Month: April 2010

How much would a Greek devaluation help?

Arnold Kling is skeptical and while I am on board with the economics of the anti-Euro crew, and I think Greece should leave the Euro, I believe the anti-Euro argument is now being pushed too far.

For instance, contra Paul Krugman, I don't see Euro membership as, in this regard, the main economic difference between the British and the Greeks.  Who has the Elgin marbles and how did they get there?  What longer-run historical and cultural forces does this reflect?

Keep in mind there is nothing stopping Greece from cutting the nominal prices of its exports, right now, thereby altering its real terms of trade.  Those prices just aren't *that* sticky, especially if the business model of the country is falling apart.

You could say that the real problem is sticky wages and not sticky export prices.  Maybe so.  Maybe the Greek exporters are saying "I won't cut my price because if I did buyers would want too much and I couldn't meet the market without hiring more labor and even new labor will work for me only at the old prevailing wage rate and, given that elasticities of demand are not high enough, I can't manage the mix of the new lower product price and the old wage rate."

Yes, some of that is going on.  But it's also the case that the Greek economy is a mess, based on fiscal and sectoral delusions of various kinds.  In fact the Greek economy has been a mess — most but not all years — for a long time before joining the Eurozone.

Marshallian joint supply, Russian style

Some Old Believers refused to eat the tsars' recommended new staple food, the potato, because it was an import from the godless West — potatoes were generally hated among the Russian peasantry on their first arrival, before their value in making vodka became apparent.

That is from the still-excellent Christianity: The First Three Thousand Years, p.545.

Assorted links

1. Recipes for a perfect roast chicken.

2. Helium shortage threatens cryogenics.

3. Via Alex, TED talks for entrepreneurs.

4. Bursts: "…everything we do, we do in bursts–brief periods of intensive activity followed by long periods of nothingness. These bursts are so essential to human nature that trying to avoid them is not only foolish, but futile as well."

5. Sample chapter from Diego Gambetta's Codes of the Underworld.

6. Stories vs. systems.

7. Robert Mundell opens World Chess Championship game.

When is a new financial product “too risky”?

Can this be true?  Paul Atkins writes:

For example, before 1996, certain initial public offerings of stocks were subject to merit review in certain states, where the state decided if a security is a "bad" investment and thus not appropriate to be offered to its citizens. In fact, this is exactly what happened to Apple Computer when it first went public in 1980. Massachusetts prohibited the offering of Apple shares because they were "too risky," and Apple did not even bother to offer its shares in Illinois due to strict state laws on new issues. What if federal bureaucrats had had the power to impose their judgment on a "risky" financial product (such as an IPO) on a nationwide scale, or every state followed Massachusetts' lead?

John Gray on Michael Oakeshott

John Gray often misfires, but still he is one of the smartest and most knowledgeable generalists around:

…Oakeshott was not without illusions of his own. He was able to disparage ideology because he believed tradition contained all that was needed for politics; he could not conceive of a situation in which a traditional way of doing politics was no longer possible. Yet that has been the situation in which the Conservative Party has found itself over the past generation. The leader and his cabal of modernisers could hardly expect to undo the more radical modernisation Thatcher had unwittingly imposed on the party. As Cameron will discover, one way or another, an ideologically driven Conservatism is here to stay – even if it means the party once again drifting into limbo.

The full review, which covers British politics and the forthcoming election, is here.  Here is Gray, trying to dismantle A.C. Grayling's rationalism (hat tip The Browser), worth a read.

The culture that is Dutch

Potholes, stray garbage, broken street lamps? Citizens of Eindhoven can now report local issues by iPhone, using the BuitenBeter app that was launched today. After spotting something that needs to be fixed, residents can use the app to take a picture, select an appropriate category and send their complaint directly through to the city council. A combination of GPS and maps lets users pinpoint the exact location of the problem, providing city workers with all the information they need to identify and resolve the problem.

Here is more information, via BrainPicker.  I wonder how well this would work in Rhode Island?

Good luck

It states that all illegal immigrants living in the United States would be required to "come forward to register, be screened, and, if eligible, complete other requirements to earn legal status, including paying taxes."

That's part of the new Democratic immigration plan.  What do they do with the immigrants who aren't liquid enough or solvent enough to pay ten years' back taxes, not to mention those who have no idea what they owe?

Just asking.  Does this plan contain a workable amnesty component at all, or is it just a border and employment clampdown?

There's more detail here, although no answer to my questions.

Germany fact of the day

In essence, the Germans have already tried a lending bailout of Greece:

Add this to the list of reasons German taxpayers are unhappy about having to lend Greece money to ease its debt crisis: In effect, they already have.

Germany’s financial institutions hold some 28 billion euros, or $37 billion, in Greek bonds, according to estimates by Barclays Capital, extrapolating from International Monetary Fund data.

Germany’s regulators and many of its banks do not disclose precise figures, but an informal survey on Wednesday of the largest banks indicates that about half of that debt – rated as junk by Standard & Poor's  since Tuesday – appears on the balance sheets of institutions that are owned or controlled by the German government.

And so Germany’s exposure to Greek debt already exceeds, by far, the $11 billion the country would lend to Greece as part of an initial European Union plan to help the country avoid default on its debt…

The full article is here.  On a related note, EU officials are complaining about the downgrades coming from the credit rating agencies; at this stage of the game that is a stunning and instructive development.  A lot of regulators simply do not want "honest" credit rating agencies and never will want that.

Charity markets in everything, Star Wars edition

It could very well be the ultimate car-obsessed/Star Wars fanboy fantasy. What is this latest object of our geekery? How about a car wash carried out by a gaggle of Princess Leias? And not just any Princess Leia, mind you, but slave Leia.

There is a photo (safe for work), about which you will have mixed opinions, and also videos.  The full account is here and I thank John Thorne for the pointer.

Chickens coming home to roost

In 2000 Dudley Hiibel was arrested and convicted of a crime solely because he refused to identify himself to a police officer.  Hiibel argued that in a free country people don't have to produce their papers just because the police demand them and he argued that his arrest was unconstitutional.  The case, Hiibel v. Sixth Judicial District Court of Nevada, went to the Supreme Court and Dahlia Lithwick, Slate's legal correspondent, made fun of libertarians who supported the plaintiff calling them hysterical and loopy.  She wrote:

It would be easier to credit the Cato and ACLU arguments if we didn't already have to hand over our ID to borrow a library book, obtain a credit card, drive a car, rent videos, obtain medical treatment, or get onto a plane. So the stark question then becomes this: Why are you willing to tell everyone but the state who you are? It's a curious sort of privacy that must be protected from nobody except the government… [Yeah, it's curious that people want to protect themselves from the one organization in society that can legally deprive them of life and liberty. AT]

The slippery-slope arguments–that this leads to a police state in which people are harassed for doing nothing–won't really fly.

Well in Arizona, it's flying now.

Russ Roberts on the financial crisis

His new paper is now on-line.  He summarizes his argument as follows:

1. It isn't "too big to fail" that's the problem, it's the rescue of creditors going back to 1984, encouraged imprudent lending and allowed large financial institutions to become highly leveraged.

2. Shareholder losses do not reduce the problem even when shareholders are the executives making the decisions

3. These incentives allowed execs to justify and fund enormous bonuses until they blew up their firms. Whether they planned on that or not doesn't matter. The incentives remain as long as creditors get bailed out.

4. Changes in regulations encouraged risk-taking by artificially encouraging the attractiveness of AAA-rated securities.

5. Changes in US housing policy helped inflate the housing bubble, particularly the expansion of Fannie and Freddie into low downpayment loans.

6. The increased demand for housing resulting from Fanne and Freddie's expansion pushed up the price of housing and helped make subprime attractive to banks. But the ultimate driver of destruction was leverage. Either lenders were irrationally exuberant or were lulled into that exuberance by the persistent rescues of the previous three decades.

The full paper is here.  Arnold Kling offers comment.

Why carbon tax proponents should talk more about deregulation

After nine years of regulatory review, the federal government gave the green light Wednesday to the nation’s first offshore wind farm, a highly contested project off the coast of Cape Cod.

The full article is here.  But wait, whoops!, I left out one part:

Several regulatory hurdles remain, and opponents of the wind farm have vowed to go to court, potentially stalling Cape Wind for several more years.