Asymmetrical Information

From the desk of Winterspeak:

Doha is dead

The so-called "Doha round" of the WTO is dead. Trade ministers were unable to agree on a comprehensive set of lower subsidies and tariffs, and as a consequence have gone their separate ways. Countries in the WTO will continue with the current universal trade rules, and countries are, of course, free to negotiate their own trade rules with each other.

The Europeans blamed the Americans (surprise surprise, *yawn*) etc.

The National Journal has a long piece on how the failure of Doha reveals stunning incompetence -- free trade is such a no-brainer, that anyone not implementing it is an idiot. The article is obtuse. The real question is that since free trade *is* such a no-brainer, and since countries can reduce their tariffs and subsidies all by themselves, why have a WTO process at all? There is no coordination problem that needs to be solved.

The answer is tht people do not think that free trade is important, and that powerful interest groups and ideologies stand against it, and that while people as a whole benefit from trade, some individual groups also lose. This is all a matter of internal politics, and I'm not convinced that creating a WTO bogeyman to shove trade deals down the World's collective throat is the best to handle this. Maybe we'd be better off if people were more honest about how trade really works instead of just saying "the WTO made me do it".

The failure of Doha will not effect the US much. The US hardly trades at all, and the bulk of its trading is done within NAFTA. As for poor countries, their main issue is incompetent governance, and I'm not sure how trade will help them deal with that.

From the desk of Jane Galt:

The big engine that could

America has long been called "the engine" of global economic growth. The Economist argues that China is the boiler--and both engine and boiler are in danger of breakdown:

Interest rates could rise again if the international lenders who have been pouring capital into America decide to put their money elsewhere—which they may do if the dollar continues, as expected, to fall. And even if American consumers extricate themselves from their financial difficulties, a falling dollar will dampen the demand for imports that many economies depend on.

And just as more cracks appear in the engine, the boiler seems to be in danger of burning itself out. Figures released this month show that China’s economy grew by 11.3% compared with the year before in the second quarter. After three years of 10% annual growth, this news is less welcome than one might think. On Wednesday Wen Jibao, China’s prime minister, called for “forceful measures” to stop the economy overheating. Chinese officials—and many analysts—are worried that the boom could be out of control. If not carefully managed, the current frantic pace of investment and expansion could spark inflation and asset bubbles. The hangover could leave industry with unused capacity, banks burdened with bad loans and the government threatened by enormous levels of unemployment.

Unfortunately, the Chinese government has few tools at its disposal to manage the pace of growth.

Update Andrew Samwick is also worried:

To me, the big news continues to be the negative personal saving rate. Quoting from the release:

Personal saving -- disposable personal income less personal outlays -- was a negative $141.0 billion in the second quarter, compared with a negative $97.0 billion in the first. The personal saving rate -- saving as a percentage of disposable personal income -- decreased from a negative 1.0 percent in the first quarter to a negative 1.5 percent in the second. Saving from current income may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods.

In what is still the healthy part of the business cycle, I see no good reason why the personal sector should be running down its assets to support consumption.

From the desk of Jane Galt:

Interesting

The unintended consequences of dam removal, from the comments of a post at Same Facts:

Every dam accumulates silt. If a dam is removed after many years, the public will gasp at the vast mud flats that weren't there before the dam was built. Ugly, smelly, unnatural mud flats.

The mud will go away eventually - normal erosion and river flow will carry it downstream, as would have happened if the dam had never been built. But the fact that this normal erosion was held up for many years means that the flow of silt from the mud flats will be many times greater than normal. The river water will be brown rather than clear. Temporary mud flats will form at every bend in the river downstream. Fish will die. People will be appalled. And this will go on for years.

The question is: How will the public respond to this? Will they say "We never should have torn down the dam!" or "We never should have built the dam!" Here's hoping for the latter, but it could well be the former. Plan ahead.

I have nothing to add . . . just thought it was interesting.

From the desk of Jane Galt:

Will blogs replace the MSM?

God, I hope not, or who's going to pay my rent? Luckily from me, Malcolm Gladwell, who is so smart and talented that light bulbs turn themselves on when he walks under them from the powerful waves of mental energy exuded through his stiff mass of antenna-like hair, thinks they can't.

I agree, although I'd diagnose the reason differently from Mr Gladwell. Bloggers and journalists have different strengths; when done right, they complement each other. Good bloggers have extensive local knowlege and excellent feedback mechanisms; by definition, some of my readers know more about any topic I write on (or blog on) than I do. Journalists have breadth, time, and reach. No blogger can spend the kind of time researching and writing a story that I do, because my paper relieves me of the burden of earning a living elsewhere. Nor can many bloggers afford to, say, pick up and leave Washington to report on Beirut for three years, thus combining in one person expertise on US politics and the Middle East. And a single blog, or even a group of blogs, has difficulty functioning as a one-stop shop for the major news of the day, because blogs are, by definition, idiosyncratic.

Blogs are a very efficient filter for odd stories, really big stories, and policy arguments. They are a very bad filter for stories you want to know about, but not to argue about: local transportation bills, burglary rates, hospital corruption scandals. In short, blogs are a pretty good substitute for an op-ed page. They are rarely good substitutes for news reporting. This is especially true of politics, because bloggers by and large simply do not have the access or the historical relationships with enough insiders to make an informed judgement. If you've ever spent any time around lobbyists, politicians, or political staffers, you know that legislation and regulations are crafted in a web of complex power relationships unbelievably more intricate than it looks from the outside. There is simply no substitute for spending an enormous amount of time listening to tedious and often petty arguments from all the various stakeholders.

That's why I was so surprised by the New York Times' TimesSelect strategy. It seemed unbelievably ass-backwards to me. The Times has always had a distinctly mediocre editorial page (at least since I've been a reader), populated largely by household names whose schtick had already begun to wear a little thin when they joined the page. Its news gathering organisation, on the other hand, is probably the biggest and best in the world, with the exception of the wire services and the BBC. So it decided to give its content away for free in the one area where it has a serious competitive advantage over its rivals, and put a pay barrier in front of its opinion journalism.

But it seems to me that with the possible exceptions of Paul Krugman and David Brooks, people read the columnists because they are in the nation's most widely circulated paper, not the other way around. The NYT confused what people read and email each other, with what they will pay for. If those two things were the same, poems about Jesus and pictures of animals dressed up in costumes would have displaced porn and gambling as the internet's biggest industries.

Bloggers are making the same error when they talk about displacing the mainstream media. People like op-eds, but they buy newspapers because they want to know what is happening in the world. That implies an organisation that steadily churns out not just flashy stories about global geopolitical summits, but also not-particularly-interesting items on the EU agricultural ministry and flash floods in Arizona--even if the editor's cat has died.

In a way, I think blogging has the same trouble that I think open source will continue to have: without the profit motive, there is no incentive to invest in the dull-but-necessary, or cater to outsiders. I doubt many of us would go down and check out what the city council is doing about the sewers voluntarily, so it's a good thing that the local paper pays someone to do it. Similarly, open source user interfaces tend to be powerful and less-than-intuitive to non-technical people, because open-source developers produce what they want, not what some hypothetical customer needs. Newspapers, and software companies, are a very efficient way for us to each chip in a tiny sum to pay people to develop knowlege we want to have, but don't want to take the trouble of getting for ourselves. They work because they are centralized. There are drawbacks, of course, but I think the model will still be with us for some time to come.

Update Ezra Klein has more:

I'd add that the warlike relationship so often assumed between blogs and the media strikes me as a backwards interpretation -- the two genuinely need each other, and act more as countervailing powers than anything. Before blogs, the problem with the media-as-watchdog was that it lacked a watchdog -- a few self-interested organizations arose to work the refs, wielding outsized influence because so few replicated their strategies, but there weren't a broad range of informed observers attentively watching the press and lambasting its failures. Now, of course, there are.

RTWT

From the desk of Jane Galt:

Dark days for Doha

The Doha round of WTO talks has finally died. The Economist reads the eulogy:

This is a tragedy, especially for the developing world. Last year, the World Bank estimated that global gains from trade liberalisation would equal roughly $287 billion, of which $86 billion would accrue to developing nations, lifting at least 66m people out of poverty. Activist groups including Greenpeace and Oxfam were quick to condemn both Washington and Brussels for intransigence over agricultural subsidies, saying that rich-world self interest is leaving the poor to suffer.

Without further progress at the WTO, those keen on liberalising trade will focus on regional and bilateral agreements. These are already proliferating (see chart): just about every one of the WTO's 149 members is a party to a regional trade agreement of some sort.

But these smaller agreements are a poor substitute for global progress. While they improve flows within the deal, they distort markets by favouring certain countries over others, even if their goods offer less economic value. The proliferation of special regulations, which companies must spend time and money to understand, does nothing to free up trade generally. And such deals sap the will for broader progress in multilateral talks. This is particularly harmful to smaller and poorer countries, which lack the economic muscle to win concessions from behemoths like America and the EU unless they are part of a broad negotiating consortium. With the sun finally setting on the hopes for Doha, there may be very dark times ahead for trade.

From the desk of Jane Galt:

That's not funny!

A number of people have assumed that in titling my post "Tee hee" I was inviting laughter at Glenn Greenwald.

I wasn't. Honest. I was inviting laughter at James Joyner's rather deft deadpan. Is there a distinction? In my mind, yes.

I hate laughing at people. Even people I disagree with, like Glenn Greenwald. Even imaginary people -- I often turn sitcoms off just before the climax of a comedic scene, because I find it excruciating to watch people being embarassed. If Glenn Greenwald created a sock puppet, I wouldn't want to spend time making fun of him; I would feel bad for him that he got caught. I root for movie villains. I even feel bad for Deb Frisch, whose lunatic and morally outrageous comments have now cost her her job and probably her mental health. I am ever saddened by the fact that we live in a world of permanent consequences. Just look at what I wrote about Michael Bellesiles when he got caught, years ago. And I REALLY despised what he did.

So one can say he tried to lie his way to fame and fortune, and got a much-deserved comeuppance. And yet, I feel sorry for him. Just as I feel sorry for Monica Lewinsky and everyone else who sought fame and fortune, and found it in very public humiliation. We've all had the feeling, I imagine, of not being quite able to make it. We've all been tempted to push the envelope, go out on a limb, do something maybe not quite right just to put ourselves over the top. Thank God we didn't. We found a job or a field where we were more qualified, or we learned to compensate, or we accepted that we weren't ever going to win the Nobel Prize. But is it really so hard to imagine yourself taking that first step -- making up a couple entries in a table, maybe, to make your case look a little better? And when no one caught it, to make up a little more, so your case was really dazzling? And when people responded by showering you with praise for your results, is it hard to imagine how intense the pressure must have been to keep serving them up? People on HNN have been jumping all over a history professor for suggesting that this is a tragedy for Bellesiles -- that the peer review system served him as badly as it served us -- but really, couldn't we have saved ourselves a lot of grief by catching this the first time? Bellesiles might have been spanked and sent back to do better research, instead of rewarded in a way that demanded he produce ever more outlandish results. And how hard is it to imagine the hell he has been living in over the past few years, desperately lying to cover his previous lies, breathing a little easier as the questions receded for a time. . . but then the noose inevitably closing in? He didn't behave well, and he doesn't deserve mercy. But when we see a man destroy himself by inches, I hope we can muster up some compassion. His life is effectively over. He will never work again in his chosen field. He will never publish again. He stands revealed to everyone whose opinion ever mattered to him as a liar and a fraud. Frankly, I find it hard to imagine what he will do, since professors rarely have a lot of money, and their skills are somewhat rarified. Most of the professors I've worked for couldn't even type or file well enough to work in an office.

From the desk of Jane Galt:

Comment of the day

From Purple, to the last post (which was titled "Tee-hee", and centred around a deadpan post by James Joyner about Glenn Greenwald's sock puppetry):

The war Jane supported so vociferously has turned into a nightmare with no way out. Tee hee!

Apparently, having supported the Iraq war, I may never laugh, at anything, ever again.

From the desk of Jane Galt:

Tee hee

From James Joyner:

This morning, I learn that lefty blogger extraordinaire Glenn Greenwald–who is a famous constitutional scholar, has a bestselling book, is quoted by important Senators and media types alike, and has risen to the heights of blogitude in a mere nine months–has had his IP address stolen by at least three people. Thankfully, they have so far used it only to write blog comments praising Greenwald. But, surely, this could be used for ill, too.

Shawn, Patrick Frey, and Ace all have details.

I hasten to note that I haven't been following the Glenn Greenwald dust-up that apparently spawned this . . . er . . . theft. Nor do I think that sock puppetry is wrong, exactly, though it sure is embarassing if you get caught praising yourself. The trouble with John Lott was not that he used sock puppets -- including on my site; it's that his research problems made it impossible to rely on his results. The sock puppetry was just the most excruciatingly publicly humiliating aspect of it all.

Nonetheless, I doubt we'll be hearing much more about his sock puppets from the left. And a good thing, too, as it's more sad than relevant. Why kick a man when he's down?

Of course, I expect that Mr Greenwald has a few more weeks of twisting slowly and painfully in the wind . . .

Update Glenn Greenwald implies that it was his partner, David, who made the posts. In support of this assertion is that they don't quite read as if written by a native English-speaker (his partner is Brazilian).

The problem, David is that everything you are saying that Glen should address, he already has. He explained clearly that Markos cannot and does not exert leverage over a single word he writes or doesn't write, and already explained what Townhouse is:

I cant speak for him, but I wouldnt answer you either, you keep ignoring the answers he gave, which suggest that youre interested in accusing, not in learning.

Finally, you want a negative proven. What evidence could exist to show this conspiracy doesnt exist?

Counting against that theory: neither does the blurb on his website.

For the past 10 years, I was a litigator in NYC specializing in First Amendment challenges, civil rights cases, and corporate and securities fraud matters.

. . . and the author's rather astonishing skill at creating realistic-sounding GMail addresses based on variants of the anglophone names used by whoever was manipulating the sock puppet.

It really doesn't matter, does it? After all, having your wife, boyfriend, or mother defend you using a puppet show isn't much less embarassing than doing it yourself.

From the desk of Jane Galt:

Department of Awful Statistics: Special Victim's Unit

Will Wilkinson reports on the New Economic Foundation's recent assertion that Vanuatu is the Magic Kingdom of happiness research:

So, it turns out that I wasn’t crazy when I couldn’t find Vanuatu in the World Database of Happiness, because it’s not there! Carl Bialik at the WSJ has the story. Apparently NEF just made up Vanuatu’s life satisfaction number by extrapolation from other countries.

Profanity is too weak. Oh my stars and garters.

From the desk of Winterspeak:

Why can't we all just get along?

U Chicago prof Austin Goolsbee has a nice article in the NYTimes about how wars have little impact on a nation's economic well being, but internal ethnic divisions retard growth.

He cites studies looking at how more heavily bombed towns in Vietnam, Germany, and Japan have recovered and now are at the same level as less heavily bombed towns.

By contrast, countries with squiggly lines (natural) do better than countries with straight (artificial) lines, especially where multiple ethnic groups are put into the same country.

The implication of the above is that if we just split all countries into fairly homogeneous ethnic groups, then war and strife would go away. But I wonder about countries like the US, India, and China though, that have heterogeneous populations and have managed to grow economically despite some internal strife. And there are numerous perfectly homogeneous tribes throughout history that went to war with other tribes and never developed much at all.

People are very good at drawing divisions between themselves and then fighting over those divisions. I think the idea that "dealing with people at the community level will reduce strife" is bogus -- the community leaders and activists I've dealt with in the US have tended to have radically different ideas from the communities they claim to represent, and they are often more belligerent as well.

From the desk of Jane Galt:

The aristocracy of the common man

I don't know why this sentence struck me so funny, but it did:

Lord Harris of Peckham, the chairman and chief executive of Carpetright, who has over 40 years' experience in the retail sector, says: "I've been through about six or seven of these things. I think we've been in it since late last summer, and these normally last 18 months to two years."

The story it comes from is not funny at all: it's about British consumer spending, which is down considerably since the housing bubble stopped inflating. This is probably a good indicator of what will happen to us as our housing bubble cools . . . that is, if it isn't even worse.

From the desk of Jane Galt:

Good question

From the always excellent Derek Lowe, on patents:

The thing about drug industry profits is, they're pretty much all based on wasting assets. The drug business is an endless treadmill. Most businesses have this problem to some extent, but it's very explicit in our case. When your big patent runs out, the music stops very abruptly these days, so you'd better have something to replace it. But you know, I'm not complaining about that. Patents should have defined lifespans, although we can argue about how to set them. Knowing that they're going to go away, though, keeps us moving. (For similar reasons, I wish that copyright hadn't been extended a few years ago). If we had big whopping patent terms, the temptation to just sit around and roll in the money would be too great. The pace of discovery would slow. I see it as the function of government to discourage that kind of inertia, although not by just yanking all the cash away, which position I realize also has some support. Nope, it's the middle ground for me: enough time to make good money, but not so much time that everyone becomes too lazy. Here's the question, though: stipulating that that's what we want, are the current patent terms too short, too long, or on target?

Copyright term is obviously too long, and I don't want to hear from amateur economists arguing that an extra twenty years on the copyright term that comes long after the writer and any editors who buy his work are dead, helps spur innovation. But patents? Pharma patents seem just about right to me, particularly since they lose a huge amount of their run time to FDA trials.

From the desk of Jane Galt:

Dulce et decorum est pro patria pontificate

Ross Douthat has written a brilliant post on the sad fact that at some level, human beings like to be at war, and that a tragic excuse for war, such as Pearl Harbour and 9/11, also becomes for most of us a joyous excuse to band together against the enemy:

In the nearly five years that have passed since September 11, 2001, I've found my thoughts turning more and more often to these lines, from the last volume of Evelyn Waugh's Men At Arms trilogy. The protagonist, Guy Crouchback, finds himself in the Balkans near the end of World War II, talking with a Jewish refugee whom he's trying, unsuccessfully, to help find asylum in Italy or Palestine. She says to him:

"Is there any place that is free from evil? It is too simple to say that only the Nazis wanted war. These Communists wanted it too. It was the only way in which they could ccome to power. Many of my people wanted it, to be revenged on the Germans, to hasten the creation of the national state. It seems to me there was a will to war, a death wish, everywhere. Even good men though their private honour would be satisfied by war. They could assert their manhood by killing and being killed. They would accept hardships in recompense for having been selfish and lazy. Danger justifies privilege. I knew Italians - not very many perhaps - who felt this. Were there none in England?"

"God forgive me," said Guy. "I was one of them."

This is how I often feel, looking back, about my emotions in the period from 9/11 until the beginning of the Iraq War - with the additional sting of knowing that unlike Guy Crouchback, I didn't even sign up to fight in the war that some part of me welcomed. Of course the reality of this "will to war" doesn't mean that we were wrong to invade Afghanistan, any more than it means that the British were wrong to take on the Nazis. But you would think, wouldn't you, that after three years knee-deep in Iraq, after all the best-laid-plans and good intentions have gone so far awry, that the romance of warmaking would have faded somewhat - and that there would be a slight reluctance among certain people, when a new crisis comes down the pike, to strike attitudes and posture and paint with broad brushes, and insist that the year is always 1938, the players are always Mr. Chamberlain and Herr Hitler, and that the answer to the threat of radical Islam is always and forever l'audace, toujours l'audace.

His commenters hasten to ridicule him for having the courage to point out the obvious, and unlovely.

This is silly, because Ross's point is so uncontravertibly true. Everyone idealizes war; it is no accident that both most of the American Right, and George Orwell, look back at World War II as an idyllic time of moral clarity and national cohesion. Nor is this confined to the new right and the old left. With the exception of true pacifists, like the Quakers, there are few people of any political stripe who do not regard some wars, past or present, as noble; the disagreement is over what to fight for, not whether fighting itself is just. And people killed by resistance fighters are just as dead as the ones killed by state-sanctioned soldiers. Even pacifists glorify those who, like Rachel Corrie, deliberately risk death in their cause, as if risk, rather than effectiveness, is the appropriate measure of one's actions. And perhaps it is. I have always loved the quote, I think from Balzac: "I do not love war, but I love the courage with which men face war."

We all share that ardor. Unfortunately, the only way to quench it is to go and have a war.

I will not contradict anyone who avers that their reaction after 9/11 was not tinged with some amount of excitement at the sheer fact of having a just cause to pursue, an enemy to triumph over. But I will not believe them, either.

I am not sure that this is a bad thing; on a social level, that ardor for vengeance and justice may be a sort of immune reaction that protects societies in a violent world . . . a game theory heuristic written into our DNA, if you will. I am not sure that we would long survive without it, and I will freely confess that I love the love that sends men to recruiting stations, and the courage that sustains it. But it is a dark love, and feeding it exacts a terrible price . . . too often on those who are not party to the affair. Ross deserves credit for his willingness to subject his feelings to the close scrutiny they deserve, not censure for making others feel uncomfortable with their passions.

From the desk of Jane Galt:

Department of Awful statistics

And by "awful", I mean "wonderful":

As the FIFA World Cup moves towards it two final games that will determine the best footballers in the world, I came across what I can only declare a brilliant insight, which I shall now share:

I call it Feynman and Coulter's Love Child's FIFA World Cup Prediction System. It goes something like this:

The less the success a country acheived in World War II, the greater the success at the world cup.

This system, of course, predicted that France would win. But the elegance of it is still compelling . . .

From the desk of Jane Galt:

How is book reviewing like a financial market?

Ruth Franklin writes a lovely piece on the trouble with book reviewing -- troubles that are, I assure you, all too familiar to those of us who occasionally write them. But this is what really stuck out for me:

Yet if "nice reviewing" has attracted few explicit defenders, a number of today's critics nonetheless seem to share a tacit understanding that it is somehow indecorous--what used to be called bad form--to come out and say that a book is bad. Peck's critics generally lambasted him not for the substance of his judgments, but for his unwillingness to play by what they determined to be the rules. "If you're going to be in it for the big run, you have to act responsibly," intoned Sven Birkerts, whom Peck had criticized precisely for his tendency to be overly generous in his criticism. (Birkerts did not elaborate on what he meant by this, but presumably, if you're "in it for the big run," whatever that means, you will inevitably run into some of your subjects at cocktail parties--or, worse, they will someday review your books.) John Leonard, in a scalding review of Hatchet Jobs, Peck's collected essays, in The New York Times Book Review, laid out his own idea of literary etiquette in these guidelines for "responsible reviewing": "First ... do no harm. Second, never stoop to score a point or bite an ankle. Third, always understand that in this symbiosis, you are the parasite."

Leonard has never been able to abide by these rules himself. What critic could? And so his review of Hatchet Jobs is typically full of gleeful jibes and personal attacks. He concluded it with the following story:

Many years ago the editor of this publication asked me to review John Cheever's last, brief novel, "Oh What a Paradise It Seems," after he had already been turned down by half a dozen critics who knew that Cheever was dying but thought his new book a weak one and didn't want to compromise their supreme importance with a random act of kindness. It never occurred to me that a thank-you note to a wonderful writer, a valediction as it were, would get me kicked out of any club that I wanted to belong to, so I immediately said yes. At the time, besides that review, I wanted to write a message to those preening scribblers who thought they were too good for lesser Cheever. On a card, in small caps, I would have said what I say to Peck: get over yourself.

This self-aggrandizing little anecdote nicely illustrates the hypocrisy of "nice reviewing." The Cheever review with which Leonard is so pleased was actually a masterpiece of obfuscating generalities and flaccid platitudes that are immediately transparent to anyone with half a talent for reading between the lines. Such studies in opacity are hardly unusual

The reason it struck me is that it reminded me of a conversation I had years back with Elizabeth Spiers and another blogger about financial analysts, and their propensity to be rather over-glowing in their reports. They were agreeing with each other that no one takes buy recommendations seriously. Research reports are good for getting data, but bad for getting investment advice.

But of course, this is not true. Professional analysts do not take buy recommendations seriously. But sell-side researchers do not stick them into their reports simply because they have a big square space in the layout that needs to be filled with a chunk of brightly coloured text. They put them in there because some Osteopath in Dallas actually believes that if Merrill Lynch is telling him to buy something, that means that, well, they think he should buy it. He forthwith does.

Indeed, the pitches from the investment banking department at the end of the boom gave but a passing nod to things like valuation excellence, and instead focussed on things like the quality of the research department, and the extensive distribution network, of their firm. Loosely translated, this means "Our equity research people will tell innocent civilians to buy your stock, and then our brokers will jam it into their portfolios like a salesclerk pushing size-20 women into size-14 girdles."

In short, there was a coded significance to the reports that allowed insiders to benefit at the expense of outsiders. And Ruth Franklin seems to be suggesting much the same thing about book reviewers: they write in a way that signals to insiders that a book is a piece of crap, while convincing outsiders that they should buy it, read it, or at least talk earnestly at their next cocktail party about how they mean to read it as soon as the Peterson deal is finished.

Plus ca change . . .

From the desk of Jane Galt:

Our loss?

Dan Gross tells Rosneft we didn't want your stinkin' IPO, nohow:

Many people have lamented the fact that Russian state-owned oil company has chosen to do its huge, $10 billion-plus IPO in London, rather than in New York. The decision has been held out as an object lesson in how U.S. listing standards and regulations are deterring foreign companies from becoming NYSE and NASDAQ companies. But as Joanna Chung reports in the Financial Times, there's reason to believe this may not be our loss and London's gain.

Rosneft yesterday began selling itself to investors, warning of "material weaknesses" in its internal controls, a Kremlin-
controlled board that might not always act in the interests of minority shareholders and possible legal liabilities of at least $14.7bn (£8bn).

The state-owned Russian oil giant published the preliminary prospectus for its float in London and Moscow next month. It hopes to raise $10bn-$11.7bn, making it one of the world's largest initial public offerings and valuing the company at up to $80bn.

As with any such document, Rosneft has been obliged to list all the conceivable risk factors to any investment.

Over 25 pages, the potential pitfalls are set out. As expected, the central threat to any investment lies in the legal challenges surrounding Rosneft's contentious acquisition of the former assets of Yukos, the oil company once owned by the now imprisoned oligarch Mikhail Khordokhovsky. Rosneft acquired Yuganskneftegaz, the main asset, in an opaque and forced auction.

. . . Rosneft's corporate governance might also prove offputting. The prospectus says the Russian government indirectly owns 100 per cent of Rosneft and that six members of the nine-member board are officials in the government. This means Rosneft may "engage in business practices that do not maximise shareholder value" and cause it to "take actions that may not coincide with the interests of minority share-holders".

Its accounting systems may not be as sophisticated as that of companies with a longer history of compliance with US accounting rules and "Rosneft's independent auditor has identified certain material weaknesses in Rosneft's internal controls".

I'm afraid that I don't get Dan Gross's point. Certainly, Rosneft may be a bad investment . . . financially or morally. But it seems to me that the IPO pretty unequivocally benefits London, at the expense of New York, whatever the drawbacks for potential investors. London will get a huge infusion of cash from the IPO, as well as for all the other IPOs it garners in return for its willingness to let rather unsavoury characters list on its exchange.

Now, in the case of Rosneft, we might say that there is some intangible moral cost to dirtying one's hands with such a transaction, which outweighs the financial benefit. But Sarbox and its brother rulings seem to me to be indisputibly also chasing away perfectly legitimate and sound businesses, particularly foreign ones, that don't want to spend the money or the talent on its enormous compliance costs. Perhaps that is the price we pay for protecting US investors, but "Good riddance" is hardly an adequate argument for its charms.

From the desk of Jane Galt:

Department of Awful Statistics

From a Christian Science Monitor story on bankruptcy:

The morality debate is heating up amid signs of trouble for people living on the margins:

• Even though tougher filing laws took effect Oct. 17 [italics mine], the number of monthly bankruptcy filings grew by more than 300 percent between November and March, from 13,758 to 49,977, according to a June report from the Administrative Office of the US Courts.

Needless to say, this is completely addled. This is exactly what we would expect: November bankruptcies plummeted, because anyone who was thinking of filing around then rushed to declare Chapter 7 before the new law took effect. The level then slowly rose, as new candidates entered the bankruptcy pipeline.

In fact, the truth is exactly the opposite of what the story implies: what numbers we have on bankruptcies indicate that they have remained shockingly low, even lower than advocates for the reform were hoping, long after most people expected them to rebound. (This is not to imply that I am in favour of the reform; I was against it. But it certainly is surprising.) The CSM's usage of that statistic is at best an embarassing mistake; at worst, shoddy obfuscation in order to muster a third statistic in service of the point. A theme I agree with, incidentally; with household savings in the negative territory and interest rates rising, it could hardly not be a difficult time for debtors.

¹ (Why must we journalists always have at least three statistics? At my publication we don't; I'd handle the problem by killing the bullets and saying something like "Those living on the margins are having a harder time of it. Foreclosures on home mortgages were up 38 percent nationally in the first quarter of 2006, according to property tracker RealtyTrac Inc. And Cardweb.com says that the average American household owes more than $9,300 on credit cards, up from $2,966 in 1990." But elsewhere, it seems to be some iron law that if you have two examples of something, you must come up with a third, come hell or high water. Let's call it Jane's Law of the Third Supporting Fact. This leads to the awful temptation to fudge when no good third anecdote data presents itself.

From the desk of Jane Galt:

Yet another use for blogging

From Tyler Cowen, writing about someone he refers to as, um, the un-Jane:

Note that the male audience is error-prone and self-deceiving, so the self-description should involve some ambiguity rather than a perfect description of self. The woman cannot trust the men to do the proper ex ante sorting. Had I known I wanted a Russian Jewish-Armenian lawyer and former linguist with not exactly my political views?

BUT: What if the advertising woman self-deceives about a good partner more than the eligible men do? In that case the woman might want to be very specific about what she is like. The number of respondees goes down and the woman hopes that the right man will see through her character and choose her.

Does that sound like Megan Non-McArdle? Are highly specific ads an attempt to abdicate responsibility for choice? A pre-emptive move to avoid rejection? Or are they a demand for the near-impossible, to seek the most romantic story imaginable, and to request only a man who is infinitely perceptive and full of love from the get go?

Stay tuned...

Addendum: If a woman writes a blog, and in part uses the blog as an extended (and thus detailed) personal ad, does this mean she is especially difficult to please? Especially romantic?

I'd never thought of my blog as a personal ad, but perhaps now that I'm single again I should. Should I eschew budget deficits and unemployment in favour of lovely, lying photographs of myself in grown-up prom dresses, and long treatises on how much I enjoy travel, fine dining, and long walks on the beach?¹ I leave it up to my readers.

¹ In making your decision, keep in mind that much as I admire her spunk, I am not, no matter how much you ask, going to emulate the . . . er . . . friskier bits of the un-Jane's self-description. This is, after all, a family blog--specifically, my family. Hi, Dad!

From the desk of Jane Galt:

Atlas Shrugged: The Movie

Despite my web moniker, I am not an objectivist. I took the name Jane Galt on my first foray into the web, which was the New York Times forums sometime around 1995. There was a fellow there who referred to anyone who disagreed with him, and was anywhere to the left of, like, Chairman Mao, as a "Randroid". And I wanted to disagree with him . . . rather pungently. Upon attempting to post a comment, I was told that I needed a login name. And I thought, "This will really piss him off . . . "

Needless to say, the handle stuck, which is why more than ten years later I find myself repeatedly explaining that, er, I am not an objectivist.

Anyway, I do enjoy Ayn Rand's novels, just as I enjoy political realist fiction of all stripes (yes, I love those soviet movies with mighty-armed proletarians giving speeches to each other as they plant potatoes and fix their steely eyes on the bright Socialist horizon). But not in a religious fashion. So I was somewhat bemused to find out that they're making a movie out of Atless Shrugged, possibly to star Angelina Jolie. A trilogy, in fact. Which, of course, makes one wonder: what percentage is taken up by John Galt's 150 page speech? Is there any room left for hot Objectivist nude scenes?

One suspects that the folks in Hollywood have been deluded by the success of Lord of the Rings into believing that any book with a large following of slavish geeks will do well at the box office. But Lord of the Rings had rather more of a plot than Atlas Shrugged--somewhat too much, in fact. And the speechifying is rather minimal compared to Atlas. Even those of us who love Atlas--and really, is there any better beach reading?--have to admit that it's more of a sermon with a cast than a fully realised epic.

More to the point, how on earth could Hollywood possibly make this movie? Some objectivist bigwig has apparently signed off on the screenplay, but colour me sceptical. I'd offer long odds that by the time Hollywood is done editing the thing, it will represent plucky individuals against . . . a government superficially indistinguishable from the Bush administration. In the summer blockbuster release, the state's biggest crime will no doubt be stealing all the gay marriage from poor people and stuffing it into private accounts where they can't get at it.

Hey, I'm willing to be proved wrong. But I've got a little cash for any anarchocapitalists who want to bet that the final version will not make them weep hot tears of rage . . .

And, of course, the biggest question: who is John Galt? I nominate Brad Pitt, whose lovely golden incoherence seems just right for the bits that aren't, well, a 150 page speech. What do y'all think?

From the desk of Jane Galt:

New addendum

Pelosi is promising that if they take the house in the fall, Democrats will roll back the Bush tax cuts and focus on deficit reduction. Who wants to set the over-under on how long it takes them to find some pressing need that overrides deficit reduction? Or will the fact that they control only one branch hamper any attempts to pass new spending? THoughts?

From the desk of Jane Galt:

Addendum to previous post

Is anyone else tired of this Greg Mankiw fellow consistently writing multiple daily posts of astonishing awesomeness? Frankly, we don't need that kind of stuff around here. It's a classic story of how some tycoon with an unfair share of assets--in this case intelligence, writing flair, and Harvard professorships--uses his power to muscle out the little guy. Frankly, Marginal Revolution and EconLog were already two excellent economics blogs too many, as far as I'm concerned. We certainly didn't need more academic types muscling in on mom-and-pop operations, threatening to put us out of business.

It's a good thing I write for free, isn't it? Because otherwise, I don't think I could afford to keep it up in the face of all this unfair competition. Where's the antitrust department when you need them?

From the desk of Jane Galt:

Deficits as far as the eye can see . . .

As an econ blogger, I presumably have a responsibility to comment on the deficit. This about sums up my opinon:

By 2008, Mr Bush’s number-crunchers reckon, the fiscal gap will be down to 1.3%, well below the level needed to fulfil the president’s election promise of halving the deficit in his second term (see chart). The president, who badly needs to rebuild credibility with his conservative base, was ecstatic. Not only was the deficit under control, he claimed, but soaring revenues were clearly the consequence of tax cuts and proof that Bushonomics works. “Some in Washington say we had to choose between cutting taxes and cutting the deficit,” he crowed. “Today’s numbers show that that was a false choice.”

Outside the White House, the reaction to the new figures was, rightly, rather less glowing. Many pointed out that a budget deficit of 2.3% of GDP at a time when the economy is booming and the babyboomers about to retire was hardly cause for great celebration. Others grumbled that much of the fiscal “improvement” was fake, arguing that the Bush team regularly overestimates deficits early in the year so that it can flourish better numbers later on.

The White House’s February forecast of a $423 billion deficit was indeed far above other people’s. Both the non-partisan Congressional Budget Office and Wall Street economists expected a gap of about $370 billion. But this week’s budget “surprise” cannot be put down to financial legerdemain. The revisions almost all stem from higher tax revenues, a surge of cash that has shocked everyone.

The White House now expects to get $115 billion more in taxes this year than it did in February. Against the boffins’ expectations, a revenue surge that began in 2005 appears to be continuing. In 2005 tax receipts rose almost 15%, the fastest pace in 25 years. They now look likely to rise by another 11% this year, far above the historical average growth rate of around 7.5%. About half the surge in cash comes from firms; the other half is thanks to higher income-tax payments by individuals, particularly those that are not withheld from pay-cheques, such as tax payments on capital gains and year-end bonuses.

These are impressive figures, but how much credit belongs to Mr Bush’s tax cuts? Fiscal loosening doubtless cushioned the 2001 recession and may have accelerated the subsequent recovery. But the tax cuts cannot be given all, or even much, of the credit for today’s strong revenues. Tax receipts often rise faster than the bean-counters expect during cyclical expansions. Since budget forecasting is more an art than a science, revenue “surprises” are surprisingly frequent.

Most salient point: Bush could close the budget deficit next year, and it wouldn't matter, because we have a whacking great entitlement prolem that is about to, as I once said rather pungently, "become the sucking chest wound of our budget". Not only does Bush deserve no credit for narrowing the budget gap via the magic of dynamic scoring; his political failure on social security reform, and his politically popular but fiscally lunatic prescription drug benefit have made the problems worse.

Of course, if you think this means that I am taking the Democratic line on all this¹, you are very much mistaken. The Democrats wanted to spend more money on the prescription drug benefit, and it was their political ads and other vigorous campaigning that brought down social security reform. Neither party is covered in glory here.

About which I thought Greg Mankiw made the most amusing point:

My friend pointed out that forecasting tax revenue entails a lot of inherent uncertainty. A surprise even as large as $100 billion is not all that surprising, and we shouldn't make too much of it. It is absurd, he said, to suggest that this revenue surprise tells us much about current policies. My friend thinks it's just a stroke of luck.

We saw a similar phenomenon in the late 1990s, when positive revenue surprises drove the federal budget into surplus. Democrats were then quick to claim credit for Clinton policies. They said, "See, raising taxes did not have all the negative effects that Republicans predicted." Meanwhile, Republicans thought Clinton just got lucky.

Both cases are examples of confirmation bias--the tendency to interpret evidence in favor of one's preconceptions. When there is good news, the party in charge overinterprets the evidence as establishing the rectitude of their policies. The party out of power is too dismissive of the evidence.

Absolutely right, and I think I am slightly entitled to crow, thanks to my frequent opining that Clinton's tax increases didn't help the economy, any more than George Bush's tax cuts did. Nor did either hurt much. The fact is, the Federal government, being largely restrained from radical action on the economic front, has little ability to either help, or hurt, economic growth. For which we may humbly thank God every day.

¹ But you didn't really think that, did you?

From the desk of Mindles H. Dreck:

Because of the LACK OF DENUNCIATION!

I want to make it clear that I denounce outrageous comments by over-the-top bloggers.

Furthermore, I disapprove of those bloggers who fail to denounce outrageous comments by over-the-top bloggers who may otherwise share the political positions of those bloggers who fail to denounce...them.

I want to add that I deplore the lack of condemnation in the blogosphere of such bloggers who fail to denounce said outrageous comments.

I also find it regrettable that many bloggers are not deploring, disapproving and denouncing soon enough after, respectively, the lack of condemnation, failures to denounce and said outrageous comments.

I just want to make that perfectly clear.

P.S. More re-allocation of condemnation here. After all, lack of regret, deploring, disapproval or denunciation amounts to being objectively pro-outrageous, pro-lack of condemnation or pro-non-denunciation. And we can't have that.

Perhaps a '2X4 upside the head' is in order.

In case you aren't following: Outrageous comments -->denunciation, failure to denounce-->condemnation or disapproval, failure to condemn and disapproving-->deplore, failure to deplore-->regrettable. Hmm, is regret not strong enough?

From the desk of Mindles H. Dreck:

Debate some more, there's got to be a worse solution out there

More than a year ago, I suggested that estate tax repeal would not reduce revenues if combined with eliminating 'stepped-up basis' (as proposed):

There is no case for saying, as the New York Times inexplicably does, that "Repeal would shield the estates of the very wealthiest Americans from the tax." It does not. It does, however, defer taxation. Because basis will no longer be 'stepped-up' after death (except for a $1.3 million exemption) they will simply be taxed like all other capital gains - at the time those gains are realized.

Stepped-up basis is one of the four legs of the estate-planning stool along with the life insurance tax exemption, minority discount valuations and the division of income and principal interests (such as the "estate freeze"). It is not entirely clear that beneficiaries of large estates are better off after repeal when the full toolkit of estate planning techniques is taken into account - unless capital gains tax is done away with altogether and the states stop taxing estates. Neither is likely to happen.

Given the large estates I've seen avoid taxes, I am skeptical of analyses that suggest an enormous impact to revenues from this repeal. I don't believe they factor in the new potential revenues from carryover basis outside the traditional estate tax shelter vehicles. Certainly, the capital gains rate is lower than the estate rate, but when estate tax shelter vehicles dwindle away, more assets will ultimately be subject to capital gains taxation. Based on what estate planning professionals tell me, it will be a wash in many cases and more expensive in some significant estates. In other words, with respect to the Estate Tax, we may still be in the fat part of the Laffer curve, where a lower statutory rate may yield higher revenues over time (due to avoidance behavior, not a lack of work incentives).

I did not realize that the Joint Committee on Taxation had actually run the numbers to support my speculation:

The JCT reported that repealing the death tax would cost the federal government $281 billion in revenue over the first five years. But that number doesn’t include the effects of a provision in the bill to eliminate the exemption that heirs currently receive from paying capital-gains taxes on the assets they inherit. The JCT itself had found, in a previous study, that eliminating this exemption would bring in an extra $293 billion in tax revenue over five years — the same five years, in fact, to which the JCT’s death-tax estimate applies. If that $293 billion had found its way into the report on the death-tax-repeal bill, it would have shown the bill raising net revenue by $12 billion over the next five years.

[UPDATE: Here's another study that comes to the same conclusion]
Voters don't like the estate tax, whether that's rational or not. This fact has been useful to Republicans. Yet the repeal bill from the House would have both increased revenues and eliminated some of the biggest loopholes and distortions of the estate planning business while pleasing these voters. Throw in the bonus that The 'Death Tax" could have been eliminated as a campaign issue in the process.

Instead, we are faced with a 'compromise' bill that will a) preserve the most significant loopholes and inefficiencies of the current system, (thereby pleasing certain entrenched corporate interests, while perpetuating much of the economic deadweight loss) b)preserve this relatively minor issue to demagogue for the rest of time and c) reduce revenue to the Treasury. [UPDATE: d) includes $900 million of pork tax incentives for timber investors] Well done, Senators!

I suppose the one silver lining is we can spend another decade or so publicly despising Paris Hilton in tax policy discussions. They were so dry before.

From the desk of Jane Galt:

Jus Bello

I know y'all probably think that I just read Crooked TImber in order to find things to pick on. I'm sure the Timberites do. But actually, I read it because it's well written and thought provoking. Today, Chris Bertram has a very good post on asymmetric warfare:

Steven Poole, our guest-blogger from last week, has this to say about “asymmetric warfare”:

Asymmetric warfare’ is the term employed by the US military for fighting people who don’t line up properly to be shot at: on the one side you have battalions of American infantry, marines, tanks and aircraft; and on the other you have terrorists, or guerrillas, or militants, or insurgents. [Read the whole thing , as they say. cb]

Of course the reason people don’t line up to be shot at, wearing proper uniforms, distinguishing themselves from the civilian population, and so on, is that it would be suicidal so to do. And here lies a real difficulty for conventional just war theory. If recourse to war is sometimes just—and just war theory says it is—but it may only be justly fought within the jus in bello restrictions, then it looks as if an important means to pursue justice is open to the strong alone and not to the weak. Faced with a professional army equipped with powerful weaponry, people who want to fight back have no chance unless they melt into the civilian population and adopt unconventional tactics. If those tactics are morally impermissible because of the risks they impose on non-combatants, then it looks as if armed resistance to severe injustice perpetrated by the well-equipped and powerful is also prohibited. And that looks crazy.

Needless to say this is a problem that is simply ignored by the many blogs that drone on incessantly about jus in bello violations by the weak (and, in the face of those violations, parrot the synthetic moral outrage of the spokespeople for strong states). On the other side, though, it hardly seems to be satisfactory to say that non-conventional forces should be subject to weakened jus in bello restrictions, since the restrictions are there to protect those who have immunity from attack and whose immunity is not removed or diminished by the fact that one side or the other are militarily disadvantaged.

No doubt some of my readers are about to hop on my back for siding with the terrorists. But it is an interesting--and imperative--moral question: what to do if just aims can only be achieved by unjust means? Those of us who were willing to tolerate the deaths of innocent Iraqi civilians in order to liberate their countrymen should be wiling to stare that question hard in the face, not just rely on easy customary distinctions, levened by a healthy dose of self-justification, and hardened by long repetition into something like instinct. If Dresden and Tokyo, Hiroshima and Nagasaki, were not wrong because they hastened the end of the war, then why is Islamic terror different if it achieves aims that seem to the perpetrators to be at least equally just? If we cannot answer this in a convincing way--convincing to millions of muslims still enjoying the fruits of colonialism (as well as, like all humans, a full measure of self-inflicted wounds)--then I see little chance of our defeating terrorism in the near future.

From the desk of Jane Galt:

Hee

Oh, Derek, how do I love thee . . .

After seeing a recent in-house promotional brochure, I'd like to issue a brief request on behalf of my fellow researchers. This is addressed to all professional photographers: please, no more colored spotlights. I know that you see this as a deficiency, but scientists do not work with purple radiance coming from the walls behind them. Not if we can help it, we don't, and if we notice that sort of thing going on, we head for the exits. In the same manner, our instruments do not, regrettably, emit orange glows that light our faces up from beneath, not for the most part, and if they start doing that we generally don't bend closer so as to emphasize the thoughtful contours of our faces. When we hold up Erlenmeyer flasks to eye level to see the future of research in them, which we try not to do too often because we usually don't want to know, rarely is this accompanied by an eerie red light coming from the general direction of our pockets. It's a bad sign when that happens, actually. I know that your photos have lots more zing and pop the way you do them. And I'm sorry, for you and for the art department, that our labs are all well lit (with boring old fluorescent lights, yet), and that we all wear plain white lab coats (which tend to take over the picture), and that our instrument housings are mostly beige and blue and white. It would be a lot easier on you guys if these things weren't so. But that's how it is. And when you get right down to it, you're actually doing us a disservice by trying to pretend that there's all sorts of dramatic stuff going on, that discoveries are happening every single minute of the day and that they're accompanied by dawn-of-a-new-era lighting and sound effects. We'd rather that people didn't get those ideas, because the really big discoveries aren't like that at all. It doesn't make for much of a cover shot, but if one of us ever does manage to change the world, it'll start with a puzzled glance at a computer screen, or a raised eyebrow while looking at a piece of paper. Instead of getting noisier, everything will get a lot quieter. And if there are any purple spotlights to be seen, we won't even notice them. . .

From the desk of Jane Galt:

How bad is unemployment?

The Economist takes on the question of "hidden" unemployment, a favourite accusation of those with alternate labour policies they'd like to see tried. Unfortunately, it turns out the answer is "it's damn tricky to figure it out."

If a person wants to work as a graphic designer, and has turned down an offer of a job bagging groceries, does he count as unemployed, or merely lazy? How do you categorise the people who stay at home looking after children or aged parents, the students who want to work in their free time, the part-timers who would like to have a full-time job, the healthy people who take early retirement, the affluent but low-skilled wives who throw themselves into volunteer work?

Then there are people who will say they want to work, and have looked for a job some time in the past 12 months, but have not done so in the past few weeks — perhaps because they have lost confidence that there are any jobs to be found. How much weight should be given to their stated desire for more work? If you count some or all of these people into or out of the official unemployed, you can move the American rate by one or two percentage points.

This is not a problem for America only. The accuracy of official unemployment rates everywhere is open to question. In May Sweden put unemployment at 4.8%. But a recent report from the McKinsey Global Institute, a research arm of a consulting firm, notes that Sweden does not count into its unemployment rolls students actively seeking work; nor “discouraged workers” who have stopped looking for jobs because they have lost hope of ever finding one; nor people in schemes that can substitute for employment, such as job training or extended sick leave. If you add in these people, says McKinsey, Sweden’s unemployment rate is closer to 15%—much less encouraging an advertisement for the Nordic model of tempered capitalism.

From the desk of Jane Galt:

Secession wars

Sorry . . . I've been on vacation in Greece, and am just now getting internet access. But Daniel Drezner's comments have an interesting debate (inspired by other bloggers) about that age old question: should we have seceded from Britain?

On the one hand, I think that it is hard to do an honest reading of American history without concluding that the Americans liked having the British fighting the French and Indians for them, and that as soon as the need for that protection eroded, they up and left the commonwealth rather than pay the taxes associated with the French and Indian Wars. This is a mite ungrateful, and rather less lofty than the founding fathers alleged.

On the other hand, I agree with the commenters who point out that, minus the American Revolution, many other good things, like universal suffrage and all that, probably don't happen elsewhere, at least not as quickly.

So put me down with the outcome-based crowd: prospectively, the rebellion may not have been a terriffic idea, but retrospectively, it rocks. People who think it would be neat if we were like Canada should take note: if we were like Canada, most of your asses wouldn't be here, because Canada did not experience the massive non-UK immigration that the United States enjoyed in the 19th & early 20th centuries. Those of you who, like me, are primarily Irish, English, and Scottish, might not be here because your forefathers got killed off entering WWI three years early. And of course, as one of Dan Drezner's commenters pointed out, most of you wouldn't be wherever you are, because if America had been a British colony, the Lousiana Purchase seems unlikely to have gone through.

Hindsight: 20/20. My motto is, if you've got it, use it.