J. Bradford DeLong's Blog, page 2088

Why Oh Why Can't We Have a Better Press Corps? New York Times Pulls Its Punches Story

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

Eric Lichtblau and James Risen should have simply said: "Go read Aram Roston for Playboy in December 2009 http://www.playboy.com/articles/the-man-who-conned-the-pentagon-dennis-montgomery/index.html?page=1." It's a much better article, with more detail and much more information. They don't.

Instead, Eric Lichtblau and James Risen write:

Government Tries to Keep Secret What Many Consider a Fraud: Hiding Details of Dubious Deal, U.S. Invokes National Security: WASHINGTON — For eight years, government officials turned to Dennis Montgomery, a California computer programmer, for eye-popping technology that he said could catch terrorists. Now, federal officials want nothing to do with him and are going to extraordinary lengths to ensure that his dealings with Washington stay secret. The Justice Department, which in the last few months has gotten protective orders from two federal judges keeping details of the technology out of court, says it is guarding state secrets that would threaten national security if disclosed. But others involved in the case say that what the government is trying to avoid is public embarrassment over evidence that Mr. Montgomery bamboozled federal officials.

A onetime biomedical technician with a penchant for gambling, Mr. Montgomery is at the center of a tale that features terrorism scares, secret White House briefings, backing from prominent Republicans, backdoor deal-making and fantastic-sounding computer technology. Interviews with more than two dozen current and former officials and business associates and a review of documents show that Mr. Montgomery and his associates received more than $20 million in government contracts by claiming that software he had developed could help stop Al Qaeda’s next attack on the United States. But the technology appears to have been a hoax, and a series of government agencies, including the Central Intelligence Agency and the Air Force, repeatedly missed the warning signs, the records and interviews show....

The software he patented — which he claimed, among other things, could find terrorist plots hidden in broadcasts of the Arab network Al Jazeera; identify terrorists from Predator drone videos; and detect noise from hostile submarines — prompted an international false alarm that led President George W. Bush to order airliners to turn around over the Atlantic Ocean in 2003. The software led to dead ends in connection with a 2006 terrorism plot in Britain. And they were used by counterterrorism officials to respond to a bogus Somali terrorism plot on the day of President Obama’s inauguration, according to previously undisclosed documents.... C.I.A. officials, though, came to believe that Mr. Montgomery’s technology was fake in 2003, but their conclusions apparently were not relayed to the military’s Special Operations Command, which had contracted with his firm. In 2006, F.B.I. investigators were told by co-workers of Mr. Montgomery that he had repeatedly doctored test results at presentations for government officials. But Mr. Montgomery still landed more business.

In 2009, the Air Force approved a $3 million deal for his technology, even though a contracting officer acknowledged that other agencies were skeptical about the software, according to e-mails obtained by The New York Times. Hints of fraud by Mr. Montgomery, previously raised by Bloomberg Markets and Playboy, provide a cautionary tale about the pitfalls of government contracting...

Not "what many cpnsider to be a fraud."

A fraud.

Not "hints of fraud... previously raised by Bloomberg Markets and Playboy."

Reporting previously done by Aram Roston for Playboy.

Here's Aram:

The Man Who Conned The Pentagon: The weeks before Christmas brought no hint of terror. But by the afternoon of December 21, 2003, police stood guard in heavy assault gear on the streets of Manhattan. Fighter jets patrolled the skies. When a gift box was left on Fifth Avenue, it was labeled a suspicious package and 5,000 people in the Metropolitan Museum of Art were herded into the cold. It was Code Orange. Americans first heard of it at a Sunday press conference in Washington, D.C. Weekend assignment editors sent their crews up Nebraska Avenue to the new Homeland Security offices, where DHS secretary Tom Ridge announced the terror alert. “There’s continued discussion,” he told reporters, “these are from credible sources—about near-term attacks that could either rival or exceed what we experienced on September 11.” The New York Times reported that intelligence sources warned “about some unspecified but spectacular attack....

By Tuesday the panic had ratcheted up as the Associated Press reported threats to “power plants, dams and even oil facilities in Alaska.” The feds forced the cancellation of dozens of French, British and Mexican commercial “flights of interest” and pushed foreign governments to put armed air marshals on certain flights. Air France flight 68 was canceled, as was Air France flight 70. By Christmas the headline in the Los Angeles Times was "Six Flights Canceled as Signs of Terror Plot Point to L.A." Journalists speculated over the basis for these terror alerts. “Credible sources,” Ridge said. “Intelligence chatter,” said CNN. But there were no real intercepts, no new informants, no increase in chatter. And the suspicious package turned out to contain a stuffed snowman. This was, instead, the beginning of a bizarre scam. Behind that terror alert, and a string of contracts and intrigue that continues to this date, there is one unlikely character. The man’s name is Dennis Montgomery, a self-proclaimed scientist who said he could predict terrorist attacks. Operating with a small software development company, he apparently convinced the Bush White House, the CIA, the Air Force and other agencies that Al Jazeera—the Qatari-owned TV network—was unwittingly transmitting target data to Al Qaeda sleepers.

An unusual team arrived in Reno, Nevada in 2003 from the Central Intelligence Agency.... Then they turned into an almost empty parking lot, where a sign read "eTreppid Technologies." It was an attractively designed building of stone tile and mirrored windows that had once been a sprinklerhead factory. ETreppid Technologies was a four-year-old firm trying to find its way. Some of its employees had been hired to design video games. One game under construction was Roadhouse, based on the 1989 movie in which Patrick Swayze plays a bouncer in a dive bar. Other programmers worked on streaming video for security cameras.... The CIA team was there to work with Dennis Montgomery, at the time eTreppid’s chief technology officer and part owner. Then 50 years old, with a full head of gray hair, the street-smart Montgomery stood at about five feet eight inches. Other eTreppid workers, hearing the buzz about the spooks in town, peered through their blinds and watched as Montgomery worked at his desk at the north end of the building. He wore his usual jeans and Tommy Bahama shirt. He could be seen handing off reams of paper to Sid and the CIA. “They would sit in the room and review these numbers or whatever the heck Dennis was printing out,” one former eTreppid employee, Sloan Venables, told me. “We called them Sid’s guys, and no one knew what the hell they did.”

Montgomery called the work he was doing noise filtering. He was churning out reams of data he called output. It consisted of latitudes and longitudes and flight numbers. After it went to Sid, it went to Washington, D.C. Then it found its way to the CIA’s seventh floor, to Director George Tenet. Eventually it ended up in the White House. Montgomery’s output was to have an extraordinary effect. Ridge’s announcement, the canceled flights and the holiday disruptions were all the results of Montgomery’s mysterious doings. He is an unusual man. In court papers filed in Los Angeles, a former lawyer for Montgomery calls the software designer a “habitual liar engaged in fraud.” Last June Montgomery was charged in Las Vegas with bouncing nine checks (totaling $1 million) in September 2008 and was arrested on a felony warrant in Rancho Mirage, California. That million is only a portion of what he lost to five casinos in Nevada and California in just one year. That’s according to his federal bankruptcy filing, where he reported personal debts of $12 million. The FBI has investigated him, and some of his own co-workers say he staged phony demonstrations of military technology for the U.S. government.

Montgomery has no formal scientific education, but over the past six years he seems to have convinced top people in the national security establishment that he had developed secret tools to save the world from terror and had decoded Al Qaeda transmissions. But the communications Montgomery said he was decrypting apparently didn’t exist. Since 1996 the Al Jazeera news network had been operating in the nation of Qatar, a U.S. ally in the war on terror. Montgomery claimed he had found something sinister disguised in Al Jazeera’s broadcast signal that had nothing to do with what was being said on the air: Hidden in the signal were secret bar codes that told terrorists the terms of their next mission, laying out the latitudes and longitudes of targets, sometimes even flight numbers and dates. And he was the only man who had the technology to decrypt this code.... Over the years Montgomery’s intelligence found its way to the CIA, the Department of Homeland Security, Special Forces Command, the Navy, the Air Force, the Senate Intelligence Committee and even to Vice President Dick Cheney’s office....

Back in Washington, few insiders in government knew where the intelligence was coming from. Aside from Tenet and a select few, no one was told about eTreppid’s Al Jazeera finds. Even veteran intelligence operatives within the CIA could only wonder. “These guys were trying to hide it like it was some little treasure,” one former counterterrorist official told me. The reason the whole thing worked was because Montgomery’s CIA contact was with the agency’s Directorate of Science and Technology. That’s the whiz-bang branch of the intelligence service, where employees make and break codes, design disguises and figure out the latest gadgets. S&T was eventually ordered by CIA brass to reveal its source to small groups from other parts of the agency. And when some experienced officers heard about it, they couldn’t believe it. One former counterterrorism official remembers the briefing: “They found encoded location data for previous and future threat locations on these Al Jazeera tapes,” he says. “It got so emotional. We were fucking livid. I was told to shut up. I was saying, ‘This is crazy. This is embarrassing.’ They claimed they were breaking the code, getting latitude and longitude, and Al Qaeda operatives were decoding it. They were coming up with airports and everything, and we were just saying, ‘You know, this is horseshit!’” Another former officer, who has decades of experience, says, “We were told that, like magic, these guys were able to exploit this Al Jazeera stuff and come up with bar codes, and these bar codes translated to numbers and letters that gave them target locations. I thought it was total bullshit.” The federal government was acting on the Al Jazeera claims without even understanding how Montgomery found his coordinates. “I said, ‘Give us the algorithms that allowed you to come up with this stuff.’ They wouldn’t even do that,” says the first officer. “And I was screaming, ‘You gave these people fucking money?’”

Despite such skepticism, the information found its way to the top of the U.S. government. Frances Townsend, a Homeland Security advisor to President George W. Bush, chaired daily meetings to address the crisis. She now admits that the bar codes sounded far-fetched. And, she says, even though it all proved to be false, they had no choice but to pursue the claim. “It didn’t seem beyond the realm of possibility,” she says. “We were relying on technical people to tell us whether or not it was feasible. I don’t regret having acted on it.” The feds, after all, had a responsibility to look into the technology. “There were lots of meetings going on during the time of this threat,” says Townsend. “What were we going to do and how would we screen people? If we weren’t comfortable we wouldn’t let a flight take off.” Eventually, though Montgomery continued to crank out his figures, cooler heads prevailed. The threat was ultimately deemed “not credible,” as Townsend puts it.

A former CIA official went through the scenario with me and explained why sanity finally won out. First, Montgomery never explained how he was finding and interpreting the bar codes. How could one scientist find the codes when no one else could? More implausibly, the scheme required Al Jazeera’s complicity. At the very least, a technician at the network would have to inject the codes into video broadcasts, and every terrorist operative would need some sort of decoding device. What would be the advantage of this method of transmission? A branch of the French intelligence services helped convince the Americans that the bar codes were fake. The CIA and the French commissioned a technology company to locate or re-create codes in the Al Jazeera transmission. They found definitively that what Montgomery claimed was there was not. Quietly, as far as the CIA was concerned, the case was closed. The agency turned the matter over to the counterintelligence side to see where it had gone wrong...

Global Imbalances: Links to Economic and Financial Stability

Ben Bernanke:

FRB: Speech--Bernanke, Global Imbalances: Links to Economic and Financial Stability--February 18, 2011: [T]he United States--the recipient of the largest capital inflows in the world--has also faced challenges coping with capital inflows. Notably, the failures of the U.S. financial system in allocating strong flows of capital, both domestic and foreign, helped precipitate the recent financial crisis and global recession. Why was the United States, a mature economy, the recipient of net capital inflows that rose to as much as 6 percent of its gross domestic product prior to the financial crisis?... [C]apital flows from emerging markets to advanced economies will tend to be directed to the safest and most liquid assets, of which... there is a relative shortage in emerging markets.... [S]ome emerging Asian economies and Middle Eastern oil exporters did indeed evince a strong preference for very safe and liquid U.S. assets in the middle of the past decade, especially Treasury and agency securities.... European investors [also] placed a high value on safety and liquidity in their U.S. investments....

The preferences of foreign investors for highly rated U.S. assets, together with similar preferences by many domestic investors, had a number of implications, including for the relative yields on such assets. Importantly, though, the preference by so many investors for perceived safety created strong incentives for U.S. financial engineers to develop investment products that "transformed" risky loans into highly rated securities. Remarkably, even though a large share of new U.S. mortgages during the housing boom were of weak credit quality, financial engineering resulted in the overwhelming share of private-label mortgage-related securities being rated AAA. The underlying contradiction was, of course, ultimately exposed, at great cost to financial stability and the global economy....

Our collective challenge is to reshape the international monetary system.... [C]ountries with excessive and unsustainable trade surpluses will need to allow their exchange rates to better reflect market fundamentals and increase their efforts to substitute domestic demand for exports.... [C]ountries with large, persistent trade deficits must find ways to increase national saving, including putting fiscal policies on a more sustainable trajectory...

Insanity Continues Over at the Volokh Conspiracy...

Jonathan Adler:

The Volokh Conspiracy: Megan McArdle explores the causes and consequences of academia’s liberal skew.... I am regularly astounded by the number of otherwise-intelligent academics I encounter who are completely ignorant of alternative views.  It’s not that they’ve considered and rejected conservative or libertarian arguments.  It’s that they fail to understand them, if they are familiar with them at all. This post by Mark Kleiman is a good example, in that it puts forward a laughable caricature of libertarian and originalist constitutional thought that would have been discredited with but a moment’s investigation into the question...

And along come Sasha Volokh and Ilya Somin to explain that Jonathan Adler fails to understand their version of libertarian ideas:

Sasha Volokh:

The Volokh Conspiracy » Asteroid defense and libertarianism: [S]tarvation counts as a natural cause, so federal programs (or any government programs) [to feed the hungry] could only be justified on an attenuated theory like “If people are starving to death, they’ll commit more crimes, and we could control that with more police, but a cheaper way of doing it is with welfare payments”...

Ilya Somin:

The Volokh Conspiracy: Sasha Volokh’s post arguing that his version of libertarianism might not allow government spending to provide for asteroid defense has drawn predictable howls of outrage, including Brad DeLong’s claim that it proves that “libertarians are completely insane.”... I don’t think that Sasha’s view is necessarily ridiculous or “insane.” Any theory based on absolute respect for certain rights necessarily... lead[s] to catastrophe in some instances.... How about absolute rights to freedom of political speech? If you are committed to them, that means you oppose censorship even if it’s the only way to prevent Nazi or communist totalitarians from coming to power and slaughtering millions...

Put me down as believing that any theory of moral action that privileges one particular set of rights or goods lexicographically--i.e., "based on absolute respect for certain rights" and not for other rights or duties--above all others is, ipso facto, insane.

Sane thinking starts with taking people as ends in themselves, and not as means to ideological purity.

Was the sabbath made for humanity, or was humanity made for the sabbath?

Can Somebody Tell Me...

Why the Nazis attempted Operation Rheinübung in May 1941--why they sent the Bismarck and the Prinz Eugen on a commerce-raiding mission when the two ships might have been very nice to have for shore bombardment in the Baltic in the Russian campaign that was shortly to commence?

Why, given that the Nazis had decided on a large-scale surface raid, they did not use all of their ships--Bismarck, Tirpitz, Scharnhorst, Gneisenau, Prinz Eugen--but only two of them?

Why, once the Bismarck had been hit by the Prince of Wales and was leaking oil and thus had restricted range and speed, the Nazis decided to head the Bismarck for Brest in the teeth of the British fleet rather than withdraw back through the Denmark Strait and then back to Bergen?

The Monetary Base

Matthew Yglesias: People Still Listen to Music

MY:

The Death of The Recordings-Sale Industry: People still listen to music. People still play music. People who play music even still earn money. But the business of selling recordings of music is shrinking. Which, of course, is exactly what ought to be happening to it. Distributing a digital copy of an album to a person’s computer is much cheaper than manufacturing and distributing a physical CD to a retail store. In a competitive market, the price of a widget ought to approximate the marginal cost of producing an additional widget. That’s one reason why this blog is free to read. Thanks to copyright, a recordings-seller does have some level of market power to allow him to seek monopoly rents. But there’s a pretty high degree of substitutability between different songs, so the competition is still pretty intense and the prices are low.

This is one reason why I would discourage bands from trying to underprice tickets at their own shows as a reward to fans. Since digital copies of recordings are non-rival and basically free to make, any non-zero sale price entails some deadweight loss. And since concert tickets are necessarily scarce, any sub-market price entails some deadweight loss. The optimal strategy for a popular band that wants to do something nice is market pricing for concert tickets, plus free recordings. Or even better, you could release your records into the public domain.

Where the (Budget) Money Is and Where It Is Not

Paul Krugman:

Willie Sutton Wept: There are three things you need to know about the current budget debate. First, it’s essentially fraudulent. Second, most people posing as deficit hawks are faking it. Third, while President Obama hasn’t fully avoided the fraudulence, he’s less bad than his opponents — and he deserves much more credit for fiscal responsibility than he’s getting.

About the fraudulence: Last month, Howard Gleckman of the Tax Policy Center described the president as the “anti-Willie Sutton,” after the holdup artist who reputedly said he robbed banks because that’s where the money is. Indeed, Mr. Obama has lately been going where the money isn’t, making a big deal out of a freeze on nonsecurity discretionary spending, which accounts for only 12 percent of the budget.

But that’s what everyone does. House Republicans talk big about spending cuts — but focus solely on that same small budget sliver.

And by proposing sharp spending cuts right away, Republicans aren’t just going where the money isn’t, they’re also going when the money isn’t. Slashing spending while the economy is still deeply depressed is a recipe for slower economic growth, which means lower tax receipts — so any deficit reduction from G.O.P. cuts would be at least partly offset by lower revenue.

The whole budget debate, then, is a sham. House Republicans, in particular, are literally stealing food from the mouths of babes — nutritional aid to pregnant women and very young children is one of the items on their cutting block — so they can pose, falsely, as deficit hawks.

What would a serious approach to our fiscal problems involve? I can summarize it in seven words: health care, health care, health care, revenue.... [A]nyone who is really serious about the budget should be focusing mainly on health care. And by focusing, I don’t mean writing down a number and expecting someone else to make that number happen — a dodge known in the trade as a “magic asterisk.” I mean getting behind specific actions to rein in costs.

By that standard, the Simpson-Bowles deficit commission, whose work is now being treated as if it were the gold standard of fiscal seriousness, was in fact deeply unserious. Its report “was one big magic asterisk,” Bob Greenstein of the Center on Budget and Policy Priorities told The Washington Post’s Ezra Klein. So is the much-hyped proposal by Paul Ryan, the G.O.P.’s supposed deep thinker du jour, to replace Medicare with vouchers whose value would systematically lag behind health care costs. What’s supposed to happen when seniors find that they can’t afford insurance?

What would real action on health look like? Well, it might include things like giving an independent commission the power to ensure that Medicare only pays for procedures with real medical value; rewarding health care providers for delivering quality care rather than simply paying a fixed sum for every procedure; limiting the tax deductibility of private insurance plans; and so on.

And what do these things have in common? They’re all in last year’s health reform bill.

That’s why I say that Mr. Obama gets too little credit. He has done more to rein in long-run deficits than any previous president. And if his opponents were serious about those deficits, they’d be backing his actions and calling for more; instead, they’ve been screaming about death panels....

[W]hile the budget is all over the news, we’re not having a real debate; it’s all sound, fury, and posturing, telling us a lot about the cynicism of politicians but signifying nothing in terms of actual deficit reduction. And we shouldn’t indulge those politicians by pretending otherwise.

A Recommendation of Russell Kirk as a Conservative Who Does Not Sound Insane Today

Bruce Bartlett emails:

I think Russell Kirk holds up rather well...

Bill Clinton on America's Jobs Crisis

Stephen Gandel:

How would Bill Clinton solve America's jobs crisis?: [Clinton] started out by saying we are in a difficult situation. The key lesson from the Great Depression was that you can't stop stimulus spending too soon. It takes a while and it's expensive for government to create jobs. And in the 1930s and 1940s the US went into a lot of debt. The difference, though, Clinton says, is back then America was able to finance its own debt. When the US sold bonds to build bridges, those bonds were bought by other Americans, who had the savings and felt they had the duty to buy Uncle Sam's paper. That's not what happens when America sells bonds now. Instead they are bought by foreign governments... and continues to fuel the global imbalances.... So Clinton says stimulus spending is not the option it once was. So what should we do instead? Clinton has a four point plan.

First of all, he said we should emphasize exports more....

Two, we have to restructure unemployment insurance so that it prevents job loss... put a portion of the unemployment insurance premiums that workers pay into a trust that companies can draw on to avoid layoffs. Third, Clinton thinks we need to sign onto global climate trade treaties.... Lastly, the former President said we need to reform our immigration policies. If we have a structural unemployment problem in the US, meaning that we have a mismatch between skills and jobs, then allowing skilled workers to come in from other countries might get companies to hire. Those people get jobs. They spend money. And that creates other jobs. Some of them may start their own companies, in the US, rather than where they currently live...

"Realism"

Henry Farrell:

Realism, schmrealism — Crooked Timber: Stephen Walt writes a quite odd post on realism, liberalism and the future of the euro.... Now Stephen Walt is a smart guy, famous, and all those good things. But [his] post seems to me (and not only me ) to be completely wrong-headed. For one, his lumping of people into one or the other side of the debate is peculiar and artificial. Andrew ‘powerful states, not institutions, determine the course of European politics’ Moravcsik is a decidedly unorthodox representative of international relations ‘institutionalism.’ Walt’s second pick, Barry Eichengreen is hardly any better; he argues in the piece that Walt links to that:

France and Germany are always the drivers of the process. Decisions may require consensus among the member states, but France and Germany have always been the ones shaping that consensus.

Moravcsik and Eichengreen’s beliefs about EU integration stem exactly from their arguments about powerful states’ national interests, not from some belief that institutions e.g. are designed to reduce transaction costs, and are largely innocent of state interest and power relations. This comes out less clearly in the specific Moravcsik piece that Walt links to – but it is pretty clearly outlined in the rest of his work.

But then, Walt’s own arguments are not realist arguments either, except under the most anodyne possible definition of realism. He claims:

As you’d expect, I’ve tended to be among the bears, in part because I don’t think greater “policy coordination” between the member states can eliminate occasional fiscal crises and because I think nationalism remains a powerful social force in Europe. European publics won’t be willing to keep bailing out insolvent members of the eurozone, and the integrative measures that have been proposed won’t be sufficient to eliminate the need.

Fiscal crises, nationalism, the preferences of national publics, and functional economic needs all fit very poorly with modern realist theories of international relations (Walt’s sometime co-author, John Mearsheimer, has a realist theory of ‘hypernationalism,’ but it isn’t at all a good one). For realists, international politics is supposed to be driven by what happens between states, not what happens within them. And this is the problem with Walt’s supposed ‘test of rival paradigms.’ They aren’t rival paradigms (and if they were, they couldn’t really be tested against each other anyway). They’re different arguments in different stages of development about the domestic sources of national interests. If (as Walt seems sometimes to be suggesting in this post), realism is nothing more than the claim that national interests predominate in explaining international outcomes, then realism is theoretically very nearly vacuous. Moreover, the candidate ‘rival paradigm’ explanations are, under this broad definition, actually realist too. They have quite as much to say about state interests, and perhaps more to say about power relations than Walt does. If Walt has an actual realist explanation of what is driving European states apart – one that would presumably be rooted in the security dilemma or some other systemic phenomenon – it would be very nice to know what it is. He certainly doesn’t tell us about it in the post as it stands...