Month: October 2009
Today's Financial Times writes about the Central Organization Department of China:
To glean a sense of the dimensions of the organization department's job, conjure up a parallel body in Washington. The imaginary department would oversee the appointments of US state governors and their deputies; the mayors of big cities; heads of federal regulatory agencies; the chief executives of General Electric, Exxon-Mobil, Walmart and 50-odd of the remaining largest companies; justices on the Supreme Court; the editors of The New York Times, The Wall Street Journal and The Washington Post; the bosses of the television networks and cable stations; the presidents of Yale and Harvard and other big universities and the heads of think-tanks such as the Brookings Institution and the Heritage Foundation.
All equivalent positions in China are filled by people appointed by the party through the organization department.
I would not want to be on the bad side of the Central Organization Department. The full article, which is interesting throughout, is here. It's also related to why I don't see China just evolving into a normal democracy.
I haven't stopped thinking about fiscal policy, but I'm not so keen to just repeat my previous posts (google "fiscal stimulus" and related phrases into the MR search function if you wish). I am, however, willing to listen to Arnold Kling:
From the Recalculation perspective, the economy needs to shift
resources out of some sectors and into others. The government is either
(a) permanently shifting resources from the private sector to
government or (b) temporarily shifting resources from the private
sector to government. If it is doing (a), then we are not facing mere
temporary deficits but permanent increases in government spending, and
eventually we will have to figure out how to pay for them. If it is
doing (b), then the Recalculation problem isn't really being solved.
Instead, at best the government is redistributing the pain from the
reallocation process out of the present and into the future. People who
otherwise would be unemployed can find temporary work on government
projects, but when those projects expire they will go back to being
unemployed. This is what makes the fiscal exit strategy so problematic.
In my view that is exactly correct. It's also why current gdp measures and projections aren't picking up how well the stimulus is or isn't working. A higher monetary velocity, as induced by fiscal policy, will indeed boost nominal gdp, but we need to see how well these projects stick, or not, with time.
Addendum: Matt Yglesias comments.
Religious goods stores have been doing a record business in St. Joseph statues. Buried in the garden of a home for sale, the doll allegedly helps the house to find a buyer.
Some find the notion of magic house sales distasteful. “If you just
bury the statue in the ground, you’re not going to sell your home,”
said Gerard Siccardi, whose family runs a religious-goods business in
White Plains. “You’re supposed to pray. You’re supposed to have some
reverence about this. It’s a faith-based item.”
@tylercowen Just noticed that your praise of twitter was almost all externalities–ways a nonuser could benefit. Perverse sort of praise.
That is Hyperpape, from Twitter. By "nonuser" I think he means "non-tweeter," not non-reader or non-searcher. In my portrait Twitter consists mainly of social benefits yet it offers few private gains for many generators of the content. So why do so many people do it? Maybe it tricks our instincts for sociability or connection.
If suppliers can control our environments to an increasing degree, and thus trick our instincts, is "all externalities" the production paradigm of the future? Is that what the web is about?
Maybe I should tweet that.
It would be odd if a medium which appears to offer so much choice in fact tricks and enslaves us to work for others.
Here is my previous praise of Twitter.
The Monetary Control and the Garn-St.Germain Acts of 1980 and 1982 allowed market innovations that dramatically reduced these equity requirements: Greater access to sub-prime mortgages, mortgage refinancing, and home equity loans, reduced effective down payments and increased effective repayment periods. More important for the short run, it enabled households to cash-out previously accumulated home equity, which in 1982 amounted to 71 percent of GDP. This was followed by a huge wave of household borrowing.
Maybe I’ll deal with the 1980 Act another time. but on Garn-St. Germain those claims are not easy for me to verify. (Their paper is a theory paper and offers no further evidence or narrative. Here is also an earlier Krugman piece of relevance.)
Here is one summary of what the Garn-St. Germain Act did. Maybe this summary is incomplete but it is hard to see how Garn-St. Germain is responsible for either the current crisis or for the more general decline in national savings rates. The closest I come to finding a relevant passage is:
(7) the act preempted state restrictions on enforcement by lenders of
due-on-sale clauses in most mortgages for a three year period ending
October 15, 1985, and authorized state chartered lenders to offer the
same kinds of alternative mortgages permitted nationally chartered
Over time most institutions moved away from the state charter and those mortgages already were legal at the national level.
Or try this summary of the Act, from a book. Again, the connection is hard to see. In fact Garn-St. Germain freed up S&Ls from investing so much in home mortgages. You can blame that (partially) for the S&L crisis, but the current real estate bubble? Or the general rise in indebtedness which started in the 1980s?
Here’s a recent empirical paper on the rise in U.S. household indebtedness. Not surprisingly, it emphasizes demographic factors as the main causes. pp.18-19 discuss financial innovation as a contributing cause but there is not a peep about Garn-St. Germain. The authors do cite a paper by Wendy Edelberg, who pinpoints some of these innovations as coming in the mid-1990s and resulting from greater risk-based pricing of loans.
On mortgages, a lot of the relevant deregulation occurred at the state level or the problem was the simple lack of enforcement of anti-fraud laws. Government-promoted low or zero down payment mortgages date back at least to Section 235 of HUD, from 1968 (a disaster, by the way) and Garn-St. Germain is hardly a turning point in that history.
Maybe I’m wrong about Garn-St. Germain. If so, I’d like to learn how and I am asking you, readers, to set me straight.