Month: May 2009

My favorite things Barcelona and Catalan

1. Cellist: Pao Casals; see my comments under Puerto Rico.

2. Artist: Joan Miró, who remains underrated.  Oddly many people do not see him as better than the guy who puts the squiggles on their design bags.  Almost everything he did — across media — was phenomenal in terms of composition and textures.  I am fond of Antoni Tapies, although his work does not reproduce well on-line.  Aristide Maillol, who was French Catalan, did paintings and sketches.  Dali is now so vilified by some intelligent people that he can rightly be considered underrated.

3. Novelist: Albert Sanchez Piñol's Cold Skin is a favorite of mine.  Quim Monzó is a fun writer, as is Carlos Ruis Zafón.

4. Architect: I have mixed feelings about Gaudi; it feels to me like he is trying too hard.  How about Lluís Domènech i Montaner?  Try this one too.

5. Composer: Isaac Albeniz, especially as played by Alicia de Larrocha.  There is also Federico Mompou.  I grew up playing the guitar music of Fernando Sor, though it is less fun to listen to.

6. Economist: Xavier Sala-i-Martin; his home page is full of interesting links.

7. Bandleader: Xavier Cugat.  Wong Kar-Wai likes him but mostly he is forgotten.  Here is a good video and you can hear his unusual Spanish accent as well.

8. Medieval theologian and memory expert: Ramon Llull.  I am a big fan of Llull, a cosmopolitan polymath and early advocate of animal welfare.  I wrote a part of my next book about him, although I ended up cutting it out of the final draft because it didn't quite fit.

9. Movie, set in: I've never seen Barcelona (is it good?), so I have to go with Vicky Cristina Barcelona.  There's probably a better movie set in Barcelona, but offhand I don't know it.

10. Chess openingDuh.

They have a bunch of opera singers too.

The bottom line: This is an impressive showing, yet what ties it all together remains elusive in my mind.  Perhaps that is what makes the region so interesting.

Hennessey on CAFE

Excellent post, filled with detail, by Keith Hennessey on CAFE.  Some highlights:

The NHTSA analyses look at a range of benefits to society, including economic and national security benefits from using less oil, health and environmental benefits from less pollution, and environmental benefits from fewer greeenhouse gas emissions (this is new).  They also consider the costs, primarily from requiring more fuel-saving technologies to be included by manufacturers….

Rather than maximizing net societal benefits, [the Obama] proposal raises the standard until (total societal benefits = total societal costs), meaning the net benefits to society are roughly zero…

The Obama plan will increase costs enough to further suppress demand for new cars and trucks. This will cause significant job loss, and probably in the 150K 50K range over 5-ish years, with a fairly wide error band….[updated to reflect an error in calculation, AT]

The Obama option would reduce the global temperature by seven thousandths of a degree Celsius by the end of this century….[and] would reduce the sea-level rise by six hundredths of a centimeter.  That’s 0.6 millimeters.

Note that these points are all drawn from NHTSA work (see Hennessey's post for details) not from a "think tank" study.  Finally, Hennessey is concerned about the future:

…As early as this fall, greenhouse gases could become “regulated pollutants” under the Clean Air Act. Once something becomes a “regulated pollutant,” a whole bunch of other parts of the Clean Air Act kick in, and EPA is off to the races in regulating greenhouse gases from a much (much) wider range of sources, including power plants, hospitals, schools, manufacturers, and big stores.

One of the scariest elements of this is called the “Prevention of Significant Deterioration” permitting system. In effect, EPA could insert itself (or your State environmental agency) into most local planning and zoning processes. I will write more about this in the future. It terrifies me.

Sentences to ponder

From Arnold Kling:

So, my advice to Paul and Brad is this: don't start with a model that
focuses on investor beliefs about real economic variables. Instead,
start with a model in which financial firms use signaling to expand,
and the credibility of those signals increases over time as long as
nothing adverse happens. It should be easy to develop a model in which
signaling devices gain credibility slowly but lose credibility
suddenly. That will (a) produce the asymmetry between euphorias and
crashes and (b) tell a story that puts the fragility of the financial
sector in the middle, where it belongs.

Profile of Nouriel Roubini

This one was fun.  Excerpt:

Some economists — strict academics mostly–have long considered Roubini a quack. They
sneer at his approach, which is wide, deep, and deeply unconventional.
When he travels, for instance, he says his research includes talking to
"everyone from the airport cab driver all the way to the finance
minister." One prominent economist who studies recession indicators
recently slammed Roubini for his "subjective," "wild man" predictions
because they don't always rely on econometric modeling. And Roubini
certainly didn't help his case at an IMF conference in September 2006,
when he guesstimated the chances of a world recession at 70 percent
before offering, by way of explanation, that he had pulled the number
"just out of my nose."

Estonia Schadenfreude

It is now common in the left-leaning blogosphere to cite Estonia, its rapidly collapsing economy, and its earlier free market policies.  Sometimes the name of Dan Mitchell pops up as well.

I would add a cautionary note.  Recall for instance that Chile and South Korea and New Zealand also had collapsing economies, for a while (the early 80s for Chile and late 80s for NZ) but they rebounded because they were built on relatively sound economic policies.  The point can be made that they, like the Estonians, indulged in too much speculative excess but most Estonian decisions have been good ones.

Which Eastern European economy has suffered least from the financial crisis?  By most accounts it is Bulgaria.  Should we envy their economic policies?  Should you prefer the Bulgarian Way to the Estonian Way?

Which country has a future you would bet upon?

Etc.

The new Gabriel García Márquez biography

One day [Alvaro] Mutis climbed the seven flights of stairs, carried two books into the apartment without saying hello, slapped them down on the table, and roared: "Stop fucking about and read that vaina, so you'll learn how to write!"  Whether all García Márquez's friends really swore all the time during these years we will never know — but in his anecdotes they do.  The two slim books were a novel entitled Pedro Páramo, which had been published in 1955, and a collection of stories entitled The Burning Plain (El llano en llamas), published in 1953.  The writer was the Mexican Juan Rulfo.  García Márquez read Pedro Páramo twice the first day, and The Burning Plain the next day.  He claims that he had never been so impressed by anything since he had first read Kafka; that he learned Pedro Páramo, literally, by heart; and that he read nothing else for the rest of the year because everything else seemed so inferior.

That is from the new and noteworthy Gerald Martin biography of García Márquez.  This very impressive (and enjoyable) book was seventeen years in the making.  It's also not a bad way to learn about the political and economic history of northern Colombia.  This should make any short list of either the best non-fiction books this year or the best literary biographies.  The reader also learns the probable origins of the famed spat with Mario Vargas Llosa (p.375); it had to do with a woman, namely Vargas Llosa's wife.

This paragraph has an idea I hadn’t heard before

What sweet words those are.  Here is the paragraph, from The Economist:

Matt King, an analyst at Citigroup, believes that the surge in
securitisation during the bubble can partly be explained by a massive
mismatch between the regulatory regimes of American and European banks.
Those American banks whose regulator imposed a leverage ratio had an
incentive to move assets off their balance-sheets. European banks which
operated only under a risk-weighted capital regime were able to buy
those very same assets because they attracted a low capital charge.
With risk weightings on the rise, and leverage ratios all the rage, the
capacity of European banks to purchase these assets is shrinking.

The broader question is to what extent the securitization model will make a comeback anytime soon.

Addendum: Arnold Kling comments.

WolframAlpha Easter Eggs

The excellent Eric Crampton writes to me:

If you find any more, let me know.  Ones I've found so far:

What is the meaning of life?
What is the velocity of an unladen swallow?
How many roads must a man walk down?
How much wood could a woodchuck chuck?
Why did the chicken cross the road?
How many angels can dance on the head of a pin?

He blogged this experience, along with the answers he got, here.  WolframAlpha also tells us that angels have no extension and therefore an infinite number of them can dance on the head of a pin.

Gary Gorton’s new paper

Find it here, with this abstract:

The
'shadow banking system' at the heart of the current credit crisis is,
in fact, a real banking system – and is vulnerable to a banking panic.
Indeed, the events starting in August 2007 are a banking panic. A
banking panic is a systemic event because the banking system cannot
honor its obligations and is insolvent. Unlike the historical banking
panics of the 19th and early 20th centuries, the current banking panic
is a wholesale panic, not a retail panic. In the earlier episodes,
depositors ran to their banks and demanded cash in exchange for their
checking accounts. Unable to meet those demands, the banking system
became insolvent. The current panic involved financial firms 'running'
on other financial firms by not renewing sale and repurchase agreements
(repo) or increasing the repo margin ('haircut'), forcing massive
deleveraging, and resulting in the banking system being insolvent. The
earlier episodes have many features in common with the current crisis,
and examination of history can help understand the current situation
and guide thoughts about reform of bank regulation. New regulation can
facilitate the functioning of the shadow banking system, making it less
vulnerable to panic.

Addendum: Arnold Kling summarizes some of the recommendations:

1. Senior tranches of securitizations of approved asset classes should be insured by the government.
2. The government must supervise and examine "banks," i.e.,
securitizations, rather than rely on ratings agencies. That is, the
choices of asset class, portfolio, and tranching must be overseen be
examiners.
3. Entry into securitization should be limited, and any firm that enters is deemed a "bank" and subject to supervision.

The Politics of Cap and Trade

Good overview in the NYTimes on the politics of cap and trade.  The bottom line:

How did cap and trade, hatched as an academic theory in obscure
economic journals half a century ago, become the policy of choice in
the debate over how to slow the heating of the planet? And how did it
come to eclipse the idea of simply slapping a tax on energy consumption…

The answer is not to be found in the study of
economics or environmental science, but in the realm where most policy
debates are ultimately settled: politics…Cap and trade…is almost perfectly designed for the buying
and selling of political support through the granting of valuable
emissions permits to favor specific industries and even specific
Congressional districts.That is precisely what is taking place now in the House Energy and Commerce Committee…

Here is how Tyler and I put it in Modern Principles: Microeconomics

With a tax, firms
must pay the government for each ton
of pollutant that they emit. With pollution
allowances, firms must either use
the pollution allowances that they are
given or if they want to emit more they
must buy allowances from other firms.
Either way, firms that are given allowances
in the initial allocation get a
big benefit compared to having to pay
taxes. Thus, some people say that pollution
allowances equal corrective taxes
plus corporate welfare.
That’s not necessarily the best way of
looking at the issue…

…To make progress against global warming, may require building
a political coalition. A carbon tax pushes one very powerful and interested
group, the large energy firms, into the opposition. If tradable allowances are
instead given to firms initially, there is a better chance of bringing the large energy
firms into the coalition. Perhaps it’s not fair that politically powerful
groups must be bought off but as Otto von Bismarck, Germany’s first chancellor,
once said,”Laws are like sausages, it is better not to see them being made.”
We can only add that producing both laws and sausages requires some pork.

Careful readers may recognize a friendly jab at a competitor.