Public choice perspectives on the fiscal stimulus
If you want to worry less about the stimulus, try this argument. Government will spend a certain amount of money in any case, but that spending can be of higher or lower quality. Maybe you don't like the stimulus spending but is it possible that the spending alternatives would be even worse? Lock Jason Furman and Larry Summers in a room for an hour, with no web connection and equipped only with a single crayon between them. They still would come up with a better spending plan than would Congress and perhaps we are getting some version of what except they have more than a crayon.
Alternatively, perhaps progressives should be a little worried. As Matt Yglesias admits, evidence on massive fiscal stimulus is iffy (through nobody's fault, it's simply hard to know). But if you're a progressive, the opportunity cost of spending that money is a very non-iffy, highly-likely-to-succeed government program of some kind. Call it public health infrastructure. Maybe the content of the stimulus bill isn't as progressive as the alternatives.
If you're a libertarian, the government will just waste that money anyway. Can it be that progressives should be more worried about the stimulus, in net terms, than libertarians?
The underlying fiscal model here is that Obama has more good ideas (good from a progressive point of view, at least) than he is allowed to spend money on but he will spend as much as he can. These conclusions can be overturned to the extent that the prospect of a stimulus increases the total of what will be spent.
Addendum: Is Jeff Sachs agreeing with me?
What I’ve been reading
1. Intelligence and How to Get It: Why Schools and Cultures Count, by Richard E. Nisbett. A good compendium of the arguments for environmentalism in the IQ debates. But this book has all the same flaws as The 10,000 Year Explosion — albeit from the other side of the issue — and egads are those people in the comments section touchy. This book, by the way, offers the state of the art rebuttals to genetic explanations of Ashkenazi achievement, if you are looking to advance your understanding of those debates.
2. Food Matters: A Guide to Conscious Eating, by Mark Bittman. The best book on "food sanity" to date.
3. Yesterday's Weather, by Anne Enright. I'm not usually a consumer of short stories (Alice Munro is one exception) but the best ones in this (high variance) volume are very very good.
4. Bioethics and the Brain, by Walter Glannon. I wished for more of the author in this book but still I found it a useful compendium on what people are arguing about in the field these days.
5. Ted Gioia, Delta Blues: The Life and Times of the Mississippi Masters Who Revolutionized American Music. So far this is the book of the year for me. There are many fine books in this area but this one rises to the top of the heap. It's both the best introduction to its topic and the best book if you've read all the others and feel that nothing more can be said; a major achievement.
Markets in everything?
Steve Levitt is not sure whether this report is true:
that Canada’s do-not-call registry is being sold for next to nothing to
international scammers who are barraging these households with phone
calls, but are largely beyond the reach of Canadian law.
In contrast to Levitt, I would think that the people on that list are extremely prone to buy things from telemarketers.
What happened in the REPO market?
Gary Gorton has written another excellent paper, available here. It explains one corner of the crisis very well and it is this kind of paper:
Recommended for anyone taking a serious interest in contemporary financial markets and the crisis. On the question of stimulus, I recommend this discussion for anyone looking to understand why the correct multiplier is difficult to calculate.
Parenthetical remarks
That is from Felix Salmon. Felix also points us to this useful piece explaining credit default swaps.
My ethnic dining guide, new edition
You'll find it here, in html version, and it has more individual revisions than ever before. The list of my favorite places, for instance, is about half new. The blog version of the guide you'll find here and it offers updates on a more or less real time basis, while the html version is revised once a year or so. The html version is useful if you want to print the whole thing out. Here's one of the new reviews:
Ray’s Hell-Burger, 1713 Wilson Blvd.,Arlington, 703-841-0001, open for lunch
only on weekends, I believe 5 p.m. dinner on weekdays. All they have is hamburgers and
they don’t even have a side of French fries (you can get potato chips or potato
salad). It’s the best hamburger around by an order of magnitude. Yes, it is
worth paying a $4 or $5 supplement for the specialty cheeses on the
cheeseburger. I like the Epoisses best but the Amish cheddar is first-rate for
traditionalists. The quality of the burger and the cheese here really just
stunned me. By 12:15 on a Saturday the place is already chaos but somehow it
seems to work. Order your burger at the counter and then be prepared to stand at
a table (of sorts) and eat it. Not a place to sit and chat but who needs
social pleasantries when the burger is so good?
The evolution of income volatility
Shane Jensen and Stephen Shore report:
Recent research has documented a significant rise in the volatility (e.g., expected squared change) of individual incomes in the U.S. since the 1970s. Existing measures of this trend abstract from individual heterogeneity, eff ectively estimating an increase in average volatility. We decompose this increase in average volatility and find that it is far from representative of the experience of most people: there has been no systematic rise in volatility for the vast majority of individuals. The rise in average volatility has been driven almost entirely by a sharp rise in the income volatility of those expected to have the most volatile incomes, identified ex-ante by large income changes in the past. We document that the self-employed and those who self-identify as risk-tolerant are much more likely to have such volatile incomes; these groups have experienced much larger increases in income volatility than the population at large. These results color the policy implications one might draw from the rise in average volatility. While the basic results are apparent from PSID summary statistics, providing a complete characterization of the dynamics of the volatility distribution is a methodological challenge. We resolve these difficulties with a Markovian hierarchical Dirichlet process that builds on work from the non-parametric Bayesian statistics literature.
It is difficult to make the different papers on this topic commensurable, so I would say this is not the final word. Still, it does raise the possibility that rising income volatility is not as fearful as it at first sounds. You'll find many other posts on topic by searching for Jacob Hacker posts on this blog and over at Mark Thoma's, among other places.
Stimulus timing
For travel reasons, I won't get a chance to read through this right away, but here is a CBO report on the stimulus. (and this time the real report) Here is one summary paragraph:
Here is the CBO Director's blog, which offers and links to more information. What do you all think?
I thank Bruce Bartlett for the pointer.
Assorted links
1. Bottom line thinking on the stimulus, pro and con.
2. Which personality types let you cut in line?
3. Cultural treasures of New Jersey?
4. Markets in everything: clothes made out of your pet's fur.
Sentences to ponder
I'm not sure if the book is interesting, have any of you read it? But I remembered these sentences from a review:
as a mental patient who tells the intake counselor that she doesn’t
feel “safe” (the magic word) in the real world. (She tries to pay for
these visits herself, but fails: in one of the book’s few funny
moments, her insurance company rebuffs offers of cash, because only
crazy people bankroll such visits themselves.)
Here is more.
As an aside, I was sent this song about the financial crisis.
Worry less about releasing terrorists
The total population of terrorists ebbs and flows all the time. When the number goes up by one hundred, no one much notices. If the number goes up by one hundred because we release some previously identified terrorists, there is or will be a public outcry. But it's the same consequence.
Fewer terrorists are better than more terrorists, to be sure. But a terrorist we release is not obviously worse than a terrorist who was free in the first place.
We evaluate outcomes differently when we feel we are in control or should be in control. We should examine this intuition carefully, since it is not always justified.
We also treat an outcome differently when we feel it allows an enemy of ours to "get back at us." I suspect this difference in feeling is not usually justified and that it is the primary driver behind the fear of releasing terrorists.
I can think of "political theater" reasons why an attack from a released terrorist would be worse than an attack from an "already free" terrorist. Overall I do not yet feel that we are thinking about this issue rationally.
Bill Easterly is blogging
The blog is here, and the introduction is this:
objective is to be brutally honest when aid is not helping the poor,
but also praising it when it is.
I look forward to subsequent posts.
Addendum: Here is another new website of interest, SmartGlobalist.com.
The Difficulties of Stimulus Policy
60 Minutes had a moving piece on Sunday about Wilmington, Ohio where thousands of people are losing their jobs due to the closure of the town's largest employer, DHL. Many people had worked at the air distribution center for decades and through no fault of their own were losing their jobs, their health insurance and in one of the hardest losses of all, their community. Barack Obama and John McCain both talked about Wilmington in their campaigns and yet for all their talk it's clear that neither monetary nor fiscal stimulus can do much for Wilmington.
Falling World Wide Trade
One of the things that I do find very disturbing about this recession is that it is worldwide. World trade may fall this year for the first time since 1982. As I argued earlier, the problem goes beyond any credit crunch, which according to the story below has been solved for trade. The problem is a lack of demand. Here is more frightening news on the trade front.
Freight rates for containers shipped from Asia to Europe have fallen to zero for the first time since records began, underscoring the dramatic collapse in trade since the world economy buckled in October.
Trade data from Asia's export tigers has been disastrous over recent weeks, reflecting the collapse in US, UK and European markets.
Korea's exports fell 30pc in January compared to a year earlier. Exports have slumped 42pc in Taiwan and 27pc in Japan, according to the most recent monthly data. Even China has now started to see an outright contraction in shipments, led by steel, electronics and textiles.A report by ING yesterday said shipping activity at US ports has suddenly dived. Outbound traffic from Long Beach and Los Angeles, America's two top ports, has fallen by 18pc year-on-year, a far more serious decline than anything seen in recent recessions.
"This is no regular cycle slowdown, but a complete collapse in foreign demand," said Lindsay Coburn, ING's trade consultant.Idle ships are now stretched in rows outside Singapore's harbour, creating an eerie silhouette like a vast naval fleet at anchor. Shipping experts note the number of vessels moving around seem unusually high in the water, indicating low cargoes.
It became difficult for the shippers to obtain routine letters of credit at the height of financial crisis over the autumn, causing goods to pile up at ports even though there was a willing buyer at the other end. Analysts say this problem has been resolved, but the shipping industry has since been swamped by the global trade contraction.