Month: July 2011

Markets in everything, Hitler-themed beer edition

For German and Austrian tourists, it would seem, sold from northern Italy.  It is also reported that Germans and Austrians are the people who complain the most about the product.  Here is a photo.  Here is a Google translate on the core article.

My apologies if this is not real, but as far as I can tell it seems to check out.

For the pointer I thank Daniel B.

From the comments

This is from James:

The reason why the rest of western civilization, the majority of living economists, the world markets, most people on the floor of the US stock exchange, most businesses who are following the drama, the CBO, the president, the Senate, and the majority of American voters in every major recent poll support Reid’s plan over Boehner’s plan is that Boehner’s plan seeks to redo this entire farce again in 6 months. In other words, Boenher wants to continue the damage that is being done right now to the national prestige, credit rating, and status as a safe haven for investment while Reid wants to postpone it for at least another 12 months. We don’t even have to delve into the affect extreme austerity measures will have on economic growth and job growth to see that the debate getting us there is itself a drain on our economic growth engine.

I stand in awe that you all are convincing yourselves that the current debate is productive. It comes off like a self defense mechanism. First, serious damage has already been done by the very nature of the debate itself. Second, doing this all over again in 6 months would do further tangible damage to the national credit. I’m surprised, really, in your abilities to ignore the obvious. I became interested in economics, and consider myself a Conservative, because I value sober analytics to emotional/idealistic appeals. I don’t see how anyone of a similar mindset can view the current debate as beneficial to the country.

By the way, by this measure Apple now has a greater cash reserve than does the U.S. government.

Nigerian markets in everything facts of the day

Lagos bigwigs have long paid on-duty local cops to speed them through jams by riding shotgun with machine guns and menacing other drivers with bullwhips.


In 2009, the latest year for such data, more than 2,600 Lagosians were forced to take a psychiatric exam at the Federal Neuro-Psychiatric Hospital because of wrong-way driving, according to the state transportation commissioner.

Officials at the hospital say that the number was slightly lower and that they couldn’t recall the last person to fail the test. Failure would trigger more outpatient tests—and mean continued impoundment for the offending car, officials say.

The article is interesting throughout.

The bond market *vigilantes*

More than 150,000 state employees, whose salaries support a million people, had their wages cut in half this month. Palestinian banks have lent the government more than $1 billion and do not want to lend more. Some ministries have temporarily lost electricity because they have not paid their bills. Last week, the government ordered a reduction in the price of bread, leading to bakery strikes. Garbage is piling up.

Here is more; in part the problem is that Arab leaders are slow to deliver large amounts of aid, if that is what one should call it.

When will the market rebel against the deadlock?

There is a mother and a daughter, and the mother wants the daughter to clean her room.  Cleaning the room doesn’t take long, but it does involve the daughter getting out of bed at some positive cost.

The mother can come and threaten to beat the daughter with a broomstick.  That will induce a rapid-enough cleaning (or a good enough start), but the mother would prefer to achieve the end of a clean room without such drastic measures.  That said, the mother will wield the broomstick if that is the only means of getting the room cleaned.  The daughter has a slight preference not to be threatened with the broomstick, ceteris paribus.

Time passes and for a while nothing happens.  What is the equilibrium?

By construction of the example, I’ve ruled out “the mother comes with the broomstick right away” and “the daughter cleans up the room right away.”  So it cannot be common knowledge who will yield first; if it were common knowledge, the cleaning with or without broomstick threat already would have occurred.

The daughter is Congress.  The mother is an anthromorphized set of bond and equity markets.

Under EMH, the next move of “the mother: is generally unpredictable, including by the daughter.  And if the daughter cannot predict her mother’s behavior, what should the mother infer about the daughter’s future behavior?

Does common knowledge arrive?  Does a trembling hand eventually force an outcome?  Which variable is affected by the mere passage of time?  Does it depend on differential discount rates?

There are other ways to think about this.

It’s not just aggregate demand

David Wessel reports:

Over the past 10 years:

• The U.S. economy’s output of goods and services has expanded 19%.

• Nonfinancial corporate profits have risen 85%.

• The labor force has grown by 10.1 million.

• But the number of private-sector jobs has fallen by nearly two million.

• And the percentage of American adults at work has dropped to 58.2%, a low not seen since 1983.

What’s wrong with the American job engine? As United Technologies Corp. Chief Financial Officer Greg Hayes put it recently: “Sales have come back, but people have not.”

You might hear the argument that if demand were higher, employment would be higher too.  That’s true, but consider a comparable claim.  Let’s say you were a 6’2″ basketball player with a so-so outside shot.  If you were seven feet tall, that problem wouldn’t matter so much because you could just dunk the ball.  In the meantime you could say “It’s not my shot that’s the problem, it’s my height.  If I were taller, they would all go in.”

At the end of the day, this player still has a problem with his shot, no matter how true his counterfactual.  In the macroeconomics of 2011, it is important that we understand our problems as existing along multiple margins.

On the messiness of economic understanding, here is David Leonhardt’s column from today, his last in his current role.

Update on the credit rating agency vigilantes

It’s not the default that strikes the most fear in the White House and Congress these days. It’s the downgrade.

…what really haunts the administration is the very real prospect, stoked two weeks ago by Standard & Poor’s, that Barack Obama could go down in history as the president who presided over his country’s loss of its gold-plated, triple-A bond rating.
Financial analysts say such a move would hit Americans with more than $100 billion a year in higher borrowing costs, but it’s not just that. It would be a psychic blow to a nation that already looks over its shoulder at rising economic powers like China and wonders, what’s gone wrong? And it would give the president’s Republican rivals a ready-made line of attack that he’s dragging the country in the wrong direction.

The full story is here.  These vigilantes are real, but they are being scorned, dismissed, and moralized about rather than heeded.

The bottom line is that the nation’s long-run fiscal outlook matters now, even though you’ve had many top economists telling you for years that it does not.  I know all about the stability of Japanese bond rates following their credit downgrade.  In the American case, the mechanisms by which the long run matters can be as simple as Presidents seeking reelection and stubborn, irresponsible Republicans, not to mention spooked global markets latching on to scary focal points.

I see two lessons:

1. Moralizing about Presidents seeking reelection and stubborn, irresponsible Republicans does not remove their analytic impact.

2. The nation’s long-run fiscal outlook matters now.

Every time you see moralizing about #1, don’t let yourself be distracted from the truth of #2.  In fact, the more moralizing you hear about #1, the greater the import of #2.  Lots of moralizing about #1 is a sign that the overall political outlook, from the moralizer, is not robust to the truth and existence of #1.  Read the moralizing, but track the truth.

I agree completely with Krugman here

There’s actually a simple way to resolve the debt ceiling crisis: non-crazy Republican leaders could support something like the Reid plan — which is, let’s be clear, a huge victory for the right and defeat for progressives — and pass it with limited GOP support and overwhelming Democratic support. Situation resolved.

This would, however, probably be the end of these Republicans’ political careers. And the answer is, so?

If you believe that default will quite possibly be a catastrophe — and leading Republicans probably do believe that — their unwillingness to take the action I’ve just described means that they are risking America’s future rather than pay a price in their personal political careers. That’s cowardice on an epic scale, even if it’s the kind of behavior we take for granted nowadays.

I might tone down the word “huge,” however.  There is nothing more at the link.  (Note that I’ll be disagreeing with Krugman again soon, very soon.)  I also agree very much with Angus.

Will Norway get a do-over?

In large countries, single events are not usually taken as defining that country.  So if the police in America botch a response to a mass murderer, soon enough another mass murderer will come along.  There is almost always a do-over, usually many of them.  If need be, we Americans can start a new war to create a do-over.

Norway doesn’t work this way.  The country won’t soon have an event which generates comparable international or national publicity to the recent murders.  That makes those murders, and the lack of an effective police response, sting all the more.  There is no do-over on the horizon.

It turns out for instance that the helicopter crew of the Oslo police force was on vacation.  In expected value terms, maybe that wasn’t a mistake but it sure didn’t turn out well.  Here is an article on Norway not very much arming its police force.

The Norwegian resistance movement from WWII has a heroic reputation, but now there’s been a do-over of Norwegian response capability, so to speak, or at least a perceived do-over.

Americans have a hard time understanding the concept of not getting many do-overs.

When it comes to our debt-ceiling crisis, we are acting as if we will get a do-over for sure; I wonder if that’s justified.

The Winner’s Curse

Tim DeChristopher has been sentenced to two years in a Federal prison. DeChristopher was an economics major at the University of Utah when he fraudulently bid on a number of oil and gas leases pushing up the prices on some leases and winning others.

The sentence appears to be out of proportion to the crime, even if you don’t accept DeChristopher’s environmental justifications as a mitigating factor. The other bidders did walk away with lower profits than they otherwise would have but their claims should have been made in civil court. The Federal government may even have made money on net because DeChristopher pushed prices up.  It is certain that they would have made money had they chosen to resell the rights that DeChristopher “bought.” But a judge later ruled that the Department of the Interior’s environmental impact statement was inadequate and most of the auctions were annulled.

DeChristopher’s big mistake appears to have been winning some auctions as it would have been difficult to prosecute him for simply pushing up bids.

Girls go geek

This I had not known:

In 1987, 42% of the software developers in America were women. And 34% of the systems analysts in America were women. Women had started to flock to computer science in the mid-1960s, during the early days of computing, when men were already dominating other technical professions but had yet to dominate the world of computing. For about two decades, the percentages of women who earned Computer Science degrees rose steadily, peaking at 37% in 1984.

The photos at the link are striking.  You can read about the Cosmo article from 1967: “According to none other than Grace Hopper, programming is just like “planning a dinner.””

Now, once again, female interest in computer science appears to be rising.

For the pointer I thank Chris F. Masse.