Results for “"have a nice day"” 14 found
Sentences to ponder have a nice day
Last month the International Monetary Fund warned that eurozone banks were likely to embark on massive deleveraging over the following 18 months, to the tune of $2.6tn.
Here is more, from Gillian Tett, on the ongoing theme of the de-europeanisation of Europe. By the way, she suggests that number may be an underestimate.
How much expected surplus do we want Putin to have?
My Bloomberg column is on another topic altogether, starting with bank runs, but this part I can reframe in terms of principal-agent theory. We want to squeeze Putin so hard that he “cries Uncle”, yet without eliminating his surplus so much that he takes a lot of extra risk. Hard to achieve both of those ends at the same time! Here is one bit reflecting that dilemma:
For a point of contrast on how decentralized incentives operate on each side, consider the nuclear alert ordered by Putin on Sunday. The chance of Russian nuclear weapons being ordered into actual use is small. But Putin faces a dilemma as he attempts to manipulate the decentralized systems of the Russian military. If he gave an order for a nuclear strike on a Ukrainian city, would the Russian military obey it? Whoever did would know they could be liable for war crimes.
The outcomes here are impossible to forecast, but the uncertainty works in favor of the Ukrainians. If it became known that Putin ordered a nuclear strike and was ignored, for example, he would become the proverbial “paper tiger” rather quickly and might lose power altogether.
These decentralized mechanisms potentially shift the entire logic of the war. Russia has to win fairly quickly, or these and other forces will increasingly work against it. Ukraine thus can fight for a military stalemate, but Russia cannot. The Russian forces must take increasing levels of risk, even if those risks have what decision theorists call “negative expected value” — that is, they serve as desperate gambles and on average worsen the Russian situation.
Of course that makes the war increasingly dangerous, and not just for the Ukrainians. If Putin is afraid the forces in the field won’t always carry out his orders, for example, he may order the launch of 10 tactical nukes rather than just one.
As AK would say, “Have a nice day.”
Are the elites worse than you think?
Here is a new and important paper by Joshua D. Kertzer, noting that it mainly confirms what I observe every day (aren’t those the very best research studies?) Here is part of the abstract:
…political scientists both overstate the magnitude of elite-public gaps in decision-making, and misunderstand the determinants of elite-public gaps in political attitudes, many of which are due to basic compositional differences rather than to elites’ domain-specific expertise.
My rewrite of his sentence is that elites are arguing from their class and demographic biases (a bias can be positive, to be clear), not from their expertise. That lowers the marginal value of expertise, at least given how our world operates. I recall earlier research blogged by Alex showing that if you are a French economist, your views are more influenced by being a French person than by being an economist. And so on.
This is one of the very most fundamental facts about our world, and elites are among the people least likely to have internalized it.
Have a nice day.
Bridge loans for economically troubled firms
Andrew Ross Sorkin explains (NYT):
The fix: The government could offer every American business, large and small, and every self-employed — and gig — worker a no-interest “bridge loan” guaranteed for the duration of the crisis to be paid back over a five-year period. The only condition of the loan to businesses would be that companies continue to employ at least 90 percent of their work force at the same wage that they did before the crisis. And it would be retroactive, so any workers who have been laid off in the past two weeks because of the crisis would be reinstated.
Strain and Hubbard call for $1.2 trillion in lending to smaller businesses (Bloomberg). John Cochrane considers a version of the plan. Here is Brunnermeier, Landau, Pagano, and Reis. I have been pondering the following points:
1. If you are an optimist about the cycle of recovery, this is very likely a good idea. If you let those companies fall apart, there is a significant loss of organizational capital and the matching problems in the labor markets have to be solved all over again. Recent experience on that front is not so encouraging.
2. If you are a pessimist about the cycle of recovery, I am less sure how well this will work. Let’s say a vaccine is difficult and there a few waves of the virus. Many of the smaller or even larger businesses may be going under anyway, as they cannot live off aid forever. In the meantime, you might actually want those resources to be reallocated to good transport, biomedical testing, and so on. If the wartime analogy is apt, you don’t want to freeze the previous capital structure into place, unless of course you get lucky and win the war early.
3. If you a pessimist about the solvency of banks (have you ever seen a stress test for 30% unemployment?), you have not gotten the government out of the business of capital allocation.
4. The bridge loans might work especially poorly for start-ups. Yes, StubHub or some company like that is around for the long run, and if the bridge loans can keep them up and running until concerts return, so much the better. But what about the eighty wanna-bees next in line, most of whom are likely to fail? Do they too get bridge loans? (Do note the ecosystem as a whole is yielding positive value.) The market itself chose the venture capital financing form for those entities, not debt. And yet now the government is stepping in and propping them up with debt, even though we know virtually all of them are likely to fail (even pre-coronavirus that was the case). You might think “well, we will know not to do that.” But on what legal basis would those other “likely to fail start-ups” be excluded from the bridge loans?
4b. Is it all about “banks decide”? How do we stop banks from simply hoarding the new money? (The Fed already has flooded the banking system with liquidity.) Just loaning the money to super-safe firms for de facto negative rates? What exactly are the regulatory requirements here? To the extent the loans are de facto guaranteed, won’t banks lend to a large number of lemons? What do the interest rates and collateral requirements look like on these loans and how are those set in what is now a non-competitive setting?
5. Overall my sense is that American policy, if only for cultural reasons, has to proceed on an optimistic basis. It is not clear what the relevant alternative is, and I do not oppose bridge loans. Nonetheless I am seeing too many people jump uncritically at bridge loans with a “throw everything at the wall” approach and not thinking hard enough about their possible downsides. At the very least, being critical about bridge loans will help us make bridge loans better.
6. No, I don’t favor governmental bridge loans for non-profits. De facto, that this means this is a huge relative shift of resources away from non-profits and toward businesses. YMMV.
7. I have received numerous reader emails telling me how bad, slow, and cumbersome is the Small Business Administration process for getting loans. Will this new regime do better?
8. It is the same government that could not organize testing and mask production that we are expecting to run what might amount to a $1 trillion plus bridge loans program.
Have a nice day.
Is the reversal of the Flynn Effect environmental?
Maybe so, says a new paper by Be:
Using administrative register data with information on family relationships and cognitive ability for three decades of Norwegian male birth cohorts, we show that the increase, turning point, and decline of the Flynn effect can be recovered from within-family variation in intelligence scores. This establishes that the large changes in average cohort intelligence reflect environmental factors and not changing composition of parents, which in turn rules out several prominent hypotheses for retrograde Flynn effects.
In short, IQ relates inversely to sibling order, and the basic effect is not being generated by a changing composition of married pairs over time.
In other words, we have started building a more stupidity-inducing environment. Or at least the Norwegians have. But of course the retrograde Flynn Effect is starting to pop up in the data more generally, and not just in Norway. From The Times of London:
The IQ scores of young people have begun to fall after rising steadily since the Second World War, according to the first authoritative study of the phenomenon.
The decline, which is equivalent to at least seven points per generation, is thought to have started with the cohort born in 1975, who reached adulthood in the early Nineties.
Have a nice day!
For the pointer I thank Michelle Dawson.
No Good Men Among the Living
Anand Gopal’s No Good Men Among the Living…his new and shocking indictment demonstrates that the failures of the [Afghanistan] intervention were worse than even the most cynical believed. Gopal, a Wall Street Journal and Christian Science Monitor reporter, investigates, for example, a US counterterrorist operation in January 2002. US Central Command in Tampa, Florida, had identified two sites as likely “al-Qaeda compounds.” It sent in a Special Forces team by helicopter; the commander, Master Sergeant Anthony Pryor, was attacked by an unknown assailant, broke his neck as they fought and then killed him with his pistol; he used his weapon to shoot further adversaries, seized prisoners, and flew out again, like a Hollywood hero.
As Gopal explains, however, the American team did not attack al-Qaeda or even the Taliban. They attacked the offices of two district governors, both of whom were opponents of the Taliban. They shot the guards, handcuffed one district governor in his bed and executed him, scooped up twenty-six prisoners, sent in AC-130 gunships to blow up most of what remained, and left a calling card behind in the wreckage saying “Have a nice day. From Damage, Inc.” Weeks later, having tortured the prisoners, they released them with apologies. It turned out in this case, as in hundreds of others, that an Afghan “ally” had falsely informed the US that his rivals were Taliban in order to have them eliminated. In Gopal’s words:
The toll…: twenty-one pro-American leaders and their employees dead, twenty-six taken prisoner, and a few who could not be accounted for. Not one member of the Taliban or al-Qaeda was among the victims. Instead, in a single thirty-minute stretch the United States had managed to eradicate both of Khas Uruzgan’s potential governments, the core of any future anti-Taliban leadership—stalwarts who had outlasted the Russian invasion, the civil war, and the Taliban years but would not survive their own allies.
Gopal then finds the interview that the US Special Forces commander gave a year and a half later in which he celebrated the derring-do, and recorded that seven of his team were awarded bronze stars, and that he himself received a silver star for gallantry.
From a 2014 review by Rory Stewart in the NYReview of Books. Have a nice day.
China estimate of the day
Annual real growth in gross capital formation hit 6.6 per cent in 2014, down from 10.2 per cent in 2013 and a peak of 25 per cent in 2009.
Thomas Gatley, China corporate analyst at Gavekal Dragonomics, a research firm, estimates that so far this year GFCF may be running at around 4 to 5 per cent.
That is from James Kynge at the FT. Here is from Ambrose Evans-Pritchard:
David Cui, from Bank of America, said $1.2 trillion of stock holdings are being carried on margin debt. This is 34pc of the free float of the Shanghai and Shenzhen stock markets. “When the market ultimately settles at a level that can be sustained on fundamental reasons, we expect that the financial system may wobble, due to high contagion risk,” he said.
Mr Cui said the brokers and trusts have barely 1.6 trillion yuan ($260bn) to absorb losses and may be overrun. “Given the particularly thin front line of the financial institutions, we suspect that it’s a matter of time before banks may have to face the music,” he said.
This in turn risks setting off a “bank run” on the shadow banking system as investors lose trust in wealth management funds, fearing that their deposits in the $2.1 trillion industry no longer have an implicit guarantee.
As Arnold Kling would say, have a nice day…
What will European QE look like? And will it work?
Claire Jones at the FT reports:
The European Central Bank is set to unveil a programme of mass bond buying next week to save the eurozone from deflation, but has bowed to German pressure to ensure that its taxpayers are not liable for any losses incurred on other countries’ debt.
This is not a surprise. Alen Mattich had a good Twitter comment:
How could you trust ECB promise to “do whatever it takes” if it doesn’t accept the risk of holding national sov debt on its books?
Guntram B. Wolff has an excellent, detailed analysis, worth reading in full, here is one bit:
So the purely national purchase of national sovereign debt would either leave the private creditors as junior creditors, or the national central bank has to accept negative equity. What would negative equity mean for a central bank? De facto it would mean that the national central bank, that has created euros to buy government debt, would have lost the claim on the government. It would still owe the euros it has created to the rest of the Eurosystem.(4) The Eurosystem could now either ask the national central bank to return that liability, which it is unable to do without a recapitalisation of its government. Or, the Eurosystem could decide to leave the claim standing relative to the national central bank. In that case, the loss made on the sovereign debt would de facto have been transferred to the Eurosystem. In other words, the attempt to leave default risk with the national central bank will have failed.
…Overall, this discussion shows that monetary policy in the monetary union reaches the limits of feasibility if the principle of joint and several liability at the level of the Eurosystem is given up.
An important open issue is whether the ECB could buy Greek bonds, given that they are up for restructuring and (presumably) the Bank cannot voluntarily relieve Greece of any debt (see Wolff’s discussion). There are plenty of rumors that Greece will indeed be excluded from any QE program, unless you imagine they settle things with the Troika rather more quickly than they are likely to. Yet a bond-buying program without Hellenic participation doesn’t seem so far from hurling an “eurozone heraus!” painted brick through their front window in the middle of the night.
Overall, shuffling assets and risk profiles between national monetary authorities and national fiscal authorities would seem to accomplish…nothing. Not buying up the debt of your biggest problem country also seems to accomplish nothing, in fact it is worth than doing nothing.
Here is my 2012 column on how the eurozone needs to agree on who is picking up the check. They still haven’t agreed! In the meantime, Grexit is a very real possibility, through deposit flight, no matter how badly Greek citizens may wish their country to stay in.
So, so far I am not so optimistic about this whole eurozone QE business, even though in principle I very much favor the idea. It is again a case of politics getting in the way of a problem which does indeed have a (partial) economic solution. The only way it (partially) works is if it (implicitly) bundles debt relief with higher rates of price inflation. Have a nice day.
Some of the most important sentences in economics
This is from Larry Summers and Lant Pritchett:
…knowing the current growth rate only modestly improves the prediction of future growth rates over just guessing it will be the (future realized) world average. The R-squared of decade-ahead predictions of decade growth varies from 0.056 (for the most recent decade) to 0.13. Past growth is just not that informative about future growth and its predictive ability is generally lower over longer horizons.
The main point of this paper is to argue that Chinese growth rates will become much lower, perhaps in the near future, here is a summary of that point from Quartz:
Summer and Pritchett’s calculations, using global historical trends, suggest China will grow an average of only 3.9% a year for the next two decades. And though it’s certainly possible China will defy historical trends, they argue that looming changes to its authoritarian system increase the likelihood of an even sharper slowdown.
The piece, “Asiaphoria Meets Regression Toward the Mean,” is one of the best and most important economics papers I have seen all year. There is an ungated version here (pdf). I liked this sentence from the piece:
Table 5 shows that whether or not China and India will maintain their current growth or be subject to regression to the global mean growth rate is a $42 trillion dollar question.
And don’t forget this:
…nearly every country that experienced a large democratic transition after a period of above-average growth…experienced a sharp deceleration in growth in the 10 years following the democratizing transition.
As Arnold Kling would say, have a nice day.
What I worry about
LATimes: A 30,000-year-old giant virus has been revived from the frozen Siberian tundra, sparking concern that increased mining and oil drilling in rapidly warming northern latitudes could disturb dormant microbial life that could one day prove harmful to man.
The original research is here. Have a nice day.
BBC: Madagascar faces a bubonic plague epidemic unless it slows the spread of the disease, experts have warned. The Red Cross and Pasteur Institute say inmates in the island’s rat-infested jails are particularly at risk.
…Madagascar had 256 plague cases and 60 deaths last year, the world’s highest recorded number.
Bubonic plague, known as the Black Death when it killed an estimated 25 million people in Europe during the Middle Ages, is now rare.
“If the plague gets into prisons there could be a sort of atomic explosion of plague within the town. The prison walls will never prevent the plague from getting out and invading the rest of the town,” said the institute’s Christophe Rogier.
Have a nice day.
Not as easy as you might think (leaving the eurozone)
Controls on the movement of capital could be a nightmare for banks with loans in Greece, potentially making it illegal for companies to repay debt in euros.
Here is more, but that is the key point. One option is that the Greek government would prevent importers of food and fuel from paying in euros, but I would recommend against such a policy for obvious reasons. Another option is that the importers will be allowed to pay with euros, but then that is one easy way of getting money out of the country. I would expect that Greece’s “measured food imports” would rise rather suddenly, as invoices get reclassified, whether food actually is being imported or not. (If Greece cannot do a good job collecting its taxes, how well can it patrol its exports and invoices?) Then capital flight returns.
Under one scenario, Greece will experience both hyperinflation and hyperdeflation at the same time, depending on which medium of account one is measuring prices in. As Arnold Kling would say, have a nice day.
Department of Uh-Oh, The End of the Mortgage Agencies
Fannie and Freddie’s
preferred shares have been considered so safe that banking regulators
let banks count them in the capital required as a cushion against loan
That should read "*had* been considered so safe." Further background is here and here. We also have an impossibility theorem. I do not see how our government can let the value of this preferred stock fall much further, given the extent to which bank insolvency would increase. I also do not see how our government can prop up the value of this preferred stock to a significant degree. Silly me. I guess that means I bet on the latter impossibility.
Here is yet further discussion of the end game. It seems the common stock owners will end up suffering more dilution than they had been expecting. The $340 billion in agency debt held by the Chinese central bank will be protected, as it must be. Have a nice day.
And the newspapers were wondering why the Dow tanked 345 points.
How to get bigger tips
Scrawling a patriotic message on a restaurant tab is a great way to boost tips — at least in northern Utah. Communications professors John S. Seiter of Utah State University and and Robert H. Gass of California State University at Fullerton instructed two waitresses to serve up four different types of bills to 100 diners at two local restaurants.
The servers wrote "United We Stand," and "God Bless America" or "Have a nice day" on the bills. A control group received no personal note.
Patrons gave a 20 percent tip on tabs that included "United We Stand" but only 15 percent when they got no message at all. The other two messages garnered slightly more than 15 percent, Seiter and Gass reported in a recent article in the Journal of Applied Social Psychology.
That is Richard Morin from The Washington Post, someday the link will show up here. You can buy the article here. Here is my previous post about tipping.