Results for “age of em” 17236 found
The Irish crisis heats up
Although some diplomats say it is to Ireland’s advantage that the Government is not at present borrowing from the investors, fear of contagion emerged again yesterday as the premium on Spanish and Italian debt jumped to record levels.
The article is here. The Irish have enough funds on hand to finance their government through next summer and they mention this repeatedly. But is that good? The lack of an ongoing market test increases uncertainty about market opinion and perhaps leads more people to wonder about the worst. From other sides it encourages denial about the basic problem. What will that first bond auction look like when it comes? (What will China ask for in return?) Extant bonds are traded, but that market is thin.
Ireland used to say "We are not Greece." These days it is Greece saying "We are not Ireland."
Here are data on Irish competitiveness. The unofficial word is that the hat is being passed for the actual bailout. Merkel is holding tough, which is building pressure on the other weak euro economies. It is a common mechanism that denying a bailout raises the ultimate cost of the bailout you must make.
Assorted links
1. I don't think Reihan is actually disagreeing with me here. And here is Reihan on Ireland.
2. Tim Harford's economist Twitter list.
3. 16p11.2.
4. A new way of measuring price indices, using the internet.
Why don’t we nudge people toward more risk?
Most paternalistic nudges encourage more safety (or at least the appearance of safety), such as when government steers people away from trans fats with a warning label or when the transportation authority structures the contours of a road to induce drivers to slow down. I can think of a few nudges in the direction of greater risk-taking:
1. QEII and activist monetary policy more generally. Investment tax credits and upbeat Presidential speeches.
2. Military recruitment campaigns and ads.
3. Social norms that people should pursue the love of their life, propose marriage, have children, and so on.
What else?
The Hansonian question is why the bias toward safety is neglected for risk-taking in these areas. Is it a simple utilitarian standard? Is it that these forms of risk-taking are affiliated with larger social purposes, namely ones whose relative status we are trying to boost? Are nudges toward risk just as common as nudges toward safety, but we are less willing to describe them as such?
Risk-taking by eating dangerous food has a relatively low social status, perhaps because the gain is mostly private. Sushi or sampling street food in exotic locales have minority or cult followings, perhaps because they are (sometimes) associated with higher class values. Many people eat and enjoy trans fats but few people defend or elevate them.
The deficit commission report
I've read only the summaries (and here), not the report. Mankiw is happy, Krugman and DeLong are upset. The home mortgage interest deduction goes and income tax rates are 8, 14, and 23 percent. No one thinks this is the final deal. I would say evaluate this as you would a movie trailer: will it get people to take the next step of thinking about a ticket purchase? The top 23 percent tax rate is like the quickly cut scene with the rolling boulder, the skimpily clad girl, the grinning enemy, and the face of the star. "The Bowles-Simpson plan has a ratio of roughly $3 in spending reductions for every $1 in revenue increases…" It won't happen in real life. As a movie preview I judge this as "good enough." It basically declares that some major deductions have to be on the table and it gets us to the next step.
Ezra Klein comments.
Loan markets in everything
Women in remote Korawan, 70 km from Allahabad, have come up with a novel bank which exclusively deals with goats – accepting the animal as savings and lending it out as loans.
"Prema and her friends hailing from Afrozi village have establish a bank which deals exclusively in goats," development block coordinator Subedar Singh told PTI.
In tough terrains of Mirzapur district, most of the people are engaged in crushing stone to earn a living.
"Wives of these people help them in crushing stones and breed two-three goats for additional income," Singh said.
"Though the area is best suited for goat breeding, no effort was made to establish it as a full fledged business activity," he said.
"We provide goats to women having interest in taking up breeding as a full-time activity as loan. When a goat gives birth to kids, generally two to three in numbers, one of them is deposited with the bank again," Prema explained.
Goats in the bank are medically examined every week.
"In case a goat dies, then it is either replaced from the market or from the bank depending upon the availability," Prema said.
The link is here, the point is from Paul Hsieh and Jeffrey Williams should be happy. The locale is in India.
Don’t flip out over QEII (repeating myself)
I'm not sure it will work, because it won't fix the housing market, may not restore the demands for wealth-elastic goods in a sustainable manner, may not restore the normal flow of credit to small businesses, may not lower subjective estimated risk premia, and may not fix the general disconnect between expectations and reality. The effects on long-term interest rates are murky. No one — and I mean no one — has a coherent story about how nominal stickiness of wages lies at the heart of our current dilemma.
Still, QEII may do some good. Money matters, even if we don't always understand how or why, and excessively tight money has never done market-oriented economics any favors. Think of QEII as a make-up for some earlier monetary policy mistakes. Some of the relevant alternatives include a trade war with China or direct government employment of the unemployed and with what endgame? QEII is not some terrifying burst of potential hyperinflation. The TIPS market is forecasting in the range of two percent inflation and it's gone up — what — sixty basis points since August? That's hardly the end of the Republic. During the Reagan recovery, inflation never fell below four percent. I've thought through "trigger models" of rapidly escalating inflation, but they don't scare me much. The Fed simply needs to be ready to unload its heavy balance sheet without delay.
I do take seriously some of the more speculative criticisms, namely that QEII may set off bubbles in some emerging markets, or that it may break the euro (and that the euro would not otherwise break of its own accord). Still, those hypotheses are far from established and it is difficult to believe that say three percent U.S. price inflation should bring international doom. These factors also need to be weighed against the international and political economy costs of continued American economic stagnation.
I'm unhappy with claims that "we're not doing enough" and that therefore this is no test of the idea of monetary stimulus. This is what QEII looks like, filtered through the American system of political checks and balances. And if it looks small, compared to the size of our problems, well, monetary policy almost always looks small compared to its potential effects. I'm willing to consider this a dispositive test and I am very curious to see the results.
Brad DeLong’s fiscal plan
You'll find it here and I agree with much of it. I would phrase the rhetoric differently, but let's put that aside. And also let's assume — as is likely the case — that Obamacare is here to stay and thus that is taken off the table. The most important development is simply that Republicans (and Democrats) support the potential for Obamacare to reduce the rate of growth of Medicare expenditures. That is the #1 issue in fiscal policy today. And it saddens me how infrequently it comes up, except to be attacked.
I get nervous when I read Brad's phrase "commit immediately," which appears repeatedly in the post and it appears in critical moments. I favor the specified commitments but I also think they are highly unlikely. The phrase "commit immediately" is almost an oxymoron, as the call for immediacy highlights that no one to date has made such a commitment or wants to or, in all likelihood, will, until of course an emergency comes, as with the passage of TARP.
This "don't commit, rather do it now" reasoning is easy to understand when the Democrats pushed for a rapid passage of Obamacare, or when we look at the frustration with the stalled repeal of DADT. Few on the left thought that "precommitment to do" was a viable option in those cases, so the push was "do it now," even if that was not convenient in terms of the election or, in the case of DADT, relations with the Pentagon. Yet when we return to fiscal policy, the talk is once again of "commitment." I fear it is a placeholder for the idea of "no commitment."
What's the best fiscal policy when there is no commitment? I say let the Bush tax cuts expire fairly soon, so that spending feels to the public like it has a cost. (It's become increasingly clear to me that when it is possible for taxes to fall again that they will do so; I am less worried about high tax rate lock-in than I was fifteen years ago.) Have prominent Republicans endorse the better parts of Obamacare. Continue QEII but no second fiscal stimulus and no extension of any Obama tax cuts, which were a mistake in the first place. Carbon tax if possible but it's not. Reindex Social Security ASAP. Cut discretionary spending where you can.
That's my fiscal recipe, for this lovely Wednesday morning, sans commitment. Like Brad's proposals, it won't happen, but it feels "merely impossible," as opposed to impossible at a more fundamental metaphysical level. Should that distinction matter?
Oh, and get rid of DADT during the lame duck session of Congress. Ha.
Addendum: Interfluidity has brilliant, and related, remarks. The best post I've read in some time.
Assorted links
1. Bryan Caplan, statistical theist?. I sometimes say that the GMU blogging group is divided into theistic and atheistic thinkers, as we have several of both.
2. Tim Harford is switching to Twitter (don't tell Mario Rizzo).
3. Markets in everything?: pay for red lights to go green.
4. What is the main lesson of this short video?
5. Markets in everything: cell phone storage for high school students, liquidity premium exceeds carrying costs edition.
6. Liebowitz and Margolis on where the lock-in literature went wrong.
All the Devils are Here
Lots of excellent material in McLean and Nocera's All the Devils are Here. In addition to devils there are also a few skeletons: in 1990, for example, Fannie paid Paul Volcker to defend and endorse its low capital standards.
A highlight is the chapter on the GSEs and how tightly they wound themselves into the political process.
Everything the GSEs did was behind the scenes. But for Congress, it was the homeowners who mattered, since they were the constituents….Johnson solved this problem by establishing what Fannie Mae called partnership offices. Officially, these were operations dedicated to finding opportunities to purchase mortgages…unofficially, they were the grassroots of a highly sophisticated political operation. Fannie's first partnership office was in San Antonio, which just happened to be home to Representative Henry Gonzales, then the chairman of the House banking committee…
There was a certain formula to these offices. They were staffed by someone close to power–the son of a senator, a governor's assistant, a former congressional staffer. They held ribbon-cutting ceremonies, always with a politician present, to announce, for instance, that Fannie was going to put millions into a senior citizen center. There were as many as two thousand ceremonies a year in partnership offices all over the country….
Fannie Mae also funneled money to politicians….Over the years, the foundation became one of the largest sources of charitable donations in the country. It made heavy donations to, among others, the nonprofit arms of the Congressional Black Caucus and the Congressional Hispanic Caucus.
Fannie hired key insiders to plum jobs..[long list of names,AT]…"It was like the local Tammany Hall operation–a jobs program for ex-pols!" says one closer observer.
Fannie spent a staggering amount of money lobbying: $170 million in the decade ending 2006…
McLean and Nocera go on to document how this power meant reports alterted, investigations dropped and so forth.
We need more of this kind of historical public choice, history written with an eye to how power is wielded in the political sphere and how law is really made. (For another example see my paper, The Separation of Commericial and Investment Banking: The Morgans vs. The Rockefellers.)
Addendum: Arnold Kling's review.
Keynes on prosperity and the Great Depression
For the moment the very rapidity of these changes is hurting us and bringing difficult problems to solve. Those countries are suffering relatively which are not in the vanguard of progress. We are being afflicted with a new disease of which some readers may not yet have heard the name, but of which they will hear a great deal in the years to come–namely, technological unemployment. This means unemployment due to our discovery of means of economising the use of labour outrunning the pace at which we can find new uses for labour.
Alexander Field, the economic historian, would one day argue much the same, with numbers behind it. For Keynes even the Great Depression wasn't just an AD problem. (Obama worries too.)
From Keynes, here is 7 pp. more, fascinating throughout, although mostly totally wrong and there is a naughty mention at the bottom of p.6. It is his famous essay "Economic Possibilities for our Grandchildren." Keynes argued we would one day (soon) have enough material prosperity to abolish scarcity. Most importantly, from his Bloomsbury perspective, pro-commercial norms could fade away, as they would no longer be needed as an incentive. Society would be much the better for it; Daniel Bell later turned this argument upside down by fearing the decline of this ethic.
More wealth brings, on average, greater happiness (see Wolfers-Stevenson for the evidence, Kahneman too), but often through indirect and circuitous routes, and without guarantees. The bottom line is that most of us keep on striving for more. Furthermore, happiness isn't the only end we desire, and money is a route to power and esteem as well, as distinct from happiness. Material satisfaction isn't enough in life. Unlike Keynes (and Bell), I expect that norms to both encourage and regulate avarice will be with us for a very long time to come.
The Luck of the Irish
It's getting worse. Here is one bit:
The other crumbling dam against mass mortgage default is house prices. House prices are driven by the size of mortgages that banks give out. That is why, even though Irish banks face long-run funding costs of at least 8 per cent (if they could find anyone to lend to them), they are still giving out mortgages at 5 per cent, to maintain an artificial floor on house prices. Without this trickle of new mortgages, prices would collapse and mass defaults ensue.
However, once Irish banks pass under direct ECB control next year, they will be forced to stop lending in order to shrink their balance sheets back to a level that can be funded from customer deposits. With no new mortgage lending, the housing market will be driven by cash transactions, and prices will collapse accordingly.
While the current priority of Irish banks is to conceal their mortgage losses, which requires them to go easy on borrowers, their new priority will be to get the ECB’s money back by whatever means necessary. The resulting wave of foreclosures will cause prices to collapse further.
That is from Morgan Kelly — read the whole thing.
Is there a long-run deflationary trend right now?
Although the cited source says as much, please don't take these remarks as my dismissal of the relevance of AD cyclical macro. Still, I find this idea intriguing:
Anyone who still thinks falling prices are a cyclical phenomenon isn’t looking closely. It’s secular, and the sudden ubiquity of discount outfits shows how Japanese consumption has become a race to the bottom of the pricing spectrum.
There is more detail here and note the trend is occurring even though Japan does not have declining real per capita income.
In a wide variety of areas, ranging from ethnic food vs. fine dining to blogs vs. books to the art world (Outsider Art is often more visceral and enduring) to clothing, there is a common realization going on: cheap stuff is often better than the more expensive stuff. Furthermore, information technology allows you to reframe your consumption, countersignal your personal image, and reaffiliate with others, and their social movements, in ways which increase the status value of the lower priced goods. It is now quite easy to find the (possibly) small pool of people who will respect you for your cheap hobby or obsession. You can buy obscure items and even your uninformed friends can Google to find out what they are and why some people think they have value. In relative terms, a famous, mainstream, and somewhat upper-class "Nordstrom" label is worth less than before.
These developments remove or at least limit the status-based reasons for buying the higher-priced goods.
Mike Munger took us all for pupusas and we loved it; no one was bitching about the absence of seared tuna.
Melchior Palyi, prophet of the financial crisis
There is a very good new WSJ article on the research of my colleague David M. Levy and his co-author Sandra Peart. The article starts:
Decades before anybody had ever heard of a mortgage derivative, an economist named Melchior Palyi predicted key causes of the 2008-2009 financial crisis with precision that makes a modern reader's hair stand on end.
His warnings help explain why investors insist on trusting market gatekeepers they know to be fallible–such as policy makers, regulators and credit-ratings firms.
The seeds of today's problem were planted long ago, and its forgotten history holds important lessons. In 1936, as part of reforms under the new Banking Act, the U.S. government mandated that federally regulated banks could no longer hold securities that weren't rated investment-grade by at least two ratings firms.
…Mr. Palyi, then teaching at the University of Chicago, was a vocal skeptic from the outset. Looking back into the 1920s, he found that investment-grade bonds went bust with alarming frequency, often in the same year they were rated. On average, he showed, a bank that followed the new rules would end up with a third of its bond portfolio going into default.
The record was so unreliable that it would be "still more responsible," Mr. Palyi growled, to "stop the publication of ratings altogether." He was especially troubled that the new banking rules switched the responsibility for credit safety from bankers–and even bank regulators–to ratings firms.
"From there," he warned, it "will have to be shifted again–to someone else," presumably taxpayers. Liquidity, Mr. Palyi argued, was being replaced by what he scornfully called "shiftability," a new kind of risk that could someday "be magnified into catastrophic dimensions."
The underlying research by Levy and Peart is here. If the WSJ article is gated for you, just enter "Melchior Palyi" into news.google.com and an ungated copy is likely to pop up.
Will pot become legal?
Megan McArdle clinches it:
In my experience, the big dividing line is having kids. Read this interview with P.J. O’Rourke and discover some shocking things coming out of his mouth about how he doesn’t want his kids to do drugs. Having kids makes you realize how narrowly you escaped killing yourself–and remember all the friends who overdosed, or got arrested on a DUI, or spent their twenties working at a job that would let them smoke up three times a day, only to realize at age 35 that they had pushed themselves into a dead end.
Before the pot-smoking parents start crawling out of the woodwork to tell me that I’m totally wrong, that there are lots of parents who support legal marijuana–I’m not saying this happens to every single person who has a kid. But in my experience, as the kids approach the teenage years, a lot of parents do suddenly realize they aren’t that interested in legal marijuana any more, and also, that totally unjust 21-year-old drinking age is probably a very good idea.
I would add to this. Parents are not even preferring the policy which (necessarily) best protects their kids. Parents are preferring the policy which gives them a slightly better feeling of being in control of their kids, whether or not they are.