Uh-oh
According to a recent report by Fitch, as of February, 44.3 percent of prime money market funds in the United States were invested in the short-term debt of European banks.
There is more detail here; fortunately, not all of them have heavy exposure to Greece. You will recall also that “runs on money market funds” were one problem which regulators have yet to address in a satisfactory manner. Here is another claim, with an uncertain degree of verification:
It will be American banks and insurance companies that will have to make the lion’s share of default insurance payments to European institutions if Greece fails…if one includes credit default exposure, American exposure to Greece increases from $7.3 billion to $41.4 billion.
It still remains the case that without contagion effects these losses can be handled.
Assorted links
1. Ganz, of Budapest, should be a household word. Here is an image from the impressive Hungarian Museum of Elektrotechnics, which by the way doesn’t seem to have a working website.
2. Felix Salmon on Stanley Fischer.
3. Salman Rushdie to write science fiction drama for television.
4. Ferris Bueller critique makes the movie sound better than it is.
How to cut government spending
Paul Krugman, among many others, raises the Keynesian argument against cutting government spending in a downturn. Yet cutting spending is easier to do than these accounts make it seem. Cut the rate of growth of government spending on health care:
1. It is one sector where supply constraints often bind. Releasing some of those resources from pursuing government subsidies will lead to their relatively rapid redeployment elsewhere. For instance if you cut the rate of growth of Medicare spending, some more doctors are likely to start accepting Medicaid patients. And job growth in the sector is robust, even these days.
2. The policy is cutting a rate of growth, rather than cutting current spending in absolute terms. This may lead to sectoral readjustment problems for some people who are planning careers in health care, but it leaves current revenue streams intact and indeed it is still likely to grow them by some amount. Fairly often I see Keynesian opponents of “spending cuts” confuse absolute cuts with cuts in the rate of spending growth; the latter involve much smaller Keynesian problems.
3. There is a nice cushion of rents in the medical sector, and that makes it easier to cut spending there too.
4. Spending too much time with aggregate AD and AS curves causes one to overlook some of these cross-sectoral distinctions.
5. We also could and should cut farm subsidies, which go largely to agribusiness. It’s part of the Keynesian argument today that wealthy corporations are just sitting on their cash. I don’t buy that as stated, but if it will convince Keynesians to call for an immediate end to farm subsidies, so much the better. We now can cut farm subsidies altogether and the rate of growth of government spending on health care; that’s two areas right there.
6. Let’s not forget defense spending. Not all of those cuts need be a Keynesian disaster.
7. It is the so-called “discretionary spending” where Keynesian arguments are most likely to hold. Not surprisingly, that seems to be the area where we are most determined to cut spending. Silly Americans! Given that, is our government an institution you should trust to enact good Keynesian policy more generally?
Not all government spending is created equal, for Keynesian purposes or otherwise. There is plenty of spending we could cut without creating a Keynesian disaster, even if you accept the Keynesian framework straight up.
Jeff Madrick’s *Age of Greed*
Here is my review, along with Diane Coyle’s review of Tim Harford, and here is an excerpt (from the most negative part of my review):
…I found numerous points to object to. The chapter is titled “Milton Friedman, Proselytizer,” and there is a good deal of (fascinating) information about Friedman’s early years as a “fanatically religious” Jew. One is left with a picture of Friedman as a rather clever but irresponsible simplifier and dogmatist. There is not a comparable discussion of Friedman’s role in insisting on good empirical work and the testing and falsifiability of economics propositions, his building of the University of Chicago department with first-rate scholars and future Nobel laureates, and the numerous times he changed his mind on economic issues, including on monetary theory and policy. Friedman was much more a scientist and a skeptic than this essay lets on.
There are also particular errors and omissions. The discussion of Friedman’s desire to eliminate social programs does not mention that he wanted to replace them with a guaranteed annual income. It is wrong to claim that “the instability of velocity is what finally undid monetarism in the 1980s” when volatile interest rates were a much bigger problem, and in open economies such as Switzerland the exchange rate became the issue (monetary velocity moves in strange ways but it does so slowly). Few economists would agree with Madrick’s claim that “Friedman and Schwartz . . . made little advance over what was already known” or that their Monetary History had little empirical basis. Contrary to Madrick’s view, it is now widely accepted that inflation—or at least ongoing inflation, as Friedman made clear—is always a monetary phenomenon. These aren’t mere accidental oversights; they contribute to a systematic downgrading of Friedman’s legacy of scholarly depth and impact.
Assorted links
2. Health care in twenty years’ time? Forty?
3. Useful history of the debt ceiling (pdf); it started during WWI.
4. Paul Romer’s charter city TEDtalk.
5. New Larry Summers column at the FT, seems it will be regular.
Loyalty filters
“When you compare the costs of a full-time bodyguard versus a dog, the dog makes a lot of sense,” Mr. Curry said. “And the dog, unlike the bodyguard, can’t be bought off.”
Here is more, the article is interesting throughout.
Surprising Beach Reading
When I ask who she reads on the subject, she responds that she admires the late Milton Friedman as well as Thomas Sowell and Walter Williams. “I’m also an Art Laffer fiend—we’re very close,” she adds. “And [Ludwig] von Mises. I love von Mises,” getting excited and rattling off some of his classics like “Human Action” and “Bureaucracy.” “When I go on vacation and I lay on the beach, I bring von Mises.”
So who said it? I was surprised.
Why is recorded, non-live sports so boring to watch?
There is a new essay by Chuck Klosterman. He lists several reasons why watching recorded sports events is such a downer, but he lays heaviest stress on a Bayesian argument:
2. “If this game has already ended and I don’t know anything about what happened, it was probably just a game”: This sentence is so obvious that it’s almost nonsensical, but I suspect it’s the one point that matters most. It’s the central premise behind the entire concept of “liveness,” which is what this whole problem comes down to.
…When you watch an event in real time, anything is possible. Someone could die. Something that has never before happened could spontaneously happen twice. When there are three seconds on the clock, not one person in the world can precisely predict how those seconds will unspool. But if something happens within those three seconds that is authentically astonishing and truly transcendent — well, I’m sure I’ll find out about three minutes after it happens. I’m sure someone will tell me, possibly by accident. You can avoid the news, but you can’t avoid The News. Living in a cave isn’t enough. We’ve beaten the caves. The caves have Wi-Fi.
Do you watch the live, non-recorded performance and enjoy the hope of a Black Swan? The essay is interesting throughout. I thank a loyal MR reader for the pointer.
My favorite things Hungary
The Austro-Hungarian empire does not count per se, so I will use the Hungarian language for demarcation. As you might expect, there is lots:
1. Author: Peter Nadas, A Book of Memories, is a classic novel of ideas which is under-read in the United States. Nadas has a new book coming out this fall. Imre Kertesz doesn’t do much for me.
2. Movies: Bela Tarr, Satantango. It’s over seven hours long, but don’t be put off. It has some of the best shots of grazing cows and angry peasants committed to reel, and I wanted it to be longer. It’s mesmerizing in a way that makes it one of the film classics of the new century. I find Werckmeister Harmonies too corny but it has some fine scenes. Less traditionally thought of as Hungarian is the great Emeric Pressburger, who collaborated with Michael Powell on numerous fine films. Alexander Korda did The Thief of Baghdad.
3. Actor, Peter Lorre is the obvious choice, plus Bela Lugosi made the best Frankenstein ever, forget about Dracula.
4. Conductor: You have George Szell, Antal Dorati, Georg Solti, and Eugene Ormandy. Szell was so often perfect, Dorati cut some of the best sounding records of all time, Solti’s whiplash style was either offputting or splendid, and Ormandy was deeper than he was given credit for. Ivan Fischer is a more recent contender, for instance his Mahler’s 4th reflects a scrupulous concern with rehearsals. Péter Eötvös is an excellent conductor of contemporary music.
5. Pianist: Gyorgy Cziffra and Ervin Nyiregyhazi are two memorable eccentrics. Solti and Szell were underrated as pianists and Zoltan Kocsis is very good. Don’t forget Franz Liszt, even though no recording has survived.
6. Scientist: There is Szilard, Teller, and von Neumann and many many others but can they come close to this top tier? The options for Hungarian mathematicians defy belief. Hungarian inventors were critical to the “great non-stagnation” of 1870-1940, including for the all-important electrical transformer; few if any of those names have survived much into general Western history which I suppose says something.
7. Artist: Victor Vasarely is the obvious choice, but I don’t like him so much. This area seems oddly weak. Am I forgetting something? Mihaly Munkacsy anyone?
8. Economist: Janos Kornai comes to mind, and Melchior Palyi remains underrated. I believe Milton Friedman’s parents were from Hungary.
The bottom line: You can’t gush enough about music and math and physics and science and invention. The achievements from a small country are staggering and unprecedented. Yet literature and painting are relatively weak. Hungarian composers will get a post of their own, but there is a strong line-up of Liszt, Bartok, and Ligeti. What else am I forgetting? I can’t think of major films set in Hungary and I don’t count the Hollywoodesque The Shop Around the Corner even though nominally it is Budapest.
Assorted links
2. Interview with Ricardo Caballero.
3. There is no great stagnation. Here is even more, and better, proof.
4. Are children an inferior good? And Caplan’s response. Is it possible that education is a form of real income, and so using education and real income variables — unadjusted — picks up real income better than stand-alone “real income” does?
Markets in everything
So some else posts in MR under the name of “Andrew”. @tylercowen I will offer cash for the rights to use the name “Andrew” on MR.
Other Andrew, please submit your sealed bid…
Bryan Caplan vs. Amy Chua debate
Here I am, sitting on a bench in downtown Budapest, reading the Guardian, when on p.20 I see a published debate between Bryan Caplan and Amy Chua. If I have one wish, it is that Chua would put her anecdotal points in the form of a statistical argument. Which assumption behind the twin adoption studies is she rejecting? Or where are those studies engaged in too much aggregation? I suspect she will never tell us. Coming back to the hotel room, I now find Bryan’s commentary on the debate. The two have very different senses of humor, and I bet she wouldn’t think that Bryan’s jokes are funny either.
Czech markets in everything
Prague Zoo has started selling what look like ice cream containers but are actually full of elephant dung.
It’s the latest fad among Czech gardeners who are buying out the manure pails to use as fertilizer. The brain behind the project is zoo director Miroslav Bobek, whose surname literally means dung.
Zoo officials estimate they sell around 200 of the 1-kilogram (2.2-pound) containers of dung per weekend, at 70 koruna ($3.90) each. But sales have been so brisk they decided to expand to weekdays.
AP video showed handlers scooping up the manure Thursday and placing it in the white containers to the bemusement of visitors.
The link is here and for the pointer I thank Heath Gordon.
Words of wisdom
Referring to the forthcoming ban on “plain-vanilla 100-watt incandescent bulbs” (California is already there), Virginia Postrel writes:
If they’re really interested in environmental quality, policy makers shouldn’t care how households get to that total. They should just raise the price of electricity, through taxes or higher rates, to discourage using it.
Instead, the law raises the price of light bulbs, but not the price of using them. In fact, its supporters loudly proclaim that the new bulbs will cost less to use. If true, the savings could encourage people to keep the lights on longer.
“It is too soon to tell” — the real story China fact of the day
The impact of the French Revolution? “Too early to say.”
Thus did Zhou Enlai – in responding to questions in the early 1970s about the popular revolt in France almost two centuries earlier – buttress China’s reputation as a far-thinking, patient civilisation.
The former premier’s answer has become a frequently deployed cliché, used as evidence of the sage Chinese ability to think long-term – in contrast to impatient westerners.
The trouble is that Zhou was not referring to the 1789 storming of the Bastille in a discussion with Richard Nixon during the late US president’s pioneering China visit. Zhou’s answer related to events only three years earlier – the 1968 students’ riots in Paris, according to Nixon’s interpreter at the time.
How so?
At a seminar in Washington to mark the publication of Henry Kissinger’s book, On China, Chas Freeman, a retired foreign service officer, sought to correct the long-standing error.
“I distinctly remember the exchange. There was a misunderstanding that was too delicious to invite correction,” said Mr Freeman.
He said Zhou had been confused when asked about the French Revolution and the Paris Commune. “But these were exactly the kinds of terms used by the students to describe what they were up to in 1968 and that is how Zhou understood them.”
But will this revelation diminish the use of this story? Dare I say it is too soon to tell? By the way:
The oft-quoted Chinese curse, “May you live in interesting times”, does not exist in China itself, scholars say.