Morgan Kelly writes from Ireland
The IMF, which believes that lenders should pay for their stupidity before it has to reach into its pocket, presented the Irish with a plan to haircut €30 billion of unguaranteed bonds by two-thirds on average. Lenihan was overjoyed, according to a source who was there, telling the IMF team: “You are Ireland’s salvation.”
The deal was torpedoed from an unexpected direction. At a conference call with the G7 finance ministers, the haircut was vetoed by US treasury secretary Timothy Geithner who, as his payment of $13 billion from government-owned AIG to Goldman Sachs showed, believes that bankers take priority over taxpayers. The only one to speak up for the Irish was UK chancellor George Osborne, but Geithner, as always, got his way. An instructive, if painful, lesson in the extent of US soft power, and in who our friends really are.
The negotiations went downhill from there. On one side was the European Central Bank, unabashedly representing Ireland’s creditors and insisting on full repayment of bank bonds. On the other was the IMF, arguing that Irish taxpayers would be doing well to balance their government’s books, let alone repay the losses of private banks. And the Irish? On the side of the ECB, naturally.
In the circumstances, the ECB walked away with everything it wanted. The IMF were scathing of the Irish performance, with one staffer describing the eagerness of some Irish negotiators to side with the ECB as displaying strong elements of Stockholm Syndrome.
Here is much more, interesting throughout, essential reading I would say. By the way, here is the game theory if Ireland simply bails on some previous commitments to bank creditors:
At a stroke, the Irish Government can halve its debt to a survivable €110 billion. The ECB can do nothing to the Irish banks in retaliation without triggering a catastrophic panic in Spain and across the rest of Europe. The only way Europe can respond is by cutting off funding to the Irish Government.
Are you seeing a pattern emerge? I thank a loyal MR reader for the pointer.
Addendum: Good update on the euro gossip here.
Some simple game theory
…if any one euro zone country were to start exiting the euro, there would be bank runs on the other fiscally ailing countries. The richer European Union nations know this, and so they are toiling to keep everyone on board. But that conciliatory approach creates a new set of problems because any nation with an exit strategy suddenly has enormous leverage. Ireland or Portugal [or Greece!] need only imply that without more aid it will be forced to leave the euro zone and bring down the proverbial house of cards. In both countries, aid agreements already are seen as a “work in progress,” and it’s not clear that the subsequent renegotiations have any end in sight, because an ailing country can always ask for a better deal the following year.
That is from me. Today’s Bloomberg headline reads: “EU Finance Chiefs See More Aid for Greece, Reject Euro Exit.” Yet a stable game this is not.
Is the downturn all about weak aggregate demand?
Here is one report from yesterday:
Dining out will cost more this year as U.S. restaurants take advantage of the nearly two-year long expansion to boost prices on food and drinks.
Higher-priced menus reflect growing confidence by eateries that consumers can afford to pay more to eat out. Restaurants are emboldened in part by the success of U.S. airlines, which have raised fares almost 10 percent since a year ago, according to Dean Maki, chief U.S. economist at Barclays Capital in New York.
And another (1/20):
Retailers expected a good April, and they got it. Sales at stores open at least a year, a measure of retail buoyancy known as same-store sales, increased 8.9 percent on average in April, according to Thomson Reuters’ tracking of 25 retailers. That was one of the biggest increases in the last few years, and it topped analyst expectations of 8.2 percent.
The beginning of the end of the beginning
Sources with information about the government’s actions have informed SPIEGEL ONLINE that Athens is considering withdrawing from the euro zone. The common currency area’s finance ministers and representatives of the European Commission are holding a secret crisis meeting in Luxembourg on Friday night.
Story here, and I do believe this rumor. For the pointer I thank the excellent Catherine Rampell. Here is my recent column on this issue, it applies very directly. Unless this rumor ends very quickly, it means a run on a number of different countries.
The culture that is Buenos Aires
Argentina is to consider granting a special pension to writers on the grounds that they generate “social richness” but often end up impoverished.
The lower house of congress will study a proposal presented on Tuesday that would give published authors a monthly stipend of £565, well above the state minimum pension.
The idea, inspired by similar initiatives in France and Spain, would offer the pension to those who are aged over 65 and have published at least five books or invested more than 20 years in “literary creation”.
…The city of Buenos Aires, proud of a national literary tradition which boasts Roberto Arlt, Julio Cortázar and Jorge Luis Borges, approved a similar proposal in 2006 which granted a monthly pension of almost £400.
Of around 100 applicants to date 72 have been approved, a low number which should calm those worried about the fiscal implications of the scheme going national, Victor Redondo, a poet and member of the Argentine Writers’ Society, told the BBC.
The article is here.
Assorted links
1. Watch markets in everything, why not just run faster?
3. The macro learned in economics grad school, though I disagree that ideology is the reason for RBC popularity.
4. Singapore allows political competition on the internet (1/20), ungated version here.
The demand for affiliation (the dogs of war)
Economists should write more papers on this general topic (affiliation that is):
Ezra:
We sent 79 commandos to get Osama bin Laden — and one dog. A lot of people want to know about that dog, but unfortunately, the military isn’t telling…
NYT (1/20):
Suzanne Belger, president of the American Belgian Malinois Club, said she was hoping the dog was one of her breed “and that it did its job and came home safe.” But Laura Gilbert, corresponding secretary for the German Shepherd Dog Club of America, said she was sure the dog was her breed “because we’re the best!”
Here is more information about the dogs.
The modern day candlemakers’ story
Chesapeake Bay Candle, known for scented and textured candles that sell for $9.99 at Kohl’s and Target, has set up three factories in Asia over the past 16 years. But when it came to building a plant in the U.S. to expand its customer base and better serve existing clients, the founders were unprepared for the regulatory hurdles.
The new facility was supposed to be up and running last fall, but now isn’t expected to open until the end of June. Expensive upgrades required to meet local building codes have dented margins and forced the company to rejigger its supply chain to backup deliveries with products from Asia.
But don’t feel too sorry for them, this I had not known:
Candles are one industry in which U.S. producers dominate their home market. The National Candle Association estimates the U.S. market is about $2 billion, with imports accounting for 20% or less of that. Imports have been low since 2004, when “the anti-dumping duties came into play,” said the association’s president, Frederic Contino. That’s when duties for Chinese-made candles entering the U.S. more than doubled to the current 108.3%.
Illiteracy and Testing
Here is Matt Yglesias who is always sensible and worth reading on education policy:
Something that I think drives at least some of my disagreements with other liberals about education policy is that I think a lot of middle class liberals implicitly underestimate the extent of really bad learning outcomes. Take this report (PDF) from the Detroit Regional Workforce Fund which notes “that 47% of adults (more than 200,000 individuals) in the City of Detroit are functionally illiterate, referring to the inability of an individual to use reading, speaking, writing, and computational skills in everyday life situations” and also that “within the tricounty region, there are a number of municipalities with illiteracy rates rivaling Detroit: Southfield at 24%, Warren at 17%, Inkster at 34%, Pontiac at 34%.”
Under those circumstances, I find it difficult to be seized with worry that schools are going to be ruined by teachers “teaching to the test” too much. It is true that school districts that have started taking testing more seriously now need to step up and also take the possibility of outright cheating more seriously. But the fact that huge numbers of kids are passing through school systems and not learning basic literacy drives home the fact that districts also need to take checking to see if the kids are learning anything more seriously. That means tests, and since it’s good to be able to compare different schools to one another that means standardized tests. It’s a limited tool, it shouldn’t be the sole criterion on which the effectiveness of anything is measured, but it’s also an important one.
What is the most neglected and underrated *accessible* pop music album?
You may have your favorite neglected microtonal drone guitar album, but let’s take this in another direction. What’s the best accessible pop album that never caught on with listeners and buyers?
Of course that’s a funny question. If it never caught on, what makes it so accessible? What makes you think it is so accessible? Those are exactly the sort of questions which require the high-octane collective intelligence of MR readers. And I do have a nomination:
Pop Said…, by The Darling Buds.
It’s pitched at the level of good ABBA, and yet few people other than my friend Eric Lyon know it. It has only five Amazon reviews and the band found little commercial success.
Another pick would be Pato Fu’s Televisao De Cachorro, which has only two Amazon reviews. It is better known in Brazil, though it still sounds as if it should have serious crossover potential. Some of the songs are in English, too.
What is your nomination? How can such albums fail to take off?
Assorted links
1. When should we tax goods with inelastic demand?
3. Will on the new Jerry Gaus book; Kevin Vallier’s summary is intended as positive, but it reflects my reservations about the book: “In sum, OPR defends public reason liberalism without contractarian foundations. It is Kantian without being rationalistic. It is Humean without giving up the project of rationally reforming the moral order. It is evolutionary but not social Darwinist. It is classical liberal without being libertarian. It is Hegelian and organicist without being collectivist or statist.” Too much engagement with macro-positions of philosophic others, too many strung together, semi-empirical casual observations, not enough focused, narrowed down progress on the knotty particular problems of social choice and aggregation and whether rules are simply an arbitrary category. The argument takes on too many moving pieces — not quite empirical, not quite theoretical — in a way which is to this reader was not persuasive.
In my pile
1. Food Trucks: Dispatches and Recipes from the Best Kitchens on Wheels, by Heather Shouse. I’ve read enough of this book to know it is true to its title.
2. The Moral Lives of Animals, by Dale Peterson. It looks like Adam Smith’s TMS applied to the moral sense of non-human animals, making the point that the moral sense is not unique to human beings.
3. Music for Silenced Voices: Shostakovich and his Fifteen Quartets, by Wendy Lesser.
4. Zoo City, by Lauren Beukes; so far I love it, imagine a mix of Raymond Chandler, near-future science fiction, and South African grit.
All are worthy of purchase, we will see how they develop. I found The Windup Girl, by Paolo Bacigalupi, the most enjoyable science fiction novel I’ve read in a few years, and it should appeal to fans of Thailand too.
Electric Roads
Here is an interesting idea.
…what if the energy storage burden was shifted from our overworked cars to the road?
…Electric vehicles, or EVs, could pick up small amounts of electricity as they drive over charging pads buried under the asphalt and connected to the electrical grid. Researchers say that a continuously available power supply would allow EVs to cut battery size as much as 80 percent, drastically reducing vehicle cost.
“Basically you get power directly from the grid to the motors as the car moves,” said Hunter Wu, a Utah State researcher who was recruited from The University of Auckland in New Zealand, where the technology was pioneered, to further develop the concept. “You can travel from the West Coast to the East Coast continuously without charging.”…
The AV (alternative vote) electoral reforms
The UK is voting on this today. Here is a good survey of social choice approaches to the question, and here is a survey of how AV systems work. The basics are this:
Alternative vote (AV) is a type of preferential voting in which voters are asked to rank the candidates from first to last. The basic idea is that if no candidate is the first choice of 50% + 1 voters, then the candidate who received the fewest first place votes is eliminated. This candidate’s voters then have their votes reallocated to the candidate they ranked second. This reallocation process continues until one candidate achieves 50% + 1 votes (more on this later).
Too often the social choice approaches focus on the formal properties of the voting and do not capture the actual political incentives of electoral systems, which tend to follow from imperfect information and the behavioral tendencies of voters. In this case the key change is that competition for votes becomes messier and less clearly linked to major party identities.
A long time ago I wrote this analysis of related (but not always identical) systems:
Electoral systems based upon the single transferable vote tend to produce the
following effects:
• voters can express preferences for more than simply their favourite candidate
or party;
• representatives are focused towards constituency service and district policies,
rather than national policies;
• political parties are weak, non-ideological, and subject to frequent infighting;
• the ability of the legislature to check the executive is weak;
• most voters are confused by the mechanics of the single transferable vote;
and
• sophisticated voters have an incentive to manipulate the system and vote an
order which is not their true preference.
That is followed by a much more detailed analysis, scroll to p.56 for more. At best such systems are workable, but it is hard to see why they should bring any major advantages.
What is a good, short readable book on market economics?
Boswell, a loyal MR reader, asks:
I’ve been asked to select a book that all incoming freshmen will (supposedly) read over the summer and then give a lecture on the topic in the fall. The constraints are two-fold: it should be a short, affordable paperback, and it should be an interesting read that will engage nearly everyone, especially those who have no interest in economics whatsoever.
There must be a good, short book out there on economics that illuminates the power of markets and the economic way of thinking. Adam Smith and Friedrich Hayek are out – too heavy and dense for the average reader. Milton Friedman’s “Free to Choose” was selected a few years earlier. Henry Hazlett is out of date. Any suggestions for possible books? P.J. O’Rourke on Adam Smith? Bastiat’s “The Law”? Charles Wheelan’s “Naked Economics”? Something by Tim Harford? “Fooled by Randomness” by Taleb? John McMillan’s “Reinventing the Bazaar”?
Ideas? There is also Russ Roberts and early Paul Krugman, among others.