreaks havok even in places that you might ordinarily consider “too cold.”

Consider:

Prime Minister Vladimir V. Putin on Thursday banned all exports of grain after millions of acres of Russian wheat withered in a severe drought, driving up prices around the world and pushing them to their highest level in two years in the United States.

The move was the latest of several abrupt interventions in the Russian economy by Mr. Putin, who called the ban necessary to curb rising food prices in the country. Russia is suffering from the worst heat wave since record-keeping began here more than 130 years ago.

In addition air travel is being disrupted because the fires have “clogged the skies with a stinging smog, snarled air travel and forced the military to transfer weapons away from a base near Moscow.”

CrazyTime

Kevin Drum is an optimist:

But in the longer term I think the tea party movement is more dangerous to Republicans than he lets on. There’s a limit to how crazy a party can get and still win elections even occasionally, and the tea partiers are very rapidly taking the GOP to that point and beyond. It’s probably a net benefit in 2010 — though even that’s debatable — but beyond that I suspect it’s almost pure millstone.

Drum says he has an article on this coming out for the print Mother Jones soon, so I’ll be interested to see it. But I think he’s probably wrong. The research I’ve seen offers very little support for this thesis. The price of being perceived as ideologically extreme is really pretty low. When you consider that Bill Clinton won Pennsylvania twice, then Al Gore won it, then John Kerry won it, and then Barack Obama won it by a hefty 54-44 margin. So I see no real reason to think it’s fertile ground for Pat Toomey’s brand of Club for Growth ideological extremism. But Toomey’s doing okay in the polls and if we have two more months of job losses he’ll probably win.

If there’s a problem with your party being “too crazy” it’s that you may govern poorly leading people to get sick of you and kick you out. I think that’s basically what happened in 2006 and 2008. But there are plenty of other ways for this to happen. Jimmy Carter presided over a party that was basically too ideologically incoherent to govern effectively even though his administration actually presided over a lot of underrated good initiatives with long term (and at times delicious) consequences. Barack Obama is being hamstrung not by “crazies” in his party, but by moderates who were too timid when he was politically strong and an opposition that’s not-at-all-timid in obstructing his administration’s recovery initiatives now that he’s weak.

The Looming Supreme Court Crisis

Elena Kagan cruised to confirmation, but only because the Democrats have a giant majority in the Senate. Not only are they overwhelmingly likely to lose seats in November, it’s overwhelmingly likely in general that future Senate majorities will not have 59 members. Before the 111th Senate, the most recent congress to feature such a lopsided Senate was the 61-39 95th Senate of 1977-78. That was a Senate from a different enough era that we had two Democrats from Alabama, two from Georgia, and two from Mississippi. In modern times, in other words, there’s never been a Senate this lopsided and we shouldn’t expect the situation to recur.

Thus Jonathan Bernstein’s question:

Meanwhile, the real question here is what will happen in 2011-2012. As I said, five Republican Senators — Collins, Graham, Lugar, Snowe, and the retiring Judd Gregg — defected; Ben Nelson also defected, but said he would vote for cloture. The obvious question is: what would have happened if there were only 52 or 53 Democrats in the Senate, or for that matter 48 or 49. Elena Kagan appears, by all accounts, to be a mainstream Democratic nominee; she certainly wasn’t on the short list of liberal advocates, although she was broadly acceptable to most of them. Can any Obama nominee be confirmed to the Supreme Court next year? The problem here is that compromise is almost impossible to imagine over the Court. Does anyone believe that Thune, DeMint, and the other Senators who may be running for president next year could accept any nominee from Barack Obama? And, after Bob Bennett and the rest of the primaries this year, does anyone believe that more than a handful of Republicans will stand up to the threat of a primary?

The question is sharpened further when we consider that Kagan was appointed to replace probably the most left-wing justice on the court. By most accounts, her ascension will shift the court slightly to the right. Antonin Scalia is 74 years old. Obviously, he’ll try to hold on to his seat until there’s another Republican in the White House but he may not make it. Is there any replacement a Democrat could make for him that would garner bipartisan support? I have a hard time seeing it.

The Rob Peter to Pay Paul Act of 2010

For her swansong as an elected official, Blanche Lincoln has been doing important work shepherding a bill to improve child nutrion programs (mostly school lunch, but also WIC to some extent) through the torturous logic of the United States Senate. Unfortunately, said tortured logic has ended up saddling a very worthy bill with a troubling offset. Annie Lowrey explains:

The bill, controversially, is offset mostly with cuts from the Supplemental Nutrition Assistance Program, or food stamps, already cut to help pay for the state aid bill. Congress made SNAP benefits more generous in the American Recovery and Reinvestment Act, the $787 billion Feb. 2009 stimulus bill. To pay for the Healthy, Hunger-Free Kids Act, the bill reduces some of the additional benefits, starting in a few years. Senate aides stressed that Democrats left the SNAP benefits requested in the Farm Bill untouched, and argued that tackling childhood hunger would reduce the strain on family food budgets and the SNAP program overall.

Basically we’re redistributing kids’ food assistance from dinner to lunch, and from summertime to non-summertime. Anti-poverty advocates tell me it’s definitely a good thing that the bill passed because this moves the process forward and allows for reconciliation with the House version of the bill that (no surprise) they like much better. As to whether on balance actually executing this SNAP for school lunch tradeoff would be a good thing, people seem divided (I think it’s probably good public health policy but bad economics) and mostly don’t want to take a strong position on it because they’re hoping to improve the bill before it reaches its final form.

Stephen Cohen Wins

Rep. Steve Cohen

There’s only one white person representing a majority black congressional district and apparently he’ll be around a bit longer:

With 59% of precincts reporting, Cohen leads by a whopping 79%-20%. This result so far seems identical to last cycle’s Dem primary, in which the incumbent Cohen faced a challenge that not only centered around race, but also featured seemingly anti-Semitic attacks against him.

As we’d noted earlier, Herenton had focused his campaign around race, arguing that Tennessee’s currently all-white Congressional delegation should have a black member from this majority African-American district. He even made such statements as telling the voters to “come off that Cohen plantation and get on the Herenton freedom train.”

There’s something odd about the presumption of two Cohen opponents in a row that black voters won’t pull the lever for a black guy. As is memorably observed in The Wire African-Americans have spent essentially their entire lives voting for white candidates—John Kerry, Al Gore, Bill Clinton, etc. going back as far as you like. Even those black voters who live in majority-minority House districts have cast tons of votes for white candidates for Senator, Governor, Lieutenant-Governor and other statewide offices. Most white people have little experience voting for black candidates, but all black people who vote have voted for many, many white candidates. Race-conscious voting obviously exists in the African-American community (we certainly saw it in the Clinton-Obama primary) but it’s much less prevalent than in the white community and it shows in Cohen’s lopsided margin of victory.

Private Sector Adding Jobs, State Budget Crises Killing Economy

The new unemployment report highlights the fact that the economy remains lousy and John Boehner is going to be the next Speaker of the House of Representatives. Ironically, it also demonstrates the bankruptcy of Boehner’s way of thinking. The new conservative orthodoxy has been that somehow teachers, police officers, guys who repair street signs, bus drivers, librarians, etc. don’t have “real jobs” and that police departments, roads, trains, buses, libraries, etc. don’t contribute to economic growth. In those terms, the unemployment report was actually fine—the private sector added 71,000 jobs, which isn’t the greatest number in human history but it’s okay.

The losses came from the public sector. And they were foreseeable. And they were foreseen by the President of the United States and the Speaker of the House of Representatives and the Majority Leader of the United States Senate and the majority of House members and a majority of Senators. And the President of the United States and the Speaker of the House of Representatives and the Majority Leader of the United States Senate and the majority of House members and a majority of Senators voted for bills that would have prevented that. But because in the Senate a minority of members can get their way, action wasn’t taken. Consequently, we have a horrible jobs number. Which would be bad enough, but the way the American political system works, the minority party that prevented the majority from addressing the crisis will accrue massive political benefits as a result of the collapse.

Conservatives won’t admit it today, but what we’re looking at is a major breakdown of the logic of the American political system.

Diamond on the Merits

I should add that it’s true that, as Richard Shelby says, Peter Diamond is not primarily known for his work on monetary policy. Instead he’s best known for his work on pension issues, and secondarily for his work on tax issues. That said, he’s brilliant (as anyone) and seventy years old, so he’s actually published quite a bit on a variety of topics. For example, he’s done considerably more academic research relevant to monetary policy than has Richard Shelby.

Governor Kevin Warsh, who George W Bush appointed in 2006 to no controversy, is 40 and has a JD but no advanced degree in economics or academic research in the field at all. Elizabeth Duke who Bush also nominated and who Shelby doesn’t seem to have a problem with has no advanced degree in any subject and has a bachelor’s degree in drama. Daniel Tarullo, who Barack Obama appointed and who was confirmed with no controversy, has a JD and a MA, but again no PhD. Sandra Pianalto, President of the Cleveland Fed, has an MBA and a MA but no PhD.

Not that there needs to be a rule that FOMC members should have PhDs in economics. But the point is that Diamond would clearly raise the level of macroeconomic expertise on a board that’s currently dominated by bankers and bank regulators.

Diamond in the Rough

As I’ve been saying for months now, by far the most politically tractable way of boosting the economy is for (a) the Senate to confirm Barack Obama’s nominees to the Federal Reserve Board of Governors, and (b) for those nominees to side with the “dovish” faction that wants to boost the economy. Replacing retrenchment-minded Senators with expansion-minded Senators would also work, but there’s no way for it to happen. Getting Fed Board nominees approved should be child’s play for the White House, but they had a curiously laid-back attitude about making these appointments in the first place, have been weirdly low-key about getting them confirmed, and it keeps not getting done:

The Senate sent the nomination of Peter Diamond, one of President Barack Obama’s three nominees for the Federal Reserve Board, back to the White House because of objections from at least one lawmaker.

The office of the executive clerk of the Senate said the procedural move occurred as part of actions taken on nominees without debate before the chamber left for a summer break. Don Stewart, a spokesman for Senate Republican Leader Mitch McConnell, said he expects the White House will resubmit the nomination.

While Diamond, 70, may still win confirmation, it’s a snag for the Massachusetts Institute of Technology economics professor who once taught Fed Chairman Ben S. Bernanke. Alabama Senator Richard Shelby, the senior Republican on the Banking Committee, said last week that Diamond, while a “skilled economist,” may not be qualified to make decisions on monetary policy.

Shame on McConnell and his colleagues for doing this. Holding up crucial jobs over BS in a time of mass unemployment is horrifying. But at least they appear to appreciate the stakes. The longer the Fed stays deadlocked the longer the economy will stay stuck in neutral, and the better conservative challenger candidates will do in the fall. If Rahm Emanuel and Harry Reid don’t understand how this works, I’m sure Christina Romer could explain it between now and September 3.

68% and 60%

In response to yesterday’s contention that “Insofar as [Chinese real estate] prices soared 68 period in one year, 60 percent decline doesn’t sound like much of a worst-case scenario” commenters both here and at Marginal Revolution seem to think I’ve made some kind of mathematical error. Their point is that if you start at $100 then soar to $168 and then decline 60 percent you get all the way to about $68.

That’s quite true, but I don’t think it undermines the point at all. The point is that if prices can swing 68 percent in one direction they can also swing 68 percent in the other direction. The secondary point is that a stress test is supposed to examine not just the most likely case but some kind of plausible version of a worst-case scenario. And again, the existence of 68 percent increases in some markets indicates that Chinese real estate prices are extremely volatile. Is it crazy to think they could be equally volatile on the downside? I don’t see why. I’m not going to hazard a prediction about the Chinese economy or dispense foreign real estate investment advice, but I think it’s common sense that if you’ve seen huge price swings in the recent past you need to consider the possibility that future swings will get even bigger, not simply assume they’ll be smaller.

Endgame

Where the vampires meet:

— Paradoxically, with Kagan’s confirmation done gay marriage is now mandatory despite sharia being in force.

— This article about the high age at which Finnish people complete college really ought to mention that they have nearly-universal male conscription. It’s relevant!

— Mitch McConnell’s thinks that all electoral outcomes should lead to center-right policies.

— If you love the Senate, you need to embrace reform.

— Schumer & McCaskill want to make it harder to cross the border illegally by making it more expensive to do so legally.

Nobody likes Stars’ post-Set Yourself on Fire work, but I do damnit! This is “We Don’t Want Your Body”.

Hard to Avoid Boosting Outsourcing

USAID seems to have a program in India that will “teach workers there advanced IT skills like Enterprise Java (Java EE) programming, as well as skills in business process outsourcing and call center support. USAID will also help the trainees brush up on their English language proficiency.”

An outraged David Sirota says:

Now look, I’m all for a robust foreign aid budget – we don’t do nearly enough to help the developing world. However, using foreign aid money to specifically help private corporations “take advantage of low labor costs” in the developing world – that’s not “aid,” that’s rank taxpayer subsidization of for-profit exploitation.

I think it’s hard to say. The fact of the matter is that one very reasonable thing to do if you’re Indian and can do some computer programming and speak English is get into business process outsourcing. It’s also the case that if you’re a company with some business processes that can be profitably outsourced to an Indian firm, you’re likely to do it. Suppose that instead of this program, we spent the money on building schools. Well, what if those schools taught math and English, skills that graduates could later put to use doing some business process outsourcing? Or what if we vaccinate some kids, and they grow up to learn English and computer programming and then they get into business process outsourcing?

I don’t want to defend this specific program in specific detail, but the point is that any efforts we make to improve public health, infrastructure, or education in a poor foreign country is extremely likely to lead to an increase in the number of for-profit firms taking advantage of new opportunities to source work to low-wage locales. Personally, I’m fine with that. I believe borders should be open to the flow of goods, services, and people and look forward to continued increases in India’s level of prosperity. But I think there’s a problem here for trade-skeptics. Unless we close our borders to trade, anything we do to help poor countries improve their productive capabilities will lead to more trade and more outsourcing. So are all effective aid programs, in effect, “rank taxpayer subsidization of for-profit exploitation”?

Can’t Imagine What Could Go Wrong

Heck of a job:

“Buy new with $1,000 down,” the advertisement says, the words resting atop a trim green clapboard house offset by a bright blue sky. “The time has come. Stop wasting rent check after rent check and start building equity in your own home. And with only $1,000 down, affordable monthly payments and no private mortgage insurance required, the dream is closer than you think.”

It sounds too good to be true. But it is true. This offer does not come from a subprime lender, looking to reel in thousands of unqualified and ill-advised homebuyers, only to slap them with add-ons, fees and variable rates. It is not a teaser or a trick. The advertisement references a program initiated by the National Council of State Housing Agencies and Fannie Mae, the taxpayer-backed, government-sponsored enterprise that buys up mortgages from lending banks.

Annie Lowrey’s story details the official reason why this time it’ll be different. As it always is. But I just didn’t expect this level of denial to re-emerge so quickly.