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.”
Sentences to ponder
It found that in 1979, households in the bottom quintile received more than 50 percent of all transfer payments. In 2007, similar households received about 35 percent of transfers.
That is from Shikha Dalmia (though I don’t agree with everything in the longer article).
Assorted links
1. Leg hair font.
2. Interview with Price Fishback, and In Praise of Eddie Murphy.
3. The smartest thing any Presidential candidate has said this season.
5. On which indicators is Italy failing?: governance. How quickly can you fix that? And how much are U.S. banks exposed? What did Roubini say in 2006?
Italy fact of the day
On Twitter
Follow Italian 10, yikes! Further updates here, and here come the margin calls.
And the actuaries shall eat
In the debate on unemployment, Ryan Avent makes a common move (related post from Matt here, and Fabio here and Adam here), though I think an incorrect one:
It is remarkable to me how readily old, successful professionals dismiss the labour-market difficulties of young adults as the product of their poorly-chosen majors and general lack of ambition, and on what flimsy evidence they’re prepared to base these views. There are now 3.3m unemployed workers between the ages of 25 and 34. That’s more than twice the level in 2007. There are over 2m unemployed college graduates of all ages; nearly three times the level of 2007. There are many millions more that are underemployed—unwillingly working less than full-time or unwillingly working in a job outside their field which pays less than jobs in their field. As far as I know, the distribution of college majors didn’t swing dramatically from quantitative fields to art history over the past half decade.
The general form of the argument is: “only x changed, therefore x is the cause.” A supply and demand graph, with the shift of one curve, shows that argument to be false. The net effect of the shift will depend, for one thing, on the slope of the other curve, plus whether the other curve has been shifting (more slowly) all along.
A similar kind of argument is applied to the eurozone. Since “things were fine” in year ????, the current crisis can’t be about structural problems in the underlying European model, yet in part it is, for reasons of resiliency and robustness.
Going back to unemployment, labor market opportunities for college grads have been eroding — except for the elite — in absolute terms since 1997-2000, well before the collapse in AD. If those same grads are highly willing to be geographically mobile, highly willing to consider actuarial training, and highly willing to take tougher courses and study where the jobs are (doesn’t have to be tech subjects, some of those are failing too), the unemployment response to a given AD shock will be much lower. But they aren’t, so it isn’t. I’ve seen only small adjustments in the ambition and flexibility of college goers, not enough preaching about TGS I suppose.
In an era where both monetary and fiscal policies have underperformed, looking at both sides of the market is essential.
You can even give this all a Keynesian take (though I would prefer a TGS framework). Since 1997-2000, there is downward pressure on lots of wages, but morale matters and labor market incumbents retain a favored position. Though some wages fall, employers resist that downward pressure, and pass along a lot of the burden of adjustment to new job seekers. Even if that original downward pressure on wages is smallish, new job seekers have to make big adjustments in their career plans, majors, ambitions, etc. to get through the door at all. They didn’t.
That’s the same argument that Keynesians cite and indeed insist upon in other contexts. It is somewhat harder to see when you start with a slower erosion in real wage opportunities, rather than a sudden AD shock, but it doesn’t make sense for Keynesians to dismiss it.
The real issue, I suspect, is that many people are allergic to arguments which appear to “blame” the job seekers, rather than government inaction, but it’s not about blame one way or the other. It’s about the desire to have a fuller and better model, with richer causal chains, and to see through all the variations to a deeper level.
To put it rather immodestly, my arguments are a lot stronger than many people think!
Facts about education
Here is one:
In 2003, the first year the Babson group and Sloan-C conducted the survey, 57 percent of academic leaders estimated that learning outcomes in online courses were equal or superior to those of face-to-face courses. This year, the figure was 67 percent.
From Peter Orszag, writing about budgetary pressures, here is another:
Some admittedly imperfect indicators suggest the quality of public higher education is already fading. For example, in 1987, both UC Berkeley and the University of Michigan were included in U.S. News & World Report’s ranking of the top 10 universities. By this year, there were no public universities in the top 10 — and UC Berkeley, the top-ranked public school, had fallen from fifth to 21st.
Put these two facts together, and what is your prediction?
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.
Assorted links
1. Being and Daddylonglegs (German video), and video of Scott Sumner, and video of the excellent Charles Mann.
2. Cormac McCarthy’s Yelp reviews (is it really him?).
3. The lost decade in pumpkin-throwing.
5. Why so many female CEOs in Brazil?
6. Interfluidity and also Paul Krugman on stagnationist ideas and negative real rates of return; Krugman gives an Old Keynesian, anti-China spin to the argument.
Who gets what wrong?
My colleague Daniel Klein reports from the front:
…under the right circumstances, conservatives and libertarians were as likely as anyone on the left to give wrong answers to economic questions. The proper inference from our work is not that one group is more enlightened, or less. It’s that “myside bias”—the tendency to judge a statement according to how conveniently it fits with one’s settled position—is pervasive among all of America’s political groups. The bias is seen in the data, and in my actions.
And what do the “right-wing” thinkers get wrong?
More than 30 percent of my libertarian compatriots (and more than 40 percent of conservatives), for instance, disagreed with the statement “A dollar means more to a poor person than it does to a rich person”—c’mon, people!—versus just 4 percent among progressives. Seventy-eight percent of libertarians believed gun-control laws fail to reduce people’s access to guns. Overall, on the nine new items, the respondents on the left did much better than the conservatives and libertarians. Some of the new questions challenge (or falsely reassure) conservative and not libertarian positions, and vice versa. Consistently, the more a statement challenged a group’s position, the worse the group did.
A college education, by the way, doesn’t help much. Here is another statement of the conclusion:
A full tabulation of all 17 questions showed that no group clearly out-stupids the others. They appear about equally stupid when faced with proper challenges to their position.
That’s a lesson David Hume would have appreciated.
The very best books of the year 2011 (so far)
This year there are three stand-out winners, which is not usually the case. These are all major books which virtually everyone should read, at least provided you read non-fiction (fiction) at all:
1. Steven Pinker, The Better Angels of Our Nature: Why Violence has Declined. My review is here.
2. Walter Isaacson, Steve Jobs, interesting on every page and lives up to the hype. Here is a good review by Michael Rosenwald.
3. Haruki Murakami, IQ84. I haven’t finished it yet, but I feel confident putting it on the list (I’m about one-third through). I even agree with many of the reservations expressed in this review but the book is nonetheless a major achievement. There are dozens of reviews here.
Here is the (lame) PW list of the ten best books of the year. And if you are wondering, I have sour impressions of the new Eco and Joan Didion books.
Soon I’ll prepare a longer list of my favorite books of the last year, in part for your gift-giving purposes.
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:
Assorted links
1. Why the cheaper maple syrup is better.
2. Ponder this photo for an hour.
3. Scott Winship on mobility, important correction to the usual line.
4. Mary Hunt Kahlenberg passes away; she wrote some of the best books on textiles.
What is the future of solar power?
Joshua Gans nails it:
If we believe Moore’s Law in solar, then the safe bet in terms of behavioural reactions is not to react. Within a decade or two, energy will be socially as cheap as it is privately as cheap now. That means that changing habits for environmental austerity is not the way to go.
I would make a simpler but less optimistic point. If a solar breakthrough is now likely, in which market prices do we see it reflected? It is true that fossil fuel prices took a steep tumble in the last few months, but I’ve never heard anyone suggest that price plunge had to do with a forthcoming solar revolution. It seems cyclical in nature, or perhaps related to the spreading news of further fossil fuel discoveries, including natural gas. For better or worse, those shale oil and natural gas discoveries — which by the way will create lots of jobs — will further raise the bar against solar power, and it’s not just the Republicans who will promote them.
Alternatively, is there a bubble in the stock prices of solar power specialists? What’s the total market cap of companies selling solar panels? Or is there a bubble in the share prices of companies which supply cheap and reliable power storage? The evidence on these points seems weak to say the least. Keep in mind that other countries can make the switch even if you think political conspiracy will prevent it here. And solar panels can be cheap in the sense that my bicycle is cheap, the real question is whether we see industry-wide price changes as would befit a systematic solar energy revolution.
Is there any reason, based in industry-wide market prices, to be optimistic about the near-term or even medium-term future of solar power? I don’t see it.
Sentences to ponder, job market edition
Surrounded by labor history and anarchy books, thrift-store furniture and a male pet rabbit named Mrs. Crackers, Katchpole noticed an e-mail from an outfit called SumOfUs and read it aloud…
She has heavy student debt and does not know how to pay it back; in the meantime she has become an activist against Bank of America’s proposed debit card fee. She doesn’t have a full-time steady job and her story is here.
She majored in art and architectural history and spent her summers interning at art museums. Here is more:
She and her boyfriend — a law firm paralegal working against the proposed AT&T and T-Mobile merger — spend their days living frugally. They have no television or car. They rarely eat out. They just bought a tub of 48 random beers for $15 at a grocery store.
She has sent job applications to Planned Parenthood, the Center for American Progress and SEIU but has heard nothing. She is fretting that a grace period for her student loans ends in December.
I should stress that I am sympathetic with some of her choices (not the tub of beer), and you can read this as reflecting some strengths of American higher education. Still, not all liberal arts students have her organizational and media talents, and this kind of story goes a long way toward explaining the current job market malaise for the young. Even she is having a hard time finding remunerative work and getting on a career track. Furthermore, she doesn’t seem to be striving for that.
As a capital theorist she is less than qualified. Here is her take:
“I don’t know what I am going to do!” said Katchpole, a freelance account manager at a political consulting firm called Winning Over Washington. (Its main client is the progressive group MoveOn.org.) “I am going to have to defer my loans. I have no idea. Why should I be expected to pay them off now? Why are colleges charging interest on that stuff? Give us a break. Really.”
Bohm-Bawerk forget to include her in his commentaries on sundry theories of interest.
I wonder if she has considered moving to Nebraska or North Dakota? Probably not, I am sure she will get a job right here in Washington, D.C.