Brad DeLong continues his defence of Greenspan’s failure to pop the bubble, saying:

“I don’t agree with Stephen Roach that the Federal Reserve should have made interest rates higher and tried to make unemployment higher in the late 1990s in order to diminish investment spending and collapse the stock market bubble. In my view, the time to deal with any problems created by the bubble’s collapse is when the bubble collapses–not before. Relative to a lower-stock prices, lower-investment, one-percentage-point-of-unemployment-higher bubble-popping path for the U.S. economy in the late 1990s, the actual path that we took gave us an extra $1 trillion of real production.

You can complain about how that $1 trillion was distributed. You can regret that a large chunk of it–$200 billion?–was spent on investments that have much lower social value looking forward than their social cost. You can fear the damaging consequences of banruptcy and fraud on the economy. But you have to argue that these drawbacks from the fallout are quantitatively very large for the cost-benefit analysis to go Stephen Roach’s way. ”

Coincidentally, I argued earlier this year that the real loss from bubble-related investments was close to $1 trillion. My February
opinion piece in the Fin, started with this:
” One trillion US dollars. A million million. It’s an unimaginable sum of money. It’s more than the US would spend in development aid in 100 years, and more than enough to fix many of the world’s problems once and for all.

Yet $US 1 trillion is a conservative estimate of the amount of real wealth that has been dissipated in bad investments during the ‘New Economy’ bubble of the last few years”

Admittedly, my estimate included $150 billion spent by Europeans on 3G licenses and other adventures. On the other hand, I didn’t look at the energy sector, where Enron alone dissipated tens of billions, or at excesses in the housing market.

Based on these numbers, and given that there are more failures still to come, I think that when the bills are all paid, the benefit to cost ratio will be will below 1 (that is, the bubble will turn out to be a bad thing).

For what it’s worth, I don’t think the big problem was not interest rate policy, but rather the failure to use other instruments, such as an increase in margin requirements for share purchases, and the fact that, after a brief expression of concern about “irrational exuberance”, Greenspan became a cheerleader for the boom. On top of this, there’s the more general loss of nerve arising from two decades of financial deregulation. Greenspan has been willing to adjust interest rates, but not to interfere with market outcomes.

Both Tim Blair and Professor Bunyip complain that Mark Steyn,columnist for the Spectator and Telegraph, doesn’t get enough of a run in the Australian media. One possible explanation is that Steyn’s columns rely heavily on gross distortions of the truth or outright factual errors.
For example, Tim cites a column, published inter alia in the Chicago Sun-Times under the headline Beware multicultural madness, in which Steyn writes of the 55-year jail sentence imposed on gang rapist X (now named as Bilal Skaf):
“But inevitably, it’s the heavy sentence that’s ”controversial.” ‘
In support of this claim he quotes a single letter to the SMH. As we know, he could also have cited a handful of lawyers and legal academics. A reader in Chicago would have no way of knowing that this sentence attracted the uniform support of politicians, the media and the vast majority of legal commentators (and bloggers), or that the handful of critics Steyn mentioned were more than outweighed by those calling for a stiffer sentence.

But this kind of distortion is par for the course in the commentariat. What really struck me was this schoolboy howler, cited with approval by Tim and also, as I recall, by Miranda Devine.

“Of the 20th century’s three global conflicts – the First, Second and Cold Wars – who was on the right side each time? Germany: one out of three. Italy: two out of three. For a perfect triple, there’s only Britain, America, Canada, Australia, New Zealand. ”

When writing or quoting this, Steyn, Blair and Devine didn’t manage to recall the phrase “in Flanders fields”. For others who don’t recall, Flanders is in Belgium, a country which bore the brunt of both World Wars and hosted the headquarters of NATO during the Cold War. It’s not a very big country, and easy to overlook. But there’s a bigger reason why Steyn and friends forgot about Belgium.
Its southern neighbour was also on the Allied frontline in both World Wars, and on the Western side in the Cold War. Steyn’s whole ideological position would collapse if he had to admit that France was on the side of the good guys. (I await lame quibbles about Petain and de Gaulle with weary expectation).

As far as I know, this Doonesbury strip is the first occurrence of a passing allusion to blogging in popular culture, as opposed to one of those “what are the geeks up to now?” articles we’re all sick of.

A big welcome to Peter Martin of SBS. I’ve added a bunch of links as well as deleting some that seem to be dead or (IMHO) brain-dead.

Phineas Finn by Anthony Trollope. The first of the “Palliser Novels”, which I plan to reread in sequence.
Battle Cry of Freedom, by James McPherson. The best one-volume history of the American Civil War, it certainly helps me to think about the question of a “just war”. I have formulated my own answer to the question of why the South lost. At least from mid-1862 and the Emancipation Proclamation, the war was one of liberation. The slave-based social system collapsed wherever the Union armies arrived. Hence, the South could not pursue the best military strategies for an independence movement, temporarily surrendering places to keep an army in the field. Even so, it was a near thing, and many of the gains were thrown away after the defeat of Reconstruction.

Like Ken Parish, I was struck by the good sense of Adele Horin’s piece on crime. As far as I can see, there’s very little evidence that prison sentences have much effect in either deterring crime or rehabilitating criminals. On the other hand, for hardened criminals, there’s a positive benefit to society from incapacitation alone – that is, the fact that while they are locked up, criminals can’t do much in the way of crime. The typical calculation, reproduced here, is that it costs $25 000/ year to lock up a criminal, but the social damage prevented is much greater. (This argument doesn’t apply to some sorts of crime, such as drug-dealing. The problem here is that, to the extent that drug dealers are removed from the trade, normal market processes will raise returns to drugdealing and attract new entrants.)
If this is right, then, once we reach the conclusion that someone is a professional criminal, the best thing to do is to lock them up until they’re too old for crime. But if we assume that this means 40 years or so behind bars, the cost is $1 million apiece.
If this reasoning is anywhere near right, the argument about being “tough on the causes of crime”, gains an incredible amount of force. For each kid we manage to save from becoming a career criminal, society is better off by $1 million (and that’s for the ones we catch – successful criminals are even more costly). We could pay for an awful lot of bleeding heart social programs with that kind of money. And, given that most juvenile institutions appear to be training grounds for adult criminals, there’s a strong case for second chances and slaps on the wrist for young offenders, based on the observation that a lot of them grow out of it naturally.

The latest special issue of the Scientific American deals with Time and Brad DeLong has some interesting thoughts on the same subject. Both Brad and the philosophers writing in SciAm find it very puzzling and problematic that, according to relativity theory, there’s no objective way of dividing time into past, present and future.
I must say I don’t find this problematic at all, at least at a fundamental level. Of course, it’s surprising and counterintuitive that if you send a person into space at the speed of light, they’ll come back younger than a twin who remained on earth. But that’s only surprising in the ‘isn’t science amazing’ way that a microwave oven is surprising the first time you see it. I wouldn’t have thought you could boil water while not heating the cup containing the water, but now I don’t give it a second thought.
As regards past, present and future, the observation that has had the most effect on my thinking was not made by Einstein or Feynmann, but by David Hume, a couple of centuries ago.When asked how he, as an atheist and nonbeliever in eternal life, could be unafraid of death and non-existence, he replied that no-one seemed to be worried about the uncounted centuries of non-existence that had passed before they were born.
When I think about this now, the division that’s real for me is not between past and future, but between those things I can remember and those I can’t. My past is the things I can remember. Of course, I assume that the same is true for everyone else, and that, in the manner of an archeologist with tree rings, we can patch together a consistent chronology from our joint memories, and an even better one with the aid of scientific instruments. But there’s nothing in this to make me think that this chronology should match up exactly with one generated at the other end of the galaxy or by someone moving at 100 000km/second.
There’s obviously a sense in which the past is accessible and the future is not. But I don’t know that even this is fundamental. I feel a lot less fundamentally uncertain about tonight’s episode of The Bill than I do about what life was really like for David Hume and his contemporaries or what’s happening right now (modulo relativistic effects) in the neighborhood of Alpha Centauri.

The name change at Cato’s Project on Social Security Choice is far from complete. Clicking on “About the Project …” takes you to a page headed “About the Project on Social Security Privatization”, but the boilerplate at the bottom, asserts copyright for the Project on Social Security Choice. Maybe this is deliberate ambiguity, or maybe they need to put a bit more work into their website

In a total reversal of normal etiquette, I welcomed new blogger Alex Robson in person quite a while ago, but have failed to do so in blogspace until now. Read his riff on “Bob and Mary Stringbag” (Amanda V’s imaginary couple). Alex has also revealed the secret poet hidden inside every economist. Stay tuned for some contributions on this blog.

Paul Krugman is usually right up to the minute. But the main point of his latest piece, namely, that the US Republicans have backed away from using the term “privatization” to describe their plans for Social Security individual accounts, was in Salon’s Spinsanity back in June.

And the kicker for his column is this para:
“And what’s the name of the Cato project to promote personal accounts? Why, the Project on Social Security Privatization, of course.”

In fact, as was reported in this blog, back in July, the Cato Institute has followed the Republican party line, and changed the name to Project on Social Security Choice. Of course, it will be a bit embarrassing for them to write in with a correction, since it simply underlines the main point.

For those interested in an economic analysis of some of the key issues, look out for September’s American Economic Review, which will include an article by me and Simon Grant.