Assorted links

by  Tyler Cowen in

1. Who again is going to cut Medicare spending?

2. So it has come to this.

3. We are referred to Charo's Wikipedia page.

4. Ireland may cut minimum wage; they know that AS and AD curves still have their traditional slope.

5. The horse race continues, with news from Portugal: "Pedro Passos Coelho told a meeting of his Social Democratic Party items like state-run companies' debts were not included in the overall public debt, which the government puts at 82 per cent of gross domestic product this year.

He said that the "true" total public debt stood as high as 112 per cent of GDP, while the budget deficit should be at 9.5 per cent of GDP, far above the minority Socialist government's target of 7.3 percent for the end of the year."

More bits on whether we need a Fed

by  Tyler Cowen in

In Alex's response there are various criticisms of me, but you can read both of his posts and you don't find a reason why free banking would offer an advantage over post WWII central banking (combined with FDIC and paper money).  That's long been the weak spot of the anti-Fed case.

Ask yourself: do we want a countercyclical money supply, and is central banking or free banking more likely to provide that?  Once you take income effects, credit quality, and bank runs into account, the answer is obvious.  It takes a good deal of imagination to believe that the Fed's periodic overreaches outweigh the benefits it provides through countercyclicality, even if, as Scott Sumner suggests, they don't always go far enough.  The short rates of 2001-2004 weren't the root cause of Armageddon, even if they were one factor of many feeding into what was essentially a private sector bubble.

To whatever extent we can do without a Fed, it's because there are so many Treasury securities, which should be a sobering thought to a market-oriented perspective.  If the Fed were shut down, over time the new base money would not be gold, "Hayeks," or a commodity bundle.  It would be T-Bills.  We would have achieved the full integration of the monetary and fiscal authority but to what useful end?  (Better not balance the budget!)  The real question is whether the Treasury should be the Fed or whether the Fed should be the Fed, but you won't often see it framed that way.

Alex wants to include the early years of the Fed in the Fed vs. no Fed comparison, but other than "pass the nam tok, Tyrone" there is no argument why these early years should be much relevant for a 2010 choice.  Judge what you're likely to be getting, on a forward-looking basis and that's not the Fed of 1929.    

Many of the Fed's most serious mistakes are sins of omission, not commission, including of course 1929-1932, not to mention the lead-up to the recent crisis.  Fed critics sometimes use sleight of hand to turn these sins into a case against the Fed; in other words, they wish to permanently lock in such sins of omission and somehow claim this as a gain.

Alex makes more of an argument when he notes that a non-Fed alternative would have improved over time, just as the Fed has.  Still, recent experience with the shadow banking system, unregulated mortgage brokers, AIG, runs on money market funds, auction-rate securities, and other practices and events raises strong questions as to whether we can expect a general evolution toward stability.  You can — in hypothetical terms — blame all those problems on the Fed and moral hazard (in my view moral hazard was one factor but hardly the whole story) and abolish what was essentially the saviour institution, on the hope that it won't all happen again.  That is what a lot of the case against the Fed boils down to.

One contrarian argument against the Fed is that it would force the Chinese to play lender of last resort and a) they would be less likely to favor Goldman Sachs, and b) they might insist on more fiscal rectitude, as the EU powers are trying with Ireland.  Still, this is not a feasible political equilibrium. 

There is also no practical transition out of dollars, but that is a topic for another day.  In the meantime, that means abolishing the Fed implies freezing the monetary base — forever.  Is Alex willing to advocate that policy?  In this game, transition paths and lock-ins are essential, not a second-order consideration.

In his discussion of foreign policy, Alex admits we're going to have a Fed, like it or not.  And there is no attempt to dispute that the alternative to the Fed is Congress running the bailouts, not real market-based accountability for financial mistakes.

The key question is how to make the Fed as good as possible — there is plenty that can be done – and trying to tear it down won't make that liberty-enhancing end more likely.  Alex dismisses that observation as "sociology," but if so it is true sociology, also known as public choice economics. 

Addendum: Robert Teitelbaum at HP comments on the earlier debate.

What I might be reading more of, or not

by  Tyler Cowen in

1. Hélène Cixous, Stigmata.  I didn't find anything of value here.  Probably the poetic element is better in the French but I wonder what the big deal is about.

2. Erika S. Olson, Zero-Sum Game: The Rise of the World's Largest Derivatives Exchange.  Good inside the scenes account of the CME-CBOT merger, also with material on the rise of ICE.  I read some of it and was glad I did.

3. Kaushik Basu, Beyond the Invisible Hand: Groundwork for a New Economics.  The author is a smart guy and he writes clearly, but I object to the subtitle and what it implies.  I want The New Economics, not the Groundwork for a New Economics.

4. They Live, by Jonathan Lethem.  Scene-by scene commentary on the John Carpenter movie of that name.  I'd like to see more books like this.  It's short.

5. Gabriel Garcia Marquez, Yo no vengo a decir un discurso.  Transcripts of some of his lectures, so far very eloquent although the level of substance remains to be seen.

6. David Edwards, The Lab: Creativity and Culture.  He wants to revitalize labs with a blend of "Artscience" and encourage them to cultivate more ideas which appear impractical but may have long-term payoffs.

7. Bethany McLean and Joseph Nocera, All the Devils are Here: The Hidden History of the Financial Crisis.  Alex liked it, Arnold Kling liked it, and I like it too.  It is more conceptual than most of the crisis books.

7. Robert Alter, translator, The Wisdom Books: Job, Proverbs, and Ecclesiastes.  He is my favorite Biblical translator and this is a sure thing, I will read this one.

8. Wolfgang Fengler and Homi Kharas, editors, Delivering Aid Differently: Lessons from the Field.  This is too specialized for my current reading interests, but overall the content looks substantive and interesting.

I am still impressed by having watched Lars von Trier's Antichrist.  I believe no one (at least no male) can watch that movie straight through, for reasons which I cannot explain on a family blog (though perhaps it will someday be part of TSA procedures?).  Yet more than a month later I continue to think about the good parts of the movie and I am not overall a von Trier fan.  The film is dedicated to Tarkovsky.

Assorted links

by  Tyler Cowen in

1. Earmarks do cause higher spending.

2. Exactly when was Ireland capable of having a balanced budget?

3. Excellent travel photo albums, mostly of Asia and Latin America, by Jodi Ettenberg, a marshmallow enthusiast.  Here is why she did it.  Here is Q&A (another interview here):

Q: What drives your instinct to travel?

A: A desire to soak up as much as possible, as intensely as possible. I know this sounds broad, but it applies to almost every facet of what I've done these past few years. I am continuously energized by learning new things and experiencing them firsthand.

She skipped undergrad and went right to law school, saving up money for the purpose of later travel and eating street food around the world.  Here are her tips for how to pack for a year.

Simon Johnson analyzes the Dublin gambit

by  Tyler Cowen in

There is little doubt that Ireland, as a one-off situation, is handled easily, albeit at greater expense than anyone would like.  But how does the game tree run?

…the Irish leadership has every incentive to delay until other countries can be dragged into turmoil. The crisis will become euro-zone wide, at which point all eyes will turn to some combination of the European Central Bank, the German taxpayer, and the IMF. But the ECB can’t pay and the German taxpayer won’t pay. Does the IMF have the resources to tackle Spain, let alone a bigger country like, say Italy or even France?

The U.S. could add sufficient funding to the mix — this is what it means to be a reserve currency — but the mood in Washington has shifted against bailouts.

As an alternative, Europe could place a call to Beijing to find out if China would like to commit some of its $2.6 trillion in reserves to keep European creditors whole. This would be an enormous opportunity for China to vault to a leading global role. Perhaps it was a good idea to place Min Zhu, a top Bank of China official, in a senior position at the IMF.

The microcredit paradox

by  Tyler Cowen in

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.

What are your rights on private cruise ships?

by  Tyler Cowen in

Have you wondered?  Here is one take:

The unpleasant reality is that the cruise vessel's responsibilities and your rights as an injured passenger are governed not by modern, consumer oriented common and statutory law, but by 19th century legal principals, the purpose of which is to insulate the maritime industry from the legitimate claims of passengers. The policy enunciated by the Second Circuit Court of Appeals 35 years ago in Schwartz v. S.S. Nassau67, a case involving a passenger's physical injuries, applies equally today, " The purpose of [ 46 U.S.C. 183c ]…' was to encourage shipbuilding and ( its provisions )…should be liberally construed in the shipowner's favor `". Although recent years have seen the expansion of travel consumers' rights and remedies in actions against airlines68, domestic hotels69, international hotels70, tour operators71, travel agents72, informal travel promoters73 and depository banks74, there has been little, if any, change in the passengers' rights and remedies in actions against cruise lines."75 Cruise passengers are at a distinct disadvantage in prosecuting their claims.

Being a good Coasean, I do not object to these arrangements (though I prefer to avoid them), but they are worth keeping in mind as the debate over the TSA proceeds.  Note that private contracting, between passengers and the cruise ships, has not done so much to extend these rights.  Here are further readings.  Or try this book.

Betting markets in everything

by  Tyler Cowen in

There is a royal wedding on its way and so Arrow-Hahn-Debreu have been put on notice:

Here is the fill list of what is currently on offer for the big wedding:

– Colour of the Queen’s hat (Ladbrokes offer a best price 4/1 on blue)

– Location of the wedding (Westminster Abbey is the hot favourite across all bookies, with Betfair offering the best price of 1/10)

– Month of the wedding (May is the current market leader, 2/1 with Ladbrokes)

– Bouquet specials (a lovely market this one, with just Victor Chandler offering 1/6 that it will be caught or 7/2 that it will be dropped at the key moment, Ricky Ponting style!)

– Best man (Harry the clear favourite, 1/20 with Betfred and Ladbrokes)

– Kate to say ‘Obey’ in her vows (5/6 yes and no with Stan James, so it could go either way)

The favored locale for the honeymoon is Kenya and for the "royal stag do," Scotland.  There are more bets at the first link and for the pointer I thank Chris F. Masse.

Say No!

by  Alex Tabarrok in

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." 

Sentences to ponder

by  Tyler Cowen in

Well, “Mom”, if flying is a “privilege, not a right,” it’s because over the last century we have gradually accepted the proposition that anything the government tells us it can regulate, it can regulate.

Here is much more, courtesy of The Browser.  And this:

Throughout my career – both as a prosecutor and as a defense attorney – I’ve observed a consistent inverse relationship: the more petty a government officer’s authority, the more that officer will feel a need to swagger and demand that you RESPECT HIS AUTHORITAH. Your average FBI agent might search your house based on a crappy perjured warrant, invade your attorney-client emails, and flush your life down the toilet by lying on the stand at your mail fraud trial. But he doesn’t feel a need to vogue and posture to prove anything in the process. He’s the FBI. But God above help you when you run into the guy with a badge from some obscure and puny government agency with a narrow fiefdom. He and his Napoleon syndrome have got something to prove. And he’s terrified that you’ll not take him very, very seriously. When I call FBI agents on behalf of my clients, they’re cool but professional and nonchalant. When I call a small agency – say, state Fish & Game, or one of the minor agency Inspector Generals – they’re hostile, belligerent, and so comically suspicious that you’d think I was asking for their permission to let my client smuggle heroin into the country in the anuses of handicapped Christian missionary orphans. They are infuriated, OUTRAGED, when a client asserts rights, when a client fails to genuflect and display unquestioning obedience. They are, in short, the TSA.

Megan says she is (partially) boycotting flying, but I am surprised by this decision.  In relative terms it is the driving experience which has deteriorated, largely because of traffic congestion.  Imagine what flying would be like if they were not allowed to charge you a proper price for the experience.

When it comes to airports, some high MU of money users will be better off as a result of TSA abuse; it will lower the price of flights.  Personally, I'm happy to put up with the practices if it means less congestion in the airport security line.