Social security and fiscal policy
This should be widely understood (which means it isn't), but it bears repeating nonetheless. Josh Patashnik writes:
Clearly,
the projected growth rate of health care costs is unsustainable, and
finding ways to change that ought to be, far and away, the country's
top fiscal priority. But it's not as though the chunk of money going to
Social Security and "other spending" is simply an afterthought; this is
15 percent of GDP we're talking about.
The fact that, over some time horizon, Social Security nearly "pays for itself" is irrelevant when the goverment's fiscal position is viewed in a properly consolidated manner. There is further commentary from Andrew Sullivan. I am dismayed that some left-wing bloggers are breathing a sigh of relief that the supposed "fiscal responsibility showdown," scheduled for this past Monday, turned out to be a non-event.
Obama mentioned "universal accounts" in his coverage of social security last night and I am surprised the blogosphere has not picked up on this more. This is probably Gene Sperling's idea and the key question is how much is "carve out" from existing benefits and how much is "add on." In any case doing this reform at Dow = 7,000 makes more sense than doing it at Dow = 11,000. It's even a way to boost stock prices (and possibly confidence?) though presumably it involves borrowing yet more money.
When you consider the speech as a whole, Obama is promising the largest and most ambitious attempt at rate of return arbitrage in the history of the human race.
Obama's speech was very effective but it is mostly about borrowing more money. It is odd that in a time when capital markets and attempted arbitrage have so failed us the solution is to resort to…capital markets and attempted arbitrage.
The more events progress (what's the implicit A.I.G. liability for the
government these days? near one trillion?), the more I believe that the tax cuts in Obama's stimulus plan were a mistake.
If I were Taiwan I'd feel a wee bit more worried these days.
New economics blog at TNR
The Stash, find it here (link now repaired), Noam Scheiber is a major (the only?) contributor.
Do conservative magazines take liberty seriously?
Daniel Klein and Jason Briggeman say maybe not:
Abstract:
Conservatives say they are for small government and individual liberty,
but a
content analysis of leading conservative magazines shows that most have
preponderantly failed to take pro-liberty positions on sex, gambling,
and
drugs. Besides many anti-liberty commissions, the magazines may be
criticized
for anti-liberty omission–that is, failing to oppose anti-liberty
policies.
Magazines investigated include National
Review, The Weekly Standard, The
American Enterprise,
and
The American Spectator. We find that National
Review has had the strongest
record on liberty on the issues treated, while the others have
preponderantly
failed to be pro-liberty or have even been anti-liberty.
Scott Sumner is now blogging
He is a very smart monetary economist at Bentley. The blog is here. Here is a very good post on Keynes's General Theory; excerpt:
When I hear people discuss the long run I am sometimes reminded of
students who mistakenly assume the term ‘long run’ means ‘the distant
future’ and ‘short run’ means ‘the present or near future.’ But that
is not at all what these terms mean. The present, right now, is the
“long run” for policies instituted years ago. So if Keynes believed
that in the long run nominal income is determined by monetary factors,
then he should have explained current movements in nominal income in
terms of past movements in monetary policy. Of course that is not what
the GT does.
And this:
Krugman recognized that Keynes’ liquidity trap rested on a
foundation of sand and attempted to build a model of “expectations
traps” that was consistent with rational expectations. I have doubts
about this model, but even if one accepts Krugman’s argument it doesn’t
really help the GT very much. Krugman argued that temporary increases
in the money supply will be hoarded, leaving AD almost unchanged. But
this would apply even more strongly to budget deficits, which unlike
money supply increases, must be temporary.
If a transitory budget deficit will have no long run impact on
nominal spending (holding money constant) then its effect on current
spending will be even weaker than otherwise. There is a reason why
modern graduate macro texts place so little emphasis on the ideas that
Keynes developed in the GT, they are very hard to justify in a model
with rational expectations. What puzzles me is why concepts such as
the MPC, the multiplier, the paradox of thrift, and fiscal stimulus
have recently become so widely debated among economists. Do these
concepts help us understand movements in nominal spending? And if so,
what is the model that justifies that view?
It is worth reading every single one of his (twenty-two, so far) posts, even though you must click to get under the fold.
Victor Zarnowitz passes away at 89
He was a giant of business cycle theory. Here is an appreciation, with links.
Assorted links
1. Weekly word cloud from the econ blogs.
2. China mixed messages of the day.
3. Is Obama leaning toward a health care mandate?
4. Only six percent of TV stimulus commentators are economists.
5. Puffins on YouTube, with Icelandic puffin souvenirs.
Utah (Montana) fact of the day
This one concerns adult entertainment:
Dividing state subscription counts by the FCC’s Broadband Deployment
quantities, the most-subscribing state is Utah (where 5.47 of every
1,000 broadband households subscribed to the service at issue), while
the least-subscribing state is Montana (1.92 per 1000 broadband
households).
Markets in everything, financial crisis get rid of your customers edition
This is what I call deleveraging:
It used to be that credit-card companies lured customers with cash rewards. Now American Express
Co. is paying to get rid of them. The card issuer is offering selected
customers a $300 AmEx prepaid gift card if they pay off their balances
and close their accounts.
Addendum: Megan McArdle adds commentary.
Monetary Policy?
The Federal Reserve has tried all kinds of innovative ideas to stimulate the economy but according to a headline in the NYTimes they will not be trying one of Milton Friedman's more radical ideas:
The Gaussian copula and financial risk correlation
Felix Salmon has an excellent article; here is one excerpt:
"The corporate CDO world relied almost exclusively on this copula-based correlation model," says Darrell Duffie,
a Stanford University finance professor who served on Moody's Academic
Advisory Research Committee. The Gaussian copula soon became such a
universally accepted part of the world's financial vocabulary that
brokers started quoting prices for bond tranches based on their
correlations. "Correlation trading has spread through the psyche of the
financial markets like a highly infectious thought virus," wrote derivatives guru Janet Tavakoli in 2006.
Interracial workplace cooperation, or the Steve Nash paper
At least in the NBA, it is good, as reported by Price, Lefgren, and Tappen:
Using data from the National Basketball Association (NBA), we examine
whether patterns of workplace cooperation occur disproportionately
among workers of the same race. We find that, holding constant the
composition of teammates on the floor, basketball players are no more
likely to complete an assist to a player of the same race than a player
of a different race. Our confidence interval allows us to reject even
small amounts of same-race bias in passing patterns. Our findings
suggest that high levels of interracial cooperation can occur in a
setting where workers are operating in a highly visible setting with
strong incentives to behave efficiently.
Here is the paper, here are ungated copies.
Humorous ways of saying it is not as bad as you think
Read them here. I liked the Chinese on Hillary.
Italy countercyclical fact of the day
Here is another good one from John De Palma:
Revenue raked in by Italy’s mob
surged 40 percent last year, turning crime into the nation’s No.
1 business, Eurispes said in its annual report.
Income increased to 130 billion euros ($167 billion), up
from about 90 billion euros in 2007, according to figures
supplied by Eurispes and SOS Impresa, an association of
businessmen to protest against extortion. Drug trafficking
remains the primary source of revenue, bringing in about 59
billion euros, and the mob earned 5.8 billion euros from selling
arms, the Rome-based Eurispes research group said today.
Petty Cartels
Entrepreneur Erroll Tyler doesn't want a bailout, his amphibian tour buses don't needing bailing out. What he does want is to bring his service to Boston but a local cartel appear to have a lock on the licenses issued by the city government. Here's a short video making the case, including law professor Randy Barnett who argues that the 14th amendment should be interpreted to protect economic liberty.
Assorted links
1. Yves Smith on how to nationalize the really big banks. And more here; Citi's half trillion in foreign deposits is another issue.
2. Data paparazzi.
3. Dambisa Moyo.