Category: Current Affairs
Gratitude
PsycNet: The effect of a grateful outlook on psychological and physical well-being was examined. In Studies 1 and 2, participants were randomly assigned to 1 of 3 experimental conditions (hassles, gratitude listing, and either neutral life events or social comparison); they then kept weekly (Study 1) or daily (Study 2) records of their moods, coping behaviors, health behaviors, physical symptoms, and overall life appraisals. In a 3rd study, persons with neuromuscular disease were randomly assigned to either the gratitude condition or to a control condition. The gratitude-outlook groups exhibited heightened well-being across several, though not all, of the outcome measures across the 3 studies, relative to the comparison groups. The effect on positive affect appeared to be the most robust finding. Results suggest that a conscious focus on blessings may have emotional and interpersonal benefits.
Estimates about China
Is it really time to gear up that trade war?:
Li Daokui, an academic adviser to the central bank’s monetary policy committee, has said previously that since the trade surplus might account for less than 1.6 percent of GDP in 2011, the yuan might depreciate in two years.
“Capital outflows are evidence that the yuan is overvalued, not undervalued,” Bloomberg News cited Tim Condon, Singapore-based head of Asian research at ING Groep NV, as saying.
“We think the suggestion of outflows is a near insurmountable obstacle to any exchange-rate reform like widening the yuan trading band.”
But Zhuang said that the outflows would create a better environment for China to let market forces determine the exchange rate, because successful currency reform must be based on the possibility of fluctuations in both directions.
The story is here and hat tip goes to Mark Thorson.
Sentences to ponder
Newly appointed Prime Minister Mario Monti must reform a country where free-market ideas don’t have a political base. Labor laws are, along with pensions, the third rail of Italian politics—literally deadly. Pietro Ichino, the senator who has spoken out strongly for labor reform, has lived under police protection ever since two professors of industrial relations were assassinated by left-wing terrorists because they advised the government on how to cut through the tangled labor laws.
Here is more, interesting throughout, hat tip goes to @GeekStats.
The Shock of Modern Slavery
The great Nicholas Kristof has another difficult to, must-read piece today on human trafficking. Including this arresting statistic:
By my calculations, at least 10 times as many girls are now trafficked into brothels annually as African slaves were transported to the New World in the peak years of the trans-Atlantic slave trade.
FYI, at its peak the trans-Atlantic slave trade was on the order of one hundred thousand per year. Figures on human trafficking differ widely but one million is on the lower end so Kristof’s estimate is sadly reasonable.
Capitol Gains
I have written several times before (e.g. here and here) about how Washington insiders, politicians and staff, use their knowledge of behind the scene deals to profit in the stock market (see also Megan McArdle’s recent piece from which I stole the headline). Last night 60 Minutes reported on the story based on new research in Throw Them All Out a forthcoming book by Peter Schweizer.
Here is one bit from the transcript:
In mid September 2008 with the Dow Jones Industrial average still above ten thousand, Treasury Secretary Hank Paulson and Federal Reserve Chairman Ben Bernanke were holding closed door briefings with congressional leaders, and privately warning them that a global financial meltdown could occur within a few days. One of those attending was Alabama Representative Spencer Bachus, then the ranking Republican member on the House Financial Services Committee and now its chairman.
Schweizer: These meetings were so sensitive– that they would actually confiscate cell phones and Blackberries going into those meetings. What we know is that those meetings were held one day and literally the next day Congressman Bachus would engage in buying stock options based on apocalyptic briefings he had the day before from the Fed chairman and treasury secretary. I mean, talk about a stock tip.
While Congressman Bachus was publicly trying to keep the economy from cratering, he was privately betting that it would, buying option funds that would go up in value if the market went down. He would make a variety of trades and profited at a time when most Americans were losing their shirts.
Even though the Congress is exempt from insider trading law, many of 60 Minutes’s findings are hugely damning, which you can tell just by looking at the stunned faces of John Boehner and Nancy Pelosi when Steve Kroft questions them about their special dealings. The video is here.
Shining a light on solar subsidies
In Why they call it Green Energy: The Summers/Klain/Browner Memo I discussed the Shepherds Flat wind project, a $1.9 billion dollar project subsidized to the tune of $1.2 billion. Today, the NYTimes has a good piece on an even bigger subsidy sucker, a $1.6 billion CA solar project that is nearly 90% subsidized by taxpayers and ratepayers leaving a nice profit but virtually no risk for its corporate backers. The grateful but perhaps overly voluble CEO of the corporation building the project had this to say:
As NRG’s chief executive, David W. Crane, put it to Wall Street analysts early this year, the government’s largess was a once-in-a-generation opportunity…
“I have never seen anything that I have had to do in my 20 years in the power industry that involved less risk than these projects,” he said in a recent interview. “It is just filling the desert with panels.”
I suspect that he might have continued, “it was like taking candy from a baby,” but that is just a suspicion.
There are good reasons for taxing all sources of carbon and subsidizing cleaner energy sources (especially R&D) but huge subsidies targeted on a handful of corporations without “skin in the game” are a recipe for waste, corruption and abuse. We can only hope that this was just a once in a generation opportunity.
Addendum: The NYTimes usually has great info-graphics but today’s experiment made it more difficult not easier to get to the key information.
Hat tip: Daniel S.
Addendum 2: It’s telling that so many people want to shift the debate away from the advisability of particular solar and wind subsidies to whether I or others have been consistent about coal, oil and nuclear subsidies.
For the record, in this very post I discuss taxing carbon, obviously including oil and coal, so it is clear that I do not favor subsidizing those energy sources. Also, careful readers (most MR readers!), will see that I am especially worried about “huge subsidies targeted on a handful of corporations,” both of those clauses are important. In this case, for example, we are talking about nearly 90% subsidies and they are targeted on a case by case basis; put these two things together and you get waste, corruption and abuse. For these reasons, I am less worried about subsidies to green energy that leave private firms with lots of skin in the game and that are open to any firm.
What we’ve learned from the euro crisis, part I
Matt Yglesias serves up a short and partial list, here are some of mine:
1. When the Germans say “no LOLR” they mean “no LOLR”! Especially when they put it into print. I already knew that, actually.
2. It is a disaster and a dead-end situation when a country uses its automatic stabilizers in a manner which supports rent-seeking and harms growth. There is, in a time of crisis, no way out of the resulting trap.
3. The “regulation and labor law will come down really hard on larger firms” approach of Mediterranean Europe is far worse than we had thought, and we thought it was bad in the first place. I can’t stress this point enough. It’s cut those countries off from some major sources of growth and technical advance.
4. Don’t borrow in someone else’s currency.
5. Don’t think that “don’t borrow in someone else’s currency” is the only lesson. Last I checked the Netherlands was doing OK.
6. International coordination doesn’t work very well unless the interests of the various countries are aligned in the first place. If this is what becomes of the EU, what is our chance to save the world’s fish stocks? Protect against global environmental problems? etc. The EU, and the eurozone, is designed for vague statements of consensus that, when faced with real problems, don’t get the job done.
7. We can suddenly imagine the so-called “first world” splitting into two parts, distinguished by the degree of conscientiousness applied to human capital formation.
8. The French-German marriage was never going to last that long anyway. Yet without it, how do things get done in Europe?
9. The Mediterranean social welfare state model, based on lots of inefficient regulation, rent-seeking, reckless borrowing, and privilege within the local professions, is neither resilient nor robust. It is wrong to blame “welfare states,” but it is also wrong to let “welfare states” off the hook altogether. We’re learning a lot about how not all welfare states are created equal.
11. Hayek really was right about French rationalist constructivism (see chapter one). I’m not sure there has been a better example in all of human history.
12. I’ll write more on Italy soon and what we can learn from the country in particular. And I’ve left off some of the now-obvious, such as “no monetary union with a common fiscal authority and bank resolution mechanism,” etc.
Very good sentences
What you see in Italy is hardly ever what you get. This is a country where the pieces never stop moving but where everything remains the same. Remember what the old Prince of Salina says in the classic Italian novel The Leopard: “If we want things to stay as they are, they will have to change.”
The McRib Arbitrage
Why does the McRib appear and disappear at seemingly random intervals? An excellent post at The Awl has a plausible answer:
The McRib’s unique aspects and impermanence, many of us believe, make it seem a likely candidate for being a sort of arbitrage strategy on McDonald’s part….
If you can demonstrate that McDonald’s only introduces the sandwich when pork prices are lower than usual, then you’re but a couple logical steps from concluding that McDonald’s is essentially exploiting a market imbalance between what normal food producers are willing to pay for hog meat at certain times of the year, and what Americans are willing to pay for it once it is processed, molded into illogically anatomical shapes, and slathered in HFCS-rich BBQ sauce.
…The blue line is the price of hogs in America over the last decade, and the black lines represent approximate times when McDonald’s has reintroduced the McRib, nationwide or taken it on an almost-nationwide “Farewell Tour” (McD’s has been promising to get rid of the product for years now).
See the post for other theories.
Not From the Onion: The Christmas Tree War
The war between artificial and natural Christmas trees has been going on for years and the artificial trees are winning. The National Christmas Tree Association, the association of natural trees, has been trying to fight back with “information” campaigns like What You Might Not Know About Fake Christmas Trees. Some samples: they are made in China, by exploited workers, with lead! And my favorite:
…fake trees were invented by a company who made toilet bowl brushes…regardless of how far the technology has come, it’s still interesting to know the first fake Christmas trees were really just big green toilet bowl brushes.
The National Christmas Tree Association, however, has a problem. Christmas trees are produced in a competitive industry with many small firms so there’s no big firm willing to bear the costs of a national ad campaign. (The artificial tree lobby group, The American Christmas Tree Association has a noticeably more professional website and a better name.) Thus, following the lead of milk, cotton and California raisin producers, the natural Christmas tree industry lobbied the Dept. of Agriculture to create the Christmas Tree Promotion Board. The DOA agreed and authorized the board to create a “program of promotion, research, evaluation, and information designed to strengthen the Christmas tree industry’s position in the marketplace,” to be financed by a tax on Christmas tree producers (=>500 sales) of 15 cents per tree.
The Christmas tree tax outraged conservatives such as David Addington, formerly Cheney’s chief of staff and once called “the most powerful man you’ve never heard of.” Addington argued:
The economy is barely growing and nine percent of the American people have no jobs. Is a new tax on Christmas trees the best President Obama can do?
Not surprisingly other conservatives labeled this a Grinch tax and a tax on Christmas. Other people (liberals?) attacked the tax as promoting Christianity which I find strange since I always thought of the Christmas tree as a pagan symbol. Oh well.
Finally, the Obama administration put the program on hold. (Amateurs – don’t they know taxes are raised after elections not before?). So there you have it, American politics in a nutshell.
Hat tip: Joshua Hedlund.
Addendum: Here is Rush, The Trees, just because.
How’s the Argentina recovery coming along?
They are probably in bigger trouble than the European periphery. Why hold them up as a model? Why not instead obsess over the quality of a country’s institutions? They get a D. Here is the latest:
As Greece and Italy go to hell in a hand basket, down here in the Banana Republic of Argentina we’re seeing a déjà vu of the 2001 collapse. The government imposed a “green” corralito by which through one excuse or another the American currency is being unofficially but effectively banned. The US Dollar was the way in which Argentines protected their savings from the even more volatile funny money that is the Argentine peso. With the new restrictions, before buying dollars you have to be authorized by the AFIP, the Argentine version of the IRS. Through a complex system that not even themselves understand, they check how much money you earn, what are your expenses, how much you may have saved based on that, and only then do they somewhat estimate what you should be allowed to buy. There’s people that own big companies that aren’t even allowed 50 USD.
…So yes, these are interesting times to say the least. Lots of rumors, lots of desperate people out there. People that were just about to travel and needed dollars but can’t buy them, people about to close business deals in dollars but can’t get the money either. USD accounts being closed, Pesos accounts being closed as well out of fear and the too vivid ghost of 2001. Interest rates have doubled in banks in the last few days and everyone is just waiting, and I guess that the key word in today’s article. Waiting, staying put to see what happens. What happens when the economy is about to collapse, or just collapsed? Everyone waits. I saw the exact same thing 10 years ago. No one buys anything or sells anything unless they really have to.
Here is more, and I thank Matthew Weitz for the pointer. There is mounting capital flight, and multinationals are seeking to repatriate capital. A confiscatory devaluation may be in the works. Yes I do know all the good numbers they have put up in the last few years, but I also know Austro-Chinese-Soya business cycle theory! It’s also the case that Argentina will send economists to jail for trying to calculate the correct rate of inflation.
In short, I am crying for Argentina.
File also under “Yet another reason not to take IS-LM models too seriously.”
On Twitter
Follow Italian 10, yikes! Further updates here, and here come the margin calls.
Mario Vargas Llosa on Liberty
Mario Vargas Llosa in the WSJ:
There are those who in the name of the free market have supported Latin American dictatorships whose iron hand of repression was said to be necessary to allow business to function, betraying the very principles of human rights that free economies rest upon. Then there are those who have coldly reduced all questions of humanity to a matter of economics and see the market as a panacea. In doing so they ignore the role of ideas and culture, the true foundation of civilization. Without customs and shared beliefs to breathe life into democracy and the market, we are reduced to the Darwinian struggle of atomistic and selfish actors that many on the left rightfully see as inhuman.
What is lost on the collectivists, on the other hand, is the prime importance of individual freedom for societies to flourish and economies to thrive. This is the core insight of true liberalism: All individual freedoms are part of an inseparable whole. Political and economic liberties cannot be bifurcated. Mankind has inherited this wisdom from millennia of experience, and our understanding has been enriched further by the great liberal thinkers, some of my favorites being Isaiah Berlin, Karl Popper, F.A. Hayek and Ludwig von Mises. They have described the path out of darkness and toward a brighter future of freedom and universal appreciation for the values of human dignity….
Many cling to hopes that the economy can be centrally planned. Education, health care, housing, money and banking, crime control, transportation, energy and far more follow the failed command-and-control model that has been repeatedly discredited. Some look to nationalist and statist solutions to trade imbalances and migration problems, instead of toward greater freedom.
…The search for liberty is simply part of the greater search for a world where respect for the rule of law and human rights is universal—a world free of dictators, terrorists, warmongers and fanatics, where men and women of all nationalities, races, traditions and creeds can coexist in the culture of freedom, where borders give way to bridges that people cross to reach their goals limited only by free will and respect for one another’s rights. It is a search to which I’ve dedicated my writing, and so many have taken notice. But is it not a search to which we should all devote our very lives? The answer is clear when we see what is at stake.
I am thrilled that Mario Vargas Llosa, Lech Wałęsa and economist Robert Higgs will receive the Alexis de Tocqueville Award from the Independent Institute (where I am research director) at our Gala on Nov. 15, these remarks were written for that occasion.
Euro contagion
Credit conditions have steadily eased since the end of the recession but that process almost ground to a halt in the last three months, with only five domestic banks out of 50 saying that they relaxed their standards for lending to large companies. Two banks had tightened conditions.
There was also a sharper retrenchment by US branches of foreign banks: 23 per cent of such operations tightened their lending terms, raising their interest rate spreads and cutting back on the amount and period for which they are willing to lend.
Here is more, from the FT. There is also a negative dynamic playing out within the European banking system itself:
Banks are selling debt of southern European nations as investors punish companies with large holdings and regulators demand higher reserves to shoulder possible losses. The European Banking Authority is requiring lenders to boost capital by 106 billion euros after marking their government debt to market values. The trend may undermine European leaders’ efforts to lower borrowing costs for countries such as Greece and Italy, while generating larger writedowns and capital shortfalls.
Roubini claims the ECB is doubling its rate of bond purchases, yet as of today the Italian yield was hitting an unsustainable 6.74 percent. Here is Italian gdp growth since 1960:
All hail Mike Mandel!
In June, I wrote How the FDA Impedes Innovation citing Mike Mandel’s excellent paper on Melafind, an innovative device for identifying melanomas that the FDA had deemed “not approvable.” Well just last week, the FDA backed down and approved Melafind for board-certified dermatologists who undergo a specialized training course. Importantly, that decision keeps the company in business and prepares a path for evolutionary improvements.
I believe that the FDA would not have reversed its decision without Mandel’s paper and the extensive media that covered this issue. All hail Mike Mandel!
Here is another piece of good news on an item recently covered by MR.
In September, I wrote Crowd Investing versus the SEC, discussing how expensive SEC regulations made it uneconomic for small firms to solicit small investments from large groups of investors. Last week the House passed the Entrepreneur Access to Capital Act, which lets businesses use crowd investing to sell unregistered securities as long as the total amount raised is $2 million or less and no individual investment exceeds $10,000 or 10 percent of the investor’s annual income. Another bill, The Small Company Capital Formation Act lets companies seeking less than $50 million in capital (previously just $5 million), proceed without going through the lengthy and costly SEC registration process.
Neither bill has passed the Senate but both passed the House overwhelmingly and President Obama endorsed both bills, saying they would reduce “the red tape that prevents many rapidly growing startup companies from raising much-needed capital.” Keep your fingers crossed.
Hat tip: PM.
Addendum: Holman Jenkins also deserves a special shout out on the FDA issue for covering this issue early and well in the WSJ.