History

The Fed on 9/11

by on September 14, 2014 at 11:11 am in Economics, History | Permalink

Daily Kos has an excellent, long-read from Arliss Bunny on the FED’s actions around 9/11 to keep the financial system afloat:

[Roger] Ferguson, considered a deliberative and thoughtful man by his staff, settled into his office and turned on his television to keep track of the markets. When the second plane hit the World Trade Center no one had to tell Ferguson, he knew the country was under attack and he already knew that the attack was aimed at the financial backbone of the world, lower Manhattan. Ferguson declared an emergency and all over the Fed stunned staff found assurance in going through emergency procedures for which they had prepared. The Joint Y2K Committee Ferguson had so recently headed proved to be a windfall of emergency planning and the entire Fed system referred back to those decisions and the associated training throughout the 9-11 crisis. By the time employees could all hear the muffled thump coming from the direction of the Pentagon and smoke could be seen out the windows the staff had secured themselves and the premises and they had started to organize their war room. The President, George W. Bush, was still reading a children’s book.

At 9:25AM ET the Federal Aviation Administration ordered all planes grounded.

Even as all of Washington dithered between evacuating or sheltering-in-place fearing the rumored fourth plane, Ferguson was already worrying about the next disaster, the crash of the entire US financial system. Within forty-one minutes of the second plane hitting the World Trade Center Ferguson issued as simple clear statement, via Fedwire, to all member banks and institutions assuring them that the federal fund transfer system was “fully operational” and that Federal Reserve Banks would “stay open until an orderly closing could be achieved.” In other words, we are here and we are fully functional. And that was just the first 41 minutes. Alan Greenspan was still on a plane with no knowledge of events and the President was just getting to Air Force One.

Later she discusses how in the days following the crash the Fed came up with extraordinary ways of dealing with transportation issues. In Chicago, for example, armored truck carriers refused to deliver cash to downtown banks because of fears that the Sears Tower was a target so Fed employees, she implies (naturally they don’t want to talk about this very much) delivered millions of dollars in cash in their own cars.

Read the whole thing.

In my latest New York Times column for The Upshot, I look at some evidence on the gender gap.  Here is the bad news:

In one set of these experiments, called the dictator game, women were found to be more generous than men. Players were given $10 and allowed but not required to hand out some of it to a hidden and anonymous partner. Women, on average, gave away $1.61 of the $10, whereas men gave away only 82 cents.

In another test, called the ultimatum game, one player received $10 and then decided how much of it to offer to a partner. (Let’s say the first player suggests, “$8 for me, $2 for you.” If the respondent accepts the offer, that’s what each gets. If the respondent is offended by the unequal division or dislikes it for any other reason, he or she may refuse, and then no one gets anything.)

The depressing news was this: Both men and women made lower offers, on average, when the responder was female. Male proposers offered an average of $4.73 to male respondents, but only $4.43 to women. More painful yet was the behavior of female proposers, who, on average, offered $5.13 to men but only $4.31 to women. It seems that women were seen as softies who were willing to settle for less — and the discrimination was worse coming from the women themselves.

I am nonetheless optimistic about longer-term trends, and here is one specific example I give:

As a former chess player, I am struck by the growing achievements of women in this great game — one in which men were once said to have an overwhelming intrinsic advantage. (Among the unproven contentions was that men were better at pattern recognition.) Although women were never barred from touching the chess pieces, strong female players were few in number.

These days, many more women play very well, and the gap between the top men and women in the game is narrowing. The main driver of the change appears to be that more and more women are playing chess, creating a cycle of positive reinforcement that encourages ever more women to excel. We’ve seen a similar dynamic in the workplace, as more women have made great strides in the areas of law, medicine and academia. And this process may spread to other sectors of the economy as well, such as technology industries.

Do read the whole thing.

*The Shifts and the Shocks*

by on September 11, 2014 at 8:03 pm in Books, Economics, History | Permalink

That is by Martin Wolf and the subtitle is What We’ve Learned — And Still Have to Learn — From the Financial Crisis.  You can buy it here.

File under Arrived in my pile.

Peter Thiel tells us:

Look at the Forbes list of the 92 people who are worth ten billion dollars or more in 2012. Where do they make money? 11 of them made it in technology, and all 11 were in computers. You’ve heard of all of them: It’s Bill Gates, it’s Larry Ellison, Jeff Bezos, Mark Zuckerberg, on and on. There are 25 people who made it in mining natural resources. You probably haven’t heard their names. And these are basically cases of technological failure, because commodities are inelastic goods, and farmers make a fortune when there’s a famine. People will pay way more for food if there’s not enough. 25 people in the last 40 years made their fortunes because of the lack of innovation; 11 people made them because of innovation.

I also liked this bit:

One of the smartest investors in the world is considered to be Warren Buffett. His single biggest investment is in the railroad industry, which I think is a bet against technological progress, both in transportation and energy. Most of what gets transported on railroads is coal, and Buffett is essentially betting that after the 21st century, we’ll look more like the 19th rather than the 20th century. We’ll go back to rail, and back to coal; we’re going to run out of oil, and clean-tech is going to fail.

This very useful post collates and presents all of Peter’s evidence for his view that modern technology has been stagnating.  It is both “interesting throughout” and “self-recommending.”  It is from this blog by Dan Wang.

I very much liked Peter’s new book, Zero to One: Notes on Start-Ups, or How to Build the Future.

dyfalu

by on September 10, 2014 at 1:07 am in Books, Education, History, The Arts | Permalink

In Welsh poetry, dyfalu is the piling on of comparisons, definition through conceit.  The word also means “to guess” in Welsh, and many poems of dyfalu have an element of guesswork, a fanciful and riddling dimension.  “The art of dyfalu, meaning “to describe” or “to deride,” rests in the intricate development of a series of images and extended metaphors which either celebrate or castigate a person, animal, or object,” the encyclopedia of Celtic Culture explains.  Dafydd ap Gwilym’s poems to the mist and the wind are classic fourteenth-century examples.

That is from Edward Hirsch, A Poet’s Glossary, which I am quite enjoying.  There is interesting material on every page and it is written with passion.   A hendiatris is a “figure of speech in which three words are employed to express an idea, as in Thomas Jefferson’s tripartite motto for the Declaration of Independence: “Life, liberty, and the pursuit of happiness.””  When there are only two words so employed, it is of course a hendiadys.

PredictWise and Betfair both say 28.4%.   Last I checked, that is.

Hat tip goes to David Rothschild.

It is interesting throughout, here is just one bit:

SPIEGEL: What did people talk about?

W.: People weren’t enthused about the leadership. We of course knew and everybody almost felt that it couldn’t end well, that it couldn’t been good when trains were being brought here full of people who were then getting killed. We all had that feeling. But, I mean, when you’re a soldier …

[Commentary] In the personnel files of camp staff members, there are official declarations stating, “I may not cause bodily harm or death to opponents of the state (prisoners).” It also states, “I am aware and I have been informed today that I will be punished by death if I misappropriate Jewish property of any kind.” The SS team at Auschwitz — a camp where the indiscriminate torture, robbing and murder of people was part of everyday life — were required to pledge in advance to do precisely the opposite.

One could view forms like that as a special form of cynicism. Or one could see it as a pseudo-legal facade aimed at covering up the Holocaust. One provision called for “absolute secrecy” to be maintained. In practice, it had no meaning.

The full interview is here.

Sapiens [the new book by Yuval Noah Hariri] devotes large sections to unsparing accounts of the domestication and factory farming of cows, pigs and chickens. This, he contends, has made them some of the most genetically “successful” creatures in history but the most miserable too.

It is an interesting question how much that will prove to be the equilibrium more generally, namely the genetic superiority of slaves because they can reap more external investment.  After all, capital is more productive today than in times past, so evolution might now produce more slaves.  Here is another bit from John Reed’s coverage of the lunch interview with Hariri:

What allowed humans to become history’s most successful species, he [Hariri] argues, was our ability to construct and unify small groups behind certain “fictions” – everything from national legends and organised religion to modern value systems like human rights, and the modern limited liability company with thousands of employees and vast credit lines at its command.

…I tell Harari I like the idea of fiction as the supreme human construct.

That is from the FT’s lunch with Yuval Noah Hariri.  If I recall correctly, I pre-ordered Sapiens from UK Amazon.

Here is a new paper by Galor and Özak, highly speculative of course:

This research explores the origins of the distribution of time preference across regions. It advances the hypothesis and establishes empirically, that geographical variations in natural land productivity and their impact on the return to agricultural investment have had a persistent effect on the distribution of long-term orientation across societies. In particular, exploiting a natural experiment associated with the expansion of suitable crops for cultivation in the course of the Columbian Exchange, the research establishes that agro-climatic characteristics in the pre-industrial era that were conducive to higher return to agricultural investment, triggered selection and learning processes that had a persistent positive effect on the prevalence of long-term orientation in the contemporary era.

Didn’t Irving Fisher once say something like this?  My view in contrast is that virtually everyone has a high rate of time preference, but some (wise) people can act like low time preference individuals by choosing the proper perceived rewards and benefits, for instance by courting approval from others for saving or waiting.  It may just be pretense, but who cares?  It is not unusual to see the same person switch rapidly from high time preference to low time preference modes of thought and behavior, and this to me suggests it is all about perceptions, environment, expectations, peer effects, and other social factors, rather than genes.  In other words, choose your framing wisely.

More broadly, there is a “brute fact” that one bunch of societies have a lot of correlated positive features, and another group of societies do not.  I don’t think we’ve gotten very far beyond that brute fact in terms of what we can infer from that distribution.

The original pointer to the article is from www.bookforum.com.

Trevor Paglen speculates:

Humanity’s longest lasting remnants are found among the stars. Over the last fifty years, hundreds of satellites have been launched into geosynchronous orbits, forming a ring of machines 36,000 kilometers from earth. Thousands of times further away than most other satellites, geostationary spacecraft remain locked as man-made moons in perpetual orbit long after their operational lifetimes. Geosynchronous spacecraft will be among civilization’s most enduring remnants, quietly circling earth until the earth is no more.

That is via Kottke.

Our new class on international finance is up here.  The class description reads as follows:

International finance covers some of the most complex but also important topics in economics. How are exchange rates determined? When if ever are ongoing trade deficits harmful? Are fixed or floating exchange rates better? What are the roots of the euro crisis and what resolution can we expect? Does China manipulate its exchange rate and if so how does that matter? We cover all of these topics and more, with an eye toward what a person really might want to know. There is no use of mathematics in this course beyond the very basic.

The interesting thing about international finance is that even a lot of professional economists don’t understand it very well, unless they have specialized in the area. If you complete this course, you’ll probably know a lot which they don’t!

You will find particular videos on capital controls, the classical gold standard, “dark matter,” “the Dutch disease,” the Asian financial crisis of 1997, and are devaluations contractionary?, among many other topics.

Again, here is Guinevere Liberty Nell’s recent class on the Soviet Union (still relevant alas!) and our Principios de Microeconomía, by Andres Marroquin, is growing as well.  There is more on the way!

Well, “endorsed” isn’t exactly the right word, but I did say “simpatizante.”  Here are my views:

1. I disagree with most of his economic policy, for reasons you can find stated in Adam Smith and the other classical economists.

2. Governments work very hard to stay in power.

3. In a weighted average of public opinion sense, I think of Bolivia as about 60-70% “indigenous,” one way or another.

4. If a Bolivian government is not strongly connected to the country’s indigenous population, that government cannot have a strong base.  Yet it will still work hard to stay in power (#2), which will mean it will resort to oppressions and distortions, with high long-run costs.  Bolivian history has seen an especially large number of coups and attempted coups, illustrating this weakness of the power base, which you can think of as the major problem in historical Bolivian public choice.  Think of Mancur Olson on permanent vs. temporary bandits, where most of the past bandits have been temporary, and thus Bolivian governance has been of extremely low quality, even relative to its region.

5. The government of Evo Morales is quite popular and pretty stable.  It has a strong and enduring power base, partly because of its specific policies and partly for symbolic reasons, such as its strong and explicit attachment to indigenous culture and “cosmovisions,” a notion newly embedded in the nation’s constitution.

6. The stability gains from #5 — the permanency of the bandit so to speak — exceed the costs from #1.

7. A democratic Bolivia will have “an indigenous government” sooner or later, better sooner.  Let’s hope they learn some better economic policy.  Something like the Morales government was in any case a necessary step, again without denying #1.

8. Bolivia is too decentralized for the Morales government to collapse into true dictatorship and Chavismo of Venezuela.  That said, I would feel better if it were assured that the Morales government were to be limited in term.

9. See also my reasons why I am optimistic about Bolivia, including their fiscal prudence, supported by Morales I might add.

I made this argument to an audience of elite Bolivians and elite Bolivian students.  Some of them hated it, some of them really liked it.  A speaker should usually try to shake up his or her listeners in some manner.

Chinese authorities in the restive western region of Xinjiang have begun offering large cash incentives for interracial marriages in the latest attempt to quell growing unrest among the mainly Muslim Uighur ethnic group that inhabit the region.

The policy, celebrated by local Communist party officials as advancing the “great cause of assimilation” and “ethnic unity”, offers couples entering into mixed marriages an annual bonus of Rmb10,000 ($1,600), equivalent to 135 per cent of average annual rural incomes.

Uighurs, Mongolians and other ethnic minorities who marry people from the dominant Han race, which makes up more than 90 per cent of China’s 1.36bn population, will also be eligible for a broad range of medical, schooling and housing benefits.

There is more here, via Fabrizo Goria.

1. Bolivia became a semi-stable democracy in the early 1980s and it has stayed that way.

2. For all the rhetoric to the contrary, the current regime is a mix of 1990s-era market-oriented reforms and Evo Morales.  Probably you like one of these, though perhaps not both.

3. Many more Bolivian children go to school than before, and the incidence of malnutrition has been plummeting, with longer-run benefits for IQ.  You will read many fabricated or non-causally-backed claims about the connection between inequality and growth, but for Bolivia I believe these arguments.

4. Bolivia has done so many things wrong in the past, there is a lot of low-hanging fruit through purely internal improvements.  For instance the country is a fantastic tourist destination, but would not at this moment be experienced that way by mainstream American tourists, due to language, hotel, and infrastructure shortcomings.  Eventually those problems can be and will be solved.  Eventually.

5. Bolivia does not have much export exposure to China, and does not face much geopolitical risk.

6. Of all commodities, hydrocarbons may be relatively protected in price through the forthcoming global turmoil, because the Middle East implosion will make Bolivia’s current main resource more valuable.

7. Bolivia’s fiscal situation is surprisingly sound.

The three main reasons to be pessimistic about Bolivia are:

1. Most of their economic policy is quite bad, especially when it concerns the nationalization of foreign direct investment.  The FDI future of Bolivia will be extremely unfavorable.  The rhetoric and indeed the behavior of the government sometimes is like a villain from an Ayn Rand novel.

2. Their main trading partner is Brazil, a country which will have gone from eight percent growth to near-zero growth in but a few years time.  Argentina is either the number two or number three trade partner, along with the U.S., depending on the year in question.

3. Bolivia hasn’t done that well in the past.

Of those three reasons, #1 probably matters a bit less than you might think, and #3 a bit more.

It is much debated in Bolivia whether corruption is going up or down.  I believe it is going up, but partially for good reasons.  For instance the construction sector is doing well, and construction tends to be corrupt in many countries, for reasons intrinsic to the activity itself (e.g., lots of big contracts, easy to claim invisible expenses, etc.).  That means higher corruption but also a better corruption than the penny ante bribes of a shrinking economy.

Right now Bolivia is growing at a rate of above six percent.

By Lilia Shevtsova, this is the best essay I have read on Russia, Ukraine, and Putin.  It is difficult to excerpt, but here is one short bit:

Having flipped the global chessboard with his annexation of the Crimea and an undeclared war against Ukraine, Putin effectively ended the most recent period of interregnum and inaugurated a new era in global politics. However, no one yet knows what this era will bring. The global community is still reeling in shock, when it isn’t trying to pretend that nothing extraordinary has in fact occurred. This denial of the fact that the Kremlin has dealt a blow to conventional ideas, stable geopolitical constructs, and (supposedly) successful policies proceeds from the natural instinct for self-preservation. It is also quite natural that the political forces that have grown accustomed to the status quo will try to look to the past for answers to new challenges—this is precisely what those who were unprepared for a challenge always do. It was easy enough to predict that many politicians and political analysts would explain what Putin has done to the global order by using Cold War analogies. Drawing these historical parallels is potentially useful in only one respect: if they help us to see what is truly new about the current situation, and the scale of the risks involved.

Read the whole thing.