Month: November 2008

Big Think interview with me

On YouTube, find it here.  The taping was about an hour long but the video is six minutes long.  The full talk started with a discussion of capitalism and morality but it ended up focusing on the financial crisis; since I don’t watch myself who knows what made this cut?

Sometimes I try to be "chatty," but that’s not really my temperament.  This time I tried to flood the interviewer with as much content as possible.

Here is a Big Think forum, with Lawrence Summers, George Soros, Peter Thiel, and Robert Merton.  There is more of Summers here.  (Why does he talk slower now?  What happened to the beloved fire hose?  Did someone give him media training and teach him to be chatty?)  Here is Thomas Cooley on whether we should change how economics is taught?

Christina Romer to chair the CEA

Via Greg Mankiw.  She understands the Great Depression very well.  Here are previous MR entries on Christina Romer, mostly touching on macroeconomics.  I can’t vouch for her managerial or political abilities one way or the other, but intellectually this is a very good pick.  Here is one report on the announcement.

Here is the National Journal on the work of Christina and David Romer on fiscal policy:

At the same time that Obama is calling for higher income taxes on people making $250,000 or more, the Romers have found that tax increases are generally bad for economic growth and that they primarily discourage investment — the supply-side argument that conservatives use to justify tax cuts for the rich. On the other hand, the Romers have shredded the conservative premise that tax cuts eventually force spending reductions (‘starving the beast’). Instead, they concluded that tax reductions lead only to one thing — offsetting tax increases to recover lost revenue.

Here is the MR entry on that paper, please do read it again to receive a dose of good news.  Here is Romer’s home page.  Here is her soon to be longer Wikipedia page.

Why did Obama pick Hillary Clinton?

This is exactly the kind of detailed political question I don’t follow so let’s try some crude, fact-poor economism.  Hillary Clinton commands the loyalties of significant segments of the Democratic Party.  The implication is that Obama will need these segments for what he is trying to do.  Since Obama already has 58 (?) Democratic Senators on his side, we should conclude that Obama will try to do lots in the first few months of his term; this is the "throw long and deep" scenario.

He can always encourage her to leave later, if the relationship does not work out.  Latinos, on the other hand, are stronger as voters than as a lobby or as an organized segment of the Democratic Party.  The implication is that they will get relatively little at the beginning of Obama’s term — when lobbies are needed — but successively more as the next election approaches.

Addendum: Andrew Sullivan considers other hypotheses.

What a massive fiscal boost can and cannot accomplish

I feel like I am repeating myself, but since the topic is so much in the news, let’s give it another go.  A massive fiscal policy could:

1. Generate some investments which are worthwhile on their own terms.  LaGuardia really does need another runway.

2. If the broader monetary aggregates are falling, because of either a credit crunch or a liquidity trap, a fiscal boost can keep aggregate demand from deteriorating.  Note that this is distinct from bringing about a recovery; it is limiting further downside.

3. A fiscal boost can provide a beneficial "sunspot" in a multiple equilibrium model, thereby moving everyone to the higher output equilibrium.

4. If spending needs to fall, a fiscal boost can postpone this fall.  Postponing this fall may be a good idea to prevent immediate economic destruction.  But then the fiscal policy is not really bringing about recovery.  In fact the fiscal policy is (optimally, perhaps) hindering the pace of adjustment and recovery.  Fiscal policy makes the downturn less severe but it also prolongs the adjustment process.

You’ll note that only under #3 does a massive fiscal boost in fact bring about an economic recovery.  But I do not believe that #3 is better for anything than a few good days in the stock market nor do most people rely on #3 in making the case for fiscal policy.

You might also try #5:

5. The economy needs a boost to aggregate demand and since monetary policy isn’t working any more, fiscal policy has to step in.  This is usually followed by drawing a graph with two or three curves on it.

This makes sense if it is reworded to be more precise and to be some combination of #2 and #4.  But still, a huge fiscal boost will not bring recovery because a big chunk of the problem requires real economic adjustments (the simple graph obscures this).  The economy needs to adjust out of housing, out of so much consumption, and out of various classes of associated risky assets.  Those are some pretty massive adjustments and along the way lots of major banks become zombie banks.  A massive fiscal boost won’t get us over those problems.

Just to recap: Because of #1 and #2, you might think that a massive fiscal boost is a good idea, compared to the alternatives.  But you should not argue that a massive fiscal boost will bring about or drive an economic recovery.  It is tempting to cite #5 to justify the fiscal boost but the bottom line is some mix of #2 and #4. 

Whoops! Back to TARP after all…

The government is looking to buy substantial amount of assets from Citi
like a good bank, bad bank structure. The Government will absorb much
of the losses for Citi if there are losses and Citi would issue
preferred stock to the government. The government could buy more than
$100 billion in the bad assets if the plans go through.

Here is more.  Didn’t Paulson tell us just a few days ago that TARP wasn’t needed after all?

Doesn’t this mean that Paulson should speak less frequently?

And yes, we do now have the Paulson plan and the Dodd plan all rolled into one.  And as CalculatedRisk noted:

Hey, I thought Citi WAS the bad bank!

Addendum: Read this lovely update!

Assorted links

1. Property rights and air pollution

2. Pirate headlines (humor)

3. 2666, the perfect book review (now that I’ve read the book)

4. Update on the quest for the Netflix prize, interesting throughout

5. Triumph of the small countries; Israel just displaced Armenia for top position in the Chess Olympiad; Russia and the United States lag behind.  The standings and major contestants are here.

Iowa City fact of the day

In 2006, for a population of 63,027, there were 63,713
public library patrons; borrowers as a percentage of population reached
101 percent.

Is Will Wilkinson now one of them?  Here is more.  In another life, I would write a whole blog just on public libraries.  UNESCO, by the way, has just designated Iowa City as the world’s third City of Literature.  Edinburgh and Melbourne are the other two.

The Myth of the Rational Elected Official

Hail Mark Steckbeck, for sending me such content:

US elected officials scored abysmally on a test measuring their
civic knowledge, with an average grade of just 44 percent, the group
that organized the exam said Thursday.

Ordinary citizens did not fare much better, scoring just 49 percent correct on the 33 exam questions compiled by the Intercollegiate Studies Institute (ISI).   

Here’s one detail:

Asked about the electoral college, 20 percent of elected officials incorrectly said it was established to "supervise the first televised presidential debates."

Here is the clincher:

The question that received the fewest correct responses, just 16
percent, tested respondents’ basic understanding of economic
principles, asking why "free markets typically secure more economic
prosperity than government’s centralized planning?"

This one is a little tricky:

Forty percent of respondents, meanwhile, incorrectly believed that the US president has the power to declare war, while 54 percent correctly answered that that power rests with Congress.

I’m not sure if those last few numbers are for the officials or for everyone, though it doesn’t much seem to matter.  The quiz itself is hereHere is more on the results for the non-officials.

Why are music reviews so positive?

The perspicacious Peter Suderman writes:

…the critical medium that suffers most [from overly positive reviews] is pop music criticism, which
skews toward generally positive reviews of most everything, no matter
how bland or terrible. Scan the sidebar of Metacritic’s music page.
Nearly all of the review averages are positive or very positive, and
almost none of them are straightforward pans. In fact, right now I
don’t see a single album with a review average that gets a score
categorized "generally negative reviews." Contrast this with the movies page,
which contains more than a dozen films with low averages. Even the
limited release indies – the "artsy" films – are often given low marks.

But why?  When it comes to a movie, you might actually go see the movie if you read a good review.  Therefore the newspaper must be careful not to mislead you too many times and that implies a certain amount of criticism.  But even a well-reviewed CD you are unlikely to buy, if only because there are so many CDs out there and there are so many well-defined genre preferences.  So the MSM source courts many good music reviews, to give readers a sense that they are learning about "interesting product"; in any case only the fans will buy the stuff.

One testable prediction of this hypothesis is the following: when musical taste was less fragmented, and a review was more likely to influence buying decisions, music reviews would have been more critical.  Similarly, if the outlet is pure niche, and thus being read by potential buyers only, the reviews should be more critical as well.

In the comments on Suderman, William Brafford comes close to this view.

I might add that Washington Post restaurant reviews are far too positive.  If WP readers were simply told "There are hardly any good restaurants in your crummy little city," this wouldn’t do much for WP circulation or advertising revenue.

The less that people buy books, the more positive book reviews should become.

The world’s best symphony orchestras?

Gramophone magazine polled music critics and here is the top ten list they came up with:

1 Royal Concertgebouw Orchestra

2 Berlin Philharmonic Orchestra

3 Vienna Philharmonic Orchestra

4 London Symphony Orchestra

5 Chicago Symphony Orchestra

6 Bavarian Radio Symphony

7 Cleveland Orchestra

8 Los Angeles Philharmonic

9 Budapest Festival Orchestra

10 Dresden Staatskapelle

You’ll find 10-20 here, along with some discussion.  The news, if that is what you would call it, is that Philadelphia does not make the list at all.  Here is another discussion of the results.

What are the lessons from the New Deal?

This week they put my Sunday column on the web on Friday; I was alerted by the ever-vigilant Mark Thoma.  The intro is this:

The traditional story is that President Franklin D. Roosevelt rescued capitalism by resorting to extensive government intervention;
the truth is that Roosevelt changed course from year to year, trying a
mix of policies, some good and some bad. It’s worth sorting through
this grab bag now, to evaluate whether any of these policies might be
helpful.

If I were preparing a “New Deal crib sheet,”  I would start with the following lessons…

The conclusion is this:

In short, expansionary monetary policy and wartime orders from Europe,
not the well-known policies of the New Deal, did the most to make the
American economy climb out of the Depression. Our current downturn will
end as well someday, and, as in the ’30s, the recovery will probably
come for reasons that have little to do with most policy initiatives.

Read the whole thing.  For critical responses, perhaps you can try the comments section at Mark Thoma’s.  For reasons of space, it was not possible to specify that I was praising the proposed Obama middle-class tax cut.  I do not, however, think it will do much (if anything) to end the current recession, although tax hikes could make things worse.