Current Affairs

Painted into a corner?

by on May 24, 2013 at 9:21 pm in Current Affairs, Economics, Political Science, Uncategorized | Permalink

According to the BoJ [Bank of Japan], a 100 basis-point increase in interest rates across all maturities would lead to mark-to-market losses equivalent to a fifth of tier one capital for regional banks, and 10 per cent for the major banks.

At the same time, rising interest rates could undermine the government’s attempts to improve its own finances, precipitating a fiscal crisis.

Here is further FT coverage.  The general point is that very often we — correctly or not — are more willing to live with the distributional consequences of lower inflation than of higher inflation.  (This topic should be the subject of dozens of public choice papers, although I don’t from my vantage point see the flow.)  The Japanese effort at “Abenomics” may already be faltering, but for political rather than economic reasons.  And the elderly defenders of gerontocratic deflation haven’t even spoken up yet, if only because Japanese prices have not yet started to rise.  Keep in mind that Japan has had a lot of political stagnation too, and that is not an accident which can easily disappear overnight.

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The most provocative, fascinating, and bizarre piece I read today

by on May 22, 2013 at 2:31 pm in Current Affairs, History, Political Science | Permalink

The author is Ron Unz, and the topic is what the media chooses to cover or not.  His thoughts run in directions very different than mine (I favor invisible hand mechanisms to a much greater degree, for one thing), but here is the essay.

It is entitled “Our American Pravda.”  It is difficult to summarize.  Maybe some parts of this essay are totally, completely wrong, so I urge you to read it with caution.  But still I thought it was worth passing along; if nothing else you can read it as a study in how a situation can look “very guilty” even if perhaps it is not.

One excerpt is this:

These three stories—the anthrax evidence, the McCain/POW revelations, and the Sibel Edmonds charges—are the sort of major exposés that would surely be dominating the headlines of any country with a properly-functioning media. But almost no American has ever heard of them. Before the Internet broke the chokehold of our centralized flow of information, I would have remained just as ignorant myself, despite all the major newspapers and magazines I regularly read.

Am I absolutely sure that any or all of these stories are true? Certainly not, though I think they probably are, given their overwhelming weight of supporting evidence. But absent any willingness of our government or major media to properly investigate them, I cannot say more.

However, this material does conclusively establish something else, which has even greater significance. These dramatic, well-documented accounts have been ignored by our national media, rather than widely publicized. Whether this silence has been deliberate or is merely due to incompetence remains unclear, but the silence itself is proven fact.

The original pointer came from @GarethIdeas, who describes the piece as “totally fascinating.”

129 comments

The ABCs of Bitcoin Secrets

by on May 21, 2013 at 10:20 am in Current Affairs, Science | Permalink

You may perhaps have heard of the intriguing mathematician Shinichi Mochizuki who has produced an alleged proof of an important theorem that is so difficult and involves the creation of so much original mathematics and notation that no one is sure whether the proof is valid. Here is one description:

On August 31, 2012, Japanese mathematician Shinichi Mochizuki posted four papers on the Internet.

The titles were inscrutable. The volume was daunting: 512 pages in total. The claim was audacious: he said he had proved the ABC Conjecture, a famed, beguilingly simple number theory problem that had stumped mathematicians for decades.

Then Mochizuki walked away. He did not send his work to the Annals of Mathematics. Nor did he leave a message on any of the online forums frequented by mathematicians around the world. He just posted the papers, and waited.

…The problem, as many mathematicians were discovering when they flocked to Mochizuki’s website, was that the proof was impossible to read. The first paper, entitled “Inter-universal Teichmuller Theory I: Construction of Hodge Theaters,” starts out by stating that the goal is “to establish an arithmetic version of Teichmuller theory for number fields equipped with an elliptic curve…by applying the theory of semi-graphs of anabelioids, Frobenioids, the etale theta function, and log-shells.”

This is not just gibberish to the average layman. It was gibberish to the math community as well.

“Looking at it, you feel a bit like you might be reading a paper from the future, or from outer space,” wrote Ellenberg on his blog.

“It’s very, very weird,” says Columbia University professor Johan de Jong, who works in a related field of mathematics.

Mochizuki had created so many new mathematical tools and brought together so many disparate strands of mathematics that his paper was populated with vocabulary that nobody could understand. It was totally novel, and totally mystifying.

But there may be more secrets, secrets upon secrets because Ted Nelson has recently argued that this same mathematician, Shinichi Mochizuki, is also the elusive Satoshi Nakamoto who unleashed bitcoin on the world and then disappeared. Now this is almost too delicious to be true so take it with more than a grain of salt. Mochizuki, for example, has bona fides as a mathematician but he does not appear to have a record of sophisticated software creation. But if true, this would be awesome.

Hat tip: Barry Klein

21 comments

When oh when will Henry George make a comeback?

by on May 20, 2013 at 12:24 pm in Current Affairs, Economics | Permalink

Mr. Tyler’s entire home was only 78 square feet. And while his “Midtown mansion,” as he called it, was a far cry from the lavish town homes and shimmering penthouses that have spawned a thousand lustful television shows, a video tour posted on YouTube of Mr. Tyler’s little room has been viewed nearly 1.7 million times over the past year and a half. A similar video, about a 90-square-foot apartment on the Upper West Side, has been viewed even more times.

Or how about this?:

“I think there’s a lot to be said for utilizing a small space, but I literally saw somebody advertising a 5-foot by 7-foot closet,” said Ryan Nethery, 25, a cinematographer and Kentucky native who started the blog during his own apartment search. “The post read, ‘my bedroom has two closets and I don’t need one of them. Looking to rent it out.’ ”

That ad, accompanied by a small picture that included a visible clothing rod, boasted a Union Square location and asked $1,000 per month. Other posts include a $600 crawl space in South Williamsburg and a gray, L-shaped sofa, which appeared to be in the center of somebody’s living room, for $700 per month.

Here is more.

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U.S. clothing chains do not support pact on Bangladesh reforms

by on May 16, 2013 at 1:39 pm in Current Affairs, Law | Permalink

From Brad Plumer:

Nearly all U.S. clothing chains, citing the fear of litigation, declined to sign an international pact ahead of a Wednesday deadline, potentially weakening what had been hailed as the best hope for bringing about major reforms in low-wage factories in Bangladesh.

Companies including Wal-Mart, Gap, Target and J.C. Penney had been pressed by labor groups to sign the document in the wake of last month’s factory collapse in Bangladesh that killed at least 1,127 people. More than a dozen European retailers did so. But U.S. companies feared the agreement would give labor groups and others the basis to sue them in court.

…Wal-Mart reiterated Wednesday that it would not sign the accord at this time, because it “introduces requirements, including governance and dispute resolution mechanisms, on supply chain matters that are appropriately left to retailers, suppliers and government, and are unnecessary to achieve fire and safety goals.”

…Most U.S. companies, however, balked at the language in the accord. Some said it would would expose them to excessive legal liability — particularly in America’s litigious courts. Written by labor groups, the agreement would require retailers who source clothing from Bangladesh to commit to pay for inspections, building upgrades and training — all enforced by binding arbitration.

Here is more.  Most likely, the damage done to Bangladesh will continue.  Note that the prospect of successful litigation was not what drove FDI into the 19th century United States, or twentieth century Singapore, to the point where wages rose significantly.

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Have we seen self-defeating austerity in the United States?

by on May 16, 2013 at 6:12 am in Current Affairs, Economics, Uncategorized | Permalink

Everyone has been talking about the revised CBO deficit forecast, which suggests the short-term U.S. fiscal picture is more favorable than had been realized.  It can be said that in the short- to medium-term, the deficit is no longer an issue (in my view that was the case anyway, but that is a different story.)

But I am puzzled as to how the whole story is supposed to fit together, at least from an Old Keynesian perspective.

For instance, we have been told that the United States has been engaged in a good deal of fiscal austerity in the last few years.

We also were told that fiscal self-austerity was quite possibly self-defeating (or here, pdf) or at the very least fairly close to self-defeating.  That is, it would make budget balance harder rather than easier.

The amount of attention, and the fervor of the rhetoric, also suggest that this was seen as a major issue, not one minor to moderate factor with seven other significant confounding factors operating on top of it.  Admittedly this latter point is more of a subjective impression, but I believe many people have shared it.

OK, now here goes the potential story.  We did fiscal austerity, it was self-defeating, that was a major factor, and we ended up in…a better budget situation than we had been expecting?

It is fine to say “our budget situation could have been better yet,” but then the fiscal austerity story then seems to collapse into one factor among many confounding factors.  Which is fine by me, but it is not the story we seem to have been receiving.

I am myself comfortable arguing something like “when underlying fundamentals are sound, and/or there is monetary accommodation, an economy can withstand fiscal consolidation just fine.”  That is simply a more specific variant of the above.

Another “way out” is to question whether “austerity” is always to easy to measure, given the associated modalities and baselines involved in its current definitions, and given the multiple dimensions of fiscal policy, and so perhaps the degree of austerity has not been nearly as high as we were told.  I can buy that too, but still it would be news to the Old Keynesian accounts we have been reading.

So what’s up?

102 comments

Our improving short-term budget picture

by on May 15, 2013 at 1:44 pm in Current Affairs, Economics | Permalink

You will find summaries here from Annie Lowrey and also Ezra Klein.  I like Ross Douthat’s remarks:

…almost nobody is willing to break out the champagne on these estimates. The Keynesians think our shrinking deficit is a sign of the White House’s foolish surrender to austerity at a time when the economy still needs more government spending, not less, to achieve real lift-off. The deficit hawks think a dropping deficit will only encourage Washington’s fatal short-term thinking, by persuading policymakers to ignore the still-yawning gap between our long-term commitments and our revenues. Conservatives don’t like the extent to which we’re taxing our way to temporary fiscal stability (some of the unexpected deficit reduction reflected high-income tax filers paying extra for 2012 to avoid higher rates for 2013), while liberals have reason to fret that the White House’s “fiscal cliff” strategy squandered an important opportunity to raise upper-income taxes even more. And anyone who worries about the American political system’s ability to do structural reform can’t be that encouraged by the path we’ve taken to this point – the crude cuts to discretionary spending that leave entitlements untouched, the higher marginal tax rates rather than a rate-lowering, deduction-capping tax reform, and of course the general inability to compromise in the absence of artificial deadlines and self-created crises.

I don’t drink champagne but I’ll break out the dark chocolate instead.  One way to put it is that “yapping” — on all sides of the political spectrum — is overrated, most of all by the yappers themselves.

A slightly different take would be this.  Voters are getting more or less what they want, which is some spending restraint, mostly holding the line on taxes, not too much trust in government as a way of moving forward, and a love of entitlements.  One can find that objectionable, and indeed I do across a number of fronts, but there you go.  We are not going to elect a new people anytime soon, and in this odd sense you can see all the recent political gridlock as reasonably democratic, more so than its critics would like to admit (I know I’ll generate a bunch of criticisms citing poll data about how Americans really want this, that, or the other but I’ll hold my ground on this one).  Relative to the quality of the preference inputs, we are getting a better outcome than one might otherwise have expected.  After all, isn’t that what this country is really all about?  We may not have the world’s best farinata, but let’s raise a toast to America once again.

37 comments

Stereotyping in Europe

by on May 14, 2013 at 6:23 am in Current Affairs, Data Source, History | Permalink

stereotyping

Each column is interesting, for instance read down for “Most Compassionate.”  It’s funny how many individuals do the same for themselves, I might add, in what has to be one of the simplest and most common of all intellectual mistakes.

Those results are from the new Pew report, summarized by David Keohane here.  The French are growing increasingly disillusioned with the European project, and on key questions the French see the world as the Italians or Spanish do, not the Germans.  And there is this: “The report also takes down a few German stereotypes. Apparently, Germans are among the least likely of those surveyed to see inflation as a very big problem and the most likely among the richer European nations to be willing to provide financial assistance to other European Union countries that have major financial problems.”

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The decline in public investment at the state and local levels

by on May 8, 2013 at 7:04 am in Current Affairs, Data Source | Permalink

Matt Yglesias has the scoop, and here is his chart:

investmentdecline

You can think of that as another way of viewing the lost economic decade of the oughties.

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What have been the results from Jamaican fiscal policy?

by on May 7, 2013 at 4:25 am in Current Affairs, Economics | Permalink

Here is the update:

Over 40 years, Jamaica has been “rescued” on countless occasions. In the 1980s, the island became almost a byword for “structural adjustment”. Jamaica is one of the most indebted countries, spends twice as much on debt repayments as it does on education and health combined, and looks set to miss several millennium development goals (pdf). After four decades of austerity, the country has a few lessons for the likes of Greece, Portugal and Ireland.

The IMF has announced a $1bn (£650m) loan to “help” Jamaica meet huge debt payments due in coming years. As usual, the loan is to be accompanied by four years of austerity – precise details still pending, though a pay freeze, amounting to a 20% real-terms cut in wages, has been agreed.

This austerity will be applied to an economy that has effectively not grown since 1990. Huge debt has been a constant burden, with foreign debt payments of more than 20% of government revenue every year. When the financial crisis hit, the island was pushed into full-scale recession, before being pounded by Hurricane Sandy last year.

It seems nothing good is pending, economic growth is negative, and the debt to gdp ratio is 143%.  I take it we can agree this is one case where stimulating nominal demand will not bring much in the way of dividends?  Do we agree?  Last year the inflation rate was over ten percent and the (nominal) exchange rate hit new lows.  Do note the country ran a primary surplus last year and is attempting to move toward a balanced budget, so does anyone wish to pin this mess on fiscal austerity?  Or is their austerity and its observed failings a symptom of other policies which went badly wrong?

The measured government budget deficit is about 6.1% of gdp, but I suspect if you start the calculation in 1990, in “cyclically adjusted terms” Jamaica will appear to be running a huge surplus and a very tight fiscal policy.  After all, I do see unemployment estimates in the range of 13 to 14 percent.  Isn’t that a classic sign of deficient aggregate demand?

I do wonder if we can agree on this case.  And if we agree on this case, which more general lessons might we draw about the difficulty of inference from data…?

Addendum: This is a post about Jamaica and also about macroeconomic inference.  If you are tempted to write a post in response, criticizing me on the grounds that I am postulating a historical equivalence between the United States and Jamaica, or if you try to cover your tracks with semantics, by suggesting that I am “implying” such an equivalence, or implying some other mistake, or if you are committing any number of other fallacies or equivocations in response to this post, put on the dunce cap and go to the back of the class.  Please consider this a general warning to be attached to everything written by me on this site.

Extra: Ashok Rao offers good commentary on Jamaica (and India).

45 comments

More on Apprenticeships

by on May 6, 2013 at 6:03 am in Current Affairs, Economics, Education | Permalink

A very good piece on apprenticeships from Stuart E. Eizenstat and Robert I. Lerman:

…firms interested in investing in the United States are finding too few workers with the skills needed to achieve the productivity and quality required in today’s globally competitive industries. The skills gap is real… U.S. unemployment remains at 7.5 percent, and only one out of two African American men in their early 20s has a job. A survey of employers published last year revealed that about 600,000 jobs go unfilled because of a lack of skilled labor….The central answer to the mismatch between jobs and employment is a 21st-century apprenticeship program.

…Although apprenticeships yield significant earnings gains for workers, this country has too few programs, partly because of the massive bias in public spending toward a college-only approach. Government spending on colleges and universities tops $300 billion per year; outlays to apprenticeship programs total less than $40 million annually. A public-private initiative could increase competitiveness and youth employment, upgrade skills and wages, achieve positive returns for employers and workers, and reduce government spending if companies played a larger role in skills development.

As I said in Tuning in to the Dropping Out:

Why should a major in English literature be subsidized with room and board on a beautiful campus with Olympic-size swimming pools and state-of-the-art athletic facilities when apprentices in nursing, electrical work, and new high-tech fields like mechatronics are typically unsubsidized (or less subsidized)? College students even get discounts at the movie theater; when was the last time you saw a discount for an electrical apprentice?

81 comments

Japan, again, better than ever

by on May 5, 2013 at 2:59 pm in Current Affairs, Economics, Music | Permalink

Kanon Mori, Yuki Sakura, Hinako Kuroki and Jun Amaki have been following the Nikkei 225 stock average obsessively since Prime Minister Shinzo Abe took office in December. The oldest of the foursome is Mori, but she is still only 23. The youngest is Kuroki, 16 and still in high school.

None of them are studying for a degree in economics, let alone playing the stock market. Instead, the four are members of a new idol group, Machikado Keiki Japan, and stocks play an important part in their performances.

“We base our costumes on the price of the Nikkei average of the day. For example, when the index falls below 10,000 points, we go on stage with really long skirts,” Mori explained.

The higher stocks rise, the shorter their dresses get. With the Nikkei index ending above 13,000, the four went without skirts altogether on the day of their interview with The Japan Times, instead wearing only lacy shorts.

While some have raised eyebrows over the group’s daring concept, Mori explained that they are merely letting the economy take charge of how they dress — mimicking economic trends of the past.

…Machikado Keiki Japan (roughly translated as Economic Conditions on the Streets of Japan) released their debut single, “Abeno Mix,” on April 7. It pays homage to Abe’s ultraloose economic policies that have been dubbed “Abenomics” by the media.

“Fix the yen’s appreciation. Quantitative easing. Don’t forget public investment,” a line in the dance-pop tune goes. “Monetary easing. Construction bonds. Let’s just revise the Bank of Japan Law.”

The group’s fans — who not surprisingly are 95 percent male, from high school to their 50s — have special chants that they perform during the song’s interlude.

The article is here, and for the pointer I thank @ElRob.

13 comments

American Austerity (and Growth)

by on May 3, 2013 at 1:06 pm in Current Affairs, Data Source, Economics | Permalink

Austeritygraph

The red line in the chart above is Paul Krugman’s preferred measure of austerity, the ratio of overall government expenditure to potential GDP. The idea of potential GDP has plenty of problems and biases but I want to be more than fair. In his post on American Austerity Krugman warns:

 the truth is that federal stimulus is years behind us, while state and local governments have cut back, so the overall story is one of fiscal contraction that’s smaller than in Europe, but not by that much.

…Spending is down to what it was before the recession, and also significantly lower than it was under Reagan. Bear in mind that in the years since the recession began we’ve seen a significant number of boomers reach retirement age, which would ordinarily have led to rising spending, not to mention the effects of rising health care costs. Bear in mind also that the private sector is still deleveraging, which means that government should be spending more to help sustain the economy. So this is actually a picture of very bad policy. (emphasis added)

I assume that by very bad policy what Krugman means is a policy that is likely to have very bad effects. Hence, I have added to Krugman’s graph the growth rate of real gdp (annual rate). I don’t see the very bad effects. In the 1990s growth was strong even while “austerity” was increasing (falling red line) [as this sentence appears to be driving people mad do note that it is a factual description of the data from which I do not draw a conclusion]. More recently, we have seen a big increase in austerity according to Krugman and his measure but although there has been no boom, growth has remained modest. As Justin Wolfers tweeted this morning with the strong jobs report, “the recovery has been remarkably persistent, and resilient,” albeit not rapid. Scott Sumner argues that this is bye, bye Keynesian multiplier as monetary policy stands triumphant (also here) which is one possible interpretation.

106 comments

Izabella Kaminska’s counterintuitive model of the modern world

by on May 3, 2013 at 3:39 am in Current Affairs, Economics | Permalink

1) Because of the safe asset problem there is a diminishing return — or even negative return — to QE at some point. In fact, rather than being inflationary, it becomes deflationary.

2) Interest on reserve policy is actually designed to counteract this deflationary — and negative rate inducing — effect. In fact, IOER, or the ability to hold reserves at the central bank for no negative interest cost, shows that central banks are effectively supporting short-term rates rather than depressing them. If not for the ability to hold reserves at the central bank, then rates could very well be negative.

3) The crisis is in many ways a deposit crisis not a debt crisis. There are simply too many deposits seeking principal protection and not enough safe assets to protect against capital destruction by negative rates.

4) Negative rates are a function of global abundance (brought on by technological advances), and a trend that cannot be stopped even by the strongest central bank — unless society regresses backwards (like many goldbugs would seemingly desire). For rates to stay positive we have to hoard almost everything in the world form the people that need it, if it is to have value. The artificial scarcity tactics that have been used through the ages to achieve this, are getting harder to execute because of technological liberation — which is enabling the emergence of collaborative economy which bypasses rates of return.

5) Central banks taking charge of digital money and issuing it directly to consumers is one way to ensure deposits can always be protected from negativity.

6) Value in the capital system, and our definition of growth, is very likely being transformed as a result.

7) Greater efficiency and abundance may also eventually lead to the end of arbitrage.

Here is more.  You will find that differs from the perspectives usually expressed here (most of all #4), but it is always good to pass along contrasting points of view.

25 comments

The MRUniversity course on Mexico

by on May 2, 2013 at 11:04 am in Current Affairs, Economics, Education, History | Permalink

With President Obama visiting Mexico today, I thought I would remind you all that the excellent Robin Grier is teaching this course over at MRUniversity.com.  It is called Mexico’s Economy: Current Prospects and History.

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