Negative review of Franzen’s *Freedom*

by  Tyler Cowen in

It is a very good review, as the book has vanished for me.  Here is one excerpt:

…although the narrator of Freedom tells us on the first page, “There had always been something not quite right about the Berglunds,” one need read only that the local school “sucked” and that Patty was “very into” her teenage son, who in turn was “fucking” the girl next door, to know that whatever is wrong with these people does not matter. The language a writer uses to create a world is that world, and Franzen’s strenuously contemporary and therefore juvenile language is a world in which nothing important can happen. Madame Bovary’s marriage sucked, Heathcliff was into Catherine: these words fail the context not just because they are of our own time. There is no import in things that “suck,” no drama in someone’s being “into” someone else. As for the F word, Anthony Burgess once criticized the notion that to use it in matter-of-fact prose is to hark back to “a golden age of Anglo-Saxon candour”; the word was taboo from the start, because it stands for brutal or at best impersonal sex. “A man can fuck a whore but, unless his wife is a whore, he cannot fuck his wife … There is no love in it.” A writer like Franzen, who describes two lovers as “fucking,” trivializes their relationship accordingly. The result is boredom.

Here are three very good sentences:

Too much of it takes place in high school, college, or suburbia; how odd that a kind of fiction allegedly made necessary by America’s unique vitality always returns to the places that change the least. Franzen clearly has little interest in the world of work. (The same applies, incidentally, to whoever edited the novel.)

And this:

Perhaps he can learn a lesson from Freedom: write a long book about mediocrities, and in their language to boot, and they will drag you down to their level.

I thank The Browser for the pointer.

Addendum: Andrew Gelman comments.

Markets in Everything: Afghan Votes

by  Alex Tabarrok in

The NYTimes has an excellent piece today on vote-buying in Afghanistan:

How much does it cost to buy an Afghan vote?

Saturday’s parliamentary elections offer a unique opportunity to ascertain that price – and it is in theory a market with many buyers, as 2,500 candidates scramble for only 249 seats….

Nonetheless, prices are low. In northern Kunduz Province, Afghan votes cost $15 each; in eastern Ghazni Province, a vote can be bought for $18. In Kandahar, they sell their rights for as little as $1 a ballot. More commonly, the price seems to hover in the $5 to $6 range, as quoted to New York Times reporters in places like Helmand and Khost Provinces.

You may be surprised to learn that in Afghanistan a woman's vote is regarded as especially valuable:

He wanted to know how many of the cards were for female voters; those are more valuable because, out of respect for cultural sensitivities, women’s registration cards do not bear photographs, so they are easy for anyone to use. 

Here is my favorite bit.  Vote buying is much more common in this election than in the last.  So things have gotten worse, right?  Maybe not:

The feeling, experts say, was that last year’s election was stolen wholesale by supporters of President Hamid Karzai, so there was little need for vote buying.

The markets speak

by  Tyler Cowen in

I read so much blogospheric debate on the future of the Republican Party.  As for the 2012 Republican nominee, at Intrade.com, Romney is still leading the pack in the 31 range, and Palin remains in the 17-18 range.  John Thune is very much underdiscussed, given that his chance of winning the nomination seems to be about as large as Palin's. 

As Robin Hanson would say, politics isn't about policy.  Of course if you think these numbers are wrong, go and improve them.

*The Uses of Pessimism*

by  Tyler Cowen in

That is the new Roger Scruton book, which I finished with pleasure.  Here is one good passage:

Optimism…is the other side of a kind of existential despair, a longing to retreat from the complexities of the great society to the primordial simplicity of the undifferentiated tribe.  It expresses a kind of distrust of humanity, an inability to allow that we can actually move on from our original nature, and create a flexible, reasonable and charitable "we," which is not a collective "I" at all, but the by-product of individual freedom.  But this distrust is unfounded.  The world is, in fact, a much better place than the optimists allow: and that is why pessimism is needed.

Regulating the shadow banking system

by  Tyler Cowen in

There is a new paper by Gary Gorton and Andrew Metrick, and (part of) the abstract reads as follows:

We first document the rise of shadow banking over the last three decades, helped by regulatory and legal changes that gave advantages to the main institutions of shadow banking: money-market mutual funds to capture retail deposits from traditional banks, securitization to move assets of traditional banks off their balance sheets, and repurchase agreements (“repo”) that facilitated the use of securitized bonds in financial transactions as a form of money. All of these features rely on an evolution of the bankruptcy code that allows securitized bonds to be used as a form of privately created money in large financial transactions, a usage that can have significant efficiency gains and would be costly to eliminate. History has demonstrated two successful methods for the regulation of privately created money: strict guidelines on collateral (used to stabilize national bank notes in the 19th century), and government-guaranteed insurance (used to stabilize demand deposits in the 20th century). We propose the use of strict rules on collateral for both securitization and repo as the best approach for shadow banking, with compliance required in order to enjoy the safe-harbor from bankruptcy.

I liked this paper very much.  It has excellent detail on how the shadow banking system works, excellent conceptual analysis comparing shadow banking to America's earlier "free banking era," and the central point that we don't have enough safe collateral for repo (should the Fed issue a special form of such collateral?).  It uses the word "rehypothecation" and ends with an excellent (and to me somewhat scary) few sentences:

It seems that U.S. Treasuries are extensively rehypothecated and should be viewed as money…This means that open market operations are exchanging one kind of money for another, rather than exchanging money for "bonds."  "Quantitative easing" may well be the monetary policy of the future.

Addendum: Arnold Kling comments.

On Austro-European business cycle theory

by  Tyler Cowen in

On the origins of the crisis, Raghuram Rajan writes:

It is true that the European Central Bank was less aggressive, but only slightly so; It brought its key refinancing rate down to only 2 percent while the Fed brought the Fed Funds rate down to 1 percent. Clearly, both rates were low by historical standards. More important, what Krugman does not point out is that different Euro area economies had differing inflation rates, so the real monetary policy rate was substantially different across the Euro area despite a common nominal policy rate. Countries that had strongly negative real policy rates – Ireland and Spain are primary exhibits – had a housing boom and bust, while countries like Germany with low inflation, and therefore higher real policy rates, did not. Indeed, a working paper by two ECB economists, Angela Maddaloni and José-Luis Peydró, indicates that the ultra-low rates by both the ECB and the Fed at this time had a strong causal effect in relaxing banks’ commercial, mortgage, and retail lending standards over this period.

That is taken from Rajan's response to the recent Krugman-Wells review of his book.  I am especially interested in this passage because I once made a version of Krugman's argument myself.

If you read the whole review, and response, you will see that this has become what is known as a "contested exchange."  Hat tip goes to Clive Crook.

What’s holding back small business?

by  Tyler Cowen in

Catherine Rampell has a very useful graph, displayed here, and cited favorably by Krugman and also deLong.  Karl Smith correlates sales complaints with high unemployment and complains about Arnold Kling.

Sales

Krugman wrote, for instance, "Businesses aren’t hiring because of poor sales, period, end of story".

I didn't read this graph the same way.  I saw poor sales as a "biggest problem" for fifteen percent (or so) of small businesses in periods of full or near-full employment.  I also see "poor sales" as a "biggest problem" for about thirty percent of small businesses today.  That change — about fifteen percent of the total — struck me as relatively small and indeed puzzlingly small, if indeed we are in a liquidity trap and weak AD is the overwhelmingly dominant problem.  (In fact I might expect an Austrian to cite such a number in support of their story.)  I do think weak AD is an important problem to be addressed, I just don't think the absolute levels here imply "end of story."  I look at that graph and think "this is a multi-factor problem."

I also note that larger businesses have fairly high levels of profit right now and that the pattern of unemployment — lots of permanance, and among the less educated — is not obviously correlated with where we would expect to find either most nominal wage stickiness or the greatest lack of spending.

I note as well that the most plausible sectoral shift stories also imply that businesses will complain about poor sales.  Furthermore, many of the synthetic RBC-neo-Keynesian models — which long ago displaced the simple MC-driven RBC models of the early 80s — are consistent with these data as well.

A lot of the correlations in the diagram don't quite make sense, such as "inflation" becoming a much more serious problem in 2007, or how "insurance cost" changes.  And might such a diagram ever imply that we should lower taxes on business?  Russ Roberts comments:

In fact, if there had been one category called “Taxes and Government Regulations” it might have been seen as the biggest problem, listed by 36% of respondents, up from 29% in the year before and surpassing sales as the biggest problem.

One key question is how to get sustainably higher sales, most of all for wealth-elastic and income-elastic and credit-elastic goods and services.  This diagram doesn't tell me how to fix that problem or where that problem comes from, but that is a critical issue, maybe the critical issue.

Overall, I look at that chart and I think the jury is still out, to say the least.

Scary sentences

by  Tyler Cowen in

It seems the Obama administration is looking for any possible argument to justify its policy of assassinating U.S. citizens without legal restraint.  But that's not always easy to manage:

“The more forcefully the administration urges a court to stay out because this is warfare, the more it puts itself in the uncomfortable position of arguing we’re at war even in Yemen,”

The administration doesn't want any possibility of judicial review:

…they are seeking to have the lawsuit dismissed without discussing its merits. For example, officials say, the brief is virtually certain to argue that Mr. Awlaki’s father has no legal standing to file a lawsuit on behalf of his son.

Is the administration trying to figure out the law, and then follow it, or to simply push through whatever it wants to do?

Are clearing mandates inefficient?

by  Tyler Cowen in

A new Cato paper by Craig Pirrong says yes, they are inefficient.  This is a  useful paper for sorting out some issues, because it argues consistently on a conceptual level.  I especially like the point about how clearinghouses re-order the line of creditors, in favor of members, whether you like it or not.  Overall, though, I'm not convinced by the main arguments against mandated clearinghouses.  The phrase "not necessarily" is invoked too many times.  Contra his p.24, it seems to me that clearinghouses would have had a strong profit incentive to monitor or limit the kind of risk-taking which led to the A.I.G. debacle.  The key point is that a clearinghouse can more easily be forced to carry heavy capitalization and said capitalization, unlike with a current bank, cannot so easily be undone by off-balance sheet transactions or hidden leverage.  The clearinghouse has different incentives and is much easier to regulate and therefore we should put some more trust in them.  CME and NYSE and others did fine in a period of major market turmoil, so why not consider extending this model just a bit more?

I would think the main argument against mandated clearinghouses for CDS is simply the hair-trigger, discrete, non-smooth nature of default-linked payoffs, and whether any centralized intermediary has the predictive power to handle that and to demand sufficient collateral.  Still, that is one way of putting CDS contracts to a non-TBTF commercial test, albeit a regulated commercial test.  My worries about the actual CDS clearinghouse you will find here.