Over the years I've engaged with the World Bank fairly often; negotiated alongside of it, met with its president, lectured at, plotted with, and so forth. So let me say: this is by and large a terrific multilateral Bretton Woods-style helpful organization that foreshadows the sort of global effort to end poverty and stop calamitous climate change that in fact is the necessary task of all of us alive today.

There's another view: namely, that the World Bank is an enabler of global despotism at worst and inefficient pocket-lining "French" bureaucracy at worst.

It's certainly

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Yesterday, the House and Senate adopted a $2.9 trillion budget resolution for the 2008 fiscal year, which starts October 1. The resolution provides $2.9 billion in spending for next year and projects a federal budget surplus of $41 billion in 2012. Budget resolutions are non-binding and do not go to the President to be signed into law. Their one self-executing feature is the limit they impose on so-called ‘discretionary spending’ -- all annually appropriated federal spending; not mandatory, Iraq war-related, or emergency appropriations funding. The $956 billion discretionary total under the plan will go through the 12-step congressional appropriations process where a dozen bills approved by Congress are sent to the president for his signature.

But President Bush and OMB Director Rob Portman have launched some pre-emptive strikes against the budget plan – threatening to veto all of the 12 appropriations bills that exceed discretionary caps -- $933 billion in the aggregate -- set out in the budget that Bush submitted to Congress back in February. And some GOP members of Congress have made it clear that they intend to gather a veto-override bloc to prevent the Democrats from pushing through the roughly $23 billion in education, children's health and other domestic budget increases. Does this make political sense?

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Here's the core reason why I think most (not all, but most) of those saying they oppose immigration because of its effects of lower-income native workers are not really serious or, worse, just covering straight-up nativism with a faux charitable concern.

In the Bush 2007 budget, a grand total of $177 million was appropriated to enforce our wage and hour laws. Compare that to the $13 billion in the 2008 Bush budget for border enforcement -- nearly ONE HUNDRED TIME AS MUCH spent for border enforcement as for wage enforcement.

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Here are three basic traits that distinguish progressives from movement conservatives: our moral values derive from a fundamental belief that basic human rights should be respected for all individuals; if a public policy has failed over and over in the past, we learn from the experience and don’t repeat the same mistake; and we consider the economic well-being of average workers to be far more important than the wish list of corporate lobbyists. The guest worker provisions of the Senate immigration deal clearly violate all three of those principles. Without creating a process by which the proposed 400,000 temporary guest workers per year could ultimately gain citizenship, and without adding protections for low-income native-born citizens, the idea is as mindlessly immoral and ignorant of history as saying we should “double Guantanamo.”

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ok, sorry about the title - wanted to include everyone.

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Forty years after the Six-Day War, it is clear that the occupation that was the unintended result of that war has significantly altered perceptions about the State of Israel. In fact, it is safe to say that for most people today, it is close to impossible to think of Israel without thinking about the occupation of the West Bank and the terrible problems created by it.

This is a shame although an unavoidable one. News about Israel these days is invariably about the occupied territories. One's views of Israel are gauged by what one thinks Israel should do about them. One is deemed "right-wing" if he believes Israel needs to hold on to them and "left-wing" if he believes Israel must give them back. It is even hard imagining how "left" and "right" were gauged in Israel in 1966. Maybe, as in other countries, one's place on the political spectrum was determined by economics. But I don't really know.

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No, it's not all about Uncle Alan. The title of my post comes from something the late Senator Daniel Patrick Moynihan said to me when I asked him about the Social Security program's money problems in the next couple of decades. "Altman, you're not cosmic enough!" he said, and went on to say we should worry about what the system will look like in 2075, not 2025.

The same is true with these bubbles. Sure, we all lived through the 1990s bubble, maybe we made or lost money or a job in it, and so we relate to it. We obsess about it. And we wonder what Greenspan could have done differently - what we would have done in his place.

But I don't think that's the most important question, not by a long shot. If you take a broader perspective, both in time and in geography, you'll see why.

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Pardon my belated entry into the discussion (I've had a bear of a week).

There are a few issues which come up regularly with bubbles -- I'd like to address one today, and another tomorrow.

We all love to blame Easy Al for the dot com bubble, and as much as I have lain much of the responsibility at his feet, in reality, he was merely the grand enabler. To me, the most fascinating thing about bubbles and manias is that they are merely an inevitable consequence of the Human condition. Our own flawed emotional makeup all but guarantees bubbles -- and as Dan's book shows, quite regularly.

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Alan Greenspan spent his entire career creating and popping bubbles. He appeared on the cover of Fortune in October of 1987 saying inside that the dollar was overvalued. He should have been soaking up excess dollars and money supply via higher interest rates. Treasury Secretary James Baker appeared on Meet the Press that Sunday saying he wouldn't support the dollar. The next day the stock market crashed.

So what did the future maestro do? He flooded the market with dollars and liquidity to keep the market from falling further and taking Wall Street with it. That was the right move, which the Fed didn't do in 1929, but it was in response to his own mistake. And of course, you eventually have to clean up all those dollars you added to the system, and when he did, we had three years of crappy growth and a recession in the early 1990s.

Shall I go on?

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It strikes me that a lot of this discussion is coming down to one question: Should Alan Greenspan have tried to strangle the tech bubble in the late 1990s or not? There are still a few people on the West Coast who argue that Greenspan did strangle a real tech boom by raising interest rates slightly in 1999 and 2000, but let's leave those nutters aside. (Unless of course Paul and Andy are among them, in which case, let's have it out!)

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New York has seen it all before: as Rupert Murdoch stalks a venerable newspaper, he reassures everyone that he will preserve the publication's traditions. But he didn't keep that promise when he bought the New York Post thirty years ago and there's no reason to believe him today as he covets the Dow Jones Co. and its Wall Street Journal.

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With the news of a deal struck by some Senators, here's my initial problems with the deals:

• I'm unimpressed by a deal that delays citizenship for up to 14 years for those being granted new "Z visas"
• At the same time, the deal brings in 400,000 new guest workers each year with NO option for citizenship, the perfect second-tier workforce to undercut worker solidarity since they have no long-term future here
• And the abandonment of most family reuninfication in future legal immigration undercuts one of the most admirable real "pro-family" aspects of our immigration policy.

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Jesse Eisinger (and his friend) pose some good questions in a previous post: “Are we to conclude from your book that since bubbles are great for the economy we shouldn’t worry about pricking them?” And “Should the government, assorted regulators, and/or the Federal Reserve take steps to curtail bubbles? Which is worse: Allowing bubbles to happen or trying to stop them?”

These are questions that I raise as well. In my conclusion, I write: “When asset prices are deemed dangerously high, should the Federal Reserve raise interest rates to choke off speculation? Should Congress phase out tax credits for an exciting new technology when private sector capital floods into the sector?

My answer to both is no, as much for practical as philosophical reasons.

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Paul Wolfowitz has all but conceded that he is leaving his perch as CEO of the World Bank. The only question that remains is what gets scribbled in the last paragraph of the story on whether the "blame" for his departure is shared -- and whether he resigned under his own steam or was actually, formally fired.

What is odd about this entire encounter is that "Wolfowitz the strategist" seems to be missing -- and that may have been the problem all along.

Many officials in the Bank did not like Wolfowitz because of his central role in designing, planning and launching the Iraq War. But had the former Deputy Secretary of Defense come into the Bank with a compelling plan for global economic development that built on the strengths and addressed some of the weaknesses of the Bank's relative skill sets, a relationship of mutual trust and respect, even if grudging, would have taken root.

Even one of Wolfowitz's closest friends and the not-often discussed third political appointee (the other two were the more controversial Kevin Kellems and Robin Cleveland) brought in by Wolfowitz, Karl Jackson, has reportedly told numerous World Bank and diplomatic pals of his that "Paul has no plan. Everything is ad hoc, reactive -- first we go this way, then we go that." If his friends are saying that, imagine what Wolfowitz's enemies think.

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Comrades with keyboards, I need your help.

First, allow me to stipulate three points:

1) As I will show in a moment, the share of the country that thinks we are on the “wrong track” is historically very high.

2) The ’08 presidential debate will generate some good ideas to get us on the right track.

3) These ideas may or may not come to fruition.

So, the question becomes: what has to happen to ensure that progressive changes have at least a fighting chance?

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The death of Jerry Falwell yesterday has spurred the expected media retrospectives about his role in the political mobilization of conservative evangelical Protestants back in the day, and his enduringly polarizing knack for provocative and sometimes idiotic statements about us godless liberals.

But I have a very particular perspective on Falwell's self-marginalization in recent years, based on familiarity with his home town and lifelong stomping grounds of Lynchburg, Virginia, where he was a definite presence, but hardly the King of the Hill City.

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It is all so bloody and so bloody predictable. The Mecca deal for a Palestinian unity government is breaking down as Hamas and Fatah's militant factions clash on the streets of Gaza, and simultaneously turn their fire on Israel.

Over 40 Palestinian have already been killed in the internal clashes, and the southern Israeli town of Sderot faces a barrage of Qassam rocket fire with injuries so far, but no casualties. Israel has responded with air-strikes against Hamas militants and is threatening to further ratchet-up that reaction.

Those bored already by another tale of Middle East tribalism have lost sight of the implications this clash could have in an already dangerously destabilized region.

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As I was pushing this thread on anyone and everyone, a friend raised what is an important question: What should we do about bubbles while they are happening?

Are we to conclude from your book that since bubbles are great for the economy we shouldn’t worry about pricking them? I assume you don’t think we should try to produce bubbles, but maybe it's worth spelling that out. If they are great, why not?

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Sorry for taking so long to speak up. I've been traveling around this week, buying up empty condos in Palm Beach and Beverly Hills. Just kidding.

Dan is right. Bubbles do have benefits after the fact, much as the third owner of a hotel (or Iridium) can make money if they buy it cheap enough. Plus his book is fun to read, which separates it from most of the dry biz drool out there.

Still, what I'm intrigued by is why they form and therefore how to beat the saps that inflate these things.

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Seven years after Florida's hanging chad debacle, three years after voting irregularities in Ohio, and six months after 18,000 votes disappeared in a House race in Sarasota, Congress is finally moving to fix the country's electronic voting systems. Rep. Rush Holt (D-NJ) has introduced legislation to mandate improvements to ensure that our voting machines are secure and accurate, and the bill is on the fast-track in the House. It may come to a vote next week.

This is a significant breakthrough.

In less than five years, the vast majority of Americans have gone from using punch card and lever machines to having their votes counted by electronic touch screens and optical scanners. These machines promised to usher in an era of fast, reliable, and accessible voting. But they spawned doubt and suspicion, clouding the issue of voting systems in partisanship and conspiracy thinking.

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On Monday, the 9th U.S. Circuit Court of Appeals aptly undermined a procedural mechanism increasingly utilized by the financial industry to limit the ability of consumers to challenge unfair practices: arbitration clauses. The Court ruled the take-it-or-leave it nature of the arbitration clause imposed by the law firm O’Melveny and Meyers onto its employees to be procedurally unconscionable due to the employer’s enormous bargaining power.

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At last someone connects the dots of screwed up flights and union-busting in the airline industry. And it comes from the Wall Street Journal ($) which highlights how low wages are undermining service, both by making recruitment of skilled workers harder and because existing workers don't have enough time for increased workloads:

That's not good news for passengers, as the combination of fewer and less experienced workers is causing more service problems. Planes sit on tarmacs because airlines are short on gate workers. Service on planes is slower because many airlines are flying with fewer flight attendants. When bad weather hits, tight staffing may mean more delays or canceled flights.

The New York Times similarly today highlights how experienced workers are beginning to leave the industry.

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Thanks, Jesse, again, for your comments. I will heighten your sense of anger at the level of civility in these web pages by noting that much of what you say about housing may indeed be true. And I will further infuriate your of civility by noting that people who are interested in the world of credit derivatives, to which you refer in your posting, should check out your article on said topic in the inaugural issue of Conde Nast Portfolio.

How about we agree to agree on the following: there has been a bubble in housing related credit, that the same sort of lunacy that infected investors and bankers during the 1990s infected investors and bankers, that there has been a collective, willful lowering of standards, that is likely to end badly for many of those involved, and that the unwinding of the bubble is sure to have some negative short-term effects on the economy.

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I don't have anything against financial innovation, Dan (or should I say, you wanker).

But I think Jesse's right that lasting financial innovations usually aren't created during bubbles--they're just taken to their (il)logical extremes during bubbles.

Bubbles don't build financial infrastructure, and the resulting crashes often destroy it. The best you can say is that bubbles provide a good way of stress-testing existing financial institutions.

In the early 1930s, as you write in your book, Dan, the U.S. financial infrastructure wasn't up to the test, so that nice man FDR built us a new one. FDR 1, bubble 0.

It makes me uncomfortable that this is such a civilized discussion. Can’t someone call someone else a wanker? Shouldn’t someone have invited some wingnut to argue that the entire premise is wrong because there are no such things as bubbles?

But let’s press forward and see if we can’t stir the pot a bit. For that, I am going to return to the housing/credit bubble. To be provocative, I might even venture to argue that the only thing that is makes it seem that the dotcom bubble has been “great for the economy” is that Alan Greenspan managed to save us from a worse fate by shock interest rate therapy. Unfortunately, by lowering rates so far for so long, he inflated a much larger bubble.

That’s why I am a bit surprised that you’ve marshaled Alan Greenspan, the great bubble blower himself, to your side in your recent post, Dan.

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“Was there a concerted campaign led by the White House to bring more voter fraud cases, and to what extent did it factor into the firings, and to what extent could that be seen as partisan?” Wow, that’s a whopper of a question. You might find some answers in articles like these: How U.S. attorneys were used to spread voter-fraud fears (Salon, March 21st), White House sought investigations of voter fraud allegations before elections (McClatchy, May 10th), Voter-Fraud Complaints by GOP Drove Dismissals (Washington Post, May 14th). But Alberto Gonzales has an answer for you that requires much less reading: “No.” In today’s episode of TPMtv, we ponder whether or not that answer is to be believed.

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The constitutional amendment that would lead to direct elections of the Turkish president, replacing the current election by parliament, is in the interest of the United States. This course is best followed despite the fact that direct elections are likely to lead to a head of state who is an observant Muslim.

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Since I started talking about opportunity cost, I'll continue a little bit with Dan's responses in mind.

Answering my point about how bubbles could represent a misallocation of resources in the economy, Dan writes: "I would probably have preferred that our society take the billions invested in Worldcom and used it to create endowments for scholarships, or to offer universal health care, or to put a computer in every home. But none of these was on offer." The thing is, there were plenty of other productive investments on offer. You didn't have to put our money into a massive government program to get a higher long-term return than you did with Worldcom. Credit markets were tight in the late 1990's - plenty of people had projects that needed financing, and some of them were probably useful.

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Without question, the history of capitalism is a story of boom and bust cycles. And, quite often, the “boom” turns into a bubble. But if these cycles are an essential feature of capitalism, as Daniel Gross suggests in Pop!, this does not mean that events driven by the most irrational of human emotions—greed and fear—are in any way desirable. This is the dark side of a certain kind of unregulated capitalism—what the French call “le capitalisme sauvage.” It is not the capitalism that has brought us periods of great prosperity. It is the capitalism that has ushered in eras when the gaps between the haves and havenots widen.

Those who celebrate bubbles often quote Joseph Schumpeter’s phrase “creative destruction.” But as Robert Kuttner points out in “Everything For Sale”: "while casual readers (or non-readers) of Schumpeter may remember him as the prophet of creative destruction . . . the usual cartoon of Schumpeter gets his meaning backwards. Schumpeter's concern was how a market system could endure DESPITE its many propensities toward ruinous competition. He was no advocate of 'creative destruction.’”

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Thanks for all the thoughtful responses. And for all readers who want to take the smart criticisms offered thus far and fling them in my face, I’ll be discussing bubbles today at the New America Foundation in Washington, D.C.

Justin Fox is right that not all bubbles are created equal. It may be that bubbles may be beneficial when they have to do with a “real innovation like the Internet or the telegraph,” and less likely to do so when the innovation is purely financial. But as the U.S. economy becomes increasingly dominated by finance, it may be that financial innovation can prove beneficial.

It’s quite possible that nothing good will come out of the real estate/housing credit bubble, as Jesse Eisinger suggests. But I happen to think that the culture of re-financing, which was enormously beneficial to millions of Americans, will stay with us after the bust. (See the Alan Greenspan/James Kennedy paper on how the re-financing/home equity boom contributed mightily to consumer spending in recent years.) Five years from now, if real estate broker commissions are lower, if the mechanisms for re-financing are intact, allowing millions of people to lower the cost of their housing when interest rates cycle down, if transparency-creating services like Zillow and Domania make the vast real estate market more efficient, if mortgages come embedded with regional housing price options, if home equity insurance is a widely available product—it’s possible that thin gruel I dished out to Jesse might begin to thicken.

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Or any of our sons? or daughters? on any side of this incredibly reckless escapade in Iraq?

Boston University Professor Andrew J. Bacevich is a brave, thoughtful public intellectual who has tried -- in reserved, serious terms -- to challenge the legitimacy of the Iraq War. He has been one of the most articulate leading thinkers among military-policy dissident conservatives who have exposed the inanity of this war and the damage it has done. He authored the critically-acclaimed book, The New American Militarism: How Americans are Seduced by War.

Now his son by the same name who was serving in Iraq as part of Operation Iraqi Freedom is dead -- announced today by the Department of Defense:

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Pop! is one of those contrarian efforts that tries to cut conventional wisdom off at the knees. We have been taught that bubbles are bad as many of us have experienced the pain personally in other asset classes like stocks. Daniel gets us to look long term in the bubble cycle, which strikes me as a bit ironic, since as a transaction, it rumbles along much more slowly than stocks do.

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The celebration of bubbles as delivering wonderful excess that the next generation of entrepreneurs can spin into more down-to-earth uses is an attractive proposition by folks like Daniel Gross, but it ignores the opportunity cost of what WASN"T invested in during the speculative flurry. Bubbles are a suck for capital, for labor and most of all for creative skills that are pulled away from more useful endeavors. When the best and brightest minds are focused on useless dreck (can we all say Pets.com), they aren't focused on real innovation.

And the idea that we now have lots of useful excess broadband fiber is true, but largely irrelevant since what was most neglected in the dotcom boom is laying fiber to the home so people could actually use these wonderful Internet doo-hickies. And the result was that the US slipped from world Interent leader to only 16th in the world interms of the percentage of residents with broadband subscriptions. Japan, Korea, Sweden, Canada, and Switzerland are just a few of the countries with wider access to high-speed Internet for their citizens, largely because their investments were not so spectacularly out-of-sync with consumer needs.

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This is a great discussion, and I feel lucky to be a part of it.

As an economist, I also feel obliged to say a few words about opportunity cost. It may be the case that the processes following a bubble are useful for the economy, as Dan posits.

Those processes may even be valuable enough to justify the massive dislocations that occur when bubbles burst; in my new book, "Connected: 24 Hours in the Global Economy," I also discuss the helpful effects of adverse shocks. But the inflation of bubbles requires a lot of the economy's resources - things that could have been used in other ways - and that could be a separate cause for concern.

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This book is a wonderful counterweight to the mostly finger-wagging historical literature about bubbles. The idea that irrational exuberance can build industries and spark economic growth in a way that fully rational investing would not is one that deserves a lot more attention from economists and historians.

But it seems pretty clear to me that not all bubbles are created equal. Of the six bubble episodes described in detail in the book, four support the bubbles-are-grrreat theory pretty strongly (giving you a stupendous .667 batting average!): the telegraph, railroads, the Internet, and alternative energy. In each of these cases, overly optimistic and sometimes downright nutty investors financed the building of valuable infrastructure that others were later able to put to productive use.

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Alberto Gonza- aahhh- yaawwwwn. Excuse me. But Alberto Gonzales seems to have pulled off an improbable feat with his testimony before the House Judiciary Committee last Thursday: he made the mainstream media bored to death of the U.S. Attorney scandal. Just three days after his second round of congressional testimony, and his name was not heard once on any of the Sunday talk shows. The reason is that everyone seems to have realized that no matter what he says, no matter how far his credibility plummets, no matter what more emerges from this scandal, Alberto Gonzales isn’t going anywhere.

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Thanks for inviting me.

I'm no Pangloss-ian sort, but I'm generally of the view that bubbles are necessary. Note: That is not the same thing as saying they are good in all of their manifestations and impacts -- it would be foolish to argue so specific a case -- but the nature of economic systems and innovation is such that periodic "enthusiasms" are required to effect change.

Consider: Who would have spent billions building out a national fiber optic network without the late-90s fiber bubble? It was necessary, even if it caused an unholy amount of collateral economic damage.

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What a propitious time to be coming out with your book, Dan. After all, the entire world is in a bubble! That is, according to veteran investor Jeremy Grantham, who recently wrote a letter to his investors titled: "It's Everywhere, In Everything: The First Truly Global Bubble." It's like the Matrix, man.

In your book, you finish with discussions of two potential contemporary arenas of bubblicious activity: housing in the U.S. and the alternative energy sector. But I'm with Grantham. I don't think you went far enough.

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Investment bubbles have received something of a bad rap. Journalists, who tend not to like it when stupid ideas prosper, find bubbles to be endlessly frustrating. So do economists, since bubble-era behavior tends to undermine their (generally) bedrock view that markets are efficient and people behave rationally. Historians enjoy looking back at bubbles, if only because they provide a rich vein of folly.

But I, for one, think that history provides some other lessons about bubbles—ones that can be applied to contemporary analysis of public policy, economics and markets. The book we’re discussing, Pop! Why Bubbles Are Great for the Economy, is unabashedly present-minded history. That’s a no-no in the academy, but it can be useful for those interested in the stories unfolding in front of us. (I should pause here and acknowledge the great contributions of perhaps the greatest business historian of all time, Alfred DuPont Chandler, Jr.,who died last week.)

When you look back on bubbles in the U.S., a clear pattern has emerged—time and again. Bubbles get started when entrepreneurs latch onto new technologies, or new economic assumptions (or both). As promoters enter the scene, the phenomenon crosses over into public culture. The result is familiar: excess capacity, competition, and the sort of promotion and hype that draws in new users. That combination generally proves lethal for the infrastructure builders. Many of the investors who backed investments in the first telegraphs, railroads, and the Internet lost everything.

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Welcome to the TPMCafe Book Club! This is where we regularly invite authors to come and discuss their most recent works with readers and invited commentators. Past Book Club authors include Thomas Frank, Anthony Shadid, Larry Diamond, George Packer, Ivo Daalder/James Lindsay, Robert Dreyfuss, Chris Mooney, Gene Sperling, Gershom Gorenberg, Peter Beinart, Kevin Phillips, Sidney Blumenthal, Reed Hundt, Anne-Marie Slaughter/John Ikenberry, and Jonathan Cohn.

This week we'll be discussing Daniel Gross' Pop!: Why Bubbles Are Great For The Economy.

Gross, widely known for his "Moneybox" column in Slate Magazine, makes the counterintuitive case for economic bubbles as trail blazers for eventual economic development. Overinvestment, he argues, lays the mental and physical foundations for more careful economic development once the bubble has popped. From train tracks to telegraph wires to Web 1.0, Gross traces the history of American investments that destroyed lives and fortunes in the short run, but led to economic transformations in the long.

Debating and discussing Gross' thesis will be Daniel Altman, Paul Kedrosky, Justin Fox, Jesse Eisinger, Jonathan Miller, Andy Kessler, and Barry Ritholtz.

-ahg

Good morning, all. It’s a gorgeous day in the nation’s capital, I’m already hyper-caffeinated, so let’s talk economics!

Specifically, there were a number of interesting pieces out today amplifying and challenging our discussion about where the economy might be headed.

First, note the NYT editorial which echoes the story I told last week. Add to that a note out from Merrill Lynch this AM telling us that according to the International Council of Shopping Centers, same store sales were down 2.4% from last year, the biggest drop since the trade group began tracking the data in 1970. Adding a bit of analysis, the ML folks point out that the slumping components of sales are the cyclical ones, i.e., not food and medicine, but clothes, furniture, electronics, etc. That’s the pattern you’d see in down economy.

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