Category: Current Affairs
What will Basel III do?
Felix Salmon has one good summary, here a bit on community banks, overall emerging markets get off lightly, and Germany is unhappy (in this case probably a good thing). A few points:
1. This agreement is probably good news.
2. It is difficult to divine the net future effects of such changes upon announcement. There is also the question of how binding this ends up being and whether the implementation lags will matter.
3. One key question is how much current systems prevent regulatory arbitrage, namely driving more intermediation into less regulated, less reliable and less easily monitored institutions.
Stay tuned…
No Checks, No Balances
From the NYTimes
The lead plaintiff is Binyam Mohamed, an Ethiopian citizen and legal resident of Britain who was arrested in Pakistan in 2002. He claimed he was turned over to the C.I.A., which flew him to Morocco and handed him off to its security service.
Moroccan interrogators, he said, held him for 18 months and subjected him to an array of tortures, including cutting his penis with a scalpel and then pouring a hot, stinging liquid on the open wounds.
Mr. Mohamed was later transferred back to the C.I.A., which he said flew him to its secret prison in Afghanistan. There, he said, he was held in continuous darkness, fed sparsely and subjected to loud noise – like the recorded screams of women and children – 24 hours a day.
He was later transferred again to the military prison at Guantánamo Bay, Cuba, where he was held for an additional five years. He was released and returned to Britain in early 2009 and is now free.
and from the court's response:
First, that the judicial branch may have deferred to the
executive branch’s claim of privilege in the interest of
national security does not preclude the government from honoring
the fundamental principles of justice.
Oh that's nice the U.S. government is not precluded from honoring the fundamental principles of justice. Tell me, what government ever was?
Scary sentences
It's not a good sign when the government has to intervene to prevent a run on a bank that is already owned by the government…
In case you have not been paying attention
Here is a tidbit from today's news:
Among other policies, the Obama team has also placed a United States citizen on a targeted-killings list without a trial, blocked efforts by detainees in Afghanistan to bring habeas-corpus lawsuits challenging their indefinite imprisonment, and continued the C.I.A. rendition program – though the administration says it now takes greater safeguards to prevent detainees from being mistreated.
I wish to commend Kevin Drum in particular for continuing to draw our attention to these policies.
The Canterbury earthquake
The NZX 50 Index of stocks climbed in Wellington, led by building-related companies. Insurers fell. New Zealand’s dollar rose to 72.41 U.S. cents from 72.07 cents in New York on Sept. 3. The nation’s bonds declined, pushing 10-year yields to their highest in more than a month.
Here is more. The costs of repair are estimated at about two percent of gdp. Milk supply from New Zealand has not been disrupted.
Markets in Everything, Except Greenhouse Gases
In 2002 Time named Richard Sandor a “Hero of the Planet” for founding the Chicago Climate Exchange (CCX). The CCX traded permits based on voluntary but binding commitments from firms to cutback on carbon emissions and other greenhouse gases. Without enforced limits, however, or, if you prefer, without property rights in emissions, the market is not self-sustaining and CCX is cutting workers and may be wound down.
CCX founder Richard Sandor had hoped the exchange would become the hub for a national regulated market for greenhouse gas emissions to be kick-started by a U.S. climate change bill.
But prices for the carbon credits traded on the bourse since its 2003 launch, which were based on voluntary but legally binding emissions reduction commitments by its members, have crashed to around 10 cents a tonne from all-time highs of over $7 in 2008, and trading volumes have largely dried up.
Although the U.S. has vowed to cut its greenhouse gas emissions by 17 percent below 2005 levels by 2020, and despite the House of Representatives narrowly passing an ambitious climate bill in June 2008, several similar bills have stalled in the Senate in the past year.
“(The layoffs) seem to indicate that this market player thinks any U.S. climate action is still a way off,” said commodities house FCStone…
Fiscal stimulus coming to Haiti
Experts said the presidential and legislative elections could very well be the economic stimulus quake-ravaged Haitians have been awaiting since the devastating Jan. 12 earthquake left an estimated 300,000 dead, and wiped-out jobs. The campaigns are expected to hire tens of thousands of Haitians.
“It's like a cash transfer to the population, a sort of cash-for-work program,'' said Leslie Voltaire, a former government minister who plans to hire 10,000 Election Day monitors and a helicopter to get around Haiti's mountainous terrain.
The full story is here. And was the last election a model of Downsian competition? Maybe not:
In the 2006 presidential race, which saw Haitian President René Préval beat out 34 other candidates, experts speculated that a candidate needed between $3 million and $6 million to mount a strong challenge.
It is now also believed that the country can no longer afford to have senatorial elections every two years.
Might we get a cut in the payroll tax? (Department of !)
The Washington Post reports:
President Obama's economic team is considering another big dose of stimulus in the form of tax breaks for businesses – potentially worth hundreds of billions of dollars, according to two people familiar with the talks.
Among the options are a temporary payroll tax holiday and a permanent extension of the research and development tax credit…
A simple parable of price stickiness and international externalities
Olivier Blanchard and Nobuhiro Kiyotaki published a famous "Keynesian" paper in 1987 and it remains a well-cited piece in macroeconomics. One central result is that prices and wages can get stuck too high, above market-clearing. Market participants who produce more and lower prices and wages confer a strong large and positive externality on other individuals (or regions) in the market. Of course in the absence of such adjustments, activist monetary policy is recommended, but the point about externalities remains.
Yet often, today, we are told that the individuals (or regions) which produce (i.e., export) more are imposing negative externalities on other individuals or regions.
Of course the Blanchard and Kiyotaki model had its limitations. It did not, for instance, incorporate open economy considerations. It could be that the star producers impose an unfavorably high exchange rate on the broader region and hurt the ability of the broader region to export to the larger world economy.
When the open economy considerations are relatively strong, that coincides with…the conditions under which a coordinated fiscal policy will prove counterproductive, for reasons shown by the Mundell-Fleming model. In other words, if you think the strong Eurozone countries are hurting the Eurozone weakies, you also should be skeptical about coordinated European fiscal policy. This paper surveys some key issues.
In many open economy versions of the B-K model, or variants, looser monetary policy simply exports the problems of the region to other parts of the world. So why advocate such policies, especially if you are an outsider? Maybe the EU determines its own economic destiny (fine by me) but then we're back to German production and prosperity helping Spain rather than hurting it, for the reasons given by B-K.
In this well-regarded model, the international spillover effects from the monetary expansion can be either positive or negative. But it takes work to get those effects into the positive category.
Here is a survey of some literature which extends the sticky price model to open economy and policy coordination settings.
It is commonly suggested that German exports damage (or help) Spain without considering the broader implications of that proposition.
Overall, the results may depend on whether wage rigidity is real or nominal in each currency, the degree of capital mobility, the currency of invoicing in which sticky prices are set, and how much market participants look forward and consider stocks in addition to flows. This paper surveys some issues. There are many permutations, to the point where they are perhaps no longer very useful.
I wish to emphasize the broader point that not all combinations of views here are mutually consistent.
Will the Chilean miners still be paid their wages?
The union is making its demands right now (Sp.) and the final outcome is not clear. The union is demanding that the government accept responsibility for paying the miners, as apparently they no longer consider the company a reliable creditor. They then want the government to try to recover the funds from the company. So far the government is strongly resisting this suggestion. Another account of the dispute is here.
Update: So far it seems that corporate payment of wages will continue through August but after that is uncertain.
Barro v. Barro
Robert Barro today in the WSJ, The Folly of Subsidizing Unemployment, estimates that UI extensions have increased the unemployment rate by 2.7 percentage points.
To get a rough quantitative estimate of the implications for the
unemployment rate, suppose that the expansion of unemployment-insurance
coverage to 99 weeks had not occurred and–I assume–the share of
long-term unemployment had equaled the peak value of 24.5% observed in
July 1983. Then, if the number of unemployed 26 weeks or less in June
2010 had still equaled the observed value of 7.9 million, the total
number of unemployed would have been 10.4 million rather than 14.6
million. If the labor force still equaled the observed value (153.7
million), the unemployment rate would have been 6.8% rather than 9.5%.
It's not clear to me why we should assume that the share of long-term unemployment in this recession should equal that in 1983.
Barro also argues:
We have shifted toward a welfare program that resembles those in many Western European countries.
In contrast Josh Barro, son of Robert, in How much do UI Extensions Matter for Unemployment, concluded that 0.4% was probably on the high side:
…Two Fed studies suggest that [extensions of UI] may have contributed 0.4 to 1.7 percentage points to current unemployment. But a closer look at this research makes me skeptical that the effects have been so large.
…The incentive effects of UI extension must also be weighed against
the stimulative effects of paying UI benefits. For some reason it’s
become almost taboo to note this on the Right, but UI recipients tend
to be highly inclined to spend funds they receive immediately, meaning
that more UI payments are likely to increase aggregate demand. UI
extension also helps to avoid events like foreclosure, eviction and
bankruptcy, which in addition to being personal disasters are also
destructive of economic value.As a result, I am inclined to favor further extension of UI
benefits while the job market remains so weak. I am not concerned that
this leads us down a slippery slope to permanent, indefinite
unemployment benefits (which historically have been one of the drivers
of high structural employment in continental Europe) as the United
States has gone through many cycles of extending unemployment benefits
in recession and then paring them back when the economy improves, under
both Republican and Democratic leadership.
I call this one on both counts for Josh.
*Madoff Victims in Their Own Words*
That is the subtitle, the title is The Club No One Wanted to Join and the editor is Erin Arvedlund and the compiler is Alexandra Roth. Here are a few excerpts:
You are an evil predator…The Bible says that as Christ hung on the cross He cried out to God, "Father forgive them, for they know not what they do." I do not forgive you. You and your family knew exactly what you were doing. You will face God soon, and he will hold you accountable for your sins.
And another:
I no longer hate you. You are no longer the Monster that terrifies my dreams and fills my nightmares, because now I have courage and strength, and I have taken back control of my life.
This ordeal has allowed me to grow. It has allowed me to be a better friend, a better daughter, a better sister, and better me.
And for that I say, thank you!
And another:
P.S. I have been spelling your name in low caps for a while now, simply because you are a low life.
And:
I never met you, yet you had more influence and control over my life than I ever did.
The Chilean mine diet
The miners have lost about 10kg each after having survived on half a glass of milk and two mouthfuls of canned tuna every 48 hours until supplies ran out. They have been told to watch their weight so they will be able to squeeze through the narrow escape shaft that is being drilled, and given tape measures to ensure they keep their waists below 90cm.
The article is here; they are also being sent "games"; I wonder which ones? There are many articles (Sp.) about the miners receiving solidarity from Chilean soccer players and institutions. A formerly trapped Australian miner recommends that the trapped Chilean miners keep "a good sense of humor." Right now they are gradually increasing their rations of cereal and hard-boiled eggs.
Assorted Links
1) "The justification to ban the mosque is no more rational than banning a
soccer field in the same place because all the suicide bombers loved to
play soccer." Ron Paul on the mosque controversy.
2) Interesting review (pdf) of the health care bill from NCPA.
3) Philosopher Galen Strawson defends my most absurd belief.
4) "We've learned more about cooking in the past 15 years than we had in the previous 15,000 years." Video interview with Wylie Dufresne. By the way, I don't think this is true–we have learned more why but the previous 15,000 years developed a lot of how. Surprising amount of political psychology in cooking, how to sell an unfamiliar food idea. FYI, don't forget the book.
Chinese traffic jam comment of the day
“Everybody has to use this road as the other is too expensive, it should be free.”
That's from a Chinese truck driver and Tom Vanderbilt offers further comment. Damien Ma at The Atlantic has this to report:
"The police blame the monstrous jam on highway roadwork, compounded by minor accidents and a few breakdowns," the Christian Science Monitor writes. "In fact, the mega blockage – the second in two months on a stretch of road about 130 miles northwest of the capital – is a tale of deceit and criminality that speaks volumes about China's breakneck economic development. And behind the traffic chaos stands King Coal."
Much of the coal in China is now loaded onto trucks rather than freight trains because China's rail system has numerous bottlenecks and is often over-taxed, which ends up creating supply shortages to the coast. Though it's impossible to know how many of the trucks are actually loaded with coal, the Christian Science Monitor is right that there's a good chance many of them are delivering "black gold" to the urban centers–whether the products are legal or illegal.
The highway on which the jam has occurred leads to Inner Mongolia–now the biggest coal-producing province in China.
There are still only 63 million cars in China, as of last year.