Cohen, Nocera and Collins

December 13, 2014

In “The Way Back to Iran” Mr. Cohen tells of how a young Iranian refugee quit the boardrooms of London to take a risky stake in the land of his birth.  Mr. Nocera, in “Prosecuting Insider Trading,” says recent overturned convictions have changed the rules.  Ms. Collins offers a “Dinner Party Political Primer” and says whatever you do, don’t confuse the cromnibus with the cronut, the pastry that’s half-croissant and half-doughnut at your holiday party.  Here’s Mr. Cohen:

Rouzbeh Pirouz can still hear the raised voices, the sobbing. There was a list at Tehran airport. If you were on it you could not leave. Aged 7, he passed through the controls, after his mother. His father, a prominent businessman, did not follow. Agents of the newly birthed Islamic Republic stopped him, demanding that he provide an accounting of his activities under the shah. “Go without me!” he insisted. “Never!” Rouzbeh’s mother screamed. Over the head of the small boy, disabled by a neuro-muscular condition, a parental argument raged. They left in tears, without his father. It was 1980, a year after the Iranian revolution, the turning point in his life, the line of fracture. Everything changed.

Vancouver, a quiet place on the western edge of Canada’s vastness, became his home. His family, once no more than a few Tehran blocks apart, was scattered across North America and Europe. The family holdings — orange groves, a mine, property — were expropriated. His father handed over a pile of cash to the enforcers of Ayatollah Khomeini’s theocracy — and was allowed to go. He insisted that Farsi be spoken at home. His language, at least, they could not take from him. It was a link. But Iran was little more than an abstraction to the young Pirouz, a faraway country. “It was the place I’d left,” he says, “and would never go back to.” He went to Stanford, then on to Harvard’s Kennedy School, then to Oxford with a Rhodes scholarship. He imagined for himself a comfortable North American life.

Ayatollah Khomeini globalized Iranians. They were thrust, like Pirouz, from their family circles. The dispersal was painful. The culture, habits and landscape of Iran lay too deep in the new exiles to be completely erased. They adapted, were often successful, and acquired a worldly sophistication. Some ventured back, yielding over time to the tug of memory, whether personal or transmitted. They stayed a few days, or weeks, or perhaps longer, and discovered a country full of vitality, somehow familiar, yet isolated and repressive. The revolution sent Iranians into the world but severed Iran from it. Diaspora and homeland diverged. For those who had fled the Islamic Republic it was very difficult, if not impossible, to connect their new lives to the old.

Such connection, if established, could be a game changer in these troubled times of fracture, doldrums and beheadings. Iran, 35 years after the birth of the Islamic Republic, is the great outlier of the global economy, the last sizeable emerging market to stand apart from integration. Iran’s economy, despite sanctions and isolation, is one of the world’s 20 biggest; its gas reserves are the world’s second-largest. “It will make a gigantic difference when an economy this size joins the world, with implications for both Western and Asian economic interaction,” said Hamid Biglari, who left Iran in 1977 to study in the United States and went on to become the vice chairman of Citicorp, before setting up his own investment company. “A black hole will be connected to the rest of the universe.”

That is the objective for which Pirouz now works. Iran surfaced in his psyche out of nowhere. He was at Oxford, casting around for a subject for his doctorate. A professor suggested Iran; the idea was tempting enough to coax him back to the scene of childhood trauma. On arrival in Tehran he looked around and for the first time in his adult life saw a lot of people who looked like him. His home was gone, yet some sense of comfort remained. Nowhere else felt quite as familiar. Then chance intervened: a fellow Oxford student’s idea for an Internet business, the heady late 90’s dotcom madness, the herd instinct of people plowing money into the company, a timely sale before the crash. The head of his Oxford college, Sir Keith Thomas, thought Pirouz was mad to give up his doctorate for digital shenanigans. “For God’s sake,” he said, “surely you can get a deputy to do this for you!” But Pirouz made the right call. Not yet 30, he found himself with enough to be very comfortable and acquire an office in Mayfair.

He was quickly bored. Money rained down on central London as if a helicopter had unloaded buckets of the stuff. There were thousands of people like him; in Iran there would be very few. When he talked of his itch to go back, friends said he was crazy. His parents were desperately worried; this would end in tears. London attracts global money because there’s the rule of law. In the Islamic Republic, one could disappear into a building with no address, no name, no marking on the door, and sit facing a wall while the same questions and accusations were repeated week after week. The risk was always there.

But the opportunity to do something meaningful, to change ways of thinking in a country where some 60 percent of the population is under 30, was huge. Conspiracy theories are fundamentally paralyzing because their message is that whatever you do, it will not make a difference. Iran, with its history of periodic domination by outside powers, was awash in them. “Iranians never subscribe to the face-value theory of analysis,” Pirouz says. “It might help them if they did.” He decided to invest in the country and its youth to demonstrate that change was possible.

Tehran became Pirouz’s principal home. He set up an investment fund, Turquoise Partners (in time for a bull run on the Iranian stock market that lasted several years), and then devoted his energy to his pet project, the Iranian Business School (IBS), conceived in 2007. Iranians, he had found, are good traders but poor managers. Inefficiency is rife in a bloated state sector. Engineers are given management jobs without having any idea how to manage. Knowledge of the global economy and best practices is scarce. In all, the need for knowledge of advanced business management concepts in a country isolated for 35 years was patent.

So the school, loosely modeled on the Indian School of Business in Hyderabad, and the China Europe International Business School in Shanghai, made sense. As with India and China it could help, at the right moment, to propel Iran into the global economy. Classes, which started in 2010, offer postgraduate training to future business leaders; hundreds of Iranian men and women have already attended. A significant expansion is now underway. On Oct. 4, 2013, the school received an Office of Foreign Assets Control license from the U.S. government, allowing it to raise money as a charity in the United States, bring American faculty to teach in Tehran and pay them. It is a bridge where very few exist.

“The school will help raise awareness within the Iranian-American business community and open avenues for them to contribute,” Biglari, who chairs the American board of IBS, said. To Pirouz, such connections are critical. They could constitute a turning point. He has always believed that isolating Iran only serves the hard-liners in the end. Sanctions have hurt Iran but you can find the latest iPhone in Tehran at a price: Cartels aligned with the Revolutionary guards grow fabulously wealthy smuggling from Dubai. “An Iran integrated in the global economy, with a growing private sector, will be good for Iran and the world,” Pirouz says. He is committed for the long-term. Haste, goes an Iranian saying, is the devil’s work.

There is an enormous amount to be done. Mismanagement has been the curse of Iran. Banks, obliged to make nonperforming loans to state companies, are largely insolvent. A privatization program was bungled. There are water shortages. The Internet goes out all the time. The nuclear program, the object of the overwhelming bulk of attention paid to Iran, has itself been a colossal exercise in mismanagement, whatever else it may be: The cost of generating electricity from the nuclear facility at Bushehr has been beyond astronomical. A young population is frustrated, tired of Iran’s pariah status, and eager to join the world, as President Hassan Rouhani has promised it will.

This is a world, increasingly, of surface conflict and hidden connection. Of course, in the event of global war, the former will crush the latter. Short of that, it is important to see events on two levels — the confrontations between states and the cooperation between citizens empowered by technology and often, in this age of massive migrant flows, tied by family across continents. Pirouz is one such active citizen.

The Iran debate is always framed in the context of confrontation. Entire cottage industries deploy themselves with ardor to fan conflict. But Iran’s isolation serves nobody. There are real strategic differences between the Islamic Republic and the West that may still frustrate attempts to move beyond the nuclear issue and begin a process of fruitful reintegration. These ideological differences, however, are no greater than those between China and the United States at the time of the Shanghai Communiqué of 1972. It is this belief — in the benefit of connection and the sterility of separation — that has prodded Pirouz into an unlikely return. In the right circumstances, many in the diaspora could follow. Individuals can still defeat entrenched interests and lobbies, good sense prevail over the shallow cacophony.

“Did I come home? Not exactly,” Pirouz says. “The world of my childhood is gone. But I discovered in myself a great yearning for Iran that I did not want to sacrifice to assimilation.” Even his father now spends time in the country that took everything from him. It is, despite everything, his. What remains, for the completion of this story of full circles, is for Iran to return to the world. It is past time.

Now here’s Mr. Nocera:

In the summer of 1991, the United States Court of Appeals for the Second Circuit overturned the conviction, for stock manipulation, of a man named John Mulheren.

Mulheren was a stock trader who had been arrested three years earlier, at the behest of Rudolph Giuliani, then the U.S. attorney for the Southern District of New York. Although Mulheren’s actual indictment didn’t take place until a few months after Giuliani left office, the case was still considered part of his legacy. As U.S. attorney, Giuliani had gone hard at Wall Street, forcing a guilty plea from Michael Milken, the most important financier of his day, and getting Ivan Boesky, a well-known arbitrageur, to turn state’s evidence. According to The Los Angeles Times, by 1988, Giuliani had brought five times as many insider-trading cases as had ever been brought before in his district.

The Mulheren case spoke to another part of Giuliani’s legacy, however. There were examples of Giuliani forcing Wall Street executives to make well-publicized perp walks and then never bringing charges. Defense lawyers complained of heavy-handed tactics, and cases that were brought with scant evidence. Indeed, the evidence against Mulheren was so thin that the Second Circuit’s unanimous decision said that “no rational trier of fact could have found the elements of the crimes charged here beyond a reasonable doubt.” The New York Times described the ruling — and several other reversals that had preceded it — as a “stinging blow” to the U.S. attorney’s office.

On Wednesday, 23 years later, the very same appeals court made a very similar ruling in overturning the convictions, for insider trading, of two hedge fund executives, Anthony Chiasson and Todd Newman. This time the U.S. attorney for the Southern District was Preet Bharara, who, like Guiliani, has built his reputation by prosecuting Wall Street wrongdoing, primarily insider trading. He put Raj Rajaratnam, the hedge fund big shot, in prison for 11 years. He gained a conviction against Rajat Gupta, a former top executive at McKinsey, the august consulting firm. In all, Bharara has ensnared almost 90 people who have either been convicted of, or pleaded guilty to, insider trading.

But as the reversal on Wednesday suggests, Bharara, like Giuliani, has sometimes gotten out ahead of his skis, bringing indictments that were not necessarily warranted by the evidence. Judge Barrington Parker, who wrote the Second Circuit’s decision, was scathing in his appraisal of the evidence, saying that there was no proof that the two “tippees” (as they are called in the ruling) knew they were trading on insider information, or that the tippers, who worked at Dell and Nvidia, had received any personal benefit for their tips. The court reversed the case “with prejudice,” meaning that Bharara won’t be able to retry the two men.

Here is the dirty little legal secret about insider trading: It’s not always illegal. In fact, there is no law on the books banning the practice; rather, it comes under the general purview of securities fraud. Over the years, prosecutors and the Securities and Exchange Commission have worked to expand what constitutes insider trading — and there have been times when the courts have refused to go along. Indeed, in his ruling, Parker relied on Supreme Court decisions that an insider trade was against the law only if the tippees knew they were getting inside information — and that they also knew that the tipper got a personal benefit from his leak.

Yet in the cases of Chiasson and Newman, the original tippers were never prosecuted for insider trading. “That is what was so baffling,” said Peter J. Henning, a law professor at Wayne State University who writes the White Collar Watch column for Dealbook in The New York Times. “How do you not go after the tipper?” In effect, said Henning, you can’t have a corrupt tippee if you don’t have a corrupt tipper. What’s more, Chiasson and Newman received the information third- or fourth-hand, and they had no idea who the tippers were. So how could they know if the tippers had done something corrupt?

Does this mean that Chiasson and Newman were paragons of virtue? Not necessarily. They could very well have known they were trading on inside information. Even so, given the court’s definition of insider trading, they were free to trade on that information. That is what Bharara ignored in bringing those cases. (A third Wall Street trader, Michael Steinberg, who worked for Steven Cohen’s hedge fund, SAC Capital, is also likely to have his conviction reversed on the same grounds.)

At a Dealbook conference this week, Mary Jo White, the chairwoman of the S.E.C., fretted that the Second Circuit’s ruling was “overly narrow.” And, in his statement after the ruling, Bharara said that he feared it would “limit the ability to prosecute people who trade on leaked inside information.”

That’s true, of course, if you agree with their definition of insider trading. Unfortunately for them, the courts don’t.

And now here’s Ms. Collins:

The burdens of being an Informed Citizen are many. This weekend, you’ll probably be going out to some holiday party or dinner where your friends will expect you to have an opinion about the monster spending bill that’s been staggering through Congress.

Consider this an opinion primer.

The bill is called the cromnibus. That’s Congress-speak for continuing resolution and omnibus. You do not need to know about this. However, it is crucial that you avoid confusing the cromnibus with the cronut, a pastry that’s half-croissant and half-doughnut. “Like the cronut, but less delicious,” twittered Ashley Parker of The Times.

The worst thing in it is a section — dropped into the 1,600-page measure at the last minute without any hearings — that allows banks to use their customers’ federally guaranteed deposits to buy credit default swaps. Also other investments with impossible names that we learned to hate during the Wall Street bailout.

Most of the language in the section came directly from Citigroup. I rest my case.

The second-worst thing in the bill allows rich people to make up to $1.5 million in campaign contributions every two-year election cycle. Or $3 million if they happen to be a married couple. God knows how much if they happen to be a wealthy extended family.

Republican leaders suggested this was necessary in order to provide $12.6 million for pediatric cancer research. I am not even going to try to take you down the creative path that led to this connection. You don’t want to bring it up at a dinner party anyway because it will cause the other guests to start throwing food.

Let’s zero in on something simpler, like tired truck drivers.

Yes! The bill loosens the rules that currently limit drivers to 14 hours of work a day, 11 of which can be behind the wheel.

Already, I feel you getting worried, gentle reader. Yes, the person in that monstrous vehicle that’s passing you on the highway at what appears to be about 150 miles an hour may have been sitting there for 10-and-a-half hours, in a marathon he began after three hours of effort on the loading dock.

Last year, Congress reduced the maximum amount of time a driver could be on the road from 82 to 70 hours a week. Then, during the mandated rest period, said driver had to have two consecutive days during which the early morning hours of 1 to 5 a.m. were available for sleep.

“These new rules were adopted after a very thorough, time-consuming administrative process. In fact too time-consuming,” said Senator Richard Blumenthal of Connecticut. He leads a subcommittee on surface transportation that conducted multiple hearings on this very matter.

We’ve really hardly gotten started on the new rules. Yet here in good old cromnibus, there’s a provision returning to the old way of doing business.

The sponsor of the change is Susan Collins of Maine. We generally think of Collins as an extremely sympathetic figure, given that she’s possibly the entire Moderate Republican Caucus in the Senate.

She is also the sponsor of another controversial provision in the spending bill, which requires the Women, Infants and Children program to allow low-income pregnant women and mothers to buy white potatoes with their government food money. We had a long phone conversation about this matter, and I have to tell you that Collins is very forceful on this subject. Her bill is only about raw potatoes, not French fries or chips. And WIC will let you buy iceberg lettuce. And did you know that they subsidize potato purchases at farmers’ markets but not grocery stores? It’s way more complicated than you think.

As to the truck drivers, Collins thinks that instead of doing a study on how well the new rules work, we should go back to the old plan and study that. And, anyway, the 1 to 5 a.m. rule “pushes truck traffic into the early morning rush hour.” This is an excellent topic for dinner-table discussion. Would you rather share the highway with a truck whose driver has messed-up circadian rhythms or a truck that’s in front of you when you’re trying to get to work in the morning?

Meanwhile, during the Senate debate, a Democrat gave Collins particular credit for getting more money for mass transit and airport improvements. “It is a compromise piece of legislation,” Patty Murray of Washington reminded her colleagues.

True that. It’s been so long since we had any big compromises that we’ve forgotten how unappetizing they look. Is this one worth it, people? Would you trade better airport traffic control for fewer drivers who get overnight shut-eye? Would you kill off campaign finance reform to save the Obama immigration and health care programs? Let me know how the dining room votes.

And no matter what the result, that thing about the banks is really terrible. Worst. Holiday. Present. Ever.

Brooks and Krugman

December 12, 2014

In “In Praise of Small Miracles” Bobo says behavioral economics has given us amazing new policy options to solve local and international problems.  It’s his usual crap, but the comments were so wonderful I couldn’t decide between “mike vogel” of NY, who said “David, there is much proof that yelling at someone has zero affect on his or her behavior. For example, did you ever read your column’s comments section?” and “Bob” from SE PA who said “Instead of writing the thoughtful and critical replies posted here, can we instead come to The New York Times and scream our criticism of David’s work from the hallway just outside his office? Under David’s theory, the quality of his work would then improve.”  Prof. Krugman has a question in “Mad as Hellas.”  He says Greece appears to be in crisis again. Will we learn the right lessons this time?  Here’s Bobo:

Most of us don’t save enough. When governments try to encourage saving, they usually enact big policies to increase the incentives. But, in Kenya, people were given a lockable metal box — a simple place to put their money. After one year, the people with metal boxes increased savings by so much that they had 66 percent more money available to pay for health emergencies. It would have taken a giant tax reform to produce a shift in behavior that large.

Too many people die in auto accidents. When governments try to reduce highway deaths, they generally increase safety regulations. But, also in Kenya, stickers were placed inside buses and vans urging passengers to scream at automobile drivers they saw driving dangerously.

The heckling discouraged dangerous driving by an awesome amount. Insurance claims involving injury or death fell to half of their previous levels.

These are examples of a new kind of policy-making that is sweeping the world. The old style was based on the notion that human beings are rational actors who respond in straightforward ways to incentives. The new style, which supplements but does not replace the old style, is based on the obvious point that human beings are not always rational actors. Sometimes we’re mentally lazy, or stressed, or we’re influenced by social pressure and unconscious biases. It’s possible to take advantage of these features to enact change.

For example, people hate losing things more than they like getting things, a phenomenon known as loss aversion. In some schools, teachers were offered a bonus at the end of their year if they could improve student performance. This kind of merit pay didn’t improve test scores. But, in other schools, teachers were given a bonus at the beginning of the year, which would effectively be taken away if their students didn’t improve. This loss-framed bonus had a big effect.

People are also guided by decision-making formats. The people who administer the ACT college admissions test used to allow students to send free score reports to three colleges. Many people thus applied to three colleges. But then the ACT folks changed the form so there were four lines where you could write down prospective colleges. That tiny change meant that many people applied to four colleges instead of three. Some got into more prestigious schools they wouldn’t have otherwise. This improved the expected earnings of low-income students by about $10,000.

The World Bank has just issued an amazingly good report called “Mind, Society and Behavior” on how the insights of behavioral economics can be applied to global development and global health. The report, written by a team led by Karla Hoff and Varun Gauri, lists many policies that have already been tried and points the way to many more.

Sugar cane farmers in India receive most of their income once a year, at harvest time. In the weeks before harvest, when they are poor and stressed, they score 10 points lower on I.Q. tests than in the weeks after. If you schedule fertilizer purchase decisions and their children’s school enrollment decisions during the weeks after harvest, they will make more farsighted choices than at other times of the year. This simple policy change is based on an understanding of how poverty depletes mental resources.

In Zambia, hairdressers were asked to sell female condoms to their clients. Some were offered financial incentives to do so, but these produced no results. In other salons, top condom sellers had a gold star placed next to their names on a poster that all could see. More than twice as many condoms were sold. This simple change was based on an understanding of the human desire for status and admiration.

The policies informed by behavioral economics are delicious because they show how cheap changes can produce big effects. Policy makers in this mode focus on discrete opportunities to exploit, not vast problems to solve.

This corrects for a bias in the way governments often work. They tend to gravitate toward the grand and the abstract. For example the United Nations is now replacing the Millennium Development Goals, which expire in 2015, with the Sustainable Development Goals.

“The Millennium Development Goals are concrete, measurable and have an end-date, so they could serve as a rallying point,” says Suprotik Basu, the chief executive of the MDG Health Alliance. “One good thing about the Sustainable Development Goals is that they’re being written through a bottom-up consensus process. But sometimes the search for consensus leads you higher and higher into the clouds. The jury is out on whether we will wind up with goals concrete enough to help ministers make decisions and decide priorities.”

Behavioral economics policies are beautiful because they are small and concrete but powerful. They remind us that when policies are rooted in actual human behavior and specific day-to-day circumstances, even governments can produce small miracles.

I want Bobo to start screaming at bad drivers.  As a Republican he’s sure to approve of gun possession, so when he gets shot he’ll be understanding.  Here’s Prof. Krugman:

The Greek fiscal crisis erupted five years ago, and its side effects continue to inflict immense damage on Europe and the world. But I’m not talking about the side effects you may have in mind — spillovers from Greece’s Great Depression-level slump, or financial contagion to other debtors. No, the truly disastrous effect of the Greek crisis was the way it distorted economic policy, as supposedly serious people around the world rushed to learn the wrong lessons.

Now Greece appears to be in crisis again. Will we learn the right lessons this time?

What happened last time, you may recall, was the exploitation of Greece’s woes to change the economic subject. Suddenly, we were supposed to obsess over budget deficits, even if borrowing costs were at historic lows, and slash government spending, even in the face of mass unemployment. Because if we didn’t, you see, we could turn into Greece any day now. “Greece stands as a warning of what happens to countries that lose their credibility,” intoned David Cameron, Britain’s prime minister, as he announced austerity policies in 2010. “We are on the same path as Greece,” declared Representative Paul Ryan, who was soon to become the chairman of the House Budget Committee, that same year.

In reality, Britain and the United States, which borrow in their own currencies, were and are nothing like Greece. If you thought otherwise in 2010, by now year after year of incredibly low interest rates and low inflation should have convinced you. And the experience of Greece and other European countries that were forced into harsh austerity measures should also have convinced you that slashing spending in a depressed economy is a really bad idea if you can avoid it. This is true even in the supposed success stories — Ireland, for example, is finally growing again, but it still has almost 11 percent unemployment, and twice that rate among young people.

And the devastation in Greece is awesome to behold. Some press reports I’ve seen seem to suggest that the country has been a malingerer, balking at the harsh measures its situation demands. In reality, it has made huge adjustments — slashing public employment and compensation, cutting back social programs, raising taxes. If you want a sense of the scale of austerity, it would be as if the United States had introduced spending cuts and tax increases amounting to more than $1 trillion a year. Meanwhile, wages in the private sector have plunged. Yet a quarter of the Greek labor force, and half its young, remain unemployed.

Meanwhile, the debt situation has if anything gotten worse, with the ratio of public debt to G.D.P. at a record high — mainly because of falling G.D.P., not rising debt — and with the emergence of a big private debt problem, thanks to deflation and depression. There are some positives; the economy is growing a bit, finally, largely thanks to a revival of tourism. But, over all, it has been many years of suffering for very little reward.

The remarkable thing, given all that, has been the willingness of the Greek public to take it, to accept the claims of the political establishment that the pain is necessary and will eventually lead to recovery. And the news that has roiled Europe these past few days is that the Greeks may have reached their limit. The details are complex, but basically the current government is trying a fairly desperate political maneuver to put off a general election. And, if it fails, the likely winner in that election is Syriza, a party of the left that has demanded a renegotiation of the austerity program, which could lead to a confrontation with Germany and exit from the euro.

The important point here is that it’s not just the Greeks who are mad as Hellas (their own name for their country) and aren’t going to take it anymore. Look at France, where Marine Le Pen, the leader of the anti-immigrant National Front, outpolls mainstream candidates of both right and left. Look at Italy, where about half of voters support radical parties like the Northern League and the Five-Star Movement. Look at Britain, where both anti-immigrant politicians and Scottish separatists are threatening the political order.

It would be a terrible thing if any of these groups — with the exception, surprisingly, of Syriza, which seems relatively benign — were to come to power. But there’s a reason they’re on the rise. This is what happens when an elite claims the right to rule based on its supposed expertise, its understanding of what must be done — then demonstrates both that it does not, in fact, know what it is doing, and that it is too ideologically rigid to learn from its mistakes.

I have no idea how events in Greece are about to turn out. But there’s a real lesson in its political turmoil that’s much more important than the false lesson too many took from its special fiscal woes.

Krugman’s blog, 12/10/14

December 11, 2014

There were two posts yesterday.  The first was “American Evil:”

As the Bush administration fades away in the rearview mirror, my sense is that many people — even liberals — are forgetting what it was really like. It becomes, in memory, just another administration whose policies you disapprove of, like the reign of Bush the elder.

But it wasn’t. It was an administration that deliberately misled us into war, exploiting an atrocity to pursue an agenda that had nothing to do with that atrocity — and causing vast amounts of death and destruction in the process, not to mention undermining American strength.

And it was an administration under which America became a torturer, with the enthusiastic approval of top officials.

This wasn’t normal. And if it’s going be normal from now on, all the more reason to remember the Bush years with horror.

Amen.  Yesterday’s second post was “Jean-Claude Yellen:”

The Fed definitely seems to be gearing up for monetary tightening, even though inflation remains below target. And I’m with Ryan Avent: this will, if it happens, be a big mistake — just as Jean-Claude Trichet’s decision to raise rates in Europe in 2011 was a big mistake, just as the Swedish Riksbank’s early rate hike was a mistake, just as Japan’s rate hike in 2000 was a mistake.

And you would think that the Fed would understand that. In fact, I suspect it does, and is somehow letting itself be bullied into doing the wrong thing anyway. More on that in a minute.

First, on the policy substance: The point is not that we know that we’re still far from full employment. I think we are, but the truth is that I don’t know, you don’t know, and Stan Fischer doesn’t know. So the question is one of weighing the risks. And the fact is that the damage the Fed would do if it hikes rates too soon vastly outweighs the damage it would do if it waits too long.

Suppose the Fed waits too long. Well, inflation ticks up — probably not much, since the short-run Phillips curve looks very flat. And the Fed has the tools to rein the economy in. It would be annoying, unpleasant, and no doubt there would be Congressional hearings berating the Fed for debasing the dollar etc.. But not a really big problem.

Suppose, on the other hand, that the Fed raises rates, and it turns out that it should have waited. This could all too easily prove disastrous. The economy could slide into a low-inflation trap in which zero interest rates aren’t low enough to achieve escape — which has happened in Japan and is pretty clearly happening in the euro area. Also, there is now very strong reason to suspect that a protracted slump will inflict large losses on the economy’s future productive capacity.

And if someone tells you that these risks aren’t that big, consider this: we used to be told that 2 percent inflation was enough to make the risks of hitting the zero lower bound minimal — less than 5 percent in any given year. In fact, however, of the roughly 20 years since inflation dropped to circa 2 percent, 6 years — 30 percent! — have been spent in a liquidity trap. This says that we should be very afraid of missing our chance to escape from the trap out of an urge to normalize monetary policy too soon.

The thing is, I know that Janet Yellen, Stan Fischer, and the Fed staff know this — they’re very familiar with recent history and all the relevant economic analysis. So why do they seem to be rhetorically preparing the ground for early rate hikes?

My guess — and it’s only that — is that they have, maybe without knowing it, been bludgeoned into submission by the constant attacks on easy money. Every day the financial press, many of the blogs, cable financial news, etc, are full of people warning that the Fed’s low-rate policy is distorting markets, building up inflationary pressure, endangering financials stability. Hard-money arguments, no matter how ludicrous, get respectful attention; condemnations of the Fed are constant. If I were a Fed official, I suspect that I would often find myself wishing that the bludgeoning would just stop, at least for a while — and perhaps begin looking for an opportunity to prove that I’m not an inflationary money-printer, that I can take away punchbowls too.

So my guess is that the Fed, given an improving US job market, is strongly tempted to buy some peace by hiking rates a little, just to quiet the critics for a few months.

But the objective case for a rate hike just isn’t there. The risks of premature tightening are huge, and should not be taken until we have a truly solid recovery that includes strong wage gains and inflation clearly on track to rise above target. We don’t have any of that, and if the Fed acts nonetheless, it has the makings of tragedy.

Blow, Kristof and Collins

December 11, 2014

In “This Is Your Moment” Mr. Blow says that for young people it’s a time of civic awakening, a realization that equality must be won — by every generation — because it will never be freely granted.  Mr. Kristof asks “What if Whites Were the Minority?”  He says this could be what a white dad tells his teenage son about respecting black authority: It’s a matter of life or death.  Ms. Collins says “It’s Cruel.  It’s Useless.  It’s the C.I.A.,” and that there was a lot to digest in that big Senate Intelligence Committee report.  Here’s Mr. Blow:

I was born in 1970, on the heels of the civil rights movement. I didn’t witness my parents’ struggles and their parents’ struggles before them. What I knew of darker days I learned in school, read in books or saw on television. Therefore, as a matter of circumstance, there existed a space between that reality and me. It was more pedagogical than experiential.

As a young man, I could connect my current circumstances and present societal conditions intellectually to previous ones and form a long-arching narrative of undeniable progress from slavery to Reconstruction to Jim Crow to mass incarceration to me. But that narrative was developed in the mind. Not, more innately, written by personal tribulation or authored by the shock and horror of real events happening in real time — my time — so that the mind and spirit could unite in moral outrage and the voice lift in anguished outcry.

That changed when I reached a series of racial-justice maturation moments, two of which are particularly relevant to our current cultural discussion in this country.

One came in 1991, when I was 20 years old. Rodney King was savagely beaten — on video — by Los Angeles police officers. The video showed “officers taking turns swinging their nightsticks like baseball bats at the man and kicking him in the head as he lay on the ground early Sunday,” as The New York Times put it at the time.

Earlier in the day, before the beating, one of the officers who participated had typed a message on a computer terminal in a squad car, referring to a domestic dispute among blacks this way: “Sounds almost as exciting as our last call. It was right out of ‘Gorillas in the Mist.’ ”

One of the officers reportedly said of King and the beating during an internal affair interview: “It’s like he’s looking at me, doesn’t see me, he’s just looking right through me,” reasoning that King was under the influence of PCP. (Testing of King showed no PCP.)

This is reminiscent of the dehumanizing language used by Darren Wilson, who shot and killed Michael Brown in Ferguson,Mo. Wilson testified about Brown: “He looked up at me and had the most intense aggressive face. The only way I can describe it, it looks like a demon, that’s how angry he looked.”

The four Los Angeles police officers were acquitted of assault.

Six years after those acquittals, a black man named James Byrd Jr. was attacked by three white men, beaten, urinated on, tied by the ankle to the back of their truck, dragged on the asphalt and decapitated by a culvert.

After that, I was acutely aware of what W. E. B. Du Bois, in “The Souls of Black Folk,” called the “double consciousness”:

“One ever feels his two-ness, — an American, a Negro; two thoughts, two unreconciled strivings; two warring ideals in one dark body, whose dogged strength alone keeps it from being torn asunder.”

After that, all innocence inculcated and nurtured by the distance of history and the dreamy visions of perpetual progress melted. A new, harsher sensibility and an endless searching for social justice formed in its place.

I knew then that whatever progress might have been made in previous generations would not continue as a matter of perpetual momentum, but rather as a matter of constant pushing.

So I deeply understand and appreciate the feelings of the protestors — particularly the young ones — who have taken to the streets with outrage and outcry in cities across this great country over the Michael Brown and Eric Garner cases.

I even understand the sentiments, recorded by recent polls, that a majority in this country believe race relations are getting worse and that more than a third think police-minority relations are getting worse.

Obviously, in the long sweep of history, no one could make such a claim. Race relations are certainly not worse than they were 50 or 100 or 400 years ago, but there is nagging frustration that things haven’t progressed as fast as many had hoped. And change, rightly or wrongly, is often measure relative to the recent past rather than to the distant one.

Furthermore, for young people in their late teens or early 20s, like my children, whose first real memory of presidential politics was the election of the first African-American president, any seeming racial retrenchment is jarring, and for them, over the course of their lifetimes, things can feel like they are getting worse.

This is their experiential moment, that moment when the weight becomes too much, when the abstract becomes real, when expectations of continual, inexorable progress slam into the back of a slow-moving reality, plagued by fits and starts and sometimes prone to occasional regressions.

It is that moment when consciousness is raised and unwavering optimism falters, when the jagged slope of truth replaces the soft slope of fantasy, when the natural recalcitrance of youth gathers onto itself the force of purpose and righteousness, when we realize that fighting is the only way forward, that equality must be won — by every generation — because it will never be freely granted.

This is a moment of civic awakening and moral maturing for a generation, and they are stepping boldly into their moment. Yes, they are struggling to divine the most effective way forward, but they will not accept being dragged backward. It is a profound moment to which we should gladly bear witness.

Now here’s Mr. Kristof:

In the responses to my “When Whites Just Don’t Get It” series, I’ve been struck by the lack of empathy some whites show for members of minority groups. So imagine if the world were reversed. Then “the talk” might go like this:

“Son, sit down. You’re 13, old enough to have a conversation that I’ve been dreading.”

“Oh, come on, Dad. I hope this isn’t about the birds and the bees.”

“Nope. That’d be easy. Have you seen the video of the white horticulturalist being choked to death by police?”

“All the kids have seen it. He says he can’t breathe, and black cops still kill him. [Expletive!]”

“Don’t curse. It is wrong, but it’s the way the world works. And that’s why Mom and I are scared for you. With us whites in the minority, some cops are just going to see you as a threat no matter what. You’re going to get stopped by black cops, and I want you to promise you’ll never run or mouth off. Mom and I can’t protect you out there, and white kids are 21 times as likely as black kids to be shot dead by police. So even when a cop curses you, I want you to call him Sir.”

“Anybody curses me, he won’t get away with it.”

“Yes, he will. And if he shoots you, he might get away with it, too. Especially when you keep wearing clothes all the other white boys wear like those polo shirts. Black cops see you in them and suspect trouble. Black folks make the rules, and we have to live by them. Like it or not.”

“[Expletive!] Racists!”

“Hey! I told you not to curse. And don’t hold it against all blacks. Lots have joined with whites in protesting these killings. And even for those who are unsympathetic, most aren’t evil, just clueless.”

“C’mon, Dad. When a 12-year-old white kid is shot dead because he’s holding a toy gun, when a white woman professor is thrown to the ground for jaywalking, when cops smash a car window to taser a white guy in front of kids, that’s not cluelessness. That’s evil. White lives matter.”

“It’s complicated. Remember when you were suspended in the fourth grade for being disruptive?”

“That was ridiculous.”

“Yup. White kids get suspended when black kids don’t. That’s just the way it is. But the black vice principal who suspended you — he’s the same guy who enthusiastically organizes White History Month each year. Intellectually, he believes in civil rights. But he kicks out white kids for the same reason doctors give less pain medication to white patients. Same reason that in experiments a résumé that is identifiably white gets fewer callbacks than the exact same résumé from a black person. It’s not on purpose, but people ‘otherize’ us. That’s why you’ll have to work harder to succeed in life — and even then you’ll be followed around department stores by security guys.”

“O.K., Dad. Anyway, I got to go.”

“Society cares about inequality. But the big inequality debate is about rich and poor, and some folks don’t seem to notice all the inequality that comes with race. White Americans have a per capita income that’s lower than in Equatorial Guinea, and life expectancy is roughly the same as in Sri Lanka. The system here is sometimes rigged. Cops stop and frisk whites four times as often they do blacks. And that criminal record hurts your chance to get a good job, to marry, to vote. Everybody makes mistakes, but black kids get the benefit of the doubt. You don’t, simply because you’re white.”

“Dad, I got it. Can I go now?”

“I guess 13-year-olds aren’t made for listening. Look, this thing we call ‘race’ is such a petty thing in biological terms. A minor adaptation in the last 100,000 years. Race is a social construct. It shouldn’t be what defines us.”

“Hm. Feels pretty important to me.”

“Well, it kills, and that’s why we’re having this talk. But there is also great progress. It’s incredible that we finally have our very first white president.”

“Who lots of blacks say was born in Europe! And whose sons get dissed for embarrassing the White House for dressing like the rest of us.”

“I’m glad the news reports jumped all over those comments. But I wish everyone were as outraged by destructive policies. When our education policy is to send so many white kids to third-rate schools, that’s worse than any racial epithet.”

“OK. Later, Dad!”

“Just remember: Some blacks just don’t get it, but black privilege isn’t their fault. If things were reversed and we whites were in the majority, we might be just as oblivious.”

“Dad, we whites would never be like that!”

And now here’s Ms. Collins:

We learned a lot from that big Senate Intelligence Committee report on C.I.A. interrogation tactics after 9/11. It was what may be the first time in American history that the term “rectal hydration” appeared in family newspapers throughout the land.

One of the most unnerving parts involves the fact that the waterboarding, ice baths and wall-slamming were conducted under the direction of an outside contractor. It isn’t the first time the government turned to private enterprise and wound up with a human rights disaster — think Abu Ghraib. Or Blackwater. But this seems like an excellent place to demand a cease-and-desist.

The specialists’ names are James Mitchell and Bruce Jessen. Like many contractors doing work for the government, they’re former government workers themselves — in this case, military psychologists. And like virtually all contractors doing work for the government, they were making a heck of a lot more than they’d have gotten as federal employees. In this case, about $80 million.

Mitchell and Jessen had acquired their expertise by teaching Air Force officers how to resist brutal Cold War-style interrogations. Think pilots who get shot down behind enemy lines and get tortured by Communists. And for all we know, they may have done a great job showing their pupils how to withstand pressure to record a statement denouncing the United States when they crash land in North Korea.

But it’s not precisely the same thing as trying to get a suspected Al Qaeda operative to tell you where Osama bin Laden is hiding. Plus, Mitchell and Jessen had no experience as actual interrogators, did not speak any of the detainees’ languages and had no particular knowledge about Islam or Al Qaeda.

They did have some theories about other psychologists’ work subjecting dogs to random electric shocks until their will to resist was completely broken. Maybe, the two men thought, you could torment human beings into the same state of “learned helplessness.” Worth a try, right? Mitchell and Jessen set about applying the theory to prisoners the C.I.A. had collected. Some of them had already been cooperating with interrogators. Others turned out later to have had no involvement with Al Qaeda whatsoever.

Others, undoubtedly, were bad people with information the C.I.A. needed, who had resisted talking under nonviolent interrogation. The question then becomes whether they cooperated better under “learned helplessness” or simply made up stories to placate their torturers and send the C.I.A. off in the wrong direction.

There’s a lot of precedent for the making-up approach. During World War II, an American pilot was shot down over Japan just after the Hiroshima attack and was tortured repeatedly for information about the atomic bomb, of which he knew nothing. Threatened with beheading, the pilot told his captors that the U.S. had 100 atomic bombs and that Tokyo was next on the target list. The bogus information was immediately shared with the war minister and the Japanese cabinet.

The Intelligence Committee report concludes that all the torturing produced very little information that was useful and possibly quite a bit that was made-up. While we would love to believe that the human rights angle would be most effective in shocking the American people, polls show that when it comes to suspects with possible terror involvement, the public attitude toward torture is kind of meh. So, wisely, the committee’s big point was useless/counterproductive.

“It’s wrong enough that one shouldn’t do it period. But wrong and useless is a tough combination,” said Senator Sheldon Whitehouse of Rhode Island. He was on the Intelligence Committee when the report was being prepared and now leads a Judiciary subcommittee on crime and terrorism.

And why the private contractors? Maybe because the actual government interrogators didn’t believe torture worked either. Some complained that, after Mitchell and Jessen arrived, reasonably cooperative prisoners were suddenly brutalized under the theory that the original approach had been too “sissified.”

What made the C.I.A. decide that these guys were a good plan? Have they not watched “Homeland” this season? (Ever since Saul left the C.I.A. to become a private consultant, he’s been a disaster.) “I do think there’s something about the culture of purchase: ‘We don’t have the answer, but we can buy it,’ ” said Baher Azmy, the legal director at the Center for Constitutional Rights.

Tim Shorrock, the author of “Spies for Hire,” believes it’s just a way to hide things: “The activities of contractors are so easy to conceal in budgets.”

Naturally, defenders of the C.I.A. are rising up to challenge the report’s findings. The Associated Press got hold of James Mitchell himself, who said that the report was “just factually, demonstrably incorrect,” then declined to say exactly what the inaccuracies were.

Citing a secrecy agreement with the C.I.A., Mitchell didn’t share much else, except that being waterboarded was still better than being killed by a drone.

Krugman’s blog, 12/9/14

December 10, 2014

There were two posts yesterday.  The first was “Profiles in Coreage:”

Tim Duy, in the course of a discussion of the outlook for Fed policy, reminds us of the spring of 2011, when headline inflation had risen a lot mainly due to oil prices. He portrays Ben Bernanke as being all alone in insisting that the inflation bump was a blip, and would soon fade away. Actually, that’s not quite right; as far as I recall, most saltwater economists agreed. I was writing about it often. And the Fed, after all, routinely focuses on core inflation rather than headline numbers. Still, Bernanke was definitely under pressure.

What Duy doesn’t say is that the inflation fight of 2011 was about more than inflation; it was another aspect of the fight over how the economy works – and another big victory for the Keynesian view. The concept of core inflation arises out of the notion that most prices are “sticky”, revised only on occasion, and that when they are revised they are set taking into account expected inflation over some length of time looking forward.

As I tried to explain early on, this means that we need to distinguish between an underlying, sluggish inflation rate that is hard either to increase or reduce, and fluctuations around that rate reflecting more volatile prices. Standard measures of core inflation are imperfect ways of getting at this distinction, but they are vastly better than the headline numbers – and have been hugely vindicated by the experience of recent years. So I’m glad to see all the people who issued dire warnings about inflation in 2011 acknowledging that they had the wrong model. Hahahahaha.

And yes, this means that you should discount the effects of falling oil prices in the same way you discount the effects of rising oil prices. I would nonetheless urge the Fed to hold off on rate hikes, but for different reasons – the asymmetry in risks between raising rates early and raising them late. And I worry that the Fed may be losing the thread here (hi Stan!). But that’s another topic.

Yesterday’s second post was “On Not Being Stupid:”

John Cochrane has a remarkably reasonable post walking back some of his earlier diatribes, and I was particularly pleased to see him acknowledge that Mike Woodford’s work on monetary policy is first-rate research by a first-rate researcher. May I suggest, then, that he also read Woodford on fiscal policy (pdf)?

Woodford’s paper is from 2010, but the basic framework he uses was familiar to everyone on my side of the debate — me, Christy Romer, Brad DeLong, Alan Blinder — long before; you can see me using essentially the same kind of approach to talk through some stimulus issues here. Some of us like to step back and forth between intertemporal models like Woodford’s and ad hoc models like IS-LM, but we’ve always made the effort to see whether a policy makes sense both ways.

So it came as something of a revelation back in 2009 when Cochrane declared that the case for fiscal policy was a fairy tale nobody believed, Lucas accused Christy Romer of producing a shlock model to justify big government, etc.. It revealed that these people had stopped listening years, indeed decades ago. And it has been remarkable in the years since to see how determined the anti-Keynesians are to keep believing that Keynesians are stupid.

Well, at least Cochrane now concedes that Woodford isn’t stupid. Progress!

The NY Times Editors and Friedman

December 10, 2014

Mr. Bruni is off today.  Since The Moustache of Wisdom offered up a whining apologia for torture titled “We’re Always Still Americans” in which he snivels that the Senate committee’s torture report shows that fear after 9/11 was terribly corrosive I thought I’d start off with today’s lead editorial in the New York Times, “The Senate Report on the C.I.A.’s Torture and Lies:”

The world has long known that the United States government illegally detained and tortured prisoners after the terrorist attacks of Sept. 11, 2001, and lied about it to Congress and the world. But the summary of a report released Tuesday of the Senate investigation of these operations, even after being sanitized by the Central Intelligence Agency itself, is a portrait of depravity that is hard to comprehend and even harder to stomach.

The report raises again, with renewed power, the question of why no one has ever been held accountable for these seeming crimes — not the top officials who set them in motion, the lower-level officials who committed the torture, or those who covered it up, including by destroying videotapes of the abuse and by trying to block the Senate Intelligence Committee’s investigation of their acts.

At one point, the report says, the C.I.A. assured Congress that the behavior of the secret jailers and interrogators was nothing like the horrors the world saw at the Abu Ghraib prison in Iraq. That was the closest the agency seems to have come to the truth — what happened appears to have been worse than what took place at Abu Ghraib.

The Senate committee’s summary says that the torture by C.I.A. interrogators and private contractors was “brutal and far worse” than the agency has admitted to the public, to Congress and the Justice Department, even to the White House. At least one detainee died of “suspected hypothermia” after being shackled partially naked to a concrete floor in a secret C.I.A. detention center run by a junior officer without experience, competence or supervision. Even now, the report says, it’s not clear how many prisoners were held at this one facility, or what was done to them.

In that, and other clandestine prisons, very often no initial attempt was made to question prisoners in a nonviolent manner, despite C.I.A. assertions to the contrary. “Instead, in many cases the most aggressive techniques were used immediately, in combination and nonstop,” according to the summary of the declassified and heavily censored document. “Sleep deprivation involved keeping detainees awake for up to 180 hours, usually standing or in stress positions, at times with their hands shackled above their heads.”

Detainees were walked around naked and shackled, and at other times naked detainees were “hooded and dragged up and down a long corridor while being slapped and punched.”

The C.I.A. appears to have used waterboarding on more than the three detainees it has acknowledged subjecting to that form of torture. During one session, one of those detainees, Abu Zubaydah, an operative of Al Qaeda, became “completely unresponsive.” The waterboarding of another, Khalid Shaikh Mohammed, the self-described planner of the 9/11 attacks, became a “series of near drownings.”

Some detainees, the report said, were subjected to nightmarish pseudo-medical procedures, referred to as “rectal feeding.”

That some of these detainees were highly dangerous men does not excuse subjecting them to illegal treatment that brought shame on the United States and served as a recruiting tool for terrorist groups. To make matters worse, the report said that at least 26 of the 119 known C.I.A. prisoners were wrongfully held, some of them for months after the C.I.A. determined that they should not have been taken prisoner in the first place.

The C.I.A. and some members of the President George W. Bush’s administration claimed these brutal acts were necessary to deal with “ticking time bomb” threats and that they were effective. Former Vice President Dick Cheney, an avid promoter of “enhanced interrogation,” still makes that claim.

But “at no time” did the C.I.A.’s torture program produce intelligence that averted a terrorism threat, the report said. All of the information that the C.I.A. attributed to its “enhanced interrogation techniques” was obtained before the brutal interrogations took place, actually came from another source, or was a lie invented by the torture victims — a prospect that the C.I.A. had determined long ago was the likely result of torture.

The report recounted the C.I.A.’s decision to use two outside psychologists “to develop, operate and assess” the interrogation programs. They borrowed from their only experience — an Air Force program designed to train personnel to resist torture techniques that had been used by American adversaries decades earlier. They had no experience in interrogation, “nor did either have specialized knowledge of Al Qaeda, a background in counterterrorism or any relevant cultural or linguistic expertise.”

They decided which prisoners could withstand brutal treatment and then assessed the effectiveness of their own programs. “In 2005, the psychologists formed a company specifically for the purpose of conducting their work with the C.I.A. Shortly thereafter, the C.I.A. outsourced virtually all aspects of the program,” the summary said. And it noted that, “the contractors received $81 million prior to the contract’s termination in 2009.”

The litany of brutality, lawlessness and lack of accountability serves as a reminder of what a horrible decision President Obama made at the outset of his administration to close the books on this chapter in our history, even as he repudiated the use of torture. The C.I.A. officials who destroyed videotapes of waterboarding were left unpunished, and all attempts at bringing these acts into a courtroom were blocked by claims of national secrets.

It is hard to believe that anything will be done now. Republicans, who will soon control the Senate and have the majority on the intelligence panel, denounced the report, acting as though it is the reporting of the torture and not the torture itself that is bad for the country. Maybe George Tenet, who ran the C.I.A. during this ignoble period, could make a tiny amends by returning the Presidential Medal of Freedom that President Bush gave him upon his retirement.

And now here’s Little Tommy “Friedman Unit” who’ll explain how it’s all understandable:

Why do people line up to come to this country? Why do they build boats from milk cartons to sail here? Why do they trust our diplomats and soldiers in ways true of no other country? It’s because we are a beacon of opportunity and freedom, and also because these foreigners know in their bones that we do things differently from other big powers in history.

One of the things we did was elect a black man whose grandfather was a Muslim as our president — after being hit on Sept. 11, 2001, by Muslim extremists. And one of the things we do we did on Tuesday: We published what appears to be an unblinking examination and exposition of how we tortured prisoners and suspected terrorists after 9/11. I’m glad we published it.

It may endanger captured Americans in the future. That is not to be taken lightly. But this act of self-examination is not only what keeps our society as a whole healthy, it’s what keeps us a model that others want to emulate, partner with and immigrate to — which is a different, but vital, source of our security as well.

We’ve been here before. In wartime, civil liberties are often curtailed and abused, and then later restored. Lincoln suspended the writ of habeas corpus during the Civil War. During World War II, we imprisoned more than 127,000 American citizens solely because they were of Japanese ancestry. Fear does that.

Fear after 9/11 was equally corrosive. I have sympathy for people who were charged with defending the nation’s security after that surprise attack. It was impossible to know what was coming next — for which they would be held accountable. But it is hard to read the summaries of the Senate Intelligence Committee’s report and not conclude that some officials and the C.I.A. took the slack we cut them after 9/11 — motivated by the fear of another attack — and used it in ways, and long past the emergency moment, that not only involved torture, but abuse of institutions and lying to the public and other departments of government. If not exposed and checked, such actions could damage our society as much as a terrorist attack.

The Times had amazing coverage of this report, as did others. I came across an interactive feature on that distilled charges in the report in a way that turns your stomach.

It said: “Click a statement below for a summary of the findings,” offering a grim laundry list of links to the report’s torture conclusions: “not an effective means of acquiring intelligence,” “rested on inaccurate claims of their effectiveness,” “brutal and far worse than the C.I.A. represented,” “conditions of confinement for C.I.A. detainees were harsher,” “repeatedly provided inaccurate information,” “actively avoided or impeded congressional oversight,” “impeded effective White House oversight” … “coercive interrogation techniques that had not been approved,” “rarely reprimanded or held personnel accountable,” “ignored numerous internal critiques, criticisms, and objections,” “inherently unsustainable,” “damaged the United States’ standing in the world.”

And there were more. The list told you that our post-9/11 fears led us to tolerate some terribly aberrant, dishonest and illegal behaviors that needed to be fully exposed, because big lies being tolerated lead to little lies being tolerated lead to institutions and trust being eroded from the inside.

I have no illusions: more terrorists are out there and they want to use the openness of our open society precisely to destroy it. And if there had been another 9/11 after the first 9/11, many Americans would have told the C.I.A. to do whatever it wants, civil liberties be damned. Our sentries who prevented further attacks were protecting our civil liberties as well.

We want to keep attracting to our security services people who will have that sense of duty and vigilance. Our bargain is that we have to let them know we understand their challenge and will let them go to the edge of the law — and in rare, ticking time-bomb emergencies even over it, if justified — to protect us.

But their bargain with us has to be that they will take the slack and trust we give them and not go over that edge out of habit, laziness, convenience, mendacity or misguided theories, and in the face of internal protests — all of which damage our country. The report is about how that bargain broke down, and it represents an important step in rebuilding it.

I greatly respect how Senator John McCain put it: “I understand the reasons that governed the decision to resort to these interrogation methods, and I know that those who approved them and those who used them were dedicated to securing justice for the victims of terrorist attacks and to protecting Americans from further harm. … But I dispute wholeheartedly that it was right for them to use these methods, which this report makes clear were neither in the best interests of justice nor our security nor the ideals we have sacrificed so much blood and treasure to defend.” Even in the worst of times, “we are always Americans, and different, stronger, and better than those who would destroy us.”

Okay, Tommy, now why don’t you lead the jingoistic chant for us:  “U.S.A! U.S.A! U.S.A!”

Krugman’s blog, 12/8/14

December 9, 2014

There was one post yesterday, “Is Russia 2014 Venezuela 1983?”:

I am trying to get up to speed on the impact of the oil price plunge, and one of the important stories is unfolding in Putin’s Russia. Obviously Russia’s problems stem from other things besides the oil price, namely Ukraine and the fallout thereof. Still, it’s pretty striking just how fast the financial situation seems to be unraveling. The bond vigilantes aren’t invisible in Moscow — 10-year interest rates, which were below 8 percent early this year, hit 12.67 percent today.

The question one might ask is, why is Russia so vulnerable? It has, after all, run large current surpluses over time; overall, it’s a creditor, not a debtor nation. But there are a lot of external debts all the same, reflecting private sector borrowing — and foreign currency reserves are dropping fast in part thanks to private capital flight.

What this reminds me of was one of the corners of the 1980s Latin American debt crisis, which preoccupied me during my year in Washington back in 1982-3. Venezuela then, like Russia now, was a petro-economy which had consistently run external surpluses. But it was nonetheless a vulnerable debtor, because all those external surpluses and more had in effect been recycled into overseas assets of the corrupt elite.

Of course, Venezuela didn’t have nukes.

Brooks and Nocera

December 9, 2014

In “The Cop Mind” Bobo whines that while nothing excuses racist police brutality, the emotional and psychological challenges of being a cop are formidable, and those who bear them deserve respect.  Bobo, they get my respect when they don’t behave like racist thugs.  In “The New Republic’s Rebellion” Mr. Nocera says behind a storied magazine in upheaval is a battle between clicks and profits, and social status and influence.  Here’s Bobo:

Like a lot of people in journalism, I began my career, briefly, as a police reporter. As the Michael Brown and Eric Garner cases have unfolded, I’ve found myself thinking back to those days. Nothing excuses specific acts of police brutality, especially in the Garner case, but not enough attention is being paid to the emotional and psychological challenges of being a cop.

Early on, I learned that there is an amazing variety of police officers, even compared to other professions. Most cops are conscientious, and some, especially among detectives, are brilliant.

They spend much of their time in the chaotic and depressing nether-reaches of society: busting up domestic violence disputes, dealing with drunks and drug addicts, coming upon fatal car crashes, managing conflicts large and small.

They ride an emotional and biochemical roller coaster. They experience moments of intense action and alertness, followed by emotional crashes marked by exhaustion, and isolation. They become hypervigilant. Surrounded by crime all day, some come to perceive that society is more threatening than it really is.

To cope, they emotionally armor up. Many of the cops I was around developed a cynical, dehumanizing and hard-edged sense of humor that was an attempt to insulate themselves from the pain of seeing a dead child or the extinguished life of a young girl they arrived too late to save.

Many of us see cops as relatively invulnerable as they patrol the streets. The cops themselves do not perceive their situation that way. As criminologist George Kelling wrote in City Journal in 1993, “It is a common myth that police officers approach conflicts with a feeling of power — after all, they are armed, they represent the state, they are specially trained and backed by an ‘army.’ In reality, an officer’s gun is almost always a liability … because a suspect may grab it in a scuffle. Officers are usually at a disadvantage because they have to intervene in unfamiliar terrain, on someone else’s territory. They worry that bystanders might become involved, either by helping somebody the officer has to confront or, after the fact, by second-guessing an officer’s conduct.”

Even though most situations are not dangerous, danger is always an out-of-the-blue possibility, often in the back of the mind.

In many places, a self-supporting and insular police culture develops: In this culture no one understands police work except fellow officers; the training in the academy is useless; to do the job you’ve got to bend the rules and understand the law of the jungle; the world is divided into two sorts of people — cops and a — holes.

This is a life of both boredom and stress. Life expectancy for cops is lower than for the general population. Cops suffer disproportionately from peptic ulcers, back disorders and heart disease. In one study, suicide rates were three times higher among cops than among other municipal workers. Other studies have found that somewhere between 7 percent and 19 percent of cops suffer from post-traumatic stress disorder. The effect is especially harsh on those who have been involved in shootings. Two-thirds of the officers who have been involved in shootings suffer moderate or severe emotional problems. Seventy percent leave the police force within seven years of the incident.

Most cops know they walk a dangerous line, between necessary and excessive force. According to a 2000 National Institute of Justice study, more than 90 percent of the police officers surveyed said that it is wrong to respond to verbal abuse with force. Nonetheless, 15 percent of the cops surveyed were aware that officers in their own department sometimes or often did so.

And through the years, departments have worked to humanize the profession. Over all, police use of force is on the decline, along with the crime rate generally. According to the Department of Justice, the number of incidents in which force was used or threatened declined from 664,000 in 2002 to 574,000 in 2008. Community policing has helped bind police forces closer to the citizenry.

A blind spot is race. Only 1 in 20 white officers believe that blacks and other minorities receive unequal treatment from the police. But 57 percent of black officers are convinced the treatment of minorities is unfair.

But at the core of profession lies the central problem of political philosophy. How does the state preserve order through coercion? When should you use overwhelming force to master lawbreaking? When is it wiser to step back and use patience and understanding to defuse a situation? How do you make this decision instantaneously, when testosterone is flowing, when fear is in the air, when someone is disrespecting you and you feel indignation rising in the gut?

Racist police brutality has to be punished. But respect has to be paid. Police serve by walking that hazardous line where civilization meets disorder.

Here’s Mr. Nocera:

I asked Marty Peretz the other day whether his goal during the nearly four decades that he had owned The New Republic was ever to make a profit. “Absolutely not,” he bellowed. “I think we were profitable maybe three of four years.” One year, he said, the magazine’s staff threw a pizza party to celebrate being in the black — “and the party put us back in the red.” He was only half-joking.

No, Peretz owned The New Republic because it gave him a megaphone on issues he cared about, like Israel. Influence accrued to him, as did a certain social status that came with owning a magazine that mattered to the policy elites in Washington, D.C., and Cambridge, Mass.

Strange as this may seem, this has long been the “business model” for policy and political magazines. Harper’s Magazine is published by Rick MacArthur, and its losses are covered by the J. Roderick MacArthur Foundation. For years, Mort Zuckerman, the real estate mogul, picked up The Atlantic’s losses.

Peretz told me that during his tenure, The New Republic lost an annual sum in the low six figures, which he covered. So long as the losses were manageable, the owner would write a check. If the losses became too onerous, then the owner would look to sell.

Thus it was that in 2012, with The New Republic’s losses rising to around $3 million, Peretz sold the magazine to Chris Hughes, who got rich by being one of the original executives at Facebook. (He was Mark Zuckerberg’s roommate in college.) With a net worth said to be around $700 million, Hughes was in a position to subsidize his new toy for a very long time. “I told him that if he wanted to maintain a serious and substantial publication, he should look forward to losses for some years,” Peretz said.

In the two years that Hughes has owned it, The New Republic regained its reputation for smart, lively, engaging journalism. But he also appears to have quickly tired of losing money. A few months ago, he hired a new chief executive, Guy Vidra, from Yahoo. Vidra immediately began using words like “disruption” and “innovation” and “breaking stuff” (though he didn’t use the word “stuff”). The first time many New Republic staff members heard their company described as a “vertically integrated digital media company” was when Vidra made his first big presentation to the writers and editors. In an op-ed article that Hughes wrote in The Washington Post — after The New Republic’s editor in chief and literary editor had resigned, and most of the staff had walked out with them — he said that The New Republic could no longer be a “charity,” and that his goal was to make it a “sustainable business.” In other words, he wants to make a profit.

Not that there’s anything wrong with that. It is just hard to see how he is going to get there.

The truth is, the jury is still out on the profit-making ability of digital publications. Slate, which has been around since 1996, makes money, but not much. The Atlantic under David Bradley, its current owner, has a terrific digital presence, not to mention 500,000 print subscribers. It also makes money. But, again, those profits are modest. Venture capitalists are throwing money at new online media ventures like Vox, but we are a long way from knowing whether they will ever be profitable. None of the digital media companies have gone public, so their profits or losses are hidden from view.

The New Republic, on the other hand, has a print circulation of around 42,000. Its current website is lively, but clearly it wasn’t generating the number of clicks that its new owner wanted. Even before Vidra joined, The New Republic’s business executives were trying to get the editors to do things that would attract more clicks. One executive suggested that Michael Kinsley — a former New Republic editor himself — come up with a listicle, à la BuzzFeed. (“10 reasons why health care isn’t a free market.”)

Is it any wonder that the staff walked out when this plan was finally unveiled? Their earnest little magazine is the opposite of BuzzFeed. That’s what they loved about it. Or at least it was.

When I spoke to Vidra late Monday, he stressed to me that The New Republic was not going to abandon its heritage of thoughtful journalism and provocative ideas. When I asked him whether he would follow the model of The Atlantic, he demurred. He instead suggested that Vox Media was a more appropriate model for what he had in mind.

After we spoke, I went to the Vox website. I scrolled down until I saw a headline that stopped me cold. “Everybody farts,” it read. “But here are 9 surprising facts about flatulence you may not know.”

Goodbye, New Republic.

Krugman’s blog, 12/7/14

December 8, 2014

There were two posts yesterday.  The first was “Shinzo and the Invisibles:”

Brad DeLong is puzzled by some of what Ken Rogoff has to say about Japan, specifically his warning that Japan could face an attack from invisible bond vigilantes if it doesn’t quickly tackle long-run fiscal issues. I’m puzzled too, although it’s not just Rogoff — quite a few sensible people say similar things, and the truth is that I said such things about the US back in 2003.

But I was wrong, for reasons I laid out at length in my Mundell-Fleming lecture at the IMF last year. And in an important way I was just reiterating points that should have been clear from Rogoff’s own Mundell-Fleming lecture (pdf), back in 2001. And I’m a bit surprised that Ken doesn’t see it that way.

Back in 2001 Ken surveyed the impact of Rudi Dornbusch’s “overshooting” model of exchange rates, which had an enormous impact on international macroeconomics, and arguably saved it from much of the nonsense that afflicted domestic macro. At the core of Rudi’s analysis was his resolution of what might seem like a paradox. Here’s the question: Suppose that for some reason a central bank increases the money supply, and that everyone believes that the increase is permanent. What happens to the exchange rate?

As Rudi pointed out, just about everyone agrees that in the long run the currency must depreciate, roughly in proportion to the money expansion. But in the short run, in a world of sticky prices — and anyone who looks at real exchange rates knows that we do, indeed, live in a world of sticky prices — the money expansion reduces interest rates. Now the seeming paradox: offered a lower interest rate than they can get in other countries, investors won’t want to hold a country’s bonds unless they expect its currency to rise; yet given the money increase, we should expect the currency to fall.

Rudi’s answer was that the currency must overshoot: it must drop below its long run value, so that it can be expected to rise thereafter, like this:

Which brings us to the invisible bond vigilantes. Suppose that they are really out there, and that they suddenly demand that Japanese 10-year bonds offer a rate of return 200 basis points higher than US 10-year bonds. You might be tempted to say that Japanese interest rates will spike — but the Bank of Japan controls short-term rates, and long-term rates are mainly an average of expected short-term rates, so how is this supposed to happen?

No, the resolution of the puzzle is that rates wouldn’t rise. Instead, the yen would depreciate now so that investors can expect it to appreciate later. And this yen depreciation would be expansionary, not contractionary, in its effects on the Japanese economy. Given Japan’s current situation, the invisible vigilantes would be doing Japan a favor if they suddenly materialized and attacked!

I’ve had many discussions with smart people about this, and have never gotten an explanation of why it’s wrong; we usually end up with something like a warning that Japanese deflation might suddenly turn into uncontrolled inflation, which seems unlikely and certainly isn’t the way the warnings are usually phrased — we’re supposed to worry about turning into Greece 2010, not Weimar 1923.

You might think that what we’re talking about is the lessons of history — but as far as I can tell, there are no historical examples of countries with debts in their own currency facing a Greek-style crisis. As I say in the linked paper, the closest I can find is the French franc crisis of the 1920s, and the fall of the franc was inflationary and expansionary, not contractionary.

And it seems very strange to be lecturing Japan about the dangers of a crisis you can neither explain clearly in terms of an economic model nor justify by appeal to any relevant historical precedent.

Yesterday’s second post was “The Thrill of Live Performance (Personal):”

For those wondering — yes, I went to see Lucius live last night. A year ago I saw them at the Bowery Ballroom, capacity around 500; this time at Terminal 5, capacity 3000 and sold out. And it was wonderful.

What do I love about live shows like this? If you want to hear the music with perfect clarity, listen to a record; and while there is a special thrill to knowing that performers are doing this live without a net, I’ve been to many classical concerts where that’s also true and the feel is very different (not better, just different). The acoustics aren’t great — I talked to the band a bit, and they themselves compared it to an airplane hangar; the crowd is swilling beer (me too!) and noisy; I doubt I’d have been able to decipher many of the lyrics if I didn’t know them already.

No, what makes this so great is the sense of community and the bond between band and fans. Listen to how the crowd reacted to the very first chord, which everyone (me included) immediately recognized:

The band (who are soft-spoken and even a bit shy in person) were soaking it up and getting more energized by the minute. By the end — a gorgeous triple-encore performed from the middle of the audience — it was a wonderful affirmation of life.

And then I finished up my beer and it was time to catch the train.

Blow and Krugman

December 8, 2014

In “A New Age of Activism” Mr. Blow says the energy pouring into the streets is diffuse and organic, but powerful.  Prof. Krugman explains why we had to wait so long for some decent job numbers in “Recovery at Last?”.  Here’s Mr. Blow:

There seems to be a new age of activism rising. From Occupy Wall Street, to the “Stop Watching Us” march against government surveillance, to the Moral Monday protests, to the People’s Climate March, to the recent nationwide protests over the killings of men and boys of color by police, there is obviously a discontent in this country that is pouring into the streets.

And yet much of it confounds and frustrates existing concepts of what movements should look like. Much does not fit neatly into the confines of conventional politics or the structures of traditional power.

It’s often diffuse. It’s often organic and largely leaderless. It’s often about a primary event but also myriad secondary ones. It is, in a way, a social network approach to social justice, not so much captain-orchestrated as crowd-sourced, people sharing, following and liking their way to consensus and collective consciousness.

If there is a unifying theme, it is at least in part that more people are frustrated, aching for a better America and a better world, waking to the reality of the incredible fragility of our freedoms, our democracy and our planet. It is a chafing at grinding political intransigence and growing political corporatism. It is a rejection of the obscenity of economic inequality. And it is a collective expression of moral outrage over systemic bias.

The suspicion of bias, in particular, is what the most recent protests have been about. They are about a most basic question concerning the nature of humanity itself: If we are all created equal, shouldn’t we all be treated equally? Anything less is an affront to our ideals.

Bias in the system often feels like fog in the morning: enveloping, amorphous and immeasurable. But individual cases, like the recent ones, hit us as discrete and concrete, about particular unarmed black men killed by particular policemen — although those particular policemen are representative of structures of power.

These cases make easy focal points for rallying cries, and force us to ask tough questions about the very nature of policing, force and justice:

When is the line crossed from protecting and serving to occupying and suppressing? When do officers stop seeing their role as working for and with a community and start seeing that role as working against and in spite of it? If bias exists in society at large, how do we keep it out of, or at least mitigate the effect of it on, every level of the criminal justice system, from police interactions to prison sentences?

There is a thin line between high-pressure policing and oppressive policing. Heavy hands leave bruised spirits, and occasionally buried bodies.

It cannot be said often enough that most police officers are not bad actors, but neither are most citizens.

Yet prejudice is a societal poison; each of us is in danger of ingesting it, and many of us do. We are constantly making judgments, but most of us are not wearing a holster with a gun. That is when the ante is upped about the nature and quality of those judgments: Did they unfairly weigh against any particular groups? How much force was used and how quickly?

This is why the people are in the streets. There are too many nagging questions, not enough satisfying answers. The people want their pain and anger registered.

But in a way, this is the part that can drive longtime activists to distraction: that this kind of people power doesn’t neatly translate into political power. Why not follow the recent examples of activists for gay rights and immigrant rights, who pressured politicians and worked through the political and judicial systems to achieve specific policy objectives?

But maybe in this moment the exhaling of pain must come before the shaping of policy.

Indeed some activists have already moved beyond chants for “change” and begun to develop sophisticated answers to the retort, “change what?”. The trick is to redirect the passions before they dissipate, to maintain momentum when the media attention fades, and to amplify raised voices with votes cast.

I believe — because the optimist in me must — that votes will soon, somehow, follow the passion, that people will come to see marching not as a substitute for voting but a supplement to it, that more people will work to effect change inside the system as well as outside it.

One of the people’s greatest strengths in a democracy is the flexing of political muscle and the exercising of political power, through ballots and boot leather. This new activism has the potential to create a new political reality. And it will. Eventually. I hope.

Now here’s Prof. Krugman:

Last week we got an actually good employment report — arguably the first truly good report in a long time. The U.S. economy added well over 300,000 jobs; wages, which have been stagnant for far too long, picked up a bit. Other indicators, like the rate at which workers are quitting (a sign that they expect to find new jobs), continue to improve. We’re still nowhere near full employment, but getting there no longer seems like an impossible dream.

And there are some important lessons from this belated good news. It doesn’t vindicate policies that permitted seven years and counting of depressed incomes and employment. But it does put the lie to some of the nonsense you hear about why the economy has lagged.

Let’s talk first about reasons not to celebrate.

Things are finally looking better for American workers, but this improvement comes after years of suffering, with long-term unemployment in particular lingering at levels not seen since the 1930s. Millions of families lost their homes, their savings, or both. Many young Americans graduated into a labor market that didn’t want their skills, and will never get back onto the career tracks they should have had.

And the long slump hasn’t just scarred families; it has done immense damage to our long-run prospects. Estimates of the economy’s potential — the amount it can produce if and when it finally reaches full employment — have been steadily marked down in recent years, and many researchers now believe that the slump itself damaged future potential.

So it has been a terrible seven years, and even a string of good job reports won’t undo the damage. Why was it so bad?

You often hear claims, sometimes from pundits who should know better, that nobody predicted a sluggish recovery, and that this proves that mainstream macroeconomics is all wrong. The truth is that many economists, myself included, predicted a slow recovery from the very beginning. Why?

The answer, in brief, is that there are recessions and then there are recessions. Some recessions are deliberately engineered to cool off an overheated, inflating economy. For example, the Fed caused the 1981-82 recession with tight-money policies that temporarily sent interest rates to almost 20 percent. And ending that recession was easy: Once the Fed decided that we had suffered enough, it relented, interest rates tumbled, and it was morning in America.

But “postmodern” recessions, like the downturns of 2001 and 2007-9, reflect bursting bubbles rather than tight money, and they’re hard to end; even if the Fed cuts interest rates all the way to zero, it may find itself pushing on a string, unable to have much of a positive effect. As a result, you don’t expect to see V-shaped recoveries like 1982-84 — and sure enough, we didn’t.

This doesn’t mean that we were fated to experience a seven-year slump. We could have had a much faster recovery if the U.S. government had ramped up public investment and put more money in the hands of families likely to spend it. But the Obama stimulus was much too small and short-lived — as many of us warned, in advance, it would be — and since 2010 what we have actually seen, thanks to scorched-earth Republican opposition on all fronts, are unprecedented cutbacks in government spending, especially investment, and in government employment.

O.K., at this point I’m sure many readers are thinking that they’ve been hearing a very different story about what went wrong — the conservative story that attributes the sluggish recovery to the terrible, horrible, no-good attitude of the Obama administration. The president, we’re told, scared businesspeople by talking about “fat cats” on Wall Street and generally looking at them funny. Also, Obamacare has killed jobs, right?

Which is where the new job numbers come in. At this point we have enough data points to compare the job recovery under President Obama with the job recovery under former President George W. Bush, who also presided over a postmodern recession but certainly never insulted fat cats. And by any measure you might choose — but especially if you compare rates of job creation in the private sector — the Obama recovery has been stronger and faster. Oh, and its pace has picked up over the past year, as health reform has gone fully into effect.

Just to be clear, I’m not calling the Obama-era economy a success story. We needed faster job growth this time around than under Mr. Bush, because the recession was deeper, and unemployment stayed far too high for far too long. But we can now say with confidence that the recovery’s weakness had nothing to do with Mr. Obama’s (falsely) alleged anti-business slant. What it reflected, instead, was the damage done by government paralysis — paralysis that has, alas, richly rewarded the very politicians who caused it.


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