Month: February 2009
Odd terms
Isn't it funny how they call them the "toxic assets"? OK, a lot of them aren't worth very much. But would it not be better to speak of the "toxic liabilities"? This may sound like a semantic point, but the toxic assets terminology breeds the idea that the mere creation of a "bad bank," built from these assets, will boost the financial system. It won't.
Overpaying for the toxic assets is another matter entirely. Yves Smith, by the way, has a good critique of current bank aid proposals and of course Paul Krugman has been making related arguments. The frightening thing is that many brilliant people — such as those on the Obama team — think this is the best we can do, all constraints taken into account. We'll see, as they say.
The other development is the proposal to limit executive pay to $500,000 for any bank taking "large amounts" of bailout funds; maybe that is the secret plan for keeping the bailout plan affordable. The drawback is that it discourages relatively healthy banks from using the funds to buy out the sick banks which, although it sounds inappropriate, is actually one of the better chances for making the program work.
Did the stimulus bill just fail?
Sort of, or so says The Washington Post. Apparently some of the moderate Democrats are not on board and there is talk of cutting it by as much as $200 billion. David Leonhardt has an insightful column, which examines the dual claims that the bill was too small and not well-enough targeted. I wonder if this is a case where some people (though not I) might have double-peaked preferences, namely that the bill should either be much larger, or if not simply smaller to hold down the deficit.
Overall I am surprised that the bill didn't sail through. I expected one round of opposition and then a collapse as extra goodies were put on the Xmas tree for recalcitrant legislators. The political equilibrium now seems trickier than that and I believe that, for better or worse, Obama's "honeymoon" period is now over.
I am surprised no one has complained about this yet
MissMarketCrash sent this along to me:
pitch to the laid-off American workers it's offering to place in India.
The catch: Wages in the country are pennies-on-the-dollar compared to
U.S. salaries.
Under a program called Project Match, IBM will help workers laid off
from domestic sites obtain travel and visa assistance for countries in
which Big Blue has openings. Mostly that's developing markets like
India, China, and Brazil.
NB: The program is limited to "satisfactory performers."
What I read some time ago
But they're all coming out this book season and thus I tell you about them now:
1. Peter Leeson, The Invisible Hook: The Hidden Economics of Pirates.
2. Frank H. Buckley, Fair Governance: Paternalism and Perfectionism; a critique of "Nudge" and soft paternalism.
3. Denis Dutton, The Art Instinct: Beauty, Pleasure, and Human Evolution.
There's also another good book on Samuel Johnson, which is what I have been reading, in addition to the new translation of The Canterbury Tales.
Markets in everything (hardly anything)
From the former Soviet Union, markets in burnt out light bulbs:
For most of us, it is hard to fathom the rationale for a market in burnt-out light bulbs. But in the scarcity-driven Soviet economy, the market was entirely reasonable. Light bulbs were rarely available to individual consumers, but were obtainable for state-sponsored activities. Thus, it would be difficult to purchase a light bulb for a new lamp in one's home, while burnt-out bulbs in state-run offices or factories were routinely replaced. So if someone purchased a new lamp and needed a bulb, he would buy a used light bulb for a small fee and replace a functioning bulb at work with the dud. He would then take the functioning bulb home for the new lamp, while the burnt-out bulb at the office/factory would be replaced with a new functioning bulb. Meanwhile, the maintenance person at the office/factory would take the used bulb and sell it on the used light bulb market.
I thank Eric W. for the pointer.
Addendum: But from Singapore, no legal organ selling any time soon.
Shhh…………….
Robin Hanson writes:
the less they might work. We might make people realize that they need
to compensate via saving, and the more we scare folks into thinking we
need a huge stimuli, the more we might scare them away from normal
economic activity levels. So should we stop explaining macro-economics during this crisis, and stop saying how desperately we need a stimuli?
From now on…Markets in Everything! All day, every day…
Obama nominee pulls out over tax trouble
Which one? I am more than willing to grant that not every nominee deserves to be appointed to rule over me. But I'm also worried about the incentives we are producing by applying tougher standards. Knocking out the caught cheaters won't make all the DC people honest or virtuous. The long run effect is to select for people who have known — from the very beginning — that they seek power and who are willing to pay money to the taxman to keep that option alive. We are selecting for people who are very good at covering up their misdeeds. We're selecting for honest people too. There's lots of posturing on this issue, but I'm not sure whether the net effect of the crackdown is positive, once you take all these selection effects into account. There's something to be said for selecting people who are relatively bad at cover-ups.
There's also something to be said for increasing the wages paid to top appointees, as they do in Singapore. That would encourage more tax compliance without just selecting for the power seekers.
Assorted links
India fact of the day, or, we’ll make it up on volume
Can anyone tell me, how good a machine is this?
when officials unveil the 500 rupee (£7.25) laptop. In an attempt to
bridge the “digital divide” in the country between rich and poor, the
government will show off the prototype, low-cost laptop as the
centrepiece of an ambitious e-learning programme to link 18,000
colleges and 400 universities across the country.
Do people get more depressed in winter?
Some people do, but is it true on average? Maybe not, says Ben Goldacre (via Andrew Sullivan):
Back in 1883
Esquirol commented on the higher incidence of suicide in spring and
early summer. Swinscow showed the same thing with all UK suicides from
1921-1948. So that’s not really winter blues. A study in 2000 looked at all UK suicide data from 1982-96 and found that even this seasonal pattern had pretty much disappeared.
What about elsewhere? A 1974 study on all suicides in North Carolina
(3,672) and admissions to their Veterans Hospital Psychiatry Service
(3,258) from 1965 to 1971 showed no seasonal variation. A 1976 Ontario
study found peaks of suicide and admissions for depression in spring
and autumn. Suicide is highest in Summer, says a paper from Australia in 2003. I’m really not getting this Blue January thing.
Maybe you want data from the general population on mood. A study in 1986
looked at 806 representative males from Finland and found low mood more
common in the summer. Some studies do find higher rates of depressive
symptoms in the winter (Nayyar and Cochrane, 1996; Murase et al.,
1995), but then, some find the opposite results, like a peak in the
spring (Nayham et al., 1994) or summer (Ozaki et al., 1995). One study
from just last month proactively asked 360 patients to rate
their mood regularly, rather than waiting for an event, and found no
relationship, again, between mood and season.
Maybe there are other sources of data you could explore? A paper
looking at GP prescriptions for antidepressants in 1984 found a spring
peak. An earlier paper from 1981 (Williams and Dunn) looks at
prescriptions from 1969-75 and finds peaks in February, May and
October. Another
from the same year looked at GP consultations for depression and found
peaks in May-to-June and November-to-January (they found similar
results for osteoarthritis, oddly).
Hail Ben Goldacre! Here is my previous post on Ben Goldacre.
China headline of the day
Downturn causes 20m job losses in China
The story is here. And get this:
The figure of 20m unemployed migrants does not include those who have
stayed in cities to look for work after being made redundant and is
substantially higher than the figure of 12m that Wen Jiabao, premier,
gave to the Financial Times in an interview on Sunday. Speaking on a
visit to the UK on Monday, Mr Wen said there had been signs at the end
of last year the Chinese economy might be starting to recover.
U.S. fact of the day
Or should I say Florida fact of the day?:
According to court papers and a report
from the Equal Justice Initiative, which now represents Mr. Sullivan,
there are only eight people in the world who are serving sentences of
life without parole for crimes they committed when they were 13. All
are in the United States.
Paul Krugman’s response on fiscal stimulus
I'm not sure further progress will be made on what to me seems like
a largely semantic debate. Krugman is making perfectly sensible economic arguments but then making a
semantic leap to claim he has proven something about permanent vs.
temporary. He hasn't, as I'll consider in a moment. But don't worry, the more important substantive
issue is government spending vs. tax cuts and on that I agree with
Krugman that very often tax cuts don't get you much stimulus.
Now let's turn to the details of the exchange.
Krugman argues, correctly, that fiscal policy can create a "bonds are net wealth effect" and also a "new bridge is built effect," and his post stresses the latter. But playing up the "bridge effect" does not shift the evaluative balance between permanent vs. temporary fiscal policy, as both can be used to build useful things and indeed that is one element of the analysis which I have been explicitly holding constant across the two alternatives. (I've not been denying the potential productivity of bridges or how gdp is calculated.)
Krugman also calls forth a "size of expenditure" effect (which is not in my view a true permanent vs. temporary comparison, but still let's go ahead and say it is). He writes:
The question then is how much of that direct increase in government demand is offset by a fall in private consumption because people expect their future taxes to be higher; obviously that offset is smaller if they think the bridge is a one-time expense than if they think there will be a bridge built every year. That’s why temporary government spending has a bigger effect.
Even there I am not convinced, and that is because of the very last sentence of the paragraph. If the government builds more bridges rather than fewer bridges, yes private consumption goes down more in the former case. But if each bridge is valuable, the net stimulus (which is what matters) doesn't have to go down. In this setting, with varying expenditure across the two cases, the permanent fiscal policy easily can have both more crowding out and more net stimulus. Krugman is citing the higher crowding out but there is no demonstration (or even argument) of a smaller net stimulus from the permanent fiscal policy. It still can go either way and no, figuring out the net effect isn't simple.
Oddly, my position in this debate is that, within a Keynesian framework, "doing more over time" can in the theoretical sense work out in favor of stimulus. It is thus instructive to see MR and Krugman commentators attacking my "right wing" position or Krugman's "left wing" position; it's a sign they don't understand what is being debated. Krugman himself already mentioned that he was arguing under the rubric of Milton Friedman so I'll claim Keynes. Keynes himself was a bigger fan of permanent than temporary fiscal policy and he thought it could provide ongoing stimulus by providing ongoing value for the dollar. In this sense I am arguing for the theoretical coherence of the truly Keynesian view, even though when it comes to practice I am skeptical on public choice and Hayekian grounds.
Addendum: Here is Megan McArdle's response.
Sentence of the Day
deaths, twice as high as deaths due to malaria.
From Chris Blattman. By my calculations (here and here) road traffic accidents account for about 1.68% of deaths in the United States so there is certainly room for improvement in low-income countries although it would be important to know whether it is the driving, the roads, or the health care most amenable to such improvement.
Would you rather have electricity or an internet connection?
Entasopia is a cool name for a place in Kenya:
The outpost, with about 4,000 inhabitants, is at the end of that road and beyond the reach of power lines. It has no bank, no post office, few cars and little infrastructure. Newspapers arrive in a bundle every three or four weeks. At night, most people light kerosene lamps and candles in their houses or fires in their huts and go to bed early, except for the farmers guarding crops against elephants and buffalo.
Entasopia is the last place on earth that a traveler would expect to find an Internet connection. Yet it was here, in November, that three young engineers from the University of Michigan in Ann Arbor, with financial backing from Google, installed a small satellite dish powered by a solar panel, to hook up a handful of computers in the community center to the rest of the world.
Here is the full story. Here is a landing strip in Entasopia. Here are Entasopia girls reciting an AIDS poem. Here are the local hills.
