Results for “age of em” 16723 found
Obama’s budget plans
This guy sure knows how to keep a blogger busy. Matt Y. has a good summary:
- Obama wants the 2013 deficit to be half the size of the 2009 deficit he inherited.
- The 2010 deficit is going to be large.
- Specifically, we’ll go from $1.2 trillion in 2009 to $1.5 trillion in 2010 to $533 billion in 2013.
- Spending cuts are expected to come from the expiration of
stimulus money, from a reduction in “emergency” appropriations for Iraq
and Afghanistan, from reductions in Medicare Advantage giveaways to
private insurance firms, and I believe from some other form of medical
efficiencies. - Revenue enhancements are projected to come from the
expiration of the Bush tax cuts, from ending the hedge fund manager’s
loophole, and from carbon auction permits. - Overall, the idea is to get back down to a deficit of about 3
percent of GDP, but to have a better health care system when we do it.
The (short-run) Obama health care plan?
Don't take this as definitive, but it's more than I've seen elsewhere:
Obama's budget request would create "running room for health reform,"
the official said, by reducing spending on some health programs so the
administration would have money to devote to initiatives to expand
coverage. The biggest target is bonus payments to insurance companies
that run managed-care programs under Medicare, known as Medicare
Advantage.
The Bush-era program has attracted nearly a quarter of Medicare
beneficiaries to private health insurance plans that cover a package of
services such as doctor visits, prescription drugs and eyeglasses. But
the government pays the plans 13 to 17 percent more than it pays for
traditional fee-for-service coverage, according to the Medicare Payment
Advisory Commission, which advises Congress on Medicare financing
issues.
Officials also are debating whether to permit people as young as 55
to purchase coverage through Medicare. That age group is particularly
vulnerable in today's weakened economy, as many have lost jobs or seen
insurance premiums rise rapidly. The cost would depend on whether
recipients received a discount or were required to pay the full price.
There's also a good deal of information about Obama's proposed budget in that article. On health care, here is Alex's earlier post on Medicare Advantage. Medicare at age 55 is an idea I don't hear much about; is the goal to lower the standard by ten years, every now and then, to move toward a single payer system? I would think that the 55 and overs would have an incentive, and the power, to block the extension of Medicare to everyone else and thus free-ride on a medical infrastructure financed by others. The Medicare extension also has to cost real money. If you believe in adverse selection, offering Medicare at any given premium will attract only the worst risks at that premium level. So what's the break-even point? Overall the real gains from spending more money are in public health programs for the relatively young.
Pricing illiquid bank assets
Interfluidity has an idea:
There's another way to generate price transparency and liquidity for
all the alphabet soup assets buried on bank balance sheets that would
require no government lending or taxpayer risk-taking at all. Take all
the ABS and CDOs and whatchamahaveyous, divvy all tranches into $100
par value claims, put all extant information about the securities on a
website, give 'em a ticker symbol, and put 'em on an exchange. I know
it's out of fashion in a world ruined by hedge funds and 401-Ks and the
unbearable orthodoxy of index investing. But I have a great deal of
respect for that much maligned and nearly extinct species, the
individual investor actively managing her own account. Individual
investors screw up, but they are never too big to fail. When things go
wrong, they take their lumps and move along. And despite everything the
professionals tell you, a lot of smart and interested amateurs could
build portfolios that match or beat the managers upon whose conflicted
hands they have been persuaded to rely. Nothing generates a market
price like a sea of independent minds making thousands of small trades,
back and forth and back and forth.
Via Thomas Barker, here is an even more radical idea.
Banks vs. bank holding companies
I continue to see many bloggers suggesting that bank nationalization is a fait accompli and that anyone who isn't on board right now is in denial. It is far less common that bloggers give serious consideration to the difference between a bank and a bank holding company. In fact I usually don't see that critical distinction mentioned at all.
If the government nationalized (or "pre-privatized"…whatever) Citibank, Citicorp would go bankrupt and we would be back at a Lehman Brothers scenario again. So the government would have to take over Citicorp too. That goes way, way beyond anything the Swedes did or for that matter it goes well beyond WaMu. Shall I turn the mike over to Wikipedia?
Citigroup was formed from one of the world's largest mergers in history by combining the banking giant Citicorp and financial conglomerate Travelers Group on April 7, 1998.
Citigroup Inc. has the world's largest financial services network,
spanning 107 countries with approximately 12,000 offices worldwide. The
company employs approximately 300,000 staff around the world, and holds
over 200 million customer accounts in more than 100 countries. It is
the world's largest bank by revenues as of 2008.
You can read about Travelers Group here.
Thinking through the implications of said nationalization for the counterparty positions of a bank holding company, or its role in the commercial paper market, is mind-boggling. Neither the FDIC (which generally does an OK job) nor any other government agency is in any way prepared for this kind of management task. It has very little to do with standard FDIC procedures. All I hear about is "bank" this, "bank" that, etc. but again little or no talk of the bank holding company.
Of course this is only a problem for the five or six biggest financial institutions but those are precisely the issue at hand.
On nationalization, Bernanke is very much on the ball. He said this:
Federal Reserve Chairman Ben Bernanke said this week, is “that you tend
to lose the franchise value, that the counterparties and others don’t
want to deal with you because they don’t know your future.”
I usually don't like to speak so negatively, but it's the advocates of nationalization who are in denial. There is a belief that Obama, Bernanke, and/or Geithner are somehow spineless or in the pocket of the banking lobby. The sadder truth is that they understand just how ill-prepared the U.S. government, or the Fed, would be to run such an enterprise.
I do understand that if all the water runs out of the sink, as it may, nationalization will come in some form or another, however disastrous that may be. But the desire to postpone it until the last possible moment, and the desire to pursue even a small chance of avoiding nationalization, are signs of wisdom, not cowardice.
When you read about nationalization, and see only the word "bank," and not "bank holding company," be very afraid of the advice on tap.
Addendum: Here is a different but related piece on banks vs. bank holding companies.
What to think of Obama’s housing plan
The ever-worthy Mark Thoma rounds up reactions and analyses, including some critical remarks from CalculatedRisk and some praise from Felix Salmon. Willem Buiter is negative (worth a read). Simon Johnson says it's not enough. WSJ surveys a few reactions as well. I'll add some observations:
1. Housing prices ought to be lower, and as quickly as possible. So aiding homeowners cannot be justified on the grounds of propping up prices, which is difficult to accomplish anyway. Such aid has to be justified in some other way. The main argument is that our ex post procedures for foreclosures are not what we would have chosen ex ante, had we known that such a severe housing and financial crisis could be possible. That opens up some room for beneficial intervention, but a good plan it still hard to pull off.
2. When it comes to refinancing the Fannie and Freddie loans, and expanding those agencies, how many foreclosures will this avoid? We should be reducing the size of the mortgage agencies rather than putting another $200 billion into them.
3. We should not be helping people stay in their homes if their mortgage payments are at 43 percent of their income. (The bill requires banks, in such cases, to lower interest rates until monthly payments are at 38 percent of income. The government then steps in to lower payments to 31 percent of income.) I don't feel moral outrage (although it is morally outrageous), I just don't think it is a good use of money. I also wonder how it works when your income is quite variable year to year. Are they sure there is no way to game this?
It will in the short run prevent some (enough to matter?) foreclosures. But it won't keep up the long-term price of homes or prevent eventual foreclosures when the home has negative equity. It adjusts interest rates on the payments, not principal on the loans (thank goodness).
Most of all it is a bad precedent which we will live to regret. It is a significant move away from the idea of commercial decisions based on contract.
One source,
by the way, suggests that lenders will have veto rights over these
"renegotiations" by choosing to foreclose instead of accepting the lower payments. But foreclosure is quite costly for the bank, so I don't feel so much better.
By the way, aren't we trying to help the banks?
4. Sellers receive various bonuses for modifying eligible mortgage loans. This is ideally a Pareto improvement if more of these contracts could be modified than is currently the case. My doubt is whether the subsidy will affect many modification decisions; so far I don't see that lenders are putting a lot of effort into renegotiations. Here is a good article on when modifications work and when they do not. I doubt if an extra 1k will make much difference.
5. Guidelines for modifying eligible mortgage loans are established. Ideally this could give more scope to the Coase theorem, but see my reservations under #4.
Felix Salmon, who likes the plan, nonetheless offered up a scary bit:
But really nobody has a clue how much it will cost: that's entirely
dependent on whether or not the plan succeeds in arresting the fall of
house prices.
The bottom line: #3 is a deal-killer for me. Just say no, and you don't even need a moral hazard argument (they are overrated, anyway) to see why this is troubling. I'd like to see the plan's proponents predict how many foreclosures it will forestall and be willing to take their lumps if they are wrong.
The economic collapse of Japan and the Phoenix Suns
Most of you have heard about the Japanese gdp report; it implies an annualized rate of decline of almost 13 percent. OK, they depend on exports but why is it so dire there?
You also may have heard that the Phoenix Suns have been trying to unload All-Star players Amare Stoudemire and Shaquille O'Neal. They are not hoping to get equal talent in return but rather they need to lower their payroll. (Why pay $75 million a year for a fringe playoff club?) And the New Orleans Hornets, former contenders, traded center Tyson Chandler simply to unload his salary.
I think of the Suns or Hornets as similar to a highly leveraged institution. I don't know the debt level of their corporate structure but that is not the point. The Suns have been spending lots in recent years toward the goal of ever-rising prices for season tickets and corporate boxes. Does that strategy sound familiar? If the future price hikes don't come on the main asset, they can't afford their obligations and so they will try to shed illiquid and hard-to-value assets into an unwilling market. Sound familiar? (As an aside, I wonder if barter is one way to jump start trading in illiquid financial assets.)
Does this sound familiar?:
"You've got a market loaded with motivated sellers and only a very
small group of buyers," one NBA executive told ESPN.com. "It's really
ugly. Owners are scared to death right now."
Institutions can have receipts and obligations which require growing revenues even if they don't have much explicit debt on their books. I think also of the artistic non-profits which invested in expensive facilities, in the hope of ever-rising donations from their investment banker patrons. Many other parts of the economy may be "leveraged" in this fashion, with or without high levels of debt.
Japan, of course, has high levels of government debt and also a demographic problem. I wonder whether their future-oriented export strategies make them even more leveraged, de facto, in a manner resembling the (former) business strategy of the Phoenix Suns.
One lesson of this crisis will be how deep the concept of leverage extends. That's another reason why this is fundamentally a crisis of sectoral shifts.
Free Market Bank Nationalization
I believe that bank nationalization is now very likely. It may even be desirable. The term nationalization, however, clouds judgment on both sides of the debate. It's better to think of what we want to do as bankruptcy. Many of the major banks are insolvent. When the liabilities of an ordinary firm exceed its assets the firm enters one of a variety of types of bankruptcy procedure during which management is often removed, the firm is sold or reorganized and liability holders take ownership or are paid off at a discount. Notice that we do not call a bankruptcy procedure, nationalization, even though it typically occurs under the auspices of a government employed judge.
When it comes to the banks the issue is more complicated than with an ordinary firm because the major liability holders are depositors whom the government has guaranteed. As a result, the ultimate liability holder is the government. But now, as a thought experiment, imagine that we had private deposit insurance. What would a private insurance firm do in this situation? Would it pander to the current bank management and carry the zombie banks on its books, hoping and waiting for a miracle? Or would it step in, remove current management, pay off the depositors, reorganize and then sell the banks to recoup its losses? I believe a private insurer would follow the second path, the fact that the government is not yet ready to do this indicates how powerful bankers are in Washington. Thus, given deposit insurance the procedure most consistent with free market principles is bankruptcy, preferably a speed bankruptcy procedure under the auspices of the FDIC which has significant expertise in this field.
A speed bankruptcy; 1) punishes current management reducing moral hazard, 2) will be less politicized if done under the auspices of the FDIC than if done piecemeal with congressional involvement and 3) will get the banks working again as soon as possible.
Notice how the term nationalization confuses the issue. First, it suggests government ownership of the banks which would indeed be a disaster. People in favor of free markets will rightly want to avoid any such outcome but ironically it's the current situation of "wait and see," and "protect the banker," which is likely to lead to an anemic recovery and eventual government ownership. Second, it confuses people on the left who think that nationalization is a way to insure that taxpayers get something on the upside. That idea is a joke – there is no upside. Taxpayers are going to have to pay through the nose but the critical point is that the taxpayers must pay the depositors whom they have guaranteed not the banks.
The debate so far has been framed between a "bailout" and "nationalization." But the public rightly sees the bailout as a way to protect bankers and thus we get pressure for government ownership, which has already happened in part through government control over banker wages. Bankruptcy in contrast is a normal free market procedure, it emphasizes that the firm has failed and current management should be removed. Framing the issue in this way, for example, makes it clear that only the depositors should be protected and under reorganization there should be no control over wages on future management (wages are going to have to be high to get anyone to take on the task). Finally the idea of bankruptcy makes it clear that the goal is to get banks solvent, under new management, and back under private control as quickly as possible.
Addendum: Garett Jones nicely lays out the case for doing the normal thing.
What if all the smart people are in one party?
Ross Douthat thinks through liberaltarianism and the new spatial equilibrium has him worried:
What could happen, instead, is a bigger-tent liberalism – somewhat
chastened, perhaps, by some big-government failures in the Obama era –
that makes libertarian intellectuals feel welcome, engages them in
conversations about smarter regulations and more efficient tax policy,
and generally woos them away from their culturally-dissonant alliance
with people who attend megachurches and Sarah Palin rallies. This would
make for a smarter left-of-center in the short run, but I think in the
long run it would be pernicious. It would further the Democratic
Party's transformation into a closed circle of brainy meritocrats, and
push the Republican Party in a yet more anti-intellectual direction.
And it would produce an elite consensus more impervious to structural
critiques, and a right-wing populism more incapable of providing them.
The Democratic Party would hold power more often, and become more
sclerotic as a result; the GOP would take office less often, and behave
more recklessly on those rare occasions when it did manage to seize the
reins of state.
Put aside your views on the R, D, and L people and think in terms of an abstract argument. There is an optimal distribution of smart people across political parties and it need not be all in the same party. For one thing, the marginal product of a smart person in a stupid party might be very high. For another, being in power all the time may corrupt the thinking processes of smart people and we want to have some smart people insulated from this corruption.
So should a smart person attempt to move the world toward an optimal distribution of smart people across parties? Or should a smart person join the party he or she most wishes to belong to? Should a smart person advise others according to the same standard she uses to regulate herself? In general does the world "cluster" smart people too much or too little?
You'll notice that many of these questions apply to fun parties and not just political parties.
The excellent Arnold Kling adds insightful comment.
He would kill to win
That's the subtitle, the title is Cruel Games: A Brilliant Professor, a Loving Mother, a Brutal Killing, and yes it is the "true crime" account of the well-known game theorist who murdered his wife. Here is a review of the book. Here is an excerpt:
During one of their brainstorming sessions, Gallen wrote down "Game Theory" on his to-do list. With Robb as their primary suspect, they needed to understand better who he was and what made him tick. It became Marino's job to do the digging which began with the Penn website, where he easily came across Robb's take-home final for his graduate course in game theory. Marino read the exam and shook his head. Perhaps it made sense to economics students, but not to him. Given Robb's intellect and specialty, the detectives couldn't help but wonder if Robb was playing games with them.
Here is one Amazon review:
She, like many in the media, is quick to draw a connection between
Robb's expertise in game theory and him concocting a brilliant and evil
plan to kill his wife and avoid jail time. Nothing could be farther
from the truth. A game theory professor is very similar to a math
professor. They spend a lot of their time deriving proofs. They don't
know how to get away with a crime any better than anyone else.
My favorite things Puerto Rican
The list came out quite well:
1. Actress: Jennifer Lopez. Seriously. Out of Sight is quite good and the badly misunderstood The Cell makes perfect sense once you realize it is a retelling of parts of Sikh theology. Rita Moreno gets honorable mention.
2. Cellist: Pablo Casals (his mother was Puerto Rican and he ended up living there). His Bach Suites, while profound, are largely unlistenable due to the scratching and scraping. Nonetheless there are still revelations to be found in the trio recordings, Schubert, bits of the Beethoven, etc.
3. Artist: Jean-Michel Basquiat. Sneer if you wish, but his 1982-1984 period is very good, most of all the sketches. There are many bad Basquiat works, however, and lots of fakes.
4. Economic historian and colleague: Carlos Ramirez. Don't forget his paper on the bailout.
5. Poet: Juan Ramón Jiménez, who left Spain for Puerto Rico. Here is his Platero y Yo. Although he won a Nobel Prize in 1956, this very pure poet remains underrated in the United States.
6. Reggaeton song: Gasolina, by Daddy Yankee; note that reggaeton originated in Panama.
7. Guitarist: Jose Feliciano. Here is his Star-Spangled Banner (excerpt) and here. Here is Jose and Johnny Cash.
8. Musical, about: Paul Simon's The Caveman (not WSS, which I actively dislike).
9. Art museum: The two notable collections of pre-Raphelite art in this hemisphere are in Wilmington, Delaware and Ponce, Puerto Rico. Each is worth a visit.
10. Building: Puerto Rico has many fine homes and a surprising amount of Art Deco, plus the colonial buildings and fortifications in San Juan. Here is the over the top fire station in Ponce. But overall I'll pick the metalwork on one of the country homes, somewhere between San Juan and Ponce.
The bottom line: The achievements are strong and varied, noting that I've used a looser notion of affiliation than in some comparisons past.
Canada fest
and political tradition than does Canada. But then isn’t it all the
more interesting to note that, despite America’s unique “land of the
free” self-conception, we’re no more free than Canadians? I feel
strongly that American culture is more varied, alive, weirder,
synthetic, and creative than probably any other. This is in part
because of, and not despite, the odd conservative and religious strands
in American culture. And it is a culture especially amenable to all
sorts of entrepreneurial experiments, which gives American culture a
level of innovation and vitality (including countless varieties of
religious weirdness) that I think partly explains why it is the world’s
dominant exporter of culture. And I think the U.S.’s wealth relative to
other countries is actually underestimated. We are astoundingly rich
(recession or no recession) and this is a place of crazy opportunity.
So I think the U.S. does better in positive liberty terms than it
sometimes gets credit for.
But that doesn’t begin to mean that we live up to our reputation for
the kind of liberty classical liberals tend to care about. My sense is
that some American libertarians have a vague sense that if Canada
really was more free, then they should want to move there. But they
emphatically don’t want to move to Canada. My diagnosis is that many
libertarians prefer to live in a place where it easy to find others who
share their individualistic and libertarian values over living in a
place where they would actually be more free, but would feel more culturally alienated.
Via Megan McArdle, here's talk of safe Canadian banks and yet Canadian is still seeing the same downturn as the United States. One can preach the virtues of Canadian banking regulation as much as one wants, but the Fischer Black-like question remains: how much real net risk exposure did Canadian industry accept vis-a-vis all external sources of risk, U.S. financial institutions included? Lots. A decision not to economically decouple from a large, leveraged economy is a small bit like a decision to leverage oneself, though many people do not welcome this perspective. The bottom line is that risk mistakes have been made by just about everybody, not just the obvious culprits.
Addendum: Arnold Kling is not Canadian but Megan McArdle defends him aptly; he wasn't guilty of anything in the first place, except perhaps having exaggerated the coercive nature of taxation,
Markets in everything
I'm afraid to give this one much of a subtitle:
India's Hindu nationalist movement is launching a new soft drink made from cow urine.
The
bovine brew is in the final stages of development by the Cow Protection
Department of the Rashtriya Swayamsevak Sangh (RSS), India's biggest
and oldest Hindu nationalist group, according to the man who makes it.
Om
Prakash, the head of the department, said the drink – called "gau jal,"
or "cow water" – in Sanskrit was undergoing laboratory tests and would
be launched "very soon, maybe by the end of this year."
"Don't
worry, it won't smell like urine and will be tasty too," he told the
Times of London from his headquarters in Hardwar, one of four holy
cities on the River Ganges. "Its USP will be that it's going to be very
healthy. It won't be like carbonated drinks and would be devoid of any
toxins."
The drink is the latest attempt
by the RSS – which was founded in 1925 and now claims 8 million members
– to cleanse India of foreign influence and promote its ideology of
Hindutva, or Hindu-ness.
I thank John de Palma for the pointer.
The countercyclical meal plan, Arrow-Hahn-Debreu edition
Will Wilson blogs:
Seattle’s 5 Spot has a new “Blue Plate Special” promotion, with the daily meal priced like this:
recent close of the Dow Jones Industrial Average. If the Dow closes at
8650, then your “square meal” will only cost you $8.65; if it closes at
7875, then you win your meal for a mere $7.87.
There’s a built-in stop-loss, too. They make a limited number of blue plates each night, and when they’re gone, they’re gone.
Kicking the Stimulus
Smokers are three times more likely to kick the habit for at least six months when they are paid up to $750 (£520), a new study has found.
Nearly 900 General Electric workers took part in the test across 85 US sites. The results were published in the New England Journal of Medicine.
GE will launch a similar scheme in 2010 for all US employees, believing it will be cost-effective in the long term.
Buy a House, Get a Visa
Add Thomas Friedman to Tyler, myself, Lee Ohanian and others suggesting immigration as a way to alleviate the recession:
Leave it to a brainy Indian to come up with the cheapest and surest way to stimulate our economy: immigration.
Koreans,” said Shekhar Gupta, editor of The Indian Express newspaper.
“We will buy up all the subprime homes. We will work 18 hours a day to
pay for them. We will immediately improve your savings rate – no Indian
bank today has more than 2 percent nonperforming loans because not
paying your mortgage is considered shameful here. And we will start new
companies to create our own jobs and jobs for more Americans.”
Note that the multiplier on the “buy a house, get a visa” strategy would be much larger than any possible domestic multiplier since the money would come from outside the economy (and efficiency would improve as well.)
I think there would be considerable support among economists that immigration (buy a house, get a visa), a payroll tax cut and maintaining state and local funding would be reasonably good policies in this recession (albeit not necessarily sufficient) yet these policies seem to be the ones that the political system rejects out of hand. (See also Matt Yglesias here and here). Now, I can understand rejecting these policies as compared to doing nothing, ala a precautionary principle, but why these policies are rejected compared to taking a trillion dollar gamble is puzzling even to someone like myself schooled in public choice.