Category: Current Affairs

Georgia is a transit country. Through our territory went the Great Silk
Road. And we have confirmed our transit potential more than once.
Through our territory go the BTC, the Baku-Tbilisi- Erzurum, and the
Baku-Supsa pipelines. Not only liquid goods transit through Georgia,
but also dry goods by railroad. However, apart from the existing oil
and gas pipelines, there is a potential for new ones. But they will
only be considered if the oil producing companies themselves become
interested in them. With today’s price for crude oil, the
attractiveness and profitability of the BTC and the Baku-Supsa are
obvious. Therefore, with the growing production of hydrocarbons in
Central Asia, and in the Caspian region, new oil pipelines will
undoubtedly be profitable. Therefore I would like to emphasize that all
of the proposed projects are viable and have prospects.

And the transit of fossil fuels through Georgia endangers the profit of which country?  You have three guesses.  If you don’t know the word "Transneft" you will soon.  Here is more.  See also Marshall Goldman’s new book Petrostate on the Georgia-Russia relationship and the economic factors involved.  In my view today’s series of events is very, very bad news.  Not only are the events bad, but it is a bad signal of type about the new (is it new?) Russian government.

Barack Obama was heckled by a crazy bystander for not beginning a speech with the pledge of allegiance.  He handled the event gracefully (video here along with cogent commentary by Matt Welch.)  As I’ve written before, I think the pledge is creepy.

Cato’s Gene Healy says it well:

From its inception, in 1892, the Pledge has been a slavish
ritual of devotion to the state, wholly inappropriate for a free
people. It was written by Francis Bellamy, a Christian Socialist pushed
out of his post as a Baptist minister for delivering pulpit-pounding
sermons on such topics as "Jesus the Socialist." Bellamy was devoted to
the ideas of his more-famous cousin Edward Bellamy, author of the 1888
utopian novel Looking Backward. Looking Backward describes the future
United States as a regimented worker’s paradise where everyone has
equal incomes, and men are drafted into the country’s "industrial army"
at the age of 21, serving in the jobs assigned them by the
state…Bellamy’s book inspired a movement of "Nationalist Clubs,"
whose members campaigned for a government takeover of the economy. A
few years before he wrote the Pledge of Allegiance, Francis Bellamy
became a founding member of Boston’s first Nationalist Club….

Bellamy’s ritual for honoring the flag was right in step with those other National Socialists.  Here’s a picture illustrating the recommended salute (which later was to became politically incorrect).

The salute may be gone but the message remains.

Calomiris, Longhofer, and Miles report:

We conclude that declines in house prices are highly likely to remain
small. Our analysis reveals, unsurprisingly, that foreclosures and home
prices have negative effects on each other over time, but this does not
imply a vicious cycle of collapsing prices. Our models predict that as
foreclosures continue to climb in many states, house prices will remain
flat or decline in those states — but will not collapse.

..the effect of foreclosure shocks on
house prices is small. Furthermore, other fundamental factors (such as
employment growth and a slowing of the growth of the housing supply
over the past year and a half) will cushion the impact of foreclosures.

…Even under an extreme
worst-case scenario for foreclosures…U.S.
house prices just aren’t going to fall by very much in the next two
years. In our worst-case scenario, the average cumulative decline is
about 5 percent, and only 12 states experience declines greater than 6
percent by the end of 2009.

There is more at the link, including a claim that the Case-Shiller index is unrepresentative.  Here’s another report, which does not literally contradict the first:

The percentage of mortgages in arrears in the category of loans one
rung above subprime, so-called alternative-A mortgages, quadrupled to
12 percent in April from a year earlier. Delinquencies among prime
loans, which account for most of the $12 trillion market, doubled to
2.7 percent in that time.

In other words, you can be an optimist about agency bail-outs, and a pessimist about the financial pain that many Americans will suffer.

Here is one obituary.  He did not in every way favor liberty, but he did more for liberty than almost any other person of the late 20th century.  I find First Circle and Cancer Ward to be his best fiction, although they are not his most widely read works.

That said, I don’t favor nationalizing his funeral, as that would give the impression that Russia is now a free country.

Here is a piece on the economics of Solzhenitsyn, by the excellent Cecil Bohanon; Cecil was at the Liberty Fund conference with me.

Addendum: Read Bryan Caplan: "But if any writer can make future generations of Russians look on the
Soviet era with the horror it deserves, it’s the man who stared down
the Soviet Union at the height of its power – and outlived it by 17
years."

Mortgage fraud is terrible, but as crimes go it is a sign of how peaceful so much of the world has become:

A man once convicted of heading up a ruthless Haitian death squad that
is blamed for raping and killing political rivals has been convicted of
carrying out a mortgage fraud scheme in the United States.

Emmanuel "Toto" Constant, 51, former leader of the Front for the
Advancement and Progress of Haiti, or FRAPH, was convicted Friday of
arranging millions of dollars in fraudulent financing for three
Brooklyn properties, according to a statement from the New York
attorney general’s office.

Ask any Haitian about FRAPH.  Here is the full story.  At least the CIA is no longer subsidizing him.  Here is a list of his crimes against human rights.  It is his second conviction for mortgage fraud.

Mr. Yu’s daughter had died in a cascade of concrete and bricks, one
of at least 240 students at a high school here who lost their lives in
the May 12 earthquake.
Mr. Yu became a leader of grieving parents demanding to know if the
school, like so many others, had crumbled because of poor construction.

The
contract had been thrust in Mr. Yu’s face during a long police
interrogation the day before. In exchange for his silence and for
affirming that the ruling Communist Party “mobilized society to help
us,” he would get a cash payment and a pension.

…Officials have come knocking on parents’ doors day and night. They
are so intent on getting parents to comply that in one case, a mayor
offered to pay the airfare of a mother who left the province so she
could return to sign the contract, the mother said.

The payment
amounts vary by school but are roughly the same. Parents in Hanwang, a
river town at the foot of mist-shrouded mountains, said they were being
offered the equivalent of $8,800 in cash and a per-parent pension of
nearly $5,600.

Here is the full story.

So says Ricardo Caballero, here is more:

First, a private sector solution to the current crisis requires fresh capital injections into financial institutions. However, in an environment of widespread uncertainty where the instinctive reaction is to run away from risk-taking, private capital is likely to remain on the side for much too long. Thus, the optimal policy response is to encourage and leverage private risk-taking, not to discourage it with a pending threat of exemplary punishment were a fragile situation turn worse, regardless of cause. Economic policy risk is compounding the private sector’s reluctance to capitalize financial institutions…

Second, during periods of high uncertainty and the potential for runs, large or coordinated shortsellers are more likely to succeed in triggering socially inefficient panic-selling. Rumor-mongering and persistent selling pressure eventually weaken wary investors and depositors. Unfortunately, by choosing to punish shareholders, Secretary Paulson has rewarded shortsellers and raised their ammunition to cause further financial instability.  Again, while shortselling plays a very useful role during normal times, it can turn into a source of instability during periods of high uncertainty.

Two points: first, if we are going to nationalize this argument implies we should do it quickly to avoid further hemorrhaging.  Yet the mortgage agencies are not quite proven to be unsalvageable failures (much as I opposed their initial creation that does not imply immediate obliteration as the proper current response).  Second, even if nationalization is the right response this time, it might not be the next time a financial institution gets into fiscal trouble.  Yet in that subsequent case nationalization will be that much harder to avoid, given the understandable fears of private capital if nationalization happens this time.  Every time you nationalize and wipe out shareholders, you create a dangerous precedent and scare away private capital for a long time.

You are probably reading lots of absolutist recommendations around the blogosphere but these are truly difficult issues and the correct policy responses are not obvious.

Here is Posner on the topic, here is Becker.  As I understand the terms, it is about $12 million for her dog and $5 billion to $8 billion for dogs in general.

It’s only the $12 million for her dog that is objectionable; surely one million would have sufficed and in the language of the philosophic literature on inequality, the other dogs can rightfully hold a complaint against the recipient of Helmsley’s largesse. 

$5 billion to $8 billion for dogs in general is not too much for our wealthy society to spend or to regard as a legitimate welfare objective, worthy of the standard tax deduction, at least provided it is distributed equitably.  Here’s a list of possible ways to spend the money to help dogs.  Here’s an estimate that there are more than 70 million dogs in the United States, so that is on average only $100 per dog.  Do note that while not every dog needs help, helping even a single dog requires considerable infrastructure.  If you think that’s too much aid, well, let crowding out operate and cut back on your transfers to dogs.  There’s plenty of room for give there, believe me, since more than 40 million households own dogs and thus have their finger on this trigger, maybe yours too (not mine).  It is we who control the net transfer from humans to dogs, not the dear departed Ms. Helmsley.

From an email:

Arthur
C. Brooks–who is Louis A. Bantle Professor of Business and Government
Policy at Syracuse University and a visiting scholar at the American
Enterprise Institute–has been chosen by the AEI Board of Trustees to
be the InstituteÂ’s next president. He will succeed Christopher DeMuth
on January 1, 2009.

Here is Arthur’s home page.  Here are previous MR mentions of Arthur Brooks, all favorable I believe.  I thank…Alex…for the pointer.  Bryan Caplan and Will Wilkinson have blogged his research as well.

Tim Hanrahan, at WSJ.com, collates opinion and summarizes where we are at with the mortgage agencies.

Sadly, the Taliban are succeeding where Coase (and the Pakistan government) have failed.

The mountain of white marble shines with such brilliance in the sun
it looks like snow. For four years, the quarry beneath it lay dormant,
its riches captive to tribal squabbles and government ineptitude in
this corner of Pakistan’s tribal areas.

But in April, the Taliban
appeared and imposed a firm hand. They settled the feud between the
tribes, demanded a fat fee up front and a tax on every truck that
ferried the treasure from the quarry. Since then, Mir Zaman, a
contractor from the Masaud subtribe, which was picked by the Taliban to
run the quarry, has watched contentedly as his trucks roll out of the
quarry with colossal boulders bound for refining in nearby towns.

Felix Salmon does the heavy lifting.  Here’s one tidbit from Felix’s interpretation:

We can’t afford for Fannie and Freddie to go bust, and we’re
Republicans, so there’s no way we’re going to nationalize them. And no
one could conceivably afford to buy them. Which leaves only one option:
somehow maintaining the status quo. Which is not going to be easy,
seeing as how their trillions of dollars in assets are imploding daily
in the biggest US housing crunch since the Great Depression.

Mark Thoma offers more links.  James Hamilton likes the plan; I am not sure why though it is easy enough to see that many of the alternatives are worse.  Paul Krugman says the share price collapse of the mortgage agencies may not be such a big deal.  You also could read through the hundreds of comments at calculatedrisk.blogspot.com; they give a good sense of what people are thinking.  Angry Bear wants to punish the CEOs.

The worst case scenario is that the market regards Paulson’s statement as cheap talk and ups the ante sometime this week.  I’ve yet to figure out what the best case scenario looks like.

Addendum: Here is an early MR post on Fannie Mae, read this one too.

Second addemdum: Arnold Kling makes many interesting points.  Read Sebastian Mallaby too, who calls for "Nationalize — and then dismantle."  Here is my earlier post on the N Word.

Both the action and the substance, in fact:

The remote town of Musiri in the Tamil Nadu state has hit upon a unique idea to teach its residents proper hygiene: pay them money each time they use the toilet.

Users can make up to $0.14 a month to relieve themselves in a specially constructed toilet. Not a princely sum, but it’s extra cash flow that low-income residents can make just for answering nature’s call.

The government-backed program serves two purpose: It encourages people to discard age-old practices of urinating and defecating in the open, leading to diseases. And the waste product goes into research to test their effectiveness as fertilizers.

Here is the full story and thanks to Marco for the pointer.  One point is that both the income and substitution effects predict the villagers will put on weight.

Franny’s on Flatbush Avenue was possibly the best pizza I’ve had in the U.S., Gala Manor in Flushing was definitely the best dim sum I’ve eaten in this country, the projected fall in Wall-E box office is 61 percent (July 4th is a tough weekend but ouch!), and wars of independence are easiest to justify when the population is still relatively small and the nation state is not yet built.  Call it investment.  Quasi-independence or full independence was inevitable so the real question is whether North America would be better off if Florida remained a Spanish colony and the Louisiana Purchase had never happened.  That said, American independence was probably very bad for native Americans and blacks and of course that rent transfer is part of what motivated independence.  I am preparing a lecture on The Merchant of Venice and, via Eduardo Pegurier, here is All the Water in the World.