Good sentences
Here is more, interesting throughout. Shakespeare, in his Henriad, understood that citizens do not allow their leaders to be nice, reasonable, likable guys who admit when they are wrong. I am still glad — for eggheady, "merit good," and self-aggrandizing of my own relative status reasons — that Obama is trying to be reasonable, but I am not naive as to what lies at the end of the process.
There is no good reason for this
Thomas Friedman reports:
…the U.S. Senate unfortunately voted on Feb. 6 to restrict banks and
other financial institutions that receive taxpayer bailout money from
hiring high-skilled immigrants on temporary work permits known as H-1B
visas.
It is, however, another unintended consequence of bail-outs and we can expect riders like this to increase as the amount of money spent is increased.
Krugman and Barro respond to Clive Crook
Via Megan McArdle, lots of back and forth, definitely worth a read, you decide.
The job market for economists turns…dismal
Here is a good article by Justin Lahart:
The dismal economy has claimed yet another victim: jobs for the economists who study it.
Columbia University's economics department, for example, isn't
making any new hires this year. That's in stark contrast to last year,
when Columbia poached eight economics professors from other schools,
and hired one economist out of graduate school. The University of North
Carolina at Chapel Hill, Amherst College and the University of
Minnesota all have suspended their searches for economics professors.
And Harvard University has gotten permission to hire just one person —
only after "many rounds of negotiation," according to Harvard economist
Lawrence Katz, who is handling recruiting this year. Typically, Harvard
hires two or three economics professors out of graduate school.
Barack Obama on Sweden
Read this post; here is Obama speaking:
Sweden, on the other hand, had a problem like this. They took over the
banks, nationalized them, got rid of the bad assets, resold the banks
and, a couple years later, they were going again. So you'd think
looking at it, Sweden looks like a good model. Here's the problem;
Sweden had like five banks. [LAUGHS] We've got thousands of banks. You
know, the scale of the U.S. economy and the capital markets are so vast
and the problems in terms of managing and overseeing anything of that
scale, I think, would — our assessment was that it wouldn't make
sense. And we also have different traditions in this country.
Here is a short movie by Ingmar Bergman. Here is a Carl Milles sculpture. Here is some cabbage with your pizza.
Interview with The Daily Beast
From The Daily Beast, with me. This was done before the new Geithner plan was announced. Here is one part:
maybe no one has a clear vision. And a finger in the dike is better
than nothing. But it's not a great place to be.
Here is the closing bit:
think things are manageable so it makes me more optimistic. I hope
that’s not just them trying to trick me. So you can take their response
actually as somewhat of a sign that things aren't as bad as the worst
doomsayers are claiming.
Today I am less optimistic about that.
Theories of TARP evolution
Via J. Wallace, here is a tableaux of how U.S. banking/bailout proposals have evolved. And of course the Geithner plan has hardly proven itself overwhelming. I offer up the following hypotheses, none of which settles the issue for me:
1. U.S. banks have been known to be insolvent for some time and everyone is simply afraid to come out and admit it.
2. The economists offer up coherent plans, but they are then bogged down by the input of competing advisers and Karl Rove-like politicos.
3. The goal of the various plans has been to confuse Congress.
4. The Republicans were just stupid and irresponsible and now the Democrats are smart but they lack experience at the rudder and they need another try to get it right.
5. The Republicans were just stupid and irresponsible and now the Democrats are just stupid and irresponsible.
6. The Obama team is brilliant and we are the silly ones who insist on imposing simple narratives on all policy actions. Good policy should be difficult to understand.
7. The Democrats made the mistake of setting an artificial deadline and by the time it came around they realized they had nothing so they put up what they had, which wasn't much.
8. We need to re-benchmark our expectations because the world doesn't work as well as we used to think. What we used to consider "bad policy" is, in reality, compared to the relevant alternatives, "reasonably good policy."
9. U.S. banks are insolvent but we can muddle through if we ignore that fact and let them evolve back into solvency. What we need is a plan which lacks transparency and Geithner delivered.
10. All of the above.
The Geithner plan
Megan McArdle writes:
Tim Geithner reveals that the Treasury has a plan to fix the problems in our broken capital markets by . . . er . . . fixing them.
Paul Krugman writes:
An old joke from my younger days: What do you get when you cross a
Godfather with a deconstructionist? Someone who makes you an offer you
can’t understand.
I found myself remembering that joke when trying to make sense of the Geithner financial rescue plan.
It’s really not clear what the plan means; there’s an interpretation
that makes it not too bad, but it’s not clear if that’s the right
interpretation.
Here is Brad DeLong on same. Get the picture?
Does anyone else find this funny?
I do.
In a nutshell
Here's Brad Setser:
Implicitly, Geithner and his colleagues seem to have concluded that the
“great unwind” has limited the private sector’s ability to absorb the
banks troubled assets. Key players no longer can borrow the funds
needed to make large bets on troubled mortgage-backed securities. By
providing credit to those willing to buy bad assets, the US government
hopes to push up their market price up, and in the process induce the
banks now holding these assets to sell. The US government in effect is
providing the financial system with leverage to facilitate – one hopes
– a transition to a less leveraged financial system. The amount that
private investors have to put down – relative to the amount they are
spending – is a key detail.
The post is interesting throughout.
Why isn’t there more consensus among economists?
Clive Crook asks that question about the fiscal stimulus (by the way, Paul Krugman responds to the part of the column about him). I do think there is more of a consensus than the current debates in the media, and the blogosphere, might imply. I take the general consensus of macroeconomics to be not too far from the position articulated by Alice Rivlin. That means accelerate the truly stimulative parts of the proposal and ponder the rest at greater length, plus emphasize aid to state and local governments. I'm not suggesting that you have to bow down and yield to that view, only that the view makes sense to a large number of macroeconomists.
In part the appearance of so much disagreement is driven by the fact that both MSM and the blogosphere select for opinions which deviate from the mainstream. Many segments of MSM are willing to represent the mainstream opinion, but there is then a sense that some new point of view must be offered, if only to hold the interest of the reader or viewer. And some parts of MSM are openly partisan and thus they skew toward extreme points of view. In the blogosphere libertarians are overrepresented, relative to their numbers in the profession. On the Democratic side, Paul Krugman is the most influential figure, and I would place him to the left of most Democratic economists. Progressives, like libertarians, are overrepresented on the web, relative to their numbers in the economics profession or elsewhere.
It is good that so many different points of view are being reflected, but we need to keep the biases of our filters in mind. Repeating a moderate view, again and again and again, isn't always the best way to attract or keep an audience.
Assorted links
1. Karol Boudreaux is now blogging.
3. Government as shareholder: trickier than you think.
4. Becker and Murphy on fiscal stimulus.
The Physics of BS
Here is Frank Tipler on macroeconomics:
accurate predictions means that they do not know what they are talking about. We
non-economists should realize this also, and realize that our leaders, who are
being advised by macroeconomists, haven’t got a clue where they are leading us.
Well ok I have some problems with macroeconomics too but considering many of Tipler's writings his criticisms of macroeconomics are rather amusing. e.g.
Singularity–God–is like. The laws of physics tell us that our universe
began in an initial singularity, and it will end in a final
singularity. The laws also tell us that ours is but one of an infinite
number of universes, all of which begin and end in a singularity. If we
look carefully at the collection of all the universes–this collection
is called the multiverse–we see that there is a third
singularity, at which the multiverse began. But physics shows us that
these three apparently distinct singularities are actually one
singularity. The Three are One.
There is one religion which
claims that God is a Trinity: Christianity. According to Christianity,
God consists of Three Persons: God the Father (the First Person), God
the Son (the Second Person), and God the Holy Ghost (the Third Person).
But there are not three Gods, only one God. Using physics to study the
structure of the Cosmological Singularity, we can see that indeed the
three “parts” of the Singularity can be distinguished by employing the
idea of personhood. In particular, physics can be used to show how it
is possible for a man–Jesus, according to Christianity–to actually be
the part of the Singularity that connects the Initial and Final
Singularities. So the Incarnation makes perfectly good sense from the
point of view of physics.
The banking plan: what to expect
A plan is in the works for announcement tomorrow:
Mr. Geithner, who will announce the broad outlines of the plan on Tuesday, successfully fought against more severe limits on executive pay for companies receiving government aid.
He
resisted those who wanted to dictate how banks would spend their rescue
money. And he prevailed over top administration aides who wanted to
replace bank executives and wipe out shareholders at institutions
receiving aid.
Because of the internal debate, some of the most contentious issues remain unresolved.
On Monday evening, new details emerged after lawmakers were briefed on the plan.
It intends to call for the creation of a joint Treasury and Federal Reserve program, at an initial cost of $250 billion to $500 billion, to
encourage investors to acquire soured mortgage-related assets from
banks.
It wants the Fed to use its balance sheet to provide the financing, and the Federal Deposit Insurance Corporation might provide guarantees to investors who participate in the program, which some people might call a “bad bank.”
A
second component of the plan would broadly expand, to $500 billion to
$1 trillion, an existing $200 billion program run by the Federal
Reserve to try to unfreeze the market for commercial, student, auto and
credit card loans. A third component would involve a review of the
capital levels of all banks, including projections of future losses, to
determine how much additional capital each bank should receive.
The capital injections would come out of the remaining $350 billion in the Troubled Asset Relief Program or TARP.
A
separate $50 billion initiative to enable millions of homeowners facing
imminent foreclosure to renegotiate the terms of their mortgages is to
be announced next week.
If that's enough, that's splendid news. We'll see. If that were enough, you think they would have done it by now already.
The reshaping of the stimulus: public choice thoughts
The topic is why some of the aid to state governments was cut and Matt Yglesias, after citing conservative supporters of such aid, reports:
I genuinely don’t understand why it’s [politics] failing to function in this particular way. It seems to me that there ought to be strong interest-group politics behind state and local financial aid coming from public employees, and senators of all parties should be facing strong pressure from governors back home to do this.
Ross Douthat comments as well. I believe that if state-level governments fail to do a good job, the blame is put on governors and state-level legislators, not U.S. Senators. Voters have theories of responsibility, rather than theories of causality, and that subtle difference occasionally becomes very important. (And the governors then have to make up the funds by squeezing some of their constituencies.) In the meantime, for better or worse, three Senators are on the evening news, for days on end, and they are described as "bipartisan." One of Obama's problems is that other peoples' attempts to copy his memes and strategies make it harder for those same strategies to succeed. There is a common pool of "good publicity for being bipartisan" and now many players are rushing to exhaust it, even if that means pushing policy changes of low quality.
I believe also that many of the Republicans in the House wanted to vote for the stimulus bill but they had no cover and also their donors are dead set against. Precisely because so many Republicans voted for TARP, there is a feeling that a line in the sand must be drawn. If fewer Republicans had voted yes on TARP, and thus more Republicans could have voted yes on the stimulus, a bipartisan restructuring could have reallocated the spending more wisely than it did. The attempted Republican re-establishment of long-spent ideological credibility is precisely what opens up room for some "moderate" political entrepreneurship.
Alternatively, maybe you can predict what will come out of the House-Senate committee and then solve backwards for the equilibrium strategies.