Category: Current Affairs
Sentences to ponder
The biggest creditor to Portugal is Spain.
Here is more, on the issue of intra-EU contagion.
Further thoughts on the TSA debates
The biggest flying/airport outrages are a lack of markets in allocating scarce resources, and the resulting unacceptable airport and flight delay problems in places such as JFK and LaGuardia. Next come airlines which ruthlessly screw you over, repeatedly, and lie to you and mistreat you. I do understand the trade-off and prefer the lower prices and fewer quality assurances; still, you can object to their behavior at the margin — it's often unethical. Let's get worked up over these problems first.
I view good scans as, in the long run, a substitute for patdowns. One option is to have very very good scans, nude "photos," fewer patdowns, and to have Americans shift to a more European attitude on nude bodies. There's even an available status attitude where you don't mind or notice the scans, much as the King allowed himself to be dressed and handled by commoners. That's the intelligent argument for the current shift in policy. Maybe the enhanced scans simply aren't useful or maybe Americans can't or won't shift their norms. Those would be reasons not to do it (and I am not pronouncing a definitive opinion here) but it's simply not, in principle, that objectionable of a policy. There's a locked-in structure which prevents a competitive test of safety levels and so all alternatives are coercive in some manner, including the difficulty any airline would face in attempting an even more restrictive set of security procedures.
It's worth asking how intrusive a search markets would provide, but keep in mind there are significant negative externalities from exploding airplanes and also there are government bailouts which limit the downside. Furthermore companies do not always care enough about "extreme negative skewness," as we have learned in financial markets and thus there is a case for regulating a tougher security standard.
Hovering in the background is the reality that a few successful downings will kill many people and furthermore probably wipe out the insurance market and thus lead to nationalization of the airlines. It's not clear what the freedom-enhancing path looks like and there is no default setting of market accountability. It's "elephant interventions" all the way down.
It's worth comparing the current American response to earlier British crises (IRA troubles, and eventual CCTV) or for that matter Israeli responses to Palestinian suicide bombings. In these kinds of situations something has to give — usually by public demand for better outcomes more than a state usurpation of power.
I would not say that "we are now at war with the terrorists" but our situation has some war-like elements. Any persistent war has required major social changes, if only temporary ones, in how the body is viewed and handled. If we are so unwilling to even consider these changes in body viewing norms, I wonder how we will respond when scarier events happen, as they likely will.
The funny thing is this: when Americans insist on total liberty against external molestation, it motivates both good responses and bad ones. It supports a libertarian desire for freedom against government abuse, but the same sentiments generate a lot of anti-liberal policies when it comes to immigration, foreign policy, torture, rendition, attitudes toward Muslims, executive power, and most generally treatment of "others." An insistence on zero molestation, zero risk, isn't as pro-liberty as it appears in the isolated context of pat-downs. It leads us to impose a lot of costs on others, usually without thinking much about their rights.
The issue reminds me of the taxation and spending debates; many Americans want low taxes and high government spending, forever. For airline security, at times we want to treat it as a matter of mere law enforcement, to be handled by others, and one which should not inconvenience our daily lives or infringe on our rights. At the same time, so many Americans view airline security as a vital matter of foreign policy and indeed as part of a war. We own and promote this view and yet we are outraged when asked to behave as one might be expected to in a theater of war.
The main danger to liberty here is not the TSA but rather a set of American attitudes which, at the same time, take our current "war" both far too seriously and also not nearly seriously enough.
Overall, I'd like to see less posturing in these debates and more Thucydides.
The microcredit paradox
Felix Salmon surveys some of the recent trouble in India. The dilemma behind microcredit is simple. Let's say the interest rate is, annualized, fifty percent a year (not atypical) and that a family is borrowing on a regular basis. The debt payments can suck through their resources fairly rapidly, even if they are using the loans for valuable purposes, such as bringing the kid to the doctor. It all works fine if the family earns more than fifty percent liquid return, annually, on its marginal capital investment. How often is that the case?
Another scenario is that the borrowing allows the employment of another family member and thus it is self-financing for a good while but not forever. Eventually the "rate of change" effect overtakes the higher income level from the extra job.
How many decent-sized regions have rates of return above twenty percent? How many have micro-credit rates below twenty percent?
Nonetheless banning micro-credit is a mistake because the alternative is the moneylender, who charges an even higher rate of interest, and sometimes a kid who doesn't get to visit the doctor. The lesson is that escaping poverty is very difficult.
Say No!
Here is what New York State's Office of Children & Family Services recommends that you tell your children about inappropriate touching:
- You are special and important.
- Your body is your own.
- You have the right to say "NO" if someone wants to touch you in any way that makes you feel uncomfortable, afraid or confused.
- There are parts of your body that are private. You have the right to say "NO" to anyone who wants to touch your vagina, penis, breasts or buttocks. You have my permission to say "NO" even if that person is an adult … even if it's a grown-up you know.
- Pay attention to your feelings. Trust your feelings about the way people touch you.
- If someone bothers you, I want you to tell me. I promise that I will believe you.
- If someone touches you in a way that does not seem right, it is not your fault.
Children need to know that the safety rules about touching apply all the time, not just with strangers … or with men … or with baby sitters. In many cases …children are sexually abused by people they know and trust [including] authority figures….
Also, abusers seldom need to use physical force…Unfortunately, abusers can use threats successfully because children are taught to believe and obey adults.
Excellent advice for children and for adults.
Authority figures, for example, may also use threats of violence to engage in abuse against adults, for example, "you will be blown up unless you let me touch your genitals and take naked pictures of you."
Fear not hyperinflation
Labour department figures showed on Wednesday that the “core” consumer price index, measuring prices for US goods and services excluding food and energy, rose just 0.6 per cent year on year in October. That was weaker than economists had expected and marked the smallest such increase since records began in 1957.
The full story is here.
Why Ireland fears a bailout
Ireland fears the punitive terms of a bailout as it would have to give up partial sovereignty over its finances and could be forced to raise corporation tax.
The story is here. Note that casting your financial lot with the EU is especially problematic if you don't expect the EU to be so influential five or ten years down the road. Obviously the Irish are betting against the idea of a major step toward EU fiscal union and correctly so.
Addendum: Finland weighs in.
How a financial collapse starts
As I've been saying, with a bank run:
Corporate clients have pulled deposits from lenders including the country’s biggest, Bank of Ireland Plc.
With its lenders frozen out of Europe’s money markets and with their deposits shrinking, the Irish government may be forced to seek the bailout ministers have so far resisted.
The EU is pressuring Ireland to accept a bailout and Ireland does not (yet) want it; this should give pause to those who think that "no bailout" policies are time consistent. More generally, the simplest model is that the EU could take care of Ireland and Greece fairly easily, but the spectre of Spanish default lurks in the background. Spain is a much larger economy and the Germans cannot simply pay up to save it. All pronouncements and policies about Ireland (or for that matter Portugal) should be viewed in light of this larger "game." If Spain were fixed essentially the trouble could be paid off to go away, for now at least. But Spain is not fixed.
The longer-run question is why there should be any Irish or Greek banks at all.
Systemic financial risk
One of the largest of Haiti’s microcredit groups, Finca Haiti, wrote off almost a third of its portfolio after many clients died in the earthquake or lost their homes and businesses. A staggering 53 percent of its borrowers were late on their payments.
Here is much more, about the difficulties of running a micro-credit system in an economy with a negative real rate of return.
Elsewhere, Ireland expands aid to Haiti. The cholera epidemic is getting much worse rapidly.
Unsung development miracles?
Dani Rodrik writes:
Which are the countries that have improved their human development indicators the most since 1970 relative to their peers? You’d be surprised, as I was, to find that the top 10 is dominated not by East Asian superstars, but by Moslem countries: Oman, Indonesia, Saudi Arabia, Tunisia, Morocco, and Algeria. This year’s Human Development Report is full of neat analysis and results, including this one.
Leaving aside the oil exporting countries, the North African cases are particularly interesting. As Francisco Rodriguez and Emma Samman, two of the report’s authors, note, Tunisia, Morocco, and Algeria have experienced remarkable gains in life expectancy and educational attainment, leaving many Asian superstars in the dust. Only Tunisia among the three is a high growth country, underlining one of the report’s main findings that economic growth and human development often diverge significantly, even over as long a time frame as 40 years.
Haiti claim of the day
Court the income:
“If you can gain the support of one person in Boston, it can translate to 10 people in Haiti,” said Mark P. Jones, a professor of political science at Rice University who has studied Haiti.
Haitian candidates are spending a lot of time campaigning in the United States, even though Haitians who are U.S. citizens are ineligible to vote in the election. It is also a venue for raising money. The full story is here.
The Irish crisis heats up
Although some diplomats say it is to Ireland’s advantage that the Government is not at present borrowing from the investors, fear of contagion emerged again yesterday as the premium on Spanish and Italian debt jumped to record levels.
The article is here. The Irish have enough funds on hand to finance their government through next summer and they mention this repeatedly. But is that good? The lack of an ongoing market test increases uncertainty about market opinion and perhaps leads more people to wonder about the worst. From other sides it encourages denial about the basic problem. What will that first bond auction look like when it comes? (What will China ask for in return?) Extant bonds are traded, but that market is thin.
Ireland used to say "We are not Greece." These days it is Greece saying "We are not Ireland."
Here are data on Irish competitiveness. The unofficial word is that the hat is being passed for the actual bailout. Merkel is holding tough, which is building pressure on the other weak euro economies. It is a common mechanism that denying a bailout raises the ultimate cost of the bailout you must make.
Walter Isard: Regional Scientist and Economic Geographer
Walter Isard died late last week. Isard was the founder of regional science, the economic approach to geography. His seminal book, Location and Space-Economy, was a hugely ambitious work with the goal of developing a theory of economics and space that would encompass general equilibrium theory and international trade as special cases. He brought the German contributions of von Thunen and others into the English mainstream, further developed the spatial interpretation of monopolistic competition (following Hoteling) and applied Leontief's input-output model to geography among many other contributions. The New Economic Geography, particularly The Spatial Economy, the key volume by Fujita, Krugman and Venables can be seen as a direct descendant of Isard's research program (Fujita was an Isard student).
Isard was a Quaker and he also applied scientific insights to questions of conflict, establishing the Peace Research Society (now the Peace Science Society) in 1963. His son, Peter Isard, is a distinguished economist with many contributions to international economics.
Haiti update: life on the Malthusian frontier
Several of them said, yes, they drank water from a river known to be contaminated with the cholera-causing bacteria. And, no, they don’t always have money to buy bottled water.
“We know there may be cholera in there, but sometimes it is all we have to drink,” said Alienne Cilencrieux, 24. “If we have Clorox, we pour some in and drink it. It tastes bad. Or we dig in the ground until we find water and drink that.”
Here is more.
The deficit commission report
I've read only the summaries (and here), not the report. Mankiw is happy, Krugman and DeLong are upset. The home mortgage interest deduction goes and income tax rates are 8, 14, and 23 percent. No one thinks this is the final deal. I would say evaluate this as you would a movie trailer: will it get people to take the next step of thinking about a ticket purchase? The top 23 percent tax rate is like the quickly cut scene with the rolling boulder, the skimpily clad girl, the grinning enemy, and the face of the star. "The Bowles-Simpson plan has a ratio of roughly $3 in spending reductions for every $1 in revenue increases…" It won't happen in real life. As a movie preview I judge this as "good enough." It basically declares that some major deductions have to be on the table and it gets us to the next step.
Ezra Klein comments.
The Luck of the Irish
It's getting worse. Here is one bit:
The other crumbling dam against mass mortgage default is house prices. House prices are driven by the size of mortgages that banks give out. That is why, even though Irish banks face long-run funding costs of at least 8 per cent (if they could find anyone to lend to them), they are still giving out mortgages at 5 per cent, to maintain an artificial floor on house prices. Without this trickle of new mortgages, prices would collapse and mass defaults ensue.
However, once Irish banks pass under direct ECB control next year, they will be forced to stop lending in order to shrink their balance sheets back to a level that can be funded from customer deposits. With no new mortgage lending, the housing market will be driven by cash transactions, and prices will collapse accordingly.
While the current priority of Irish banks is to conceal their mortgage losses, which requires them to go easy on borrowers, their new priority will be to get the ECB’s money back by whatever means necessary. The resulting wave of foreclosures will cause prices to collapse further.
That is from Morgan Kelly — read the whole thing.