J. Bradford DeLong's Blog, page 2089

Liveblogging World War II: February 19, 1941

From onwar.com:

Wednesday, February 19, 1941: In Cairo... Eden, Dill (the Chief of the General Staff) and the local commanders, Wavell and Cunningham, meet to discuss whether they can send help to Greece and if so how much. The British political leaders are strongly in favor of sending all that can be spared and Wavell, the military commander who is responsible, believes that this can be done effectively and is, therefore, prepared to recommend it.

On-the-Job Training for Boeing's Senior Executives Is Very Costly

Michael Hiltzik:

Boeing 787: 787 Dreamliner teaches Boeing costly lesson on outsourcing: The airliner is billions of dollars over budget and about three years late. Much of the blame belongs to the company's farming out work to suppliers around the nation and in foreign countries:

The 787 has more foreign-made content — 30% — than any other Boeing plane.... That compares with just over 5% in the company's workhorse 747 airliner. Boeing's goal, it seems, was to convert its storied aircraft factory near Seattle to a mere assembly plant, bolting together modules designed and produced elsewhere as though from kits. The drawbacks of this approach emerged early. Some of the pieces manufactured by far-flung suppliers didn't fit together. Some subcontractors couldn't meet their output quotas, creating huge production logjams when critical parts weren't available in the necessary sequence. Rather than follow its old model of providing parts subcontractors with detailed blueprints created at home, Boeing gave suppliers less detailed specifications and required them to create their own blueprints. Some then farmed out their engineering to their own subcontractors, Mike Bair, the former head of the 787 program, said at a meeting of business leaders in Washington state in 2007. That further reduced Boeing's ability to supervise design and manufacture. At least one major supplier didn't even have an engineering department when it won its contract, according to an analysis of the 787 by the European consortium Airbus, Boeing's top global competitor.

Boeing executives now admit that the company's aggressive outsourcing put it in partnership with suppliers that weren't up to the job. They say Boeing didn't recognize that sending so much work abroad would demand more intensive management from the home plant, not less. "We gave work to people that had never really done this kind of technology before, and then we didn't provide the oversight that was necessary," Jim Albaugh, the company's commercial aviation chief, told business students at Seattle University last month. "In hindsight, we spent a lot more money in trying to recover than we ever would have spent if we tried to keep many of the key technologies closer to Boeing. The pendulum swung too far."...

That's not to say that outsourcing never makes sense — it's a good way to make use of the precision skills of specialty manufacturers, which would be costly to duplicate. But Boeing's experience shows that it's folly to think that every dollar spent on outsourcing means a cost savings on the finished product.Boeing can't say it wasn't warned. As early as 2001, L.J. Hart-Smith, a Boeing senior technical fellow, produced a prescient analysis projecting that excessive outsourcing would raise Boeing's costs and steer profits to its subcontractors. Among the least profitable jobs in aircraft manufacturing, he pointed out, is final assembly — the job Boeing proposed to retain. But its subcontractors would benefit from free technical assistance from Boeing if they ran into problems, and would hang on to the highly profitable business of producing spare parts over the decades-long life of the aircraft. Their work would be almost risk-free, Hart-Smith observed, because if they ran into really insuperable problems they would simply be bought out by Boeing.

What do you know? In 2009, Boeing spent about $1 billion in cash and credit to take over the underperforming fuselage manufacturing plant of Vought Aircraft Industries, which had contributed to the years of delays. "I didn't dream all this up," Hart-Smith, who is retired, told me from his home in his native Australia. "I'd lived it at Douglas Aircraft.... I warned Boeing not to make the same mistake. Everybody there seemed to get the message, except top management....

Albaugh and other executives acknowledge that they've blundered. "We didn't want to make the investment that needed to be made, and we asked our partners to make that investment," Albaugh told his Seattle University audience. The company now recognizes that "we need to know how to do every major system on the airplane better than our suppliers do." One would have thought that the management of the world's leading aircraft manufacturer would know that going in, before handing over millions of dollars of work to companies that couldn't turn out a Tab A that fit reliably into Slot A. On-the-job training for senior executives, it seems, can be very expensive.

Matthew Yglesias: Government By The Rich

MY:

Yglesias » Government By The Rich: Via Kevin Drum... Martin Gilens... the most important fact about inequality and American politics—when rich people and average folks disagree, rich people always get their way....

I would say the most obvious mechanism here is socialization. The president, the senior White House staff, the cabinet secretaries, the senators, the House members, the senior congressional staff, and the lobbyists, association heads, business executives, governors, mayors, foreign officials, and media celebrities who they interact with are all personally pretty high income. You get into the top decile of the US income distribution with a household income of $138,000, so the entire congress is in the top ten percent. What’s more, political elites tend to have college roommates, siblings, in-laws, etc. who are also prosperous.

Obviously the fact that rich people have money to spend on politics doesn’t hurt either. But I would never underestimate the human desire to believe that one is doing the right thing, and thus the importance of socialization to determining bias. Nobody in Washington seems to know that the public is clamoring for higher Social Security benefits and more federal spending on health and education largely, I think, because this isn’t what the people they know personally are clamoring for.

Barack Obama's Budget Is a Much More Serious Deficit-Reduction Effort than Barack Obama Says

We are live at The Week: Nearly everyone, including the White House, has dismissed the president's plan. Nearly everyone is wrong:

The standard Washington insider line on the Obama budget is that it "punts on all the tough choices" — because it proposes no cuts in entitlements, because it fails to embrace the recommendations of the Simpson-Bowles fiscal commission, and because its proposed spending cuts are restricted to that very narrow slice of the budget – 12 percent — that is non-security discretionary spending.

Bizarrely, the Obama administration seems to buy this line of argument: It claims that its budget is only a "down payment" on future tough choices.

But the budget is no mere accounting appetizer. Combine it with the Affordable Care Act and it is pretty much the whole meal — about all that is absent is the fortune cookie that comes at the end.

Why, then, is the Obama administration saying that it is only a "downpayment"? They think, for some reason I cannot quite follow, that it is good politics to say so. I, however, am more interested in what is true. And to call the long-term deficit-reduction measures that the Obama administration has undertaken to date a mere "downpayment" on our long-term problems is simply not true.

If enacted as proposed, the Obama budget would get the United States to "primary balance" — that state in which government spending is no higher than tax revenue. And the budget plus the Affordable Care Act then keeps us in primary balance even with rapid expected growth in medical care costs. As long as the United States remains the center of the world economy and as long as the dollar remains the world's reserve currency, "primary balance" is a perfectly sustainable place to be, for the debt-to-GDP ratio is then stable. At primary balance we’ll still have trillions in debt, but we’ll also be steadily paying it down; there is no longer a crisis even in the long run.

In addition, the Obama budget picks a number of worthy fights with powerful interest groups: those who currently receive money from oil and gas loopholes; those who benefit from the full income-tax deductibility of itemized deductions; those banks that would pay the Obama bank fee, et cetera.

Now simply passing the Obama budget and maintaining the Affordable Care Act should not be the end of the story. We would like to have a debt/GDP ratio less than the 75 percent at which the Obama budget would stabilize things — future challenges will require government responses, and some of them will be expensive. It would be very desirable to have headroom so that we could easily fund a Marshall Plan or fight a World War, borrowing on a large scale to do so.

Moreover, our economy is changing in ways that may well lead government to become larger as a share of the economy than it has been in the past. An older population requires more of a whole bunch of government programs, from public transit (for those who can no longer drive) to income support to, obviously, medical care. As we shift our economy away from bricks-and-mortar and toward information goods, there will be more and more places where markets will need a helping hand to function well. And there is the fact that for a generation we have, relative to other countries, neglected their inventory.

Thus the federal government's appropriate infrastructure, research and development, and health care missions are unlikely to shrink and likely to grow.

It would be a shame to restrict the government’s ability to buy things we want cheaply — like the ability to broker some future Middle East peace accord with foreign aid (as we did for Camp David) or to fund the next wave of biomedical advances here in our country or to properly explore the solar system or, indeed, to have an infrastructure second only to South Korea's and Japan's — because we have put the federal budget in a straitjacket.

Of course, the Republicans in the House are not going to pass the Obama budget.

But if they did, they could then rightly claim to be real deficit hawks. So far, they’ve given no reason for anyone to believe that they are — or ever want to be.

"Why, This Is Hell, Nor Am I Out of It!" Watch

From twitter:

Mickey Kaus is joining The Daily Caller, which will be hosting Kausfiles. We're psyched. http://twitter.com/TuckerCarlson/statuses/33520499342446592

I wonder if labor market rigidities will still get Kaus the $333 per post he got at Slate?

Aizenman and Pasricha: Net Fiscal Stimulus During the Great Recession

Aizenman and Pasricha:

Net Fiscal Stimulus During the Great Recession: This paper studies the patterns of fiscal stimuli in the OECD countries propagated by the global crisis. Overall, we find that the USA net fiscal stimulus was modest relative to peers, despite it being the epicenter of the crisis, and having access to relatively cheap funding of its twin deficits. The USA is ranked at the bottom third in terms of the rate of expansion of the consolidated government consumption and investment of the 28 countries in sample. Contrary to historical experience, emerging markets had strongly countercyclical policy during the period immediately preceding the Great Recession and the Great Recession. Many developed OECD countries had procyclical fiscal policy stance in the same periods. Federal unions, emerging markets and countries with very high GDP growth during the pre-recession period saw larger net fiscal stimulus on average than their counterparts. We also find that greater net fiscal stimulus was associated with lower flow costs of general government debt in the same or subsequent period.

Berkeley Political Economy Colloquium: February 18, 2011: "Austerity"

February 18, 2011: "Austerity"

Topic:

For nearly 200 years economists from John Stuart Mill through Walter Bagehot and John Maynard Keynes and Milton Friedman to Ben Bernanke have known that a depression caused by a financial panic is not properly treated by starving the economy of government purchases and of money. So why does "austerity" have such extraordinary purchase on the minds of North Atlantic politicians right now?

Panel:

Chair: J. Bradford DeLong, UCB Economics
Speaker: Joseph Lough, UCB Political Economy
Speaker: Rakesh Bhandari, UCB Interdisciplinary Studies

Location: Blum Hall Plaza Level

Time: 2:10-2:40: Panelists. 2:40-3:10: Discussion. 3:10-4:00: Reception.

20110218 colloquium.pdf

Let me speak as a card-carrying neoliberal, as a bipartisan technocrat, as a mainstream neoclassical macroeconomist.

We put to one side issues of long-run economic growth and of income and wealth distribution. We narrow our focus to the business cycle--to these grand mal seizures of high unemployment that industrial market economies have been suffering from since at least 1825. Such episodes are bad for workers who lose their jobs, bad for entrepreneurs and equity holders who lose their profits, bad for governments that lose their tax revenue, and bad for bondholders who see debts unpaid as a result of bankruptcy.

From my perspective, the technocratic economists from Jean-Baptiste Say left had by 1829 had figured out why these semi-periodic grand mal seizures happened. John Stuart Mill put his finger on the mechanism of depression: Wealth holders come to the conclusion that their holdings of some kind or kinds of financial assets are too low. They thus cut back on their spending on currently-produced goods and services in an attempt to build up their asset holdings. This cutback creates deficient demand not just for one or a few categories of currently-produced goods and services but for pretty much all of them. Businesses seeing slack demand fire workers. And depression results.

What was not settled back in 1829 was what to do about this.

Over the years since, mainstream technocratic economists have arrived at three sets of solutions:

Don't go there in the first place. Avoid whatever it is--whether an external drain under the gold standard or a collapse of long-term wealth as in the end of the dot-com bubble or a panicked flight to safety as in 2007-2008--that creates the excess demand for financial assets. Properly regulate financial markets to avoid the problem.

Have the government step in and spend on currently-produced goods and services in order to keep employment at its normal levels whenever the private sector cuts back on its spending.

Have the government create and provide the financial assets that the private sector wants to hold, in order to get the private sector to resume its spending on currently-produced goods and services.

The subtleties in how a government should attempt (1), (2), and (3), and how attempts to carry out one of the three may interfere with or make impossible attempts to carry out the other branches, are "macroeconomics."

But our topic today is that all three are now off the table.

There is right now in the North Atlantic no likelihood of reforms of Wall Street and Canary Wharf to accomplish (1).

There is right now in the North Atlantic no likelihood at all of (2), of further government-spending stimulus.

And there is right now in the North Atlantic little likelihood of (3): the European Central Bank is actively looking for ways to shrink the supply of the financial assets it provides to the private sector, and the Federal Reserve is under pressure to do the same--both because of a claimed fear that further expansionary asset provision policies run the risk of igniting unwarranted inflation. But there is no likelihood of unwarranted inflation that can be seen either in the tracks of price indexes or in the tracks of financial market readings of forecast expectations.

You read the press and you read things like: “Obama said that just as people and companies have had to be cautious about spending, ‘government should have to tighten its belt as well...’” Now there were—and perhaps there still are—people in the White House who took these lines out of speeches as fast as they could But the speechwriters keep putting them in, and President Obama keeps saying them, in all likelihood because they and he believe them.

And here we reach the limits of my mental horizons. Right now the global market economy is suffering a grand mal seizure of high unemployment and slack demand. We know the cures--fiscal stimulus via more government spending, monetary stimulus via provision by central banks of the financial assets the private sector wants to hold, institutional reform to try once gain to curb the bankers' tendency to indulge in speculative excess under control.

Yet we are not doing any of them. Instead, we are calling for "austerity."

So let me ask Joe and Rakesh to explain what is going on...

Husband E. Kimmel Liveblogs World War II: February 18, 1941

Husband E.Kimmel, C-in-C Pacific Fleet:

From Wikipedia, the free encyclopedia: "I feel that a surprise attack (submarine, air, or combined) on Pearl Harbor is a possibility, and we are taking immediate practical steps to minimize the damage inflicted and to ensure that the attacking force will pay.

Why Friends Don't Let Friends Ever Support the Republican Party

Ryan Avent:

America's deficit: Outrageous cuts: Here's a fun fact: non-defence discretionary spending was equal to 3.6% of GDP in 1963. It was also equal to 3.6% of GDP in 2008. It is not behind the increase in government spending as a share of the economy over that time period. It has not made government any less affordable. It is not projected to rise substantially in the future.

This is not to suggest that there is no waste in this portion of the government. Without question, there is. This portion of the budget should be subject to close scrutiny, to reform, and perhaps to some cuts (though whether net cuts are justified is far from clear).

To pretend that one can balance the budget with cuts focused on this portion of the budget, or that major cuts to this portion of the budget are in any way desirable, is madness. And yet this is what Republicans are doing. Mr Krugman notes that cuts so far have affected programmes that support food budgets of poor Americans. I've pointed out that proposed cuts would reduce spending on job re-training, despite the country's serious long-term unemployment problem. There's more besides:

With tensions rising, House Republicans pushed through a third long night, hoping to win passage late Friday of more than $60 billion in immediate spending cuts that would severely affect agencies in the second half of this fiscal year.The leadership put the brakes on deep additional cuts, but a school reform program important to President Barack Obama would be decimated by a $336 million reallocation of funds approved by 249-179. The National Endowment of the Arts narrowly lost an additional $22.5 million. And in a blow to the president, Democrats failed to restore $131 million for the Securities and Exchange Commission, facing new responsibilities under Wall Street reforms enacted in the last Congress.

That's right: Democrats were unable to undo cuts to the budget of the commission charged with overseeing behaviour in the financial sector, the responsibilities of which were just overhauled in response to a financial meltdown that very nearly produced an economic depression. And if Republicans are unable to make these cuts law, they're prepared to shut down the government over it.

This is not responsible policymaking. This is not fiscal discipline. This is not a careful, cost-benefit-based analysis of the government's spending priorities. This is a joke. And it's a cruel one.

President Obama isn't out there leading the charge to address long-term fiscal issues in a responsible way, it's true. His budget cuts also focus on non-defence, discretionary spending. The lack of leadership there is disappointing. But his budget doesn't, for the most part, gut valuable programmes in the name of fiscal responsibility. And they absolutely don't excuse this reckless, dangerous behaviour on the part of Congressional Republicans.

Hoisted from the Archives: Conservatism and Its Absence of Contents

From March 2008:

Conservatism and Its Absence of Contents - Grasping Reality with a Sharp Beak: Jacob Levy thinks he has a problem: he cannot present conservatism attractively in his classes because there are no attractive modern conservatives:

Jacob T. Levy: Tyler Cowen... makes the insightful point that "none [of the 20th century American conservatives] have held up particularly well, mostly because they underestimated the robustness of the modern world and regarded depravity as more of a problem than it has turned out to be."

It's a real problem--one I've often talked with people about in a teaching context, because there's no modern work to teach alongside Theory of Justice and Anarchy, State, and Utopia that really gets at what's interesting about Burkean or social conservatism.... The problem isn't... that the conservative temperament isn't easily reduced to programmatic philosophical works.... One of the problems is that history keeps right on going--and so any book plucked from the past that was concerned with yelling "stop!" tends to date badly to any modern reader who does not think he's already living in hell-in-a-handbasket. This is a particular problem because of race in America--no mid-20th c work is going to endure as a real, read-not-just-namechecked, classic of political thought that talks about how everything will go to hell if the South isn't allowed to remain the South.... Oakeshott has his own version of these problems; doesn't "Rationalism in Politics" end up feeling faintly ridiculous by the time he's talking about women's suffrage?...

I don't see any great answers in the comment thread yet. I guess I might say Schumpeter, Capitalism, Socialism, and Democracy, and Kristol, Two Cheers for Capitalism, but the former isn't really distinctively conservative enough and I'm not sure the latter is a classic.

I say cut the Gordian knot. THERE ARE NO ATTRACTIVE MODERN CONSERVATIVES BECAUSE CONSERVATISM SIMPLY IS NOT ATTRACTIVE. DEAL WITH IT!!

You can see this most clearly if you take a close look at Edmund Burke. Edmund Burke does not believe that Tradition is to be Respected. He believes that good traditions are to be respected. When Edmund Burke in his Reflections on the Revolution in France makes the argument that Britons should respect the organic political tradition of English liberty that has been inherited from the past, he whispers under his breath that the only reason we should respect the Wisdom of the Ancestors is that in this particular case Burke thinks that the Ancestors--not his personal ancestors, note--were wise.

Whenever Burke thought that the inherited political traditions were not wise, the fact that they were the inherited Wisdom of the Ancestors cut no ice with him at all. It was one of the traditions and institutions of Englishmen that they would conquer, torture, and rob wogs whenever and wherever they were strong enough to do so. That tradition cut no ice with Edmund Burke when he was trying to prosecute Warren Hastings. It was one of the traditions and institutions of Englishmen that all power flowed to Westminster. That tradition cut no ice with Burke when he was arguing for conciliation with and a devolution of power to the American colonists. It was one of the traditions and institutions of Englishmen that Ireland was to be plundered and looted for the benefit of upwardly-mobile English peers-to-be. That tradition, too, cut no ice with Burke.

Even in Reflections on the Revolution in France, Burke doesn't argue that Frenchmen should build on their own political traditions--the traditions of Richelieu and Louis XIV, that is. He argues--well, let's let him talk:

Burke: Reflections on the Revolution in France: We [in Britain] procure reverence to our civil institutions on the principle upon which nature teaches us to revere individual men; on account of their age; and on account of those from whom they are descended.... You [in France] might, if you pleased, have profited of our example, and have given to your recovered freedom a correspondent dignity. Your privileges, though discontinued, were not lost to memory. Your constitution... suffered waste and dilapidation; but you possessed in some parts the walls, and in all the foundations, of a noble and venerable castle. You might have repaired those walls; you might have built on those old foundations. ... In your old [E]states [General] you possessed that variety of parts corresponding with the various descriptions of which your community was happily composed; you had all that combination, and all that opposition of interests, you had that action and counteraction which, in the natural and in the political world, from the reciprocal struggle of discordant powers, draws out the harmony of the universe.... Through that diversity of members and interests, general liberty had as many securities as there were separate views.... [B]y pressing down the whole by the weight of a real monarchy, the separate parts would have been prevented from warping and starting from their allotted places.

You had all these advantages in your antient [E]states [General].... If the last generations of your country appeared without much lustre in your eyes, you might have passed them by, and derived your claims from a more early race of ancestors. Under a pious predilection for those ancestors, your imaginations would have realized in them a standard of virtue and wisdom.... Respecting your forefathers, you would have been taught to respect yourselves. You would not have chosen to consider the French as... a nation of low-born servile wretches until the emancipating year of 1789.... [Y]ou would not have been content to be represented as a gang of Maroon slaves, suddenly broke loose from the house of bondage....

Would it not... have been wiser to have you thought... a generous and gallant nation, long misled... by... fidelity, honour, and loyalty... that you were not enslaved through any illiberal or servile disposition... [but] by a principle of public spirit, and that it was your country you worshipped, in the person of your king? Had you made it to be understood... that you were resolved to resume your ancient [liberties,] privileges[, and immunities]... you would have given new examples of wisdom to the world. You would have rendered the cause of liberty venerable in the eyes of every worthy mind in every nation. You would have shamed despotism from the earth...

Burke's argument is not that France in 1789 should have followed its ancestral traditions. Burke's argument is, instead, that France in 1789 should have dug into its past until it found a moment when institutions were better than in 1788, and drawn upon that usable past in order to buttress the present revolutionary moment. This isn't an intellectual argument about how to decide what institutions are good. It is a practical-political argument about how to create good institutions and then buttress and secure them by making them facts on the ground.

What are good institutions? Burke sounds like Madison: checks-and-balances, separation of powers, rights of the subject, limitations on the state. Burke's views on what good institutions are Enlightenment views--that branch of the Enlightenment that took people as they are and politics as a science, that is, rather than the branch that took people as Rousseau hoped they might someday be and politics as the striking of an oppositional pose. Because he finds that the English past is usable as a support for his Enlightenment-driven views, Burke makes conservative arguments in Reflections. But whenever conservative arguments lead where Burke doesn't want to go--to Richelieu or Louis XIV or the plunder of Ireland or the Star Chamber or Warren Hastings or imperial centralization--Burke doesn't make them and they have no purchase on him. England's inheritance of institutions and practices is to be respected wherever it supports Burke's conception of properly-ordered liberty, and ignored wherever it does not.

For Burke, conservatism is a sometimes useful rhetorical weapon, not a set of principles.