Current Affairs

Tweets to ponder

by on June 29, 2015 at 10:58 am in Current Affairs, Economics | Permalink

The main euro Q is whether the problem is Greece (so kicking them out solves problem) or is misaligned exch rates (so someone will be next)

That is from Austan Goolsbee.

The Chinese stock market is tanking again, down more than seven percent today, seventeen percent or so over the last three days.  Read David Keohane.

Puerto Rico isn’t going to pay up, and they announced this through the NYT.

Utrecht is going to experiment with a basic income scheme.

Central Russian officials crack down on yoga to limit the spread of occultism.

If you put Greek total debt in perspective, it’s smaller than that of many other EU nations, including Portugal.  And that is as a percentage of gdp.  Furthermore most of the remaining Greek debt is held by public sector institutions.

The difference of course is that Greece is being run by The Not Very Serious People.  Portugal is often described as the next weakest link in the eurozone, but Portuguese politics are not nearly so…vivid.  The amount of fiscal consolidation they have done is more or less accepted by the public.  That makes Portugal more likely to survive, and it also makes the EU more willing to bail out Portugal, and extend any bailout if needed.

The performance of Syriza won’t encourage European voters to take chances on other less tested, left-wing parties, and that also militates against contagion.

(In the meantime, I don’t understand why Anglo-American left-wing intellectuals have been egging on the Syriza performance.   Even if you think the current mess is mostly Germany’s fault in normative terms, the marginal product of the Syriza government still has been catastrophically negative.  It wasn’t long ago that Greek banks were raising fresh equity and were said to have recovered.  Here is Krugman’s defense, I find Anders Aslund more persuasive, furthermore Grexit would mean more austerity not less.)

For contagion, here are a few possible problems:

1. If Greece does reasonably well after Grexit, many others will ask why should they not follow suit and that could turn into a self-fulfilling prophecy.  I’ll bet against that, but it’s worth mentioning.  It also would take a while to develop.

2. As Greece exists, the ECB has to express  a strength of commitment to the other debt-ridden nations.  Delivering the right message is tricky here, because for legal and public opinion reasons the ECB cannot make the kind of unconditional commitments the Fed can.  So markets might become unhappy with the decline in creative ambiguity at the ECB.  I believe the ECB can finesse this one — in essence the message “we’ll help any EU government which is more responsible than Syriza” is fairly credible and in fact is already being signaled by the Eurogroup.  So I’ll bet against this problem too, but still it could happen.

3. If only for geopolitical and also humanitarian reasons, the EU cannot wash its hands of Greece, even if Greece leaves the EU.  But deciding how to deal with Greece might bring considerable disagreements among the remaining eurozone nations, as might the attempt to spell out exit procedures.  Festering, emotional issues are not good for dysfunctional political unions, and a lot of the “hold the line” solidarity might melt away with Grexit.

4. There might be a very slow form of contagion as the reversibility of the currency union becomes better and better known and people start seeing it as little more than a currency board arrangement.  As with #3, that could become an ongoing problem, still it doesn’t quite seem dramatic enough to produce rapid contagion.

Here is my previous post on the topic.  Robin Wigglesworth surveys a variety of differing views on contagion and other short-run effects.  I wrote this post last night, so if I am wrong it might already be evident by now.

1. GDP growth of 7% w/profit growth of 0.6%=really bad managers or 2. GDP growth not really 7%. Choose 1 or 2

That is from Christopher Balding.  Let’s not forget that the Greece story may end up as relatively small by comparison.

In our textbook, Tyler and I write:

Farmers use the subsidized water to transform desert into prime agricultural land. But turning a California desert into cropland makes about as much sense as building greenhouses in Alaska! America already has plenty of land on which cotton can be grown cheaply.  Spending billions of dollars to dam rivers and transport water hundreds of miles to grow a crop which can be grown more cheaply in Georgia is a waste of resources, a deadweight loss. The water used to grow California cotton, for example, has much higher value producing silicon chips in San Jose or as drinking water in Los Angeles than it does as irrigation water.

In Holy Crop, part of Pro-Publica’s excellent, in-depth series on the water crisis the authors concur:

Getting plants to grow in the Sonoran Desert is made possible by importing billions of gallons of water each year. Cotton is one of the thirstiest crops in existence, and each acre cultivated here demands six times as much water as lettuce, 60 percent more than wheat. That precious liquid is pulled from a nearby federal reservoir, siphoned from beleaguered underground aquifers and pumped in from the Colorado River hundreds of miles away.

…Over the last 20 years, Arizona’s farmers have collected more than $1.1 billion in cotton subsidies, nine times more than the amount paid out for the next highest subsidized crop. In California, where cotton also gets more support than most other crops, farmers received more than $3 billion in cotton aid.

…If Arizona’s cotton farmers switched to wheat but didn’t fallow a single field, it would save some 207,000 acre-feet of water — enough to supply as many as 1.4 million people for a year.

…The government is willing to consider spending huge amounts to get new water supplies, including building billion-dollar desalinization plants to purify ocean water. It would cost a tiny fraction of that to pay farmers in Arizona and California more to grow wheat rather than cotton, and for the cost of converting their fields. The billions of dollars of existing subsidies already allocated by Congress could be redirected to support those goals, or spent, as the Congressional Budget Office suggested, on equipment and infrastructure that helps farmers use less water.

“There is enough water in the West. There isn’t any pressing need for more water, period,” Babbitt said. “There are all kinds of agriculture efficiencies that have not been put into place.”

The consumers, most of all.  But how about amongst the workers?  I think you have to slot French taxi drivers under “don’t benefit.”  And otherwise?  That is the topic of my latest New York Times column for The Upshot:

On the positive side, the so-called sharing economy allows workers to use their time more flexibly. Drivers can earn money without working full time, and without having to wait around at taxi stands for the next passenger. The workers can use their newly acquired spare time for other purposes, including studying for college, teaching themselves programming or simultaneously offering themselves out for different sharing services: If no one wants a ride, go help someone with repairs around the house.

In short, these developments benefit those workers who are willing and able to turn their spare time to productive uses. These workers tend to be self-starters and people who are good at shifting roles quickly. Think of them as disciplined and ambitious task switchers. That describes a lot of people, but of course, it isn’t everybody.

That’s where some of the problems come in. Uber drivers are much more likely to have a college degree than are taxi drivers or chauffeurs, according to the Hall and Krueger study. It found striking differences between the two groups: 48 percent of Uber drivers have a college degree or higher, whereas that figure is only 18 percent for taxi drivers and chauffeurs.

Only some workers benefit when each hour, or each 15-minute gap, is up for sale. One way to put the general principle is this: The more efficient market technologies become, the more important are human capabilities and backgrounds in determining who prospers and who does not.

The piece offers other ideas of interest, including about education.  For instance, corporate investments in worker training may decline as the likelihood of freelance work rises.  That too favors self-starters, who can learn on their own.  Do read the whole thing.

atmline

The source is here.  One television source is claiming 400 millions euros have been withdrawn from ATMs since the referendum was announced.

Hugo Dixon has a good analysis:

My instant reaction to Alexis Tsipras’ decision to call a referendum on whether to accept creditors’ terms on Jul 5

1 Tsipras is effectively calling for Greece to quit the euro. Even if that’s not the question, that’s what it will amount to.

2 All sides have mishandled negotiation but Tsipras has mishandled it particularly badly.

3 Tsipras didn’t even complete the talks and wring out the last concessions. There was one more day to go.

4 Greece obviously won’t be able to pay the IMF on Tuesday.

5 Greece won’t be able to get extension of bailout which runs out on Tuesday, as referendum is following Sunday. Ie bailout expires.

6 ECB highly likely to stop emergency liquidity to banks. if capital controls not imposed on Monday, there will probably be bank run.

I would put it this way: when you call for a referendum in this kind of setting, you suffer all the costs of having to take a stance, and yet give up all of the potential benefits of control.

There are already reports of long lines at Greek ATMs.  What’s the chance the Greferendum even ends up happening?  As I’ve said before, the only thing worse than the Very Serious People are the Not Very Serious People.

This is exciting and very positive news.  Most of all, it is a breakthrough for those people who can now marry, or exercise the choice not to marry.  There are two other aspects of the decision which I like.  First, it keeps current the idea that the United States still is a world leader when it comes to liberty.  Second, it encourages the idea that there are significant freedoms still to be won.

Which freedom will be next?  Here is my earlier piece on Andrew Sullivan as the most influential public intellectual in recent times.  Andrew even wrote a new post for the occasion.

Luddite Violence

by on June 26, 2015 at 7:47 am in Current Affairs, Economics | Permalink

Don’t make the mistake of thinking the Paris riots against Uber are worker versus capitalist, the attacks are rentiers versus capitalists and worker versus worker.

UberParis

More pictures here.

I have not been a fan of Obamacare, which I consider to be a highly inefficient form of wealth insurance.  Nonetheless, had this decision gone the other way at this point we would have ended up with something worse, or ended back at “Obamacare as know it,” but only after a lot of political stupidity and also painful media coverage.  So on net I take this to be good news, although arguably it is bad news that it is good news.

From the decision, insurers gained $3 billion in market value, and hospital stocks surged about ten percent, make of that what you will.

I found the remarks of Robert Laszlewski to be most to the point.  Philip Wallach had some excellent legal and constitutional points, see also Cass Sunstein.  I am very much a legal outsider, but it seems to me this does indeed rejigger something or other looking forward.

Elsewhere in the world, Schaueble does his best Scalia impression and tells us that June 30 is June 30, not July 1.  Greece hasn’t exploded — yet — and everyone is wondering how much time is left on the shot clock.  I’m still predicting an agreement, albeit one which will break pretty quickly.

TPP received fast track approval.

It’s been one of the best political weeks in years, although disconcertingly most of the good news has been avoiding even worse outcomes, not actual forward political progress of the kind one would like to be celebrating.

In Berlin, you can rent the smallest house in the world for one euro a night.  And here is a baby owl, learning to fly, or so one would expect.

Lawmakers are stymied over how to pay for road and bridge repairs without raising taxes or fees, which Mr. [Scott] Walker has ruled out. The governor’s fellow Republicans rejected his proposal to borrow $1.3 billion for the roadwork, arguing that adding to the state’s debt is irresponsible.

In other words, Walker also has yet to come up with a state-level fiscal policy which consistently melds spending and taxing decisions; Trip Gabriel at NYT has more to say.  As I argued earlier, these approaches to fiscal policy at the state level are not in every instance perfectly thought out.  Just to be clear, this is not just a Republican vice: the Democrats have run the finances of states such as Illinois in a manner which is not entirely enviable.

The New England Conference of United Methodist Churches, a group of 600 churches, has issued a resolution calling for an end to the war on drugs. The resolution draws on ethical principles and also a remarkably astute reading of economics and social science:

Whereas: The public policy of prohibition of certain narcotics and psychoactive substances, sometimes called the “War on Drugs,” has failed to achieve the goal of eliminating, or even reducing, substance abuse and;

Whereas: There have been a large number of unintentional negative consequences as a result of this failed public policy and;

Whereas: One of those consequences is a huge and violent criminal enterprise that has sprung up surrounding the Underground Market dealing in these prohibited substances and;

Whereas: Many lives have been lost as a result of the violence surrounding this criminal enterprise, including innocent citizens and police officers and;

Whereas: Many more lives have been lost to overdose because there is no regulation of potency, purity or adulteration in the production of illicit drugs and;

Whereas: Our court system has been severely degraded due to the overload caused by prohibition cases and;

Whereas: Our prisons are overcrowded with persons, many of whom are non-violent, convicted of violation of the prohibition laws and;

Whereas: Many of our citizens now suffer from serious diseases, contracted through the use of unsanitary needles, which now threaten our population at large and;

Whereas: To people of color, the “War on Drugs” has arguably been the single most devastating, dysfunctional social policy since slavery and;

Whereas: Huge sums of our national treasury are wasted on this failed public policy and;

Whereas: Other countries, such as Portugal and Switzerland, have dramatically reduced the incidence of death, disease, crime, and addiction by utilizing means other than prohibition to address the problem of substance abuse and;

Whereas: The primary mission of our criminal justice system is to prevent violence to our citizens and their property, and to ensure their safety, therefore;

Be it Resolved: That the New England Annual Conference supports seeking means other than prohibition to address the problem of substance abuse; and is further resolved to support the mission of the international educational organization Law Enforcement Against Prohibition (LEAP) to reduce the multitude of unintended harmful consequences resulting from fighting the war on drugs and to lessen the incidence of death, disease, crime, and addiction by ending drug prohibition.

What depresses us is how little attention has been paid to one major area of Greek government spending that seems ripe for the ax: defense spending.  Greece spends a whopping 2.2% of GDP on defense, more than any NATO member-state save the United States and France.  Bringing Greece into line with the NATO average would alone achieve ¾ of what the IMF is demanding through pension cuts.

There is more here from Benn Steil and Dinah Walker.  And here is further discussion of the issue.

Oddly, we probably owe the confederate flag removal to polarization. Could never get done when both sides competed for rural whites.

That is from @SeanTrende.