Month: June 2010
The city continues to deindustrialize:
Most of the problems date back to the end of World War II when most large companies moved their headquarters to West Germany — for example, Siemens moved to Munich and the banking industry fled to Frankfurt.
After German reunification in 1990, East German industry collapsed when state subsidies were cut. Also, Berlin failed to stop spending at a rate it was used to, especially when federal payments were slashed in 1995 from almost 8 million euros to 2 million euros.
As a result, since 1991, Berlin's debt has risen nearly six-fold, from 10 billion to 61 billion euros, giving it the highest per capita debt level of any state in Germany. The city has lost about 100,000 industrial jobs since 1990.
As I've noted before, neither land nor labor are remarkably scarce here, and so most items and apartments are very cheap, especially by European standards but even by south German standards. Could it be that marginal cost pricing reigns at the retail level?
The cheapness makes Berlin a magnet. I am told that large numbers of people — especially foreigners — live here part of the year but earn most of their money elsewhere. Think of a twenty-something writing a novel or a dancer or singer in training.
Did you know that only about forty percent of the German population is employed? I would be surprised if it were that much in Berlin. You can view that figure as a realization of (temporary) utopia, the result of screwy anti-work economic policies, or a bit of both.
I thank Sebastian T. for the pointer and also Ines for a useful discussion.
Singapore airlines is the pinnacle of sensory branding and offers a full scale assault on our brains. Like any other airline, Singapore airlines employs common consistent visual themes. Unlike other airlines the company incorporates the same scent, Stefan Floridian Waters, in the perfume worn by flight attendants, in their hot towels, and other elements of their service. Flight attendants must be physically attractive and wear uniforms made from fine silk which incorporates elements of the cabin decor. The airline strives to make every customer interaction both appealing, and, equally important, consistent from encounter to encounter. It's no wonder the airline is perennially at the top of travelers' preference rankings.
There is more here and I thank Shane for the pointer.
6. Sumner and Caplan on wage stickiness. On the same topic, here is another perspective. Clearly wages are to some extent sticky in nominal terms. But if people who work on commission and tips are out of work in large numbers, or if truly flex-wage workers are being laid off, why see wage stickiness as the #1 culprit? (Scott isn't following through the logical implications of his cyclicality point.) In economies with truly flexible wages, people are forced to retreat into household production in down times and that is perhaps a better parable for America today. No one will hire them, flexibility or not. Plus if workers are irrational by focusing on the nominal rather than the real values, it's easy enough to trick them by cutting real benefits and working conditions, thereby saving the employer money. Real wage flexibility should be enough to keep them at work, yet it isn't.
NEW REGULATORY AUTHORITY: Gives federal regulators new authority to seize and break up large troubled financial firms without taxpayer bailouts in cases where the firm's collapse could destabilize the financial system. Sets up a liquidation procedure run by the FDIC. Treasury would supply funds to cover the
up-front costs of winding down the failed firm, but the government would have to put a "repayment plan" in place. Regulators would recoup any losses incurred from the wind-down afterwards by assessing fees on financial firms with more than $50 billion in assets.
OVERALL A GOOD PROVISION, ALTHOUGH THE ACTUAL INCIDENCE OF THESE FEES IS TRICKIER THAN THE DESCRIPTION INDICATES.
FINANCIAL STABILITY COUNCIL: Would establish a new, 10-member Financial Stability Oversight Council, comprising existing regulators charged with monitoring and addressing system-wide risks to the nation's financial stability. Among its duties, the council would recommend to the Fed stricter capital, leverage and other rules for large, complex financial firms that are judged to threaten the financial system. In extreme cases, it would have the power to break up financial firms.
I'M NOT ENTHUSIASTIC, THOUGH PERHAPS IT WILL JUST BE A WASH. NONETHELESS IT REFLECTS A BAD AND DANGEROUS ATTITUDE ABOUT WHAT REGULATORS ARE CAPABLE OF.
VOLCKER RULE: Would curb propriety trading by the largest financial firms, though banks could make de minimus investments in hedge and private-equity funds. Those investments would be limited to 3% or less of a bank's Tier 1 capital. Banks would be prohibited from bailing out a fund in which they are invested.
IT'S HARD TO TELL WHAT ACTUAL RESTRICTIONS WILL BE IN PLACE AND MOST LIKELY THERE WILL BE MAJOR LOOPHOLES. YOU DON'T HAVE TO HATE THIS PROPOSAL — RECALL THE POPULARITY OF "NARROW BANKING" PROPOSALS IN THE 1990S AS A KIND OF SECOND-BEST REFORM, CONSIDERED BY MANY MARKET-ORIENTED ECONOMISTS. FURTHERMORE IF MARKETS ARE PRETTY LIQUID, KEEPING THE BANKS OUT OF THESE MARKETS MAY NOT HARM MUCH AT ALL. STILL, I'LL PREDICT THIS DOESN'T DO ANY GOOD.
DERIVATIVES: Would for the first time extend comprehensive regulation to the over-the-counter derivatives market, including the trading of the products and the companies that sell them. Would require many routine derivatives to be traded on exchanges and routed through clearinghouses. Customized swaps could still be traded over-the-counter, but they would have to be reported to central repositories so regulators could get a broader picture of what's going on in the market. Would impose new capital, margin, reporting, record-keeping and business conduct rules on firms that deal in derivatives.
I WAS AN EARLY PROPONENT OF THIS IDEA MYSELF, BUT LATELY I'VE STARTED TO WORRY ABOUT HOW WELL CAPITALIZED THIS CLEARINGHOUSE WILL NEED TO BE. I'LL STILL COUNT IT AS A NET PLUS, BUT I DON'T THINK WE'VE THOUGHT IT THROUGH VERY WELL.
SWAPS SPIN-OFF: Would require banks to spin off only their riskiest derivatives trading operations into affiliates, in a late-night compromise struck to scale back a controversial provision championed by Sen. Blanche Lincoln (D., Ark.). Banks would be able to retain operations for interest-rate swaps, foreign-exchange swaps, and gold and silver swaps among others. Firms would be required to push trading in agriculture, uncleared commodities, most metals, and energy swaps to their affiliates.
THE DEVIL IS IN THE DETAILS. MAYBE THE AFFILIATES ARE NOT "TOO BIG TO FAIL" BUT WHAT REALLY MATTERS ARE THE COUNTERPARTIES ON THE OTHER SIDE OF THE TRANSACTION. WE STILL BAILED OUT LTCM, REMEMBER THAT?
CONSUMER AGENCY: Would create a new Consumer Financial Protection Bureau within the Federal Reserve, with rulemaking and some enforcement power over banks and non-banks that offer consumer financial products or services such as credit cards, mortgages and other loans. The new watchdog would have authority to examine and enforce regulations for all mortgage-related businesses; banks and credit unions with assets of more than $10 billion in assets; pay day lenders, check cashers and certain other non-bank financial firms. Auto dealers won a hard-fought exemption from the Bureau's reach.
PRE-EMPTION: Would allow states to impose their own stricter consumer protection laws on national banks. National banks could seek exemption from state laws on a case-by-case, state-by-state basis if a state law "prevents or significantly interferes" with the bank's ability to do business – a higher bar than federal regulators currently must meet to pre-empt state rules. State attorneys-general would have power to enforce certain rules issued by the new consumer financial protection bureau.
THIS SHIFTS THE WORDING OF THE LAW, BUT DOES IT CHANGE THE POLITICAL EQUILIBRIUM? AGAIN, "WE;LL SEE."
FEDERAL RESERVE OVERSIGHT: Would mandate a one-time audit of all of the Fed's emergency lending programs from the financial crisis. The Fed also would disclose, with a two-year lag, details of loans it makes to banks through its discount window as well as open market transactions – activity the Fed currently doesn't disclose. Would eliminate the role of bankers in picking presidents at the Fed's 12 regional banks. Would also limit the Fed's 13(3) emergency lending authority by barring the central bank from using it to aid an
individual firm, requiring the Treasury Secretary to approve any lending program and prohibiting the participation of insolvent firms.
A MISTAKE, BUT THIS COULD HAVE BEEN MUCH WORSE.
OVERSIGHT CHANGES: Would eliminate the Office of Thrift Supervision, but after a fight, the Fed retained oversight of thousands of community banks. Would empower the Fed to supervise the largest, most complex financial companies to ensure that the government understands the risks and complexities of firms that could pose a risk to the broader economy.
OVERALL I AM PRO-FED AND SO THIS PLANK COULD HAVE BEEN MUCH WORSE, FORTUNATELY WE HAVE NOT REALLOCATED FED POWERS IN A MAJOR WAY TO LESSER REGULATORS.
BANK CAPITAL STANDARDS: Would set new size- and risk-based capital standards, including a prohibition on large bank holding companies treating trust-preferred securities as Tier 1 capital, a key measure of a bank's strength. Would grandfather trust-preferred securities for banks with less than $15 billion in assets, enabling them to continue treating the securities as Tier 1 capital. Larger banks would have five years to phase-out trust-preferred securities as Tier 1 capital.
IT'S BASEL III WHICH WILL REALLY MATTER AND WE SHOULDN'T EXPECT MUCH FROM THAT FORUM. WE'RE DROPPING THE BALL ON A MAJOR ISSUE.
BANK FEE: Would mandate the Oversight Council to impose a special assessment on the nation's largest financial firms to raise up to $19 billion to offset the cost of the bill. The fee would apply to financial institutions with more than $50 billion in assets and hedge funds with more than $10 billion in assets, with entities deemed high risk paying more than safer ones. The fee would be collected by the FDIC over five years, with the funds placed in separate fund in the Treasury and would not be usable for any other purpose for 25 years, after which any left-over funds would go to pay down the national debt.
THIS IS FOR PR, SO THE POLITICIANS CAN CLAIM TAXPAYERS WON'T BE ON THE HOOK AGAIN. RIGHT. ALSO, STUDY TAX INCIDENCE THEORY AND GET BACK TO ME.
DEPOSIT INSURANCE: Would permanently increase the level of federal deposit insurance for banks, thrifts and credit unions to $250,000, retroactive to January 1, 2008.
ALREADY DONE, SO TO SPEAK.
MORTGAGES: Would establish new national minimum underwriting standards for home mortgages. Lenders would be required for the first time to ensure that a borrower is able to repay a home loan by verifying the borrower's income, credit history and job status. Would ban payments to brokers for steering borrowers to high-priced loans.
DEVIL IS IN THE DETAILS.
SECURITIZATION: Banks that package loans would, broadly, be required to keep 5% of the credit risk on their balance sheets. Would direct bank regulators to exempt from the rules a class of low-risk mortgages that meet certain minimum standards. Regulators could permit alternative risk-retention arrangements for
the commercial mortgage-backed securities market.
WASTE OF TIME. YOU CAN JUST AS EASILY ARGUE THE PROBLEM WAS INSUFFICIENT SECURITIZATION. AND HOW HAVE SIMILAR RULES WORKED OUT FOR THE SPANISH?
CREDIT RATING AGENCIES: Would revamp the credit-rating industry, establishing a new quasi-government entity designed to address conflicts of interest inherent in the credit-rating business after the SEC studies the matter. Would also allow investors to sue credit-rating firms for a "knowing or reckless" failure to conduct a reasonable investigation, a lower liability standard than the firms were lobbying to get. Would establish a new oversight office within the SEC with the ability to fine ratings agencies and empowers the SEC to
deregister a firm that gives too many bad ratings over time.
THE BEST EQUILIBRIUM IS TO HAVE DISCREDITED RATINGS AGENCIES, NOT REVAMPED AND REREGULATED AGENCIES.
INVESTMENT ADVICE: Would give the SEC the authority to raise standards for broker dealers who give investment advice after the agency studies the issue. Would permit, but not require, the SEC to hold broker dealers to a fiduciary duty similar to the standard to which investment advisers are held.
COULD EASILY END UP MEANING NOTHING.
CORPORATE GOVERNANCE: Would give shareholders of public corporations a non-binding vote on executive pay and "golden parachutes," and would give the SEC the authority to grant shareholders proxy access to nominate directors.
COULD EASILY END UP MEANING NOTHING.
HEDGE FUNDS: Would require hedge funds and private equity funds to register with the SEC as investment advisers and to provide information on trades to help regulators monitor systemic risk.
COULD EASILY END UP MEANING NOTHING.
INSURANCE: Would create a new Federal Insurance Office within the Treasury Department to monitor the insurance industry, recommending to the systemic risk council insurers that should be treated as systemically important. Would require the new office to report to Congress on ways to modernize insurance
I AGREE WE SHOULD NOT TRUST STATE-LEVEL REGULATORS WITH FIRMS SUCH AS AIG, BUT LET'S HAVE MODEST EXPECTATIONS ABOUT WHAT THIS OFFICE WILL ACHIEVE. IT PROBABLY WOULDN'T HAVE STOPPED THE AIG DEBACLE EITHER.
-By Victoria McGrane, Dow Jones Newswires
THE BOTTOM LINE: THE GOOD PARTS OF THE BILL AREN'T NEARLY AS GOOD AS THEY SHOULD BE, AND THE BAD PARTS BECAME MUCH BETTER WITH TIME. THE BIGGEST OMISSIONS ARE SIMPLE AND TOUGHER RESTRICTIONS ON LEVERAGE AND REFORM OF THE MORTGAGE AGENCIES. OVERALL CONSIDER THIS A VICTORY FOR THE STATUS QUO AND YOU SHOULD REALIZE THAT THE UNDERLYING PROBLEMS HAVE NOT BEEN SOLVED.
Here is my latest NYT column, which they titled "The Pendulum Swings Back to Austerity." Excerpt:
The unfolding of the financial crisis has also changed the public’s sense of where change is needed, both in the United States and Europe. The tragedies of 2008 were represented by Bear Stearns and Lehman Brothers – both private-sector institutions. In 2010, the financial crisis has spread to sovereign debt, with Greece as the most obvious example.
All of these developments are part of one broader story of overreach and complacency. Yet the 2008 crises were attached more directly to market institutions, while the 2010 crises are more closely linked to governments. Because politicians and voters are more influenced by the latest developments than by news from two or three years earlier, a cautious attitude toward public-sector spending has been further cemented.
Democracies, like markets, have some self-correcting mechanisms, and we are now seeing those at work in the United States and many European countries. (Spain and Britain, for example, are pursuing fiscal austerity aggressively.)
The lessons are straightforward. First, to paraphrase the French moralist La Rochefoucauld, things are never as good, or as bad, as they seem. Second, the Obama reforms, like the Reagan revolution, are turning out to be radically incomplete, which should come as no surprise.
Finally, effective political ideas are those that can still do good in half-baked form. We have neglected this insight in designing financial reform, and it remains to be seen if we can apply it successfully to climate change.
Overall, I believe we are headed toward slower growth and a larger public sector, but I do not believe we are headed down the road to serfdom. At the same time, I am aiming at a different target. Critics of incrementalism are usually too focused on the single issue at hand — where they are sure they know best — and not sufficiently aware of the efficiency properties of the broader system, which introduces self-correction mechanisms to counter or limit most major changes.
If I had to stress one sentence from the piece, it would be this one:
Finally, effective political ideas are those that can still do good in half-baked form.
Here is one good bit of many:
“I can’t bear living in this huge beautiful world,” Mitchell said, gesturing to the rolling green hills and the glittering calm sea, “and not try to imitate it as best I can. That’s the desire and the drive. But it’s maybe closer to hunger or thirst. The only way I can quench it is to try to duplicate it on as huge a scale as I can possibly do. I want to capture that,” he said, turning in a circle on the sand and gesturing beyond the beach and the hills, “all the way around the world and all the way to your home and all the way around and back. I want to do all of that here and transmit it through ink.”
Longterm Guy, a long-standing MR reader, sends me this:
A Treatise Of Human Nature, by David Hume, Volume Two
BOOK II OF THE PASSIONS
PART I OF PRIDE AND HUMILITY
SECT. XII OF THE PRIDE AND HUMILITY OF ANIMALS
It is plain, that almost in every species of creatures, but especially of the nobler kind, there are many evident marks of pride and humility. The very port and gait of a swan, or turkey, or peacock show the high idea he has entertained of himself, and his contempt of all others. This is the more remarkable, that in the two last species of animals, the pride always attends the beauty, and is discovered in the male only. The vanity and emulation of nightingales in singing have been commonly remarked; as likewise that of horses in swiftness, of hounds in sagacity and smell, of the bull and cock in strength, and of every other animal in his particular excellency. Add to this, that every species of creatures, which approach so often to man, as to familiarize themselves with him, show an evident pride in his approbation, and are pleased with his praises and caresses, independent of every other consideration. Nor are they the caresses of every one without distinction, which give them this vanity, but those principally of the persons they know and love; in the same manner as that passion is excited in mankind. All these are evident proofs, that pride and humility are not merely human passions, but extend themselves over the whole animal creation.
One summary of the details is here (I don't know whatever inside story there may be), but the bottom line is that he had to resign from The Washington Post because of negative comments he made about conservative figures on a supposedly private email list. Weigel's job for the Post was to cover the conservative movement and it seems the Post expected him to maintain a more objective stance, including in his private emails. Matt Yglesias has more extensive coverage of the episode and here is Ross Douthat. Here is Weigel's account and apology, which includes the postings which got him into trouble. And here is a detailed Politico article.
It is likely I prefer Weigel over his replacement, and if you're wondering I don't know Weigel well, even though he lives nearby.
At a more general level this is a tax on journalists, who now have a greater fear of being fired for past actions. It's also a tax on the moody, the volatile, the web-savvy, the non-mainstream, and a subsidy to in-control smooth talkers and careful writers.
The Washington Post wrote:
“But we’re living in an era when maybe we need to add a level” of inquiry, he [a WP web site managing editor] said. “It may be in our interests to ask potential reporters: ‘In private… have you expressed any opinions that would make it difficult for you to do your job.”
I'm not sure what kind of answers they expect to that question nor what they understand by the word "private" in that context.
Conceptually, the core problem is that the distinction between the private and public spheres is breaking down, but at different rates for individuals and mainstream institutions. The practical question is what an equilibrium would look like for the WP, given that the paper courts advertisers, relies on political contacts, and wishes to avoid becoming a target for right-wing (and left-wing) media. It's easy to imagine the targets of Weigel's criticisms citing them repeatedly against the Washington Post and questioning the Post's objectivity. "Oh, that was written by the guy who said that…"
One possible outcome is that the current public code of behavior becomes applied to writers' private lives and I suppose that is what we are seeing and it is also what a lot of "common knowledge" models would predict. That is, most of us know that many writers say such things in private, but that's tolerated as long as it doesn't become common knowledge about any particular writer.
Common knowledge mechanisms often lead to inefficient (and unfair) outcomes, in part by non-convexying returns with regard to the actions of the individual. Maybe we would like taxes to be linked to individual type, but common knowledge mechanisms tend to link the actual "tax" to how social forces process information about an individual. A polemicist who is secretly taped encounters a greatly different outcome.than a polemicist who is not taped.
One option is for public institutions to adopt a "statute of limitations" for private remarks and with a short time window. That would not help in this case, since Weigel's relevant postings do not predate his Post employment; still it might be a good reform. Another option is for public institutions to adopt different norms for their web writers. There are already different norms to some extent (web writings receive less editing, for instance), but it is hard to spread the different norm for the writing to become a different norm for the writer. Web traffic is already massive for newspapers, and most readers probably do not distinguish between different kinds of paper employees, such as web vs. non-web. Anyway, it's a fuzzy line if a writer has both web and non-web output.
A more radical change would move away from the manufactured image of the objective newspaper, but this is especially difficult for the Post, given that it relies on both conservative and liberal sources for its key political coverage.
Overall, we need more incentive-compatible, generalizable organizational reforms which will allow mainstream institutions to have more flexible relationships, and indeed sometimes more distanced relationships, with their writers. Yet reputational forces are often quite blunt, and grossly calculated, and mainstream institutions are not very far along on making such reforms work.
New Environmental Protection Agency regulations treat spilled milk like oil, requiring farmers to build extra storage tanks and form emergency spill plans.
Local farming advocates says it’s ridiculous to regulate a liquid with a small percentage of butter fat the same way as the now-infamous BP oil spill.
“It’s just another, unnecessary over-regulation by the government just lacking any common sense,” said Bill Robb, dairy educator for Michigan State University Extension…
The EPA regulations state that “milk typically contains a percentage of animal fat, which is a non-petroleum oil. Thus, containers storing milk are subject to the Oil Spill Prevention, Control and Countermeasure Program rule when they meet the applicability criteria…"
Seriously, this is not from The Onion.
Do note that the issue is not even regulation of milk spills it's regulation of milk under the oil spill prevention law. Given the power of farmers, my bet is that these laws will not go into effect; even so I do not expect a milk gusher.
Hat tip to Joshua Hedlund.
Gulati graduated Magna Cum Laude from Bucknell University and earned his M.A. and M. Phil. in Economics at Columbia University. He served on the Columbia Economics Faculty from 1986 to1990 before joining the World Bank through its Young Professionals Program in 1991 and serving as country economist for the emerging country of Moldova.
He [Howard] refuses to take medication for [Tourette's] for fear it will make him "zombielike" and impair his motor skills. "I'm very adrenaline-filled, and I wouldn't want to suppress that," Howard said. "I like the way I am. If I woke up tomorrow without Tourette's, I wouldn't know what to do with myself."
Paris has dozens of restaurants which are better than any in Berlin, and then hundreds more better than the rest. Yet it may be the case that you have, overall, a better food life in Berlin than in Paris.
Berlin has a weak reputation among foodies, but culinary life in the city is much improved. Here are my tips for a good eating life in Berlin:
1. Find a steady source of innovative rolls, buns, and dark breads. These are the glories of Berlin and in many parts of town there will be at least one such source per residential block. The more irregular the colors, seeds, and topologies of the breads, the more enthusiastically you should buy them. Do not treat this as the French bread buying experience.
2. Find a source for good spreads, such as cherry, raspberry, etc. and stock up. Repeatedly apply the spreads to the breads, until death of the researcher intervenes. This procedure is the basis for everything else you will do. It ensures that all of your food days will be good ones.
3. Seek out mid-level German restaurants, of the kind promoted in the Time Out Guide; Renger-Patzsch is a good example. The vegetables in such places will be consistently excellent.
4. The speed and service quality of most meals will be much better if you arrive before 7 p.m.
5. Don't obsess over German food. It's underrated, but still a lot of it isn't that good. In Berlin, and many other parts of Germany, you have first-class delicatessens or stores with foodstuffs from France, Italy, and many other parts of the world. Use them. Berlin offers one of the best overall selections in this regard, better than New York City or Paris, for instance, in terms of real access. You can eat first-rate French cheese every day.
6. When it comes to Berlin German food, don't eat anything in a sauce. It will be either boring or disgusting. Sorry.
7. The sausage spread at the KaDeWe (make sure you live near that place) is probably the best in the entire world. Go there regularly. They also have first-rate sausages from France, Spain, and other countries, as well as an unparalleled selection of sausages from the different regions of Germany, organized one region per case. This food source, like #1, insures that each of your food days will be a splendid one.
8. Go to Berlin's numerous and varied ethnic restaurants, especially in the slightly lower rent districts. If the food is supposed to be spicy, you must repeat the following incantation several times: "Ich will es essen, genau wie Sie es zu Hause essen. Ich bin kein deutscher." [I want to eat it exactly as you eat it at home. I am not a German."] Repeat especially that last part: "Ich bin kein deutscher." Repeat it even if you are a German. This will usually work and typically your Chinese or Thai or Indian server will smile and laugh in response. If they view you as a German, you are screwed no matter what. Simply asking for the food to be "spicy" or even "very spicy" is laughable. It is showing yourself to be a fool and a sucker.
9. Food here is much cheaper than in Paris, and it is much easier to get into virtually any restaurant. Take advantage of both features.
10. Italian food here is almost always reasonably good, and reasonably cheap, but it is rarely great. Lots of cream sauces. It's a good enough fall back and you find it virtually everywhere. A quite good pasta for $6 or even less is a common experience. Sometimes it's actually German food in disguise, or not in disguise, such as when you get Carpaccio with Pfifferlinge.
11. For ethnic food, I recommend the following: Tian Fu in Wilmersdorf (very good Sichuan), Suriya-Kanthi (Sri Lankan in Prenzlauer Berg), Genazvale (Georgian food in Charlottenburg), Degirman is one good Turkish place of many, a slew of authentic Mexican restaurants (more than in Virginia), DAO restaurant in Charlottenburg (Thai food, best papaya salad I've had, all-around excellent), and Schneeweiss has first-rate Wiener Schnitzel.
Overall Sri Lankan and Nepalese and East bloc cuisines are better here, or more available, than in the USA.
If you visit for one day, you won't be so impressed with culinary life in Berlin. If you stay for a month, you won't want to go back to what you had before.