Beat the Press

Beat the Press is on the Move

2006-08-02T12:33:00.000-04:00

Beat the Press is moving to a better neighborhood. From this point forward you can find it at The American Prospect's website at: http://www.prospect.org/deanbaker/

Of course, if you want to keep reading the old posts, stay right where you are.

Cheap Tip

2006-07-30T07:35:00.000-04:00

Last quarter the markets were surprised by a stronger than expected number for personal consumption expenditures in March. I commented that the surprise was surprising because March personal consumption expenditures were embedded in the first quarter GDP data that had been released the prior week.

Here’s a chance to look for more surprising surprises. The consensus number for June personal consumption expenditures is an increase of 0.4 percent. My arithmetic puts the figure at over 1.0 percent. There is always the possibility of a substantial upward revision to the April and May data, but absent a large revision, June expenditures should come in much higher than “expected.” Will the markets be surprised?

Can You Say "Lower Profit Margins?"

2006-07-29T13:17:00.000-04:00

Apparently the reporters at MarketWatch can’t. An article noting the uptick in labor compensation reported in the second quarter Employment Cost Index reported that Fed Chairman Ben Bernanke said that higher labor costs need not lead to inflation, if they are offset by rising productivity. Well, in the very next sentence Mr. Bernanke also said that higher labor costs could be offset by lower profit margins:

"Whether faster increases in nominal compensation create additional cost pressures for firms depends in part on the extent to which they are offset by continuing productivity gains. Profit margins are currently relatively wide, and the effect of a possible acceleration in compensation on price inflation would thus also depend on the extent to which competitive pressures force firms to reduce margins rather than pass on higher costs."

But that part didn’t make it into MarketWatch. Thanks go to my friend Jared Bernstein for this tip.

House Moves to Boost Defenses Against Martians

2006-07-29T08:56:00.000-04:00

The House came up with the brilliant idea of linking the partial repeal of the estate tax with raising the minimum wage. In the words of West Virginia Representative Shelley Moore Capito, this linkage made sense because, “the sustaining of small businesses by keeping their vital assets will allow those making the minimum wage to continue working. This is a jobs bill.”

I’m sorry, this is nuts. Only a tiny percentage of small businesses will ever be liable for the estate tax and it is paid out after they are dead. It has no obvious effect on how they would operate their business. It is hard to see how cutting the estate tax will save even a single minimum wage job.

How could a reporter just put these words in print and not talk to an economist to get a comment on this statement? Surely any economist, regardless of their political leanings, would explain that a district in West Virginia is represented in Congress by a crazy person.

The Deflation of the Housing Bubble Continues

2006-07-29T08:37:00.000-04:00

The weak second quarter GDP numbers were driven in part by the housing sector as noted in the NYT. See also the separate piece on the housing market. In addition to the GDP data, the Commerce Department also released data on vacancy rates for the second quarter. The vacancy rate for ownership units hit a new record.

Cheap tip for the months ahead -- watch for credit card debt to soar. People who can't borrow against their homes, now that prices have stopped rising, will turn to credit cards. It isn't pretty, but that's what desperate people will do to hold onto their homes in a collapsing bubble.

The Inverted Yield Curve and Other Economic Fads

2006-07-28T21:35:00.000-04:00

Remember the inverted yield curve and the hoola hoop? A few months back, the prospect of an inverted yield curve was seen as an ominous warning sign of bad times ahead. An inverted yield curve was supposed to signal an upcoming recession. This seems worth mentioning now because the yield curve is becoming seriously inverted as long-term rates have edged downward, even as short-term rates remain relatively high.

For those who have better things to do with their time, an inverted yield curve refers to a situation in which short-term interest rates are higher than long-term interest rates. This reverses the normal course of events – typically investors expect to get a higher rate of return if they agree to lock up their money in a long-term bond or time-lock account rather than keeping it in a checking account where they can get immediate access. A few months back, as the Fed was raising short-term interest rates, without much increase in longer term rates, many market analysts raised the prospect that the yield curve would become inverted and that the economy would therefore sink into recession.

This discussion made for painful reading. There is no mysterious incantation that leads an inverted yield curve to do any special damage to the economy. The actual story here is rather simple. Inverted yield curves almost always (I say “almost” in case I missed one) come about because the Federal Reserve Board raises short-term interest rates in an effort to slow the economy and raise the unemployment rate. Sometimes the Fed goes too far and throws the economy into a recession. It is not the inverted yield curve that causes the recession; it is the fact that the Fed raised interest rates by too much. Whether the short-term rate stays 0.1 percentage point above or below the long-term interest rate cannot possibly make any difference when it comes to the probability of a recession.

With the 10-year Treasury bond rate hovering at 5.0 percent and the Federal funds rate at 5.25 percent, we might expect the inverted yield curve folks to be warning of impending disaster. However, this line is apparently no longer in fashion, or at least not in the business pages of the country’s major newspapers.

My other favorite recent fashion in economics dates back two years. In the summer of 2004, bond yields (interest rates) regularly fell on reports of higher oil prices. This was confusing to me since I’m an old-school type that tends to think that higher inflation is associated with higher interest rates, and higher oil prices mean higher inflation.

The economic fad of 2004 held out the opposite chain of causation. According to this story, rising oil prices pulled money out of consumers’ pockets, thereby slowing the economy. Since the economy was already slowing, the Fed would feel less need to raise interest rates.

This one never made much sense (don’t investors still care about the real return they get on their money?), but the story frequently appeared in the NYT and other papers. It also seemed to explain bond price movements at the time. Fortunately, this fad seems to have disappeared without a trace. Oil prices have shot through the roof in the last two years, and interest rates are …….. much higher. I am not surprised.

Adjust for Inflation -- Minimal Demand on Minimum Wage Reporting

2006-07-28T08:43:00.000-04:00

Reporters should always use inflation adjusted numbers when making comparisons of dollar values at substantially different points in time. A dollar is worth much less today than it was 20 or 30 years ago. While most readers may know this, they do not typically have ready access to the consumer price index tables, so they will not generally be able to adjust the numbers themselves.

Reporters, who write news stories for a living, do have the time to adjust numbers for inflation and should routinely do so in their news stories. This means that when an article tells readers that a bill in Congress will raise the minimum wage to $7.15 an hour in 2007, from 5.15 an hour at present, it would be helpful to tell readers that this is equal to approximately $5.32 in 1997 dollars, the year the last minimum wage hike took full effect. This means that minimum wage workers would get about a 3.0 percent increase in real wages from 1997 to 2007, if this bill was approved.

Medical Tourism: The Response to Protectionism

2006-07-27T09:31:00.000-04:00

If we use protectionist barriers to artificially prop up health care prices in the United States, then people go overseas for health care. It's extremely wasteful (it's much cheaper and better for people's health to have the medical procedures done here), but that is what happens when you have protectionism.

Confusion on “Free Trade”

2006-07-26T23:20:00.000-04:00

Several comments and e-mails on my last post on trade expressed confusion about restrictions on highly educated foreign workers in the United States. (There was one complaint about repetition – as long as the press repeats the error, I will repeat the complaint.)

These restrictions take two forms. The first is formal licensing restrictions. The highest paid professionals, like medicine, law, dentistry, and accounting all have licensing requirements. These requirements present a confusing patchwork (in most areas, each state has its own requirements) that makes it extremely difficult for foreign professionals to get licensed to practice their profession in the United States.

If we applied the same rules to these professions as “free traders” did to manufacturing, we would set a single national standard in each profession that would be based exclusively on legitimate health and safety considerations, just as the W.T.O. and other trade pacts require in the case of safety standards for manufactured goods. These standards would be fully transparent and the tests would be administered throughout the world (by U.S. certified officials) so that smart kids in India, China, or Mexico could as easily become certified to practice medicine or law in the U.S. as kids raised in New York. People who do not support this standardization of licensing requirements are protectionists, not free traders.

The second point relates to rules for hiring foreign workers (including those on H1B visas) more generally. If a university or newspaper wants to hire a foreign professor or journalist, it must claim that there were no qualified U.S. citizens (or green card holders) for the job. It cannot just say that it wanted to hire a foreign worker for a lower wage than U.S. workers demand, in the same way that Wal-Mart buys foreign-made clothes because they are cheaper than U.S. made clothes.

As a practical matter, this restriction is not tightly enforced. However, no one has tried to establish Wal-Mart universities or newspapers where they completely staff the institutions with foreign workers, who might be every bit as qualified as their U.S. born counterparts, but willing to work for half the wage.

I will pre-empt one silly response. The number of foreign reporters, university professors etc. who are trained to U.S. standards (including fluency in English) might be relatively limited today, but that is because they do not have an open door to work here. No one built textile factories in China to export to the U.S. until they knew that they had an open door for their exports. Similarly, you will not see millions of Chinese/Indians/Mexicans etc. train to work as reporters and university professors in the United States until they know the door is open to them. Again, real free traders support opening this door. Those who oppose opening the door (a group that includes the top trade negotiators in both the Clinton and Bush administrations) are protectionist. Let’s see how long it takes the reporters (who benefit from protectionism) to get the story straight.

I have a fuller discussion of this issue in the "Doctors and Dishwashers" chapter of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer, which is available as a free e-book.

Is the Housing Bubble Bursting?

2006-07-26T06:29:00.000-04:00

The latest numbers certainly show a slowing. Existing home sales are down by 10 percent from their peaks last year. Prices have stabilized on a year over year basis (down slightly after adjusting for inflation), and inventories are building. It is worth noting in the latest report that the inventory of unsold condos stood at 8 months of sales in the June report.

Also, it is important remember that the existing homes data refers to sales closed in June. Since it typically takes 6-8 weeks to close a contract, the June sales are most showing information about contracts signed in April and May.

The WTO is Not Free Trade

2006-07-26T06:12:00.000-04:00

It would be nice if reporters were forced to read what they write before it appears in the paper. What do they mean when they say “free trade?”

What makes increasing patent and copyright protection (an essential part of recent U.S. trade agreements) free trade? These are government granted monopolies. Isn’t that obvious? Yes, they serve a purpose in providing incentives for innovation and creative work, but ALL forms of protection serve a purpose, that doesn’t mean that they are not protectionism.

Also, it really is infuriating that reporters cannot recognize the protectionism that sustains relatively high salaries for professionals and reporters. If we had free trade for doctors, lawyers, accountants, etc. we would have standardized licensing requirements so that smart students anywhere in the world would have the same opportunity to train and get a job in these professions in the United States as a kid born in New York. Any economics reporter who thinks we have this situation now should be fired on the spot. Obviously, they have no idea what they are talking about.

Also, if we had free trade in reporters, I could start a newspaper and start filling its staff with smart, energetic reporters from developing countries who would be very happy to work for much lower salaries than the current staff. If we had free trade, I would not have to claim that I could not find a qualified citizen for these jobs. I could just say that I hired reporters from the developing world because they would work for less. This is illegal now and as a result, reporters earn higher salaries than would otherwise be the case. Again, if an economics reporter cannot understand how they benefit from this protectionism, they are not qualified for their job.

The Washington Post Doesn’t Believe in Market Incentives

2006-07-25T07:53:00.000-04:00

I was going to give this one a pass, since it’s a column in the Post Outlook section, not a news story, but even opinion pieces should be able to pass the laugh test.

The basic point of the piece is that the public and media are wrong to be concerned about the fact that researchers who do research and report findings, as well as the regulators who assess them, often get money from the drug companies that stand to make billions. The article assures us that these people are dedicated professionals, committed to bettering human life, who would not let money affect their behavior.

It’s great to know that the Washington Post would be willing to print a diatribe arguing that individuals act out of concern for society rather than for monetary gain – first socialist tract I’ve seen the Post since I’ve been in town.

Of course, if anyone really believed what the column argues, then we should just take the money out of drug research altogether. If the scientists are high-minded individuals who only act out of their desire to better humankind, then we can just give them standard government salaries and set them to work developing new drugs. There is no need for patents and the multi-billion dollar rewards that can go to lucky patent holders. I haven’t seen the piece arguing this position in the Post Outlook section, and I doubt that I will.

Is the Washington Post Editorial Board Angry at the Paper’s Inadequate Reporting?

2006-07-24T05:42:00.000-04:00

A Washington Post editorial this morning criticized efforts in Maryland and other states to force large employers (especially Wal-Mart) to pay for their workers’ health care. The article contrasted these efforts with the approach being followed in Massachusetts, which it asserts is “a state that is trying to responsibly address rising health-care costs.”

This is an interesting assertion. Massachusetts recently passed a law that required all its residents to have health insurance. There were some limited subsidies in the bill plus some restructuring of the insurance market, but there was nothing that would work in any obvious way to control health care costs, or at least nothing that was reported in the Washington Post.

So, if we believe (with the Post editorial) that there were important provisions for controlling health care costs in this bill, then we should be furious with the Washington Post for failing to report on them. Alternatively, we could believe that the Post editorial board is just making things up to support its case.

Cutting Back I.R.S. Enforcement Staff

2006-07-23T08:49:00.000-04:00

David Cay Johnston has a great piece in today's NYT reporting on the Bush administration's plan to halve the number of lawyers who audit estate tax filing. According to the article, these lawyers generate an average of more than $2,000 per hour of work in revenue for the government. This implies, that unless they are paid more than $4 million a year, the government will lose money by laying them off.

Is the Federal Government Going Bankrupt? Maybe it Should Stop Spending Money Publishing Scare Stories

2006-07-22T23:41:00.000-04:00

What would the long-term federal deficit look like if the cost of the country’s health care system continued to explode, so that in thirty years it costs four times as much per person as that of other rich countries? Well, if I had nothing else to do with my time, I might calculate these numbers.

Fortunately, I have a busy life, so I really don’t have a great deal of time for such trivia. Unfortunately, other economists are less busy and do calculate such trivia. Even more unfortunate is the fact that the St. Louis Federal Reserve Board publishes these calculations as though they are serious economics. However, the real problem is that columnists in the Times use this stuff to make the case for cutting Social Security.

The story here is real simple. The U.S. has a broken health care system. If it is never fixed, it will have a devastating impact on the economy. It will also lead to severe budget problems. Any competent economist/ reporter would see these projections as another way of demonstrating the need for national health care reform. They tell us nothing about the budget situation.

Bad Advice on Mortgages from the NYT

2006-07-22T17:45:00.000-04:00

The Sunday Times has an article reporting that many homebuyers who took out adjustable rate mortgages 3 years ago, are now refinancing to avoid higher mortgage rates. The article (actually the accompanying chart) also adds that many are refinancing with negative amortization loans, under which the outstanding principle increases through time. The chart tells readers that this could make sense, as long as house prices continue to rise.

Okay, let's check the numbers here. Three years ago, homeowners were taking out adjustable rate mortgages at rates in the neighborhood of 4.5 percent. Many are now resetting at rates that are 2.0 percentage points higher, or close to 6.5 percent. The article reports that the national average for adjustable rate mortgages is now 6.28 percent. Throw in fees of 0.5 to 1.0 percent and it's hard to find the savings. In other words, simply exchanging adjustable rate mortgages will not in general save homeowners any money.

Now, the point may be that homeowners are pulling more equity out of their home, taking advantage of the strong appreciation in many areas over the last three years. While, contrary to claims in the article, this doesn't save anything in terms of monthly payments (the payment on a larger mortgage will be higher, not lower), the additional cash can postpone a day of reckoning.

However, the risk in this case is really the exact opposite of what the article claims. The article reports that this strategy may make sense if home prices continue to climb. Actually, pulling out more equity can make much more sense if home prices fall. In that case, the mortgage holder is left with a mortgage that exceeds the value of the house. The homeowner can walk away turning over a house that may be worth much less than the amount of money he has borrowed. That might not be pretty, but it is what will happen in hundreds of thousands of cases across the country.

Housing Appraisals: The Accounting Scandal of the Housing Bubble

2006-07-22T10:41:00.000-04:00

Financial bubbles breed accounting fraud. Those of us who warned of the stock bubble in the late nineties were not surprised by the Enrons and WorldComs that surfaced when the bubble deflated. Bubbles make it possible to paper over all sorts of questionable accounting or outright fraud. When the bubble deflates, these practices can no longer be hidden.

The analogous problem in the housing bubble is with appraisals. The basic story is simple. Mortgage issuers make their money by issuing mortgages. Once the mortgage is issued they sell it to someone else (in many cases, the key figure is actually a broker who never holds the mortgage), so they have little interest in accurately assessing the quality of the mortgage. To get a mortgage issued, it is necessary to have a house appraised at a value that justifies the mortgage.

The issuer generally chooses the appraiser. Okay, suppose an appraiser comes in with a low number and the mortgage can’t then be issued? The issuer is very unhappy – no money here. The issuer then finds another appraiser, who will come in with a higher number for the value of the house. Appraisers, being intelligent people, come to realize that they don’t get jobs if they give low appraisals, so appraisers come in with high appraisals so that the mortgages can get approved. Everyone is then happy, until the bubble bursts.

The Wall Street Journal has a good piece on this topic today. It would have been nice if they had run this piece three years ago, before the damage had been done. But, maybe this can help stop the next financial bubble driven train wreck:)

The Problems of Protectionism: Another Prescription Drug Scandal

2006-07-22T09:32:00.000-04:00

In econ 101, we teach that when the government intervenes in a market to keep prices above marginal costs, it will encourage all sorts of undesirable and harmful rent-seeking behavior. This is one reason that all right-thinking economists are strong opponents of tariffs and quotas that can raise the price of things like shoes, shorts, and steel by 20-30 percent above the competitive market price.

Given what we teach in econ 101, it is very difficult to explain why economists are not more concerned about things like patent protection for prescription drugs. This form of protectionism raises the price of drugs by several hundred percent, or even several thousand percent, above the marginal cost of production. Drugs that would sell for $20-$30 a prescription in a competitive market often sell for $300-$500 per prescription when they have patent protection.

When the government creates this sort of opportunity for large rents, economic theory tells us to expect corruption. The NYT gives an interesting account of one way such corruption occurs. A New York doctor was arrested in March for promoting “off label” uses of a prescription drug.

The basic point here is that drug companies have to get the FDA to approve their drugs for specific uses. The FDA assesses the effectiveness and safety of the drug for the purposes that the company wants it to be prescribed. Drug companies can then promote their drug, subject to required warnings, only for the uses that the FDA approves. However, doctors are free to use their judgment to prescribe a drug for other “off label” purposes, if they believe it is appropriate for these purposes.

This is the problem. Drug companies make enormous profits when they sell more drugs at huge mark-ups. While they cannot legally promote their drug for any purpose other those explicitly allowed by the FDA, they can of course dispense information about new research on their drug. Hence the story of the doctor being arrested for promoting off label uses. He was getting large fees from a drug company to give talks about the off label use of its drug.

I know nothing about the issues in this case other than what appears in the NYT article. But, as a believer in the market, when it comes to government bureaucrats trying to restrict such health endangering practices, versus the pharmaceutical companies that stand to make billions, my money is on the pharmaceutical companies. Of course, if economics were an honest profession, there would be many more economists yelling about the inefficiency and corruption that result from patent protection in the pharmaceutical industry, than the losses from a 10 percent tariff on textiles.

Shame and Pain: The "Medicare and Social Security" Line Again

2006-07-20T05:51:00.000-04:00

I believe that the Washington Post has a copyright on combining the words "Medicare" and "Social Security" in a single sentence. Anyone who writes on these issues on their editorial pages always seems to do it.

Again folks, the numbers are real clear. Medicare is a big problem because U.S. health care costs are projected to explode, which means that Medicare costs will explode. The moral is fix the health care system. Social Security is not a problem. The story on aging is not very different in the future than in the past. We are living longer, that has always been true.

I assume that some of the editorial and op-ed writers actually do look at the projections occasionally. This makes you wonder why they are so insistent on ignoring the projections when they discuss these issues.

The Washington Post’s Happy Face Version of the Fed

2006-07-19T10:33:00.000-04:00

There is plenty of room to debate what the Federal Reserve Board’s monetary policy should be, but the necessary prerequisite for a serious debate is the knowledge of how monetary policy works. Readers of the Post would be badly misled on this topic by an article in today’s paper.

The article correctly reports that the Fed adjusts interest rates to prevent inflation from getting too high, explaining that “when inflation is a concern, it raises borrowing costs to cool economic growth, which weakens businesses' power to raise prices.”

Well, not exactly. The immediate target of the Fed’s anti-inflation policy is wages, not prices. In fact, many macro-models have prices being a fixed mark-up over wages, which implies that the only way to control prices is to control wages. The Taylor rule, the standard guidepost for Fed policy, is based in part on the gap between a definition of full employment (the non-accelerating inflation rate of unemployment) and the current level of unemployment.

This isn’t being picky. The point is that the Fed slows inflation by raising the unemployment rate and throwing people out of work, thereby placing downward pressure on the wages of those who still have jobs. Disproportionately, the people who lose jobs tend to be less-skilled workers – manufacturing workers, sales clerks and custodians, not doctors, lawyers, and economists. The people who the Fed throws out of work are also disproportionately black and Hispanic.

People can agree with Fed policy and think that controlling inflation is worth the cost in terms of higher unemployment and lower wages for these workers. However, we should not airbrush the picture. People will suffer for the Fed’s decision to raise interest rates, and it will not be just businesses that have less ability to raise prices.

NYT Discovers "Ghetto Tax"

2006-07-19T05:35:00.000-04:00

The NYT had a good article this morning highlighting a new Brookings report that details how people living in inner city areas often pay far more for goods and services than people living in more affluent areas. The report is worth reading and the NYT gets credit for calling attention to it.

Unfortunately, the report suffers from a serious lack of imagination in its proposed remedies, highlighting greater public-private cooperation in bringing lower cost services to the poor. I have nothing against cooperation, but I always worry that these efforts end up being more of a subsidy to the industries involved than the poor people that they are supposed to help. My model nightmare is the accounts established to receive electronic payments from the government (e.g. disability or veterans benefits) for low income people. They cost the government a great deal in subsidies to the financial industry, and do very little for their intended beneficiaries.

In some cases, I prefer good old fashioned competition. Suppose the government set up postal banking systems (similar to those existing in many European countries) that could provide basic banking services to the poor at a minimal charge. (The government could even contract with a private company to actually provide the service.) This way, people in the inner cities would all have a low-cost option. If they would rather go with the private sector alternatives, then that's fine. The same could be done with car insurance, home insurance, and especially retirement accounts. If the private sector really is more efficient, then they should have nothing to fear.

Drug Companies Gone Wild: Medicare Part D

2006-07-18T05:14:00.000-04:00

The NYT had a very good piece about how the shift of 6 million Medicaid beneficiaries into the Medicare drug benefit program may increase drug company profits in 2006 by $2 billion. According to the article, under the new program the drug companies get to sell the same drugs at higher prices. It doesn't get much better than this!

Monopolies Breed Corruption: Medical Supplies Industry

2006-07-17T05:42:00.000-04:00

The NYT had a good piece this morning reporting on how the medical supply industry pays top hospital executives thousands of dollars for advice on how to market their products. This is what you expect to happen when government patent monopolies allow these firms to sell their products at prices that are several hundred percent above the free market price.

NPR Doesn't Believe in Markets

2006-07-17T05:28:00.000-04:00

NPR had a piece this morning warning of a shortage of agricultural workers in California. It reported that some crops may rot in the field, if farmers there can't get more workers by the end of the summer.

Those of us who believe in markets would suggest that the farmers try raising wages. It is possible that some of the crops being farmed now in California would not be profitable, if farmers had to pay the wage necessary to attract workers in the current market (or if they had to pay the market price for water). In a market economy, that means that the farmers made bad choices on crop choices.

That's unfortunate for the farmers, but that's how markets work. I would like to be able to get a lawyer for $20 an hour, but because we have a lawyer shortage, that is not an option. Maybe NPR will be able to find some folks who understand markets to help with their reporting on economic issues.

Soviet Style History in the New York Times

2006-07-16T22:45:00.000-04:00

Back in the days of the Soviet Union, key facts were often excluded from historical accounts in order not to put the regime in a bad light. The NYT seems to be experimenting with this journalistic style.

Today’s article on the G-8 summit in St. Petersburg included a passing reference that described Russia’s 7-year long economic recovery as “oil-fueled.” Well, the rise in oil prices certainly has helped Russia over this period, but it is probably at least as important that Russia abandoned the economic straightjacket that had been imposed on it by the I.M.F. and then U.S. Treasury Secretary Robert Rubin (with help from his deputy Larry Summers).

Until the summer of 1998, Russia had tied its currency to the dollar. In order to sustain this link, it was forced to raise interest rates to ever higher levels. The over-valued ruble, coupled with high interest rates, was strangling Russia’s economy, bringing growth to a halt. The I.M.F. and the U.S. Treasury both insisted that Russia maintain the link to the dollar at all costs.

This eventually proved impossible, and the Russian government allowed its currency to float and deferred payment on its foreign debt. The pundits and the media pronounced this to be a disaster and insisted that Russia’s economy would crumble. (Read Rubin’s book to get the consensus opinion.)

There was a financial collapse, and Russia’s economy did tumble downward for the rest of the year. But by the beginning of 1999, Russia’s economy began to grow again and has been growing rapidly ever since. In this case, the real danger was the medicine coming the I.M.F. and U.S. Treasury. Once Russia began to ignore their recommendations, its economy performed quite well.