Year: 2012
Why the European downgrades matter
Perhaps more importantly, and at the risk of repeating myself, the downgrades increase the dependence of the big banks on finance from the European Central Bank – and for the economic recovery of the eurozone, that’s a very bad thing.
The less that banks are able to raise funds in a normal commercial way, the more they’re dependent on a central bank, the more reluctant they are to lend to the wider economy – and given the massive dependence of the eurozone economy on finance provided by banks, that leads to a reduction of economic activity, a reinforcement of recessionary conditions…
..the downgraded Italian and French governments would be seen to be less financially capable of bailing out Italian and French banks in a crisis, so other creditors would be shouldering more risk…
So even if the downgrades don’t lead to default by a nation or a bank, they make it much harder for the banks – and in a way the whole eurozone – to get off life support.
…That creates a damaging negative feedback loop (less lending means asset price falls, more bankruptcies, bigger losses for banks, and even less lending by capital-constrained banks) which makes it all the harder for the eurozone to break free of its cycle of decline.
And, as I said in my earlier note, the downgrades also make it harder for the eurozone to establish a proper circuit breaker – in the form of a giant bailout fund – to protect other sovereign creditors in the event that today’s impasse in Greek debt talks lead to a Greek default.
Here is a useful and only slightly overstated summary of where things stand:
The entire eurozone banking system can be seen to have been nationalised – or at least the funding of banks has been nationalised, even if their ownership hasn’t been transferred to taxpayers.
Addendum: Here are some comments from RBS.
Should computers have their own websites?
I think so, if not now very soon:
Websites designed to be read by computers rather than humans could make it easier to share and use data says Stephen Wolfram, creator of “computational knowledge engine” Wolfram Alpha. Writing in a blog post, he suggests that “.data” should join the likes of .com, .org and .net as a new top-level domain (TLD) for organisations to share data in a standard from, creating a “data web” that would run in parallel with the ordinary web.
Under Wolfram’s scheme, a website like wolfram.com would be accompanied by wolfram.data. A human visitor to wolfram.data would just see a list of publicly available databases, but a computer would be able to access and interact with the data itself.
Of course, this kind of data sharing is already possible thanks to application programming interfaces (APIs), the software instructions published by many web services that allow programmers to combine data in creative ways, such as plotting Twitter updates on a Google map. Each organisation’s API is different though, which can make them hard to use. Wolfram’s proposal would put data in a standard location and format, making it easier to access.
For the pointer I thank Michelle Dawson.
Beethoven Violin Concerto #1
Stefan Jackiw, excerpt here. For the pointer I thank Jacob Robbins.
Feijoada request
That is a request from Gil, it reads “Feijoada.”
I recommend investing in a supply of farinha, also known as manioc flour, it will hold until the ants find it. African, Brazilian, and sometimes Latin groceries sell it. From bottom to top on the plate, the simple recipe is white rice (cooked until it is still slightly moist rather than fully dry), Goya black beans (heated), orange slices (cold), steamed shredded collard greens, and the farinha sprinkled on top. It is one of my favorite vegetarian meals and it shows that the meat in the feijoada is actually the worst part.
Assorted links
1. Thomas Quasthoff to retire from singing.
2. High MP animals.
3. Why is Mexico losing its war on drugs? And how well is Colombia doing these days?
4. The dangers of mental substitution, and if you wish to read optimism about the eurozone (pdf).
5. Superheroes and intergenerational mobility.
6. Update on claims about the new cold fusion; if nothing else this is worth reporting in expected value terms.
Will the era of conspicuous consumption wind down?
Rick Bookstaber writes:
And one notable area of consumption that by definition differentiates the classes, that of conspicuous consumption, is going by the wayside. Yes, I believe we are seeing the twilight of the era of conspicuous consumption. Not that Gucci and Chanel are going to go out of business, but for most people that sort of status statement is increasingly becoming irrelevant. No matter what you are wearing and driving, a far better picture of you and your status is just a few clicks away. You don’t have to drive a Ferrari to let everyone know you are rich and successful. If you are driving a Ferrari, what it will convey is that you – who as everyone who cares to Google you knows is running a hedge fund and is worth tons of money – must like a Ferrari.
Of course in Silicon Valley, the conspicuous consumption norm is already relatively weak among the wealthy, at least as that norm was traditionally understood. Yet you can think of a web company itself as the new “conspicuous” — “look at what I’ve done!”
*The Sounding of the Whale*
For now, suffice it to say that a kind of tragedy haunts the story of whale biology in the first half of the twentieth century: the science that developed between 1910 and 1940 for the purpose of protecting whale populations from excessive exploitation by whalers became, along the way, a science so deeply entangled with the whaling industry — dependent upon it, bound to it, acculturated to its physical labor, and finally, constituted on its operations — as to become, finally, nothing less than an obstacle to many conservation policies. It was a reasonably complete science of whales but was ultimately incapable of realizing the aims of its founders: checking the progressive destruction of the world’s large cetaceans.
That is from D. Graham Burnett’s very impressive The Sounding of the Whale: Science and Cetaceans in the Twentieth Century. Here is a NYT review, and here is a WSJ review. It could be the most detailed study of a commons problem ever written, with plenty on the corruption of science along the way.
Fred Smalkin has two questions
This is great. I have two requests (for Tyler or anyone who may have some answers):
1. Could you address the idea of preference preferences? It strikes me that psychoactive drugs alter one’s utility function. Can that be modeled, or does that put you in non-linear-dynamical-system territory that doesn’t admit functions as we know them?
2. Am I being overly simplistic in this stripped-down political model? It seems to me that ideal welfare would measure your lifetime productivity at birth and then compensate you to the extent that it falls below $X. Obviously this comes at some cost, but it seems to me that a consequence of Arrow’s impossibility theorem is that there’s no political solution to choosing X (and how the cost of X would be distributed).
Thanks to Tyler and all who can shed some light!
When it comes to meta-preferences, it is usually acceptable to assume convergence through a fixed point theorem. So whether I have a preference for a preference for a preference, etc. comes to a coherent finish and we can speak meaningfully of meta-preferences. That said, I don’t see why we should always favor the meta-preference over the (“baser”) preference. “Wanting to listen to Top 40” is not obviously a worse preference than “wishing I enjoyed opera more.”
The second question refers to a longstanding debate in optimum taxation theory. There are a few reasons why we don’t grant transfers contingent on ability alone. First, we may find the outcomes of privately accepted gambles unacceptable and wish to grant aid to the losers. Second, there is sometimes a higher social rate of return from investing more money in the skilled. A final question is why we make so many transfers near or at the end of life and so few, relatively speaking, at the beginning of life. Obviously the elderly vote at a high rate but I don’t think it is just that. There is a more general intuition that the elderly deserve the aid and the young do not to an equal extent. That intuition is a big obstacle to fiscal balance.
Assorted links
1. Markets in everything, the culture that is France.
2. Brad DeLong on timing and sequencing.
3. Peter Boettke on Five Books.
4. Website for improving health news reporting, and why different weather predictions?; a systematic paper on this topic would be good.
You say “The culture that is Brazil,” I say “price discrimination”
Or is it the other way around? From the always-excellent Leonard Monasterio, in turn from Adriano Dutra Teixeira:
Angélica Grill, a all-you-can-eat barbecue buffet (rodízio) in São Paulo, offers a 50% discount for people that went through bariatric surgery. In Portuguese: In English (Google Translation of the page).
My new food account on Twitter
It is mostly “food only,” but a few other things too. Feel free to follow, and please do spread the word if you can. My normal tweeting will continue at @tylercowen as well.
Why is Swiss unemployment so low?
Why does Switzerland have a low unemployment rate?
…is a question from Really Curious. Here are some data, but right now it is at 3.1%. I see a few factors:
1. The Swiss have few ZMPers, so their natural rate is fairly low to begin with.
2. The Swiss do not have the same kind of welfare state and labor legislation that you find say in France, which also lowers their natural rate, and which makes adjustment to negative shocks easier. Unemployment benefits are not so generous and they pretty much force you to try to find work again.
3. In the past the Swiss have managed their immigration policy in accord with the domestic unemployment rate. For instance if unemployment was rising they would send some Italian guest workers back home. Immigration into Switzerland is now so substantial, however, and integrated into so many sectors, that this procedure has lost its potency.
4. Swiss jobs are relatively permanent, compared to the United States. You will note that #4 interacts with #3; immigration is by no means always or even usually zero-sum with respect to the jobs in a country, but it can be for some well-defined pockets of manufacturing jobs in Switzerland.
5. The Swiss central bank does not hesitate to engage in sophisticated schemes of quantitative easing when an appreciating exchange rate is squeezing their export industries or they otherwise face unpleasant macroeconomic situations.
Here is a JSTOR piece on said question. Here is a good paper on the overall topic (pdf). I have never seen a good paper on why the Swiss unemployment rate rose somewhat in the early 1990s, falling again in 1996 or so I believe, but MR readers can help us out here. I also do not have knowledge of exactly how the Swiss calculate their unemployment rate, though it is unlikely that the difference in rates is a mere statistical artifact.
Law and Literature reading list
Class started yesterday, the reading list is here (pdf):
The New English Bible, Oxford Study Edition, Billy Budd and Other Tales, by Hermann Melville. The Metamorphosis, In the Penal Colony, and Other Stories, by Franz Kafka, In the Belly of the Beast, by Jack Henry Abbott, Borges and the Eternal Orangutans, by Fernando Verrissimo, Glaspell’s Trifles, available on-line, Sherlock Holmes, The Complete Novels and Stories, Sir Arthur Conan Doyle, volume 1, I, Robot, by Isaac Asimov, Moby Dick, by Hermann Melville, excerpts, chapters 89 and 90, available on-line. Year’s Best SF 9, edited by David G. Hartwell and Kathryn Cramer, G.K. Chesterton, The Man Who Was Thursday, Edgar Allen Poe, The Gold-Bug, available on-line, Joseph Conrad, The Secret Agent, Running the Books, by Avi Steinberg, Sakhalin Island, Anton Chekhov. tr. Brian Reeve, Death and the Maiden, Ariel Dorfman, The Pledge, Friedrich Durrenmatt. tr. Joel Agee, Red Harvest, Dashiell Hammett, Red April, by Santiago Roncagliolo, The Crime of Sheila McGough, Janet Malcolm, Leslie Katz, “John Keats’s Attitudes to Lawyers,” http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1307146.
Some additions to this list will be made as we proceed, mostly a few short articles. We also will view a small number of movies on legal themes. You will be responsible for obtaining these or for viewing them in the theater.
What will be Europe’s next major religion?
The Church of Kopimism, whose principal tenent is the right to file-share, has been formally recognized as a religious organization in Sweden.
The Swedish government agency Kammarkollegiet registered the Church of Kopimism as a religious organization in late December, just before Christmas, the group said in a Wednesday statement. Members of the church applied three times in their more than year-long quest to have the religion formally recognized in Sweden.
Sweden is now the first and only country to recognize Kopimism as a religion, the group said.
“For the Church of Kopimism, information is holy and copying is a sacrament,” it said in a statement.
Christianity remains the leading contender. In the meantime, file under “The Culture that is Sweden.” I thank Eric H. for the pointer.
Addendum: And here is Matt Yglesias on Europe as Conservative. I agree with the points he makes, but that Europe is not very Christian, and that America tries to do more to raise the status of Christianity and Christians, deserves further discussion.
Assorted links
2. Eugene Fama’s life in finance, and interesting new paper on whether derivatives can increase risk, try this paper too.
3. Via Chris F. Masse, new website on charter cities, apply for a job here.
5. The culture that is Japan, with obscenity.
6. Scott is right on the mark (not a surprise). That’s the place to start the dialogue, not endless rehashing of the errors of others.