February 2007 Archives

Wednesday's trading day has begun in Asia, and it's not good.

The day-to-day swings of the stock market generally don't excite me. But today's spectacle qualifies as economic news--though I'm not sure just how. Was it a response to the Asian markets plunge, which was itself a response to some rumblings by the Chinese government? Was it Greenspan? Was it Drudge? Was it the durable goods orders?

I'm pretty skeptical of those who have a ready explanation for events like this. Felix Salmon gets it, and in turn he names two others who get it (Dan Gross and Andrew Leonard). Truth is, the markets have had a good run in the last few months. Yesterday erased part of that, but only part. The question is what will happen in the next few days to weeks. And I'd say roughly half of the folks with an opinion on this will be wrong.

Lest we forget, there were some 500 point drops in the late 1990s that did not presage immediate disaster. Don't interpret that to mean that I think this is nothing to worry about. Clearly a number of factors are less favorably aligned today than in 1997 and 1998 when we weathered a much more severe crisis from Asia. Of course, when those events hit, the Fed did ease monetary policy, just as many of us wanted them to. Are they more likely to ease because of this? Yes. Twice as likely as a sensible person might have thought last night? That's a tougher sell. But although I have been expecting them to stand pat, I am not above revising my priors. But I'll wait until things settle down a bit before acting on them.

It promises to be an interesting Wednesday.

Jim Carey thinks so. In the Wall Street Journal, Carl Bialik seems amused but unconvinced.

...In the film, Mr. Carrey plays a man "spiraling into a dark obsession with the number 23," after reading a book on the number's ominous properties. (Among the "evidence:" Nirvana frontman Kurt Cobain was born in 1967 and died in 1994 -- the digits in both years add up to 23. Caesar was stabbed 23 times. Even the date of the Sept. 11, 2001, terror attacks has a connection -- 9+11+2+0+0+1=23. And so on.)

The movie -- like my proposed sequel -- shows how just about any number can seem to have all sorts of eerie properties if you look hard enough.

Can I play along? The months and dates of my wife's birth and my birth add up to...you guessed it...23. Another? Take our house number, add the digits together. Then add the digits of the result. Add the final result to the sum of the digits in our ZIP code and, yes, it is 23. In fact, if I looked around I would find a few other things that could add up to 23, or 24, or 25, or....

So what? It's nothing. Just parlor tricks and nothing more. Choose a low number--a number that could be easily obtained by summing up a short series of single digit numbers. Then go looking for sets of digits that add up to that number. You'll find them without much difficulty. The mistake people then make is to attribute some significance to that particular set of digits ex post.

For example, if you go to a shopping mall and meet an old acquaintance whom you haven't seen in years, you may attach some significance to that, as in, "Wow, what a coincidence that he and I would be in the same place at the same time. It must mean something." But the chances are that if you to to the mall regularly and you have a fairly large circle of acquaintances, you will eventually bump into one of them at some point. Now if you woke up one morning and said, maybe today is the day that I'll run into X, and then you did, that would be impressive. But running into some random person out of your circle of acquaintances is nothing special. (John Allen Paulos gives a version of this argument in his book, Innumeracy.) You can't attach some significance ex post when there was no such attachment ex ante.

You might say that life is just a series of very improbable events. Bizarre coincidences are to be expected. Ex ante, they have near zero probability. Some of them simply have to happen, but you can't predict which ones. (Douglas Adams used this with entertaining effect in The Hitchhiker's Guide to the Galaxy with the Infinite Improbability Drive.)

As for whether a number is interesting, most of them are. Even numbers that look very dull from the outset. When mathematician G.H. Hardy visited his friend and collaborator Ramanujan, he expressed his disappointment with the number of the taxicab in which he rode that day, 1729. Ramanujan replied that 1729 was a very interesting number. It is the smallest number that can be expressed as the sum of two cubes in two different ways (1^3+12^3 and 9^3+10^3). Today, 1729 is known to mathematicians as the Hardy-Ramanujan number.

Ramanujan's ability to see patterns in numbers was much more interesting and useful than some numerologist's obsession with the number 23.

Here's the link to the minutes. Scroll about halfway down to get past the formalities of the first meeting of the year. I will focus on this part:

The FOMC's decision at the December meeting to leave its target for the federal funds rate unchanged and to retain the language in the statement regarding the risks to inflation appeared to match investors' expectations. However, the characterization of recent economic growth was reportedly interpreted by market participants as suggesting a slight softening in the Committee's outlook for the expansion. As a result, the expected path of the federal funds rate beyond the near term edged down. The subsequent release of the minutes from the meeting elicited little market reaction. Investors' outlook for economic activity firmed over the intermeeting period, as economic data releases came in stronger than expected and oil prices declined notably. As a result, investors markedly reduced the extent of policy easing anticipated over coming quarters, and yields on nominal and inflation-indexed Treasury coupon securities rose. Measures of inflation compensation were little changed on net. Spreads of investment-grade corporate bond yields over those of comparable-maturity Treasury securities moved down a bit, while those of speculative-grade issues declined significantly more. Broad equity indexes edged higher. The foreign exchange value of the dollar against other major currencies rose, on balance, particularly versus the yen.

I believe we covered this ground back in December when I said,

...would you want to bet any amount of your paycheck that a more balanced assessment of risks would be interpreted correctly by the market?

Anyway, back to the minutes...

All meeting participants expressed some concern about the outlook for inflation. To be sure, incoming data had suggested some improvement in core inflation, and a further gradual decline was seen as the most likely outcome, fostered in part by the continued stability of inflation expectations. However, participants did not yet see a downtrend in core inflation as definitively established. Although lower energy prices, declining core import prices, and a deceleration in owners' equivalent rent were expected to contribute to slower core inflation in coming months, the effects of some of these factors on inflation could well be temporary. The influence of more enduring factors, importantly including pressures in labor and product markets and the behavior of inflation expectations, would primarily determine the extent of more persistent progress. In light of the apparent underlying strength in aggregate demand, risks around the desired path of a further gradual decline in core inflation remained mainly to the upside. Participants emphasized that a failure of inflation to moderate as expected could impair the long-term performance of the economy.

Clear enough for you?

In other news... (Reuters)

WASHINGTON (Reuters) - Higher-than-expected U.S. consumer prices last month chilled hopes that the Federal Reserve will drop a policy bias to hike interest rates and served a terse reminder that inflation remains a threat.

Economists said the rise would not prompt immediate action from the U.S. central bank, which has voiced guarded optimism that price pressures were heading down, but it reduced the likelihood that the Fed will cut rates any time soon.

"It appears that the deceleration in core inflation that was evident in October and November has come to a halt," wrote Morgan Stanley economists David Greenlaw and Ted Wiesman.

...

The Department of Labor said on Wednesday that the Consumer Price Index rose 0.2 percent in January, while the core non-food, non-energy index climbed 0.3 percent.

In both cases, the rise was one-tenth of a percentage point higher than forecast by analysts, lifting the gain in core CPI since January 2006 to 2.7 percent. This is well above the comfort zone voiced by a number of Fed policymakers for core inflation to remain in a range of 1 percent to 2 percent.

The Conference Board's Leading Economic Indicators was up, but by less than expected.

No reason to expect any change in rates at the next meeting, at least not at this time. All signs point to a positive but slightly below average year for growth with inflation not yet fully whipped. Of course, the Fed cannot target the specific reason(s) for growth being below average. If the housing slowdown is one of those reasons, it could be argued that the Fed should keep its hands off the throttle unless there was a danger of systemic risk, which I don't see at the moment. Therefore, it's a pretty good bet that the anti-inflation bias will remain at least for a few more months.

Of course not.

Is Wikipedia a useful research tool for college students? Absolutely.

Middlebury College's history department sees students relying too much on Wikipedia and decides to nip it in the bud. (NY Times)

When half a dozen students in Neil Waters’s Japanese history class at Middlebury College asserted on exams that the Jesuits supported the Shimabara Rebellion in 17th-century Japan, he knew something was wrong. The Jesuits were in “no position to aid a revolution,” he said; the few of them in Japan were in hiding.

He figured out the problem soon enough. The obscure, though incorrect, information was from Wikipedia, the collaborative online encyclopedia, and the students had picked it up cramming for his exam.

Dr. Waters and other professors in the history department had begun noticing about a year ago that students were citing Wikipedia as a source in their papers. When confronted, many would say that their high school teachers had allowed the practice.

Well, encyclopedias have always been a staple of high school libraries. Any manual on writing term papers has a line about how to cite information from an encyclopedia. I always cringe a little at that.

But the errors on the Japanese history test last semester were the last straw. At Dr. Waters’s urging, the Middlebury history department notified its students this month that Wikipedia could not be cited in papers or exams, and that students could not “point to Wikipedia or any similar source that may appear in the future to escape the consequences of errors.”

With the move, Middlebury, in Vermont, jumped into a growing debate within journalism, the law and academia over what respect, if any, to give Wikipedia articles, written by hundreds of volunteers and subject to mistakes and sometimes deliberate falsehoods. Wikipedia itself has restricted the editing of some subjects, mostly because of repeated vandalism or disputes over what should be said.

Although Middlebury’s history department has banned Wikipedia in citations, it has not banned its use. Don Wyatt, the chairman of the department, said a total ban on Wikipedia would have been impractical, not to mention close-minded, because Wikipedia is simply too handy to expect students never to consult it.

Precisely. Consult it. Read it. Find out what people are saying. Learn some interesting facts and pick up some additional sources. Then confirm everything in more reputable sources before you put it in a term paper.

As for using Wikipedia to study for a test and then regurgitating what you read into your blue book, well, that's like skydiving without knowing who packed your parachute. It might work sometimes, but that doesn't make it smart.

At Middlebury, a discussion about the new policy is scheduled on campus on Monday, with speakers poised to defend and criticize using the site in research.

Rather low on my list of priorities for a campus discussion, but hey, whatever floats your boat.

Jimmy Wales, the co-founder of Wikipedia and chairman emeritus of its foundation, said of the Middlebury policy, “I don’t consider it as a negative thing at all.”

He continued: “Basically, they are recommending exactly what we suggested — students shouldn’t be citing encyclopedias. I would hope they wouldn’t be citing Encyclopaedia Britannica, either.

Mr. Wales gets it.

The Wikipedia phenomenon caught my attention some time ago. A few semesters back, I got deluged with Wikipedia citations in term papers. It took me a little by surprise. One semester it wasn't there at all, and the next semester it's everywhere. Henceforth, I have informed my classes that it is not an appropriate source for term papers or essays. It is, as I also tell them, a valuable research tool that can point you in positive directions.

That said, I've picked up a lot of interesting tidbits from browsing Wikipedia. It is useful for looking up obscure things like who the celebrity panelists were on Match Game. Not to mention the fact that the "wiki" concept is great for software support websites--let the users help each other. I'm all for creating open source communities. The Times article describes some positive uses of the wiki concept in higher education. The article also goes on to say,

The discussion raised by the Middlebury policy has been covered by student newspapers at the University of Pennsylvania and Tufts, among others. The Middlebury Campus, the student weekly, included an opinion article last week by Chandler Koglmeier that accused the history department of introducing “the beginnings of censorship.”

Oh, please. Much of what is in Wikipedia is also in reputable sources, so confirm it and cite the reputable sources. In fact, most entries have a reference list. Notable exceptions to this would be erroneous information and blatant opinion which is typically anonymous. Of course in a term paper opinions are fine to cite, but they should be attributable to someone, preferably someone of some authority on the topic. Most professors would look askance at citing an anonymous person off the street as an authoritative source in a paper. That's not censorship. That's teaching students the craft of scholarship.

But then there's this opinion,

Other students call the move unnecessary. Keith Williams, a senior majoring in economics, said students “understand that Wikipedia is not a responsible source, that it hasn’t been thoroughly vetted.” Yet he said, “I personally use it all the time.”

Leave it to an economics major. I'm of a similar mind. The part that Middlebury gets right was at the end of the 4th paragraph,

...students could not “point to Wikipedia or any similar source that may appear in the future to escape the consequences of errors.”

That's the right approach.

Note to students: If you cite Wikipedia in a term paper, you are working without a net. At this stage in your career, you are not qualified to do that. You may also be interested to know that your professors can spot errors, inconsistencies, and shallow reasoning in Wikipedia a lot more easily than you can. You have been warned.

Brad DeLong links to this NRO Symposium on the favorite presidents of the panelists. Want to see their list?

Richard Brookhiser... George Washington

H. W. Crocker III... Ronald Reagan

John Derbyshire... Calvin Coolidge

Bruce Frohnen... William Henry Harrison

Paul Kengor... Ronald Reagan

John J. Miller... Calvin Coolidge

I'm with DeLong--could none of them bring themselves to mention Abraham Lincoln? Nothing against Washington, you understand. But were it not for the fact that he was the first, he would have been remembered as the Eisenhower of his day--a war hero who gave a great farewell address that his successors ignored. Someone had to be first, and Washington was good in the role. But Lincoln's task was much more trying.

He wanted to save the Union and end the expansion of slavery, but he did not set out to be an emancipator even though he felt that slavery was morally wrong. He would have preferred that slavery die a slow death and fade away. But the war changed him. In his final speeches, you sense that he knew that things had changed. It is truly a tragedy of history that he did not live to preside over the reconstruction. It is that question--what would the reconstruction have been like if Lincoln had lived--that vexes me. Did he have enough fight left in him to resist the opponents in his own party? We romanticize Lincoln--perhaps too much. What if he had lived and had failed at the reconstruction? Would he still be on the penny then?

Interesting questions, but reality brings us back. He went out on top, and... for better or for worse... become a martyr. He was an incredibly complex man, not without contradictions. I've studied him, but I never stop wanting to know more. He managed to do the right thing when it counted.

And did it ever count.

I can think of half-a-dozen founding fathers would would have made an adequate first president. But the thought of any other mid-19th century politician being elected president in 1860 is unfathomable. And that right there, is the most concise statement of why Abraham Lincoln is my pick for our nation's greatest president.

I will never tire of walking around in the stacks, browsing the shelves and holding classic books in my hand. But digital resources are simply wonderful.

Last night, I was reading something at home when I suddenly got the urge to dig out an article by Jagdish Bhagwati on capital controls. I could not recall the year or issue, or even the journal--though I knew it was late 1990s and had a hunch that it was in Foreign Affairs.

I got up out of my easy chair and walked to the computer: estimated time about 30 seconds.

With one Google search, I had the issue and journal (May/June 1998 Foreign Affairs): estimated time about 15 seconds.

I click over to the university library, enter my library card number, go to the full text archive and I'm reading the article as a PDF in another 30 seconds.

It was not long ago that such things were only in our dreams.

If I want to be faster, the easy chair needs to be closer to the computer.

Roll the tape.... from Tuesday:

...I would be wary of a government managed plan for universal broadband access. My fear would be that they would adopt a 20th century solution to a 21st century problem.

Broadband technology (particularly the new wireless broadband) is still evolving. Once you make it a government program, you introduce a lot of rigidity. Better to keep some flexibility until we see which technology is superior. We can, I believe, afford to do that in this case because wireless is a low fixed cost operation compared to high fixed cost utilities such as the electrical grid, the copper wire laid down by Ma Bell, and even cable TV. There will be competition just as there is for wireless phone service--speaking of an industry that went from high class luxury to practically universal access in about a decade.

Friday's Wall Street Journal editorial has this to say:

Much of this [telecommunications sector] growth has been fueled by increased broadband deployment, which makes high-speed Internet services possible. The latest government data show that broadband connections increased by 26% in the first six months of 2006 and by 52% for the full year ending in June 2006.

Also noteworthy, notes telecom analyst Scott Cleland of the Precursor Group, is that of the 11 million broadband additions in the first half of last year, 15% were cable modems, 23% were digital-subscriber lines (DSL) and 58% were of the wireless variety. Between June 2005 and June 2006, wireless broadband subscriptions grew to 11 million from 380,000.

This gives the lie to claims that some sort of cable/DSL duopoly has hampered competition among broadband providers and limited consumer options. That's the charge of those who want "network neutrality" rules that would allow the government to dictate what companies like Verizon and AT&T can charge users of their networks. But the reality is that the telecom industry has taken advantage of this deregulatory environment to provide consumers with more choices at lower prices. Verizon's capital investments since 2000 exceed $100 billion, and such competitors as Cingular, T-Mobile and Sprint are following suit. So are the cable companies.

Memo to Congress: Don't mess this up.

Ed Prescott notes that this year is the 50th anniversary of the Treaty of Rome and warns against the seductiveness of protectionism in this Wall St. Journal op-ed.

Repeat after me. This is not another Y2K problem. Ok. Now get ready to do some manual time adjustments when daylight saving time starts because your software might not do it for you. Read this (MSNBC).

Daylight saving time arrives a little earlier — March 11 — and stays a little later — Nov. 4 — this year. And it’s bringing a problem along with it that could affect everything from stock trades to airline schedules to your BlackBerry.

Software created before the law mandating the change passed in 2005 is set to automatically advance its timekeeping by one hour on the first Sunday in April, not the second Sunday in March. Congress decided that more early evening daylight would translate into energy savings.

My hunch tells me that UNIX systems will take care of this easily since UNIX counts seconds since the UNIX epoch (Jan. 1, 1970) and that there should be a simple software patch to fix this at the operating system level. (A quick Google search reveals that my hunch appears to be correct.) Microsoft will release a patch soon according to the article. That will fix anything that depends on Windows' time keeping functions. So this is an operating system issue, which means it should be easy to fix on the vast majority of systems that handle important operations for businesses. UNIX folks have a lot more to worry about in 2038, but let's not go there.

So how about those energy savings? Don't count on it.

Washington Wire informs us that the Federal Reserve has released their transcripts from 1978.

[G. William] Miller, probably unknowingly, made what may be the most accurate observation about the U.S. economy and monetary policy in the late 1970 at the conclusion of the October 1978 meeting. After hearing the federal funds and monetary aggregate preferences of each member, Miller quipped, “Well, thank you all. Let’s see what we have. A mess.”

My list of things to read grows longer.

Here's an article by James Pethokoukis, who writes at U.S. News:

How about a windfall profits tax on Google? It's an idea that came to me after watching a video of Sen. Hillary Clinton, speaking at the Democratic National Committee's winter wing-ding, apparently call for the confiscation of oil company profits. As the front-runner for the 2008 Democratic presidential nomination put it:

The other day the oil companies reported the highest profits in the history of the world. I want to take those profits, and I want to put them into a strategic energy fund that will begin to fund alternative smart energy ... technologies that will begin to actually move us toward the direction of independence.

Why stop there? Why not confiscate a portion of Google's fat annual profits–the company's 2006 earnings were some $3 billion on revenue of $10.6 billion–and use it for some relevant national goal? The search-engine company is, after all, profiting from technological infrastructure it didn't even build, an "information superhighway" (to use a quaint term) that came out of a government defense project. It's time to pay Uncle Sam back. When Sen. Barack Obama officially announced his own presidential bid last weekend, he called for a new Internet initiative. "Let's lay down broadband lines through the heart of inner cities and rural towns all across America," Obama said.

So there you go. A portion of Google's profits, as well as those perhaps from Amazon, Yahoo!, and eBay could be funneled into a government-managed fund to pay for laying down fatter pipe. Heck, it's too bad that some candidate missed an opportunity back in 2004 to advocate the confiscation of home builders' profits to help low-income renters buy their own McMansions. Of course, profits at Lennar, Centex, and Toll Brothers aren't what they used to be, thanks to the housing bust. And if oil prices drop, neither will those at ExxonMobil or Chevron. And if the economy sinks, Google's bottom line won't look so healthy, either.

As they say, read the whole thing. Pethokoukis gets a couple of things right. Windfall profits taxes are not good policy. They severely distort incentives and change the firms' attitude toward risk. The capricious nature with which these taxes could be imposed, removed, or changed just adds to the distortion. If the government needs revenue, there are better ways to get it. You want an alternative energy fund? There are more efficient ways to do fund it.

And as for taxing Google to pay for a broadband initiative, that too would be ill-advised for precisely the same reasons. But as long as we're on the subject, let's talk broadband for a minute. I would be wary of a government managed plan for universal broadband access. My fear would be that they would adopt a 20th century solution to a 21st century problem.

Broadband technology (particularly the new wireless broadband) is still evolving. Once you make it a government program, you introduce a lot of rigidity. Better to keep some flexibility until we see which technology is superior. We can, I believe, afford to do that in this case because wireless is a low fixed cost operation compared to high fixed cost utilities such as the electrical grid, the copper wire laid down by Ma Bell, and even cable TV. There will be competition just as there is for wireless phone service--speaking of an industry that went from high class luxury to practically universal access in about a decade.

Debates will rage about the best way to provide broadband to inner cities and rural areas. Let that debate happen. I won't say that there is no role for government. However, I would urge great caution. We'll have to live with the mistakes for a long time. But in any case, a targeted tax would not be the answer. Didn't we just get rid of one of those telecommunication taxes that was supposed to pay for the Spanish-American War?

UPDATE: PGL at Angry Bear doesn't take kindly to seeing the windfall profits tax bashed. Robert Lawson reports that the governor of Wisconsin wants to repeal the laws of tax incidence

MADISON, Wis. (AP) -- Gov. Jim Doyle proposes taxing big oil companies more than $270 million over the next two years to help pay for the state's transportation needs.

Doyle said the assessment will equate to $1.50 per barrel of oil sold in the state, and the companies would be prohibited from passing the tax on to customers at the pump. Violations carry a criminal penalty of up to six months in prison.

Safe to say that we'll be coming back to this topic.

UPDATE 2: Read the comments at the Angry Bear post (link above) for more of my thoughts as well as those of pgl and others.

Felix Salmon is wondering if he should lock in a lower rate on his HELOC. Seems like a good deal, but as seasoned experts here will know, there is a trade-off.

So the way I see it, my main cost of locking in now is that I lose the ability to lock in at a lower rate in the future. Even if the Fed funds rate stays on hold, the curve could invert further between overnight and six years, and the lock-in rate could go lower than 7.25%. I'm no expert in options pricing, so how should I value the option to lock in – the thing I lose if I actually do lock in?

Sounds like something I posted a while back. Unfortunately, it is not possible to refinance a house one room at a time.

So I just finish telling my class about Zimbabwe last week and now there's this: (Miami Herald)

CARACAS - Meat cuts vanished from Venezuelan supermarkets this week, leaving only unsavory bits like chicken feet, while costly artificial sweeteners have increasingly replaced sugar, and many staples sell far above government-fixed prices.

President Hugo Chávez's administration blames the food supply problems on speculators, but industry officials say government price controls that strangle profits are responsible.

Such shortages have sporadically appeared with items from milk to coffee since early 2003, when Chávez began regulating prices for 400 basic products as a way to counter inflation and protect the poor.

Yet inflation has soared to an accumulated 78 percent in the last four years in an economy awash in petrodollars, and food prices have increased particularly swiftly, creating a widening discrepancy between official prices and the true cost of getting goods to market in Venezuela.

''Shortages have increased significantly as well as violations of price controls,'' Central Bank director Domingo Maza Zavala told Unión Radio on Thursday. ``The difference between real market prices and controlled prices is very high.''

So here we have price controls leading to shortages and black markets. Who does the government blame? Speculators--that is, people who manage to get the goods cheaply and hold out for higher prices. Talk about predictable.

Hat tip to Phil Miller, who says,

It's an excellent example of someone trying to fight the invisible hand and the invisible hand fighting back.

Indeed.

David Leonhardt dishes up his Economix column for the NY Times and writes of preschool programs in Oklahoma. Here's a choice quote:

...Long before children turn 5, there are already enormous gaps in their abilities. One study found that 3-year-olds with professional parents know about 1,100 words on average, while 3-year-olds whose parents are on welfare know only 525. Much of the gap is caused by environment rather than genes, according to a wide body of research.

...

James J. Heckman, a Nobel Prize-winning economist at the University of Chicago, even argues that spending on preschool ultimately pays for itself. Early childhood education is so important that it makes workers more productive and reduces crime....

Click the link above to go to the study. Now, while I don't want to mandate enrollment in preschool, I do like the idea of providing incentives for low-income families to send their children to preschool if they choose. Compared to a lot of government spending, this would be money well-spent, and I would gladly have my taxes increased by a small amount in order to provide those incentives. I would structure it as a voucher system so that people could choose the preschool program that best fits their needs and/or beliefs. In any case, I would not want to set up a system of public preschools. This is a market in which competition is working, and could work on a larger scale as well. We have a lively market for preschools in Macomb--some church sponsored, one university sponsored, and some private-nonreligious. Pick the one that suits you. We are fortunate in that regard. Not all communities have as many affordable options.

But it would be nice if more communities did.

This NY Times article is right. Watching Zimbabwe over the last few years has been like watching a tragedy in slow motion. You don't know exactly how it will end, but you know it will end badly. Here's the latest installment:

JOHANNESBURG, Feb. 6 — For close to seven years, Zimbabwe’s economy and quality of life have been in slow, uninterrupted decline. They are still declining this year, people there say, with one notable difference: the pace is no longer so slow.

Indeed, Zimbabwe’s economic descent has picked up so much speed that President Robert G. Mugabe, the nation’s leader for 27 years, is starting to lose support from parts of his own party.

In recent weeks, the national power authority has warned of a collapse of electrical service. A breakdown in water treatment has set off a new outbreak of cholera in the capital, Harare. All public services were cut off in Marondera, a regional capital of 50,000 in eastern Zimbabwe, after the city ran out of money to fix broken equipment. In Chitungwiza, just south of Harare, electricity is supplied only four days a week.

The government awarded all civil servants a 300 percent raise two weeks ago. But the increase is only a fraction of the inflation rate, so the nation’s 110,000 teachers are staging a work slowdown for more money. Measured by the black-market value of Zimbabwe’s ragtag currency, even their new salaries total less than 60 American dollars a month.

The article goes on, and I encourage you to read it all. Here is just one choice example of how things are going so very wrong:

Seeking to revive farm production, for example, the government sells gasoline to farmers at a bargain rate of 330 Zimbabwe dollars per liter — and farmers promptly resell it on the black market for 10 times that, leaving their fields idle.

The anecdotes coming out of Zimbabwe are beginning to sound like scenarios made-up for textbook examples, but they are not hypothetical. This is happening...right now...to real people.

And you just know it is going to get worse.

The FY 2008 Budget of the United States was released today. If you're in a hurry, here are the summary tables.

My initial read is that there is a good bit of wishful thinking in there. PGL (three posts so far)and Menzie Chinn have various things to say. (Chinn is also quoted in the Wall Street Journal.) I'll just say that what the government actually spends in FY 2008 is likely to be a lot different from what you read today given the current composition of the Congress. Furthermore, the forecasts of the deficit contained in the initial February proposal are seldom very accurate. Perhaps that is a subject worth revisiting later.

Felix Salmon is no longer blogging at Economonitor, but he's dishing up his usual commentary at his own place, felixsalmon.com. Update your blogrolls.