Ken Houghton

CR beat me to commenting on this Mankiw whine post, partially because I couldn't think of anything reasonable to say about it. (CR could. That's why he gets the big bucks.)

But now that CR has done the heavy lifting, let's look at the other aspect: Mankiw's standard:

Based a standard ranking of economists' academic accomplishments as of October 2008...[emphasis mine]

11. Larry Summers
21. Greg Mankiw
35. Ben Bernanke
99. Eddie Lazear
132. Glenn Hubbard
249. Harvey Rosen
391. Christy Romer*
653. Austan Goolsbee

[emphases Mankiw's; Bush administration officials]

Leaving aside whether the ranking used makes sense, we ask the next question: What does this have to do the performance of the individual in a government role?

So I realised we've been thinking about the Obama Administration in exactly the wrong way.

Several people are referencing the late David Halberstam's The Best and the Brightest, a biography of the Kennedy Administration's well-educated pedigree and their policy missteps. Krugman used it as a cautionary phrase in the exact post about which Mankiw whimpered. As John McCain once wrote:

The term "best and brightest" has become an insult, not an accolade, thanks largely to Halberstam's magnificent, scabrous epic about the policymaking blunders that swept the United States into Vietnam. This classic work is part of the Vietnam canon, but it is not really about Vietnam; it is very much a Washington book, focused on the surety of the hawks stateside rather than the misery and warfare in Indochina. [italics mine]

But look at (most of*) Obama's picks:

Orszag - Currently at the OMB. Prior experience at CEA, and then as a Special Assistant to the President during the Clinton Administration.
Summers - veteran of the Clinton Administration
Geithner - veteran of the Clinton Administration
Paul Volcker - veteran of the Carter and Reagan Administrations, named Chair of the Federal Reserve by Carter.
Melody Barnes - Eight years as Chief Counsel to Senator Kennedy on the Senate Judiciary Committee
Heather Higginbottom - Eight years as legislative director for Senator Kerry

The list goes on, but what is notable is that—with the exceptions of the Advisors Goolsbee and C. Romer—all have extensive government policy experience.

Let's look at the Bush people:

Mankiw - columnist for Fortune, textbook author. As Bruce Bartlett noted in 2003, "Mankiw endorsed the election of George W. Bush because, unlike Al Gore, he would cut taxes, reform Social Security and antitrust policy, and try to implement school choice." Spent one year as a CEA staff member—twenty years prior to being named CEA Chair.
Lazear - No policy-making experience prior to being named to the CEA.
Hubbard - No policy-making experience prior to being named Chair of the CEA.
Harvey S. Rosen - Deputy Assistant Secretary (Tax Analysis), Department of the Treasury, 1989-91, then no government experience again until named to the CEA in 2003. (Fairness note: the interim is largely a Democratic Administration. No indication what he did from 1991 to 1993, save possibly returning to Princeton to teach). Note that he officially did exactly that in 2005, though he had warned that might happen.

Comparing the actual policy experience of the two Administrations, references to Halberstam's work are much more applicable to the Bush Administration than the incoming Obama Administration.

Despite having a relative disadvantage in looking for people with policy-making experience (eight years with a Democrat in the executive branch over the past 28 years v. Bush's twelve of the previous twenty), the Bush Administration's combined highlights list has less total experience in policy-making than Summers alone.

Knowing how to make sausage is a Comparative Advantage when one is working in a sausage-making environment. Otherwise, you just end up with a "hack."

*Mankiw uses Greg and Ben and Eddie as well, so I assume the use of "Christy" is not meant to pejorative. Firedoglake's mileage may vary.
**Goolsbee is the notable exception, and he is in a Senior Advisory role, specifically the Economic Recovery Advisory Board, where he will be working with Paul Volcker.

Ken Houghton

CR beat me to commenting on this Mankiw whine post, partially because I couldn't think of anything reasonable to say about it. (CR could. That's why he gets the big bucks.)

But now that CR has done the heavy lifting, let's look at the other aspect: Mankiw's standard:

Based a standard ranking of economists' academic accomplishments as of October 2008...[emphasis mine]

11. Larry Summers
21. Greg Mankiw
35. Ben Bernanke
99. Eddie Lazear
132. Glenn Hubbard
249. Harvey Rosen
391. Christy Romer*
653. Austan Goolsbee

[emphases Mankiw's; Bush administration officials]

Leaving aside whether the ranking used makes sense, we ask the next question: What does this have to do the performance of the individual in a government role?

So I realised we've been thinking about the Obama Administration in exactly the wrong way.

Several people are referencing the late David Halberstam's The Best and the Brightest, a biography of the Kennedy Administration's well-educated pedigree and their policy missteps. Krugman used it as a cautionary phrase in the exact post about which Mankiw whimpered. As John McCain once wrote:

The term "best and brightest" has become an insult, not an accolade, thanks largely to Halberstam's magnificent, scabrous epic about the policymaking blunders that swept the United States into Vietnam. This classic work is part of the Vietnam canon, but it is not really about Vietnam; it is very much a Washington book, focused on the surety of the hawks stateside rather than the misery and warfare in Indochina. [italics mine]

But look at (most of*) Obama's picks:

Orszag - Currently at the OMB. Prior experience at CEA, and then as a Special Assistant to the President during the Clinton Administration.
Summers - veteran of the Clinton Administration
Geithner - veteran of the Clinton Administration
Paul Volcker - veteran of the Carter and Reagan Administrations, named Chair of the Federal Reserve by Carter.
Melody Barnes - Eight years as Chief Counsel to Senator Kennedy on the Senate Judiciary Committee
Heather Higginbottom - Eight years as legislative director for Senator Kerry

The list goes on, but what is notable is that—with the exceptions of the Advisors Goolsbee and C. Romer—all have extensive government policy experience.

Let's look at the Bush people:

Mankiw - columnist for Fortune, textbook author. As Bruce Bartlett noted in 2003, "Mankiw endorsed the election of George W. Bush because, unlike Al Gore, he would cut taxes, reform Social Security and antitrust policy, and try to implement school choice." Spent one year as a CEA staff member—twenty years prior to being named CEA Chair.
Lazear - No policy-making experience prior to being named to the CEA.
Hubbard - No policy-making experience prior to being named Chair of the CEA.
Harvey S. Rosen - Deputy Assistant Secretary (Tax Analysis), Department of the Treasury, 1989-91, then no government experience again until named to the CEA in 2003. (Fairness note: the interim is largely a Democratic Administration. No indication what he did from 1991 to 1993, save possibly returning to Princeton to teach). Note that he officially did exactly that in 2005, though he had warned that might happen.

Comparing the actual policy experience of the two Administrations, references to Halberstam's work are much more applicable to the Bush Administration than the incoming Obama Administration.

Despite having a relative disadvantage in looking for people with policy-making experience (eight years with a Democrat in the executive branch over the past 28 years v. Bush's twelve of the previous twenty), the Bush Administration's combined highlights list has less total experience in policy-making than Summers alone.

Knowing how to make sausage is a Comparative Advantage when one is working in a sausage-making environment. Otherwise, you just end up with a "hack."

*Mankiw uses Greg and Ben and Eddie as well, so I assume the use of "Christy" is not meant to pejorative. Firedoglake's mileage may vary.
**Goolsbee is the notable exception, and he is in a Senior Advisory role, specifically the Economic Recovery Advisory Board, where he will be working with Paul Volcker.

I posted this in comments at Lance's place, but figure to run it up the flag here as well.

Speaking as one who supported Monday's bill and generally opposes today's, here's the high-level list of reasons:

1. It wasn't going to authorize the whole $700B, but about$250B, with renewal (or scrapping) to follow. (That Henry Paulson was an idiot in his pitch, and that that pitch has been perpetuated to the detriment of sanity, was documented by Stan Collender.)
   
2. Even a broken clock is right once or twice a day. Yes, the administration cried "Wolf," but the tense of your post is incorrect—banks are already not loaning to creditworthy entities.
   
3. What made it worse is that about two weeks ago, they decided not to loan to each other. Or to do so only at (relatively) ridiculously high rates.
   
4. Subnote of the above: My HELOC is currently somewhere between 3.75 and 4.75%. Which means that I could borrow $25K or $50K or $100K on it, invest that money at LIBOR, and make a profit. That's the type of thing I mean when I say the markets are too out of kilter. The market seems to believe that I am a better credit than, say, Citigroup.
   
5. They may be right.

On the bill itself:

1. Krugman is right. It's not good—the current "pitch" is economically inaccurate; George W. Bush was more correct than Henry Paulson on what would work—but it was probably the best we were going to get as a bipartisan effort.
   
2. There were conditions in it that should have ensured, on balance, that the taxpayer ended up with a significant equity participation in the firms that were saved. (Dodd's addition: 1.25(Y-X) in company stock for every dollar lost between the purchase and the final sale, was inspired.)
   
3. There were restrictions—not so strong as I'd like, but restrictions at least—on the bailout monies going to the high-level execs who have mismanaged those firms for the past several years.
   
4. If it's not a bipartisan effort, then the Republicans are going to hang it on the Democratic Party for the next 34 days, even though their people are the ones who said it was necessary.
   
5. Given (1) and (4), the alternative when the bill failed was one of two things: (a) take the Brad DeLong approach or (b) introduce a ill that looks like a bill that Democrats would support: fund infrastructure, extend unemployment benefits, put more money in the hands of people who are (to borrow a phrase) "liquidity constrained"—that is, the people who will spend it. It will end up in the same place—on some bank's balance sheet—and have at least done some good. And then dare Republicans to veto—or run against—the bill. (Fairness note: Domenici's addition in the Senate fits well in that group.)
   
6. They didn't do either of those. They made it a bill that appeals more to the Republican money-base's interest, and does even less for the credit crisis than the previous one did.
   
7. I realise the essence of the argument is "Wasting $400B or so of a $700B bill is all right, but wasting $500-550B of an $850B bill isn't." But the original bill was, as Krugman noted, marginally acceptable. The current one is well over the margin and into "unfunded giveaways that won't support the economy or increase the velocity of money."
   
8. That last point is essentially the argument of J. C. Bradbury in discussing Kyle Lohse's new contract: you could have a mediocre deal today, or a better one later. Since it's only going to get worse over the next few weeks, the chances of getting a better deal by waiting only go up. But apparently Hillary Clinton and Harry Reid decided not to go that way.

Which, I would argue, is a mistake.

I posted this in comments at Lance's place, but figure to run it up the flag here as well.

Speaking as one who supported Monday's bill and generally opposes today's, here's the high-level list of reasons:

1. It wasn't going to authorize the whole $700B, but about$250B, with renewal (or scrapping) to follow. (That Henry Paulson was an idiot in his pitch, and that that pitch has been perpetuated to the detriment of sanity, was documented by Stan Collender.)
   
2. Even a broken clock is right once or twice a day. Yes, the administration cried "Wolf," but the tense of your post is incorrect—banks are already not loaning to creditworthy entities.
   
3. What made it worse is that about two weeks ago, they decided not to loan to each other. Or to do so only at (relatively) ridiculously high rates.
   
4. Subnote of the above: My HELOC is currently somewhere between 3.75 and 4.75%. Which means that I could borrow $25K or $50K or $100K on it, invest that money at LIBOR, and make a profit. That's the type of thing I mean when I say the markets are too out of kilter. The market seems to believe that I am a better credit than, say, Citigroup.
   
5. They may be right.

On the bill itself:

1. Krugman is right. It's not good—the current "pitch" is economically inaccurate; George W. Bush was more correct than Henry Paulson on what would work—but it was probably the best we were going to get as a bipartisan effort.
   
2. There were conditions in it that should have ensured, on balance, that the taxpayer ended up with a significant equity participation in the firms that were saved. (Dodd's addition: 1.25(Y-X) in company stock for every dollar lost between the purchase and the final sale, was inspired.)
   
3. There were restrictions—not so strong as I'd like, but restrictions at least—on the bailout monies going to the high-level execs who have mismanaged those firms for the past several years.
   
4. If it's not a bipartisan effort, then the Republicans are going to hang it on the Democratic Party for the next 34 days, even though their people are the ones who said it was necessary.
   
5. Given (1) and (4), the alternative when the bill failed was one of two things: (a) take the Brad DeLong approach or (b) introduce a ill that looks like a bill that Democrats would support: fund infrastructure, extend unemployment benefits, put more money in the hands of people who are (to borrow a phrase) "liquidity constrained"—that is, the people who will spend it. It will end up in the same place—on some bank's balance sheet—and have at least done some good. And then dare Republicans to veto—or run against—the bill. (Fairness note: Domenici's addition in the Senate fits well in that group.)
   
6. They didn't do either of those. They made it a bill that appeals more to the Republican money-base's interest, and does even less for the credit crisis than the previous one did.
   
7. I realise the essence of the argument is "Wasting $400B or so of a $700B bill is all right, but wasting $500-550B of an $850B bill isn't." But the original bill was, as Krugman noted, marginally acceptable. The current one is well over the margin and into "unfunded giveaways that won't support the economy or increase the velocity of money."
   
8. That last point is essentially the argument of J. C. Bradbury in discussing Kyle Lohse's new contract: you could have a mediocre deal today, or a better one later. Since it's only going to get worse over the next few weeks, the chances of getting a better deal by waiting only go up. But apparently Hillary Clinton and Harry Reid decided not to go that way.

Which, I would argue, is a mistake.

This concept of Comparative Advantage hits a big wall if we accept the World Bank's study on what generates wealth.

If comparative advantage is about what comes natural to a given nation, it has to include what the study referred to as natural capital. This is only 40% of the wealth generation for a poor nation but drops to 20% for a rich nation and is 5% overall world wide. Produced capital accounts for only 18% world wide.

77% of wealth creation is from “intangible capital”. Intangible capital is the results of societies efforts to improve it's self as a society (making us better people). It is legal, it is education. It is civil rights, it is (or was here) free education to including college, it is management of our environment, it is (or was) the enlightenment, it is adaptation of knowledge for the betterment of living life. None of these things are the results of nature. They are the results of will and money. The money being spread for the benefit of all.

So, we look at China or India and see that they have taken steps to improve their society via education and legal. The comparative advantage however is still more in the natural capital. What is their “natural” capital? It is low relative wages as compared to the rich nations. Is there any naturally comparative advantage? I think not. It's not like they are selling us natural resources. What they are selling are the results of moving the know how and productivity generating tools (using a hammer drill to drill a hole in concrete vs a star drill and hammer) to their countries. Their natural capital is in their labor.

This creates a dilemma for the free traders who think it is only a matter of stuff and things in exchange for currency. If 40% of poor nations wealth generation is natural capital, and produced capital is 18% of the wealth generation, then that leaves 42% of China's wealth generation intangible. This is competing against us with numbers that most likely look closer to the world overall, 5% natural, 18% produced, 77% intangible. Being that our advantage is our society, and our society was created by creating a better distribution of wealth, then how are NAFTA, CAFTA etc. without emphasis on labor, rights, and environment promoting our comparative advantage?

This dilemma of promoting trade agreements on only the 2 tangible sectors of the 3 sectors that drive wealth creation ignoring that a rich country as moved vastly beyond the ratio of the 3 sectors to where investment in ones society is the dominating sector by far, is what is wrong with applying models that discuss comparative advantage as some kind of sliding scale based on only the tangibles. Wine vs wool was it?

We're loosing the trade wars as a nation because we're writing trading agreements to our partners advantage. That's what comes of letting people who only think about business, do the trade agreements. They only think in terms of the natural capital and created capital. It is why the models are wrong when they say there will be or has to be “losers”. Bull crappy on that.

This concept of Comparative Advantage hits a big wall if we accept the World Bank's study on what generates wealth.

If comparative advantage is about what comes natural to a given nation, it has to include what the study referred to as natural capital. This is only 40% of the wealth generation for a poor nation but drops to 20% for a rich nation and is 5% overall world wide. Produced capital accounts for only 18% world wide.

77% of wealth creation is from “intangible capital”. Intangible capital is the results of societies efforts to improve it's self as a society (making us better people). It is legal, it is education. It is civil rights, it is (or was here) free education to including college, it is management of our environment, it is (or was) the enlightenment, it is adaptation of knowledge for the betterment of living life. None of these things are the results of nature. They are the results of will and money. The money being spread for the benefit of all.

So, we look at China or India and see that they have taken steps to improve their society via education and legal. The comparative advantage however is still more in the natural capital. What is their “natural” capital? It is low relative wages as compared to the rich nations. Is there any naturally comparative advantage? I think not. It's not like they are selling us natural resources. What they are selling are the results of moving the know how and productivity generating tools (using a hammer drill to drill a hole in concrete vs a star drill and hammer) to their countries. Their natural capital is in their labor.

This creates a dilemma for the free traders who think it is only a matter of stuff and things in exchange for currency. If 40% of poor nations wealth generation is natural capital, and produced capital is 18% of the wealth generation, then that leaves 42% of China's wealth generation intangible. This is competing against us with numbers that most likely look closer to the world overall, 5% natural, 18% produced, 77% intangible. Being that our advantage is our society, and our society was created by creating a better distribution of wealth, then how are NAFTA, CAFTA etc. without emphasis on labor, rights, and environment promoting our comparative advantage?

This dilemma of promoting trade agreements on only the 2 tangible sectors of the 3 sectors that drive wealth creation ignoring that a rich country as moved vastly beyond the ratio of the 3 sectors to where investment in ones society is the dominating sector by far, is what is wrong with applying models that discuss comparative advantage as some kind of sliding scale based on only the tangibles. Wine vs wool was it?

We're loosing the trade wars as a nation because we're writing trading agreements to our partners advantage. That's what comes of letting people who only think about business, do the trade agreements. They only think in terms of the natural capital and created capital. It is why the models are wrong when they say there will be or has to be “losers”. Bull crappy on that.