Discourse.net

Jonathan Simon on the Real Target for California Protestors

Jonathan Simon writes that California's protesters should Strike Against Prisons not Education.

(Note: Jon wrote this before the latest round of protests.)

Read Later: 'How The Federal Reserve Bailed Out The World'

I wish I had time to read How The Federal Reserve Bailed Out The World and decide if it makes sense.

But there's lots cooking this week, so for now I don't.

Maybe I need a “read later” category for the blog?

Herald Editorial Page Compounds Errors on Home Insurance

The Miami Herald doubled down today on its failure to address the shortcomings of undercapitalized, undiversified newly minted under-regulated Florida home insurance companies. (See Citizens Insurance May Be Bad, But Consider the Alternatives for yesterday's installment.)

On the editorial page today, the Herald starts off well in Storm warning: Prop up insurance noting that “the system for insuring homes and businesses against disaster remains badly flawed.” And this is good too:

Neither Citizens nor the CAT fund has sufficient cash on hand — nor enough borrowing power — to meet the huge outlays required by the proverbial one-in-100-years storm. The result would be harsh rates on Florida homeowners to make up for the shortfall.

But then we go off the rails:

The picture isn't completely grim. Since the start of 2008, a record number of policies — 500,000 — have been taken out of Citizens by newly formed insurance companies. That's a good sign, but Citizens remains the largest state-run insurance pool in the country.

No, it's not a good sign at all if the companies writing those policies are not safe and sound. And there's no reason to think that most of them are anything like it.

Why is the Herald so badly missing the boat on this issue?

Citizens Insurance May Be Bad, But Consider the Alternatives

Beatrice Garcia has an article in today’s Miami Herald about Citizens Insurance company, the state-sponsored home insurer of last resort for those of us in the hurricane belt. See Is Citizens Insurance ready for the big one?

Citizens is known for its high rates, DMV-quality service, and for being under-capitalized. It is not much fun to deal with, but then neither is my bank. (Which, come to think of it, is also state-capitalized these days.)

The article does a good job of noting some of the issues with Citizens:

Citizens is the largest insurer in Florida, covering 1,057,829 homes, condos and apartment buildings. The biggest chunk of its policies — $232.1 billion worth — are written on riskier, coastal properties.

…

Insurance regulators, legislators and critics of Citizens say the company's frozen rates aren't actuarially sound. In laymen's terms, that means the insurer is not bringing in enough money through premiums to cover the bulk of the potential losses it could face after a huge storm.

To get Citizens' rates back on course, a law passed in May requires the insurer to raise rates 10 percent a year over the next five years. The smaller annual increases soften the rate shock for homeowners. But eventually, rates could end up about 60 percent higher.

…

But Citizens isn't totally in dire straits. The insurer should have nearly $3.9 billion in cash in the bank by the end of the year, says Binnun.

Add in a guarantee from the State of Florida to buy $750 million of Citizens bonds, a bank credit line and proceeds from municipal bonds it has already sold and the total of available funds comes to $6.9 billion.

…

Citizens also buys back-up insurance from the Florida Hurricane Catastrophe Fund to cover some of the losses it might face. This year, it purchased nearly $9.8 billion in coverage.

All that gives Citizens the ability to cover up to $16.8 billion in claims.

But even with all the funds it could tap, Citizens could fall short if “the big one'' — that one-in-100-years storm — hits the state. Such a storm could rack up claims totaling about $22 billion, Binnun says.

In other words, Citizens need to save up another $3.2 billion — about double what it will have in the bank by the end of the year –- in order to be actuarially sound. That’s a lot of money, but if it could save that amount since its founding in 2002, it should be able to pile it up in a few more years. Unfortunately, it's going to do that by raising our already quite substantial insurance rates some 10% per year until the money pile is big enough.

The Herald article more or less assumes that private insurance would be better, although it notes that some private policies have coverage limitations.

As it happens, I have a Citizens policy. Over the last three years I’ve had two letters from private insurance companies announcing they were taking over my policy unless I opted out (this was a state plan to encourage people to leave Citizens). One look at the capitalization of those companies and I opted out. In addition, my insurance agent has sent me proposals from three or four private companies, all but one of them started recently under the new Florida law encouraging companies to enter the market. None has a track record. None has much capital either. They are not rated by any of the major rating agencies (except one, that had a not-so-great grade of BBB-). They have their own ratings bureau, one which says they are just fine thank you, but it's not one I feel any reason to believe.

Unfortunately, in this era of light regulation private insurance is not inevitably better than public; indeed, I think some of these new tiny companies may be worse. This is, in fact, the ironic implication of a new analysis of the state home insurance market from the Competitive Enterprise Institute which shows how poorly capitalized the new private insurers really are. (CEI is not a source I’d rely on uncritically, but it confirms what I’ve worked out myself from looking up reports on the new Florida-only insurance companies. For more see Florida insurance numbers deceive and Consumers cry foul over Citizens' shift to low-rated firms.)

From the point of view of the homeowner, private insurers also have a degree of political risk that Citizens lacks: If they go belly up, the state has no moral obligation to bail them out — on the other hand, we have good reason to believe that at the end of the day the state (or the taxpayers) will stand behind Citizens.

I turned down my insurance agent’s suggestion that I go private, even though the proposed rates were a few dollars lower than what Citizens charged. My agent was all for it, claiming the service would be better (no word on the relative commissions!). The risk seemed too great.

Fred Clark on the Cost of Being Poor

slacktivist: Same to you, buddy writes a great rant about the costs of being poor

Last year, U.S. banks collected about $36 billion in overdraft protection fees. This year, they expect to transfer about $38.5 billion out of customers' accounts in the form of such fees.

$38.5 billion. $105 million every day. $4.4 million every hour. $73,250 every minute. More than $1,200 a second. Transferred directly from the poor to the rich.

$38.5 billion.

And by the time he says,

The point here, I suppose, is that check-cashing fees may be an exploitative scam run by sleazeballs, but that they may turn out to be a more prudent option for the working poor than the even-more exploitative scam run by the more mainstream, but sleazier sleazeballs of the banking industry.

… the banks look far more exploitatrive than Wal-Mart charging $3 to cash a check.

I'll Have Mine Rare

Amygdala explains why you might want to care about dysprosium, terbium, and neodymium.

I look forward to his discussion of scandium and yttrium.

Norway's Secret Oil Poilcy Weapon Was an Iraqi

FT.com / Reportage - The Iraqi who saved Norway from oil. Incredible story on multiple fronts — the power of luck in personal lives, the power of market-based socialist planning in dealing with exogenous economic shocks, the vagaries of national myth and memory.

(found via rc3)

Snarkfest!

Brad has outdone himself in Someone Is Saying Something Wrong on the Internet in the White House Briefing Room!.

It begins:

Jonathan Weisman of the Wall Street Journal raises his hand in the White House Briefing Room and asks a question:

(1) Is there a point where you really are endangering the planet, where the focus on sub-lunar issues has ben excessive and there's just no way you can properly guard against the threat of the ravening Hexans from North Polar Jupiter

My mistake. He actually said:

(2) Is there a point where you really are soaking the rich, where the carrying capacity of this small group of people has been exceeded and there's just no way you can keep lumping all of the problems of the finances of the United States on 1 percent of those households?

But the truth value of the two statements is the same.

April Fools Is Early This Year?

The UK Daily Telegraph appears to believe that US cities may have to be bulldozed in order to survive

Dozens of US cities may have entire neighbourhoods bulldozed as part of drastic “shrink to survive” proposals being considered by the Obama administration to tackle economic decline.

The government looking at expanding a pioneering scheme in Flint, one of the poorest US cities, which involves razing entire districts and returning the land to nature.

Local politicians believe the city must contract by as much as 40 per cent, concentrating the dwindling population and local services into a more viable area.

Not only will this not happen (outside of Flint, anyway), it's probably backwards as increasing gas prices will drive people into city centers for shorter commutes. Only way this happens if if people instead head for exurban centers because the cities are too decrepit. But even so, there's no way the media-savvy Obama administration will sign on to a plan with such lousy optics.

Ambition

In A kindred spirit on the Court, Paul Krugman blogs that,

I got into economics because I wanted to be Hari Seldon.

Join the Call for Fed Transparency

The Fed is one of the most autonomous parts of our government, arguably for good reasons. But that doesn't mean it shouldn't be accountable.

Which is why I signed the petition at action.firedoglake.com in support of The Federal Reserve Transparency Act.

You can too.

Privacy Myopia, Economics of

I was talking with someone after lunch today at the Internet Identity Workshop (#IIW), and mentioned the privacy myopia problem. That drew a blank. So I thought I'd reprint here something I wrote a few years ago, so that I could point him, and others, to it. Obviously, the P3P stuff is dated, but there are other technologies and apps trying to fill the gap.

This is an excerpt from The Death of Privacy?, 52 STAN L. REV. 1461 (2000). If you want the footnotes, you'll have to download the original...

The economics of privacy myopia

Under current ideas of property in information, consumers are in a poor legal position to complain about the sale of data concerning themselves.¹⁷² The original alienation of personal data may have occurred with the consumer’s acquiescence or explicit consent. Every economic transaction has at least two parties; in most cases, the facts of the transaction belong equally to both. As evidenced by the existence of the direct mail industry, both sides to a transaction generally are free to sell details about the transaction to any interested third party.

There are exceptions to the default rule of joint and several ownership of the facts of a transaction, but they are relatively minor. Sometimes the law creates a special duty of confidentiality binding one of the parties to silence. Examples include fiduciary duties and a lawyer’s duty to keep a client’s confidence. Overall, the number of transactions in which confidentiality is the legal default is relatively small compared to the total number of transactions in the United States.

In theory, the parties to a transaction can always contract for confidentiality. This is unrealistic due because consumers suffer from privacy myopia: they will sell their data too often and too cheaply. Modest assumptions about consumer privacy myopia suggest that even Americans who place a high value on information privacy will sell their privacy bit by bit for frequent flyer miles. Explaining this requires a brief detour into stylized microeconomics.

Assume that a representative consumer engages in a large number of transactions. Assume further that the basic consumer-related details of these transactions—consumer identity, item purchased, cost of item, place and time of sale—are of roughly equivalent value across transactions for any consumer and between consumers, and that the marginal value of the data produced by each transaction is low on its own. In other words, assume we are limiting the discussion to ordinary consumer transactions, not extraordinary private ones, such as the purchase of anticancer drugs. Now assume that aggregation adds value: Once a consumer profile reaches a given size, the aggregate value of that consumer profile is greater than the sum of the value of the individual data. Most heroically, assume that once some threshold has been reached the value of additional data to a potential profiler remains linear and does not decline. Finally, assume that data brokers or profile compilers are able to buy consumer data from merchants at low transactions costs, because the parties are repeat players who engage in numerous transactions involving substantial amounts of data. Consumers, however, are unaware of the value of their aggregated data to a profile compiler. With one possible exception, the assumption that the value of consumer data never declines, these all seem to be very tame assumptions.

In an ordinary transaction, a consumer will value a datum at its marginal value in terms of lost privacy. In contrast, a merchant, who is selling it to a profiler, will value it at or near its average value as part of a profile. Because, according to our assumptions, the average value of a single datum is greater than the marginal value of that datum (remember, aggregation adds value), a consumer will always be willing to sell data at a price a merchant is willing to pay.

The ultimate effect of consumer privacy myopia depends upon a number of things. First, it depends on the intrusiveness of the profile. If the profile creates a privacy intrusion that is noticeably greater than disclosing an occasional individual fact—that is, if aggregation not only adds value but aggravation—then privacy myopia is indeed a problem. I suspect that this is, in fact, the case and that many people share my intuition. It is considerably more intrusive to find strangers making assumptions about me, be they true or painfully false, than it is to have my name and address residing in a database restricted to the firms from which I buy. On the other hand, if people who object to being profiled are unusual, and aggregation does not cause harm to most people’s privacy, the main consequence of privacy myopia is greatly reduced. For some, it is only distributional. Consumers who place a low value on their information privacy—people for whom their average valuation is less than the average valuation of a profiler—would have agreed to sell their privacy even if they were aware of the long-run consequences. The only harm to them is that they have not extracted the highest price possible. But consumers who place a high value on information privacy will be more seriously harmed by their information myopia. Had they been aware of the average value of each datum, they might have preferred not to sell.

Unfortunately, if the marginal value¹⁷⁵ to the consumer of a given datum is small, then the value of not disclosing that datum will in most cases be lower than either the cost of negotiating a confidentiality clause (if that option even exists), or the cost of forgoing the entire transaction. Thus, in the ordinary case, absent anything terribly revealing about the datum, privacy clauses are unlikely to appear in standard form contracts, and consumers will accept this.

Furthermore, changing the law to make consumers the default owners of information about their economic activity is unlikely to produce large numbers of confidentiality clauses in the agora. In most cases, all it will do is move some of the consumer surplus from information buyers to information producers or sellers as the standard contracts forms add a term in which the consumer conveys rights to the information in exchange for a frequent flyer mile or two.

In short, if consumers are plausibly myopic about the value of a datum— focusing on its marginal value rather than its average value, which is difficult to measure—but profilers are not and the data are more valuable in aggregate, then there will be substantial over-disclosure of personal data even when consumers care about their informational privacy.

If this stylized story is even somewhat accurate, it has unfortunate implications for many proposals to change the default property rules regarding ownership of personal data in ordinary transactions. The sale will tend to happen even if the consumer has a sole entitlement to the data. It also suggests that European-style data protection rules should have only a limited effectiveness, primarily for highly sensitive personal data. The European Union’s data protection directive allows personal data to be collected for reuse and resale if the data subject agrees; the privacy myopia story suggests that customers will ordinarily agree except when disclosing particularly sensitive personal facts with a high marginal value.

On the other hand, the privacy myopia story suggests several questions for further research. For example, the myopia story suggests that we need to know how difficult it is to measure the value of privacy and, once that value has been calculated, how difficult it is to educate consumers to value data at its average rather than marginal value. Can information provide a corrective lense? Or, perhaps consumers already have the ability to value the privacy interest in small amounts of data if they consider the long term consequences of disclosure.

Consumers sometimes have an interest in disclosure of information. For example, proof of credit-worthiness tends to improve the terms upon which lenders offer credit. The myopia story assumes this feature away. It would be interesting to try to measure the relative importance of privacy and disclosure as intermediate and final goods. If the intermediate good aspect of informational privacy and disclosure substantially outweighed their final good aspect, the focus on blocking disclosure advocated in this article might be misguided. European data-protection rules, which focus on requiring transparency regarding the future uses of gathered data, might be the best strategy.

It would also be useful to know much more about the economics of data profiling. In particular, it would be helpful to know how much data it takes to make a profile valuable—at what point does the whole exceed the sum of the data parts? Additionally, it would be important to know whether profilers regularly suffer from data overload, and to what extent there are diminishing returns to scale for a single subject’s personal data. Furthermore, it could be useful to know whether there might be increasing returns to scale as the number of consumers profiled increases. If there are increasing returns to scale over any relevant part of the curve, the marginal consumer would be worth extra. It might follow that in an efficient market, profilers would be willing to pay more for data about the people who are most concerned about informational privacy.

There has already been considerable work on privacy-enhancing technologies for electronic transactions. There seems to be a need for more research, however, to determine which types of transactions are best suited to using technologies such as information intermediaries. The hardest work, will involve finding ways to apply privacy-enhancing technologies to those transactions that are not naturally suited to them.

Perhaps the most promising avenue is to design contracts and technologies that undercut the assumptions in the myopia story. For example, one might seek to lower the transaction costs of modifying standard form contracts, or of specifying restrictions on reuse of disclosed data. The lower the cost of contracting for privacy, the greater the chance that such a cost will be less than the marginal value of the data (note that merely lowering it below average cost fails to solve the underlying problem, because sales will still happen in that price range). If technologies, such as P3P, reduce the marginal transactions costs involved in negotiating the release of personal data to near zero, even privacy myopics will be able to express their privacy preferences in the P3P-compliant part of the marketplace.

Krugman Says Don't Worry About China Dumping Treasuries

Economics is at its best when making the counter-intuitive seem obvious. For example, Paul Krugman explaining China and the liquidity trap:

Right now we’re in a liquidity trap, which, as I explained in an earlier post, means that we have an incipient excess supply of savings even at a zero interest rate. …

In this situation, America has too large a supply of desired savings. If the Chinese spend more and save less, that’s a good thing from our point of view. To put it another way, we’re facing a global paradox of thrift, and everyone wishes everyone else would save less.

Or to put it a third way, the argument that a reduction in China’s dollar purchases would be contractionary for America because it would drive up interest rates is equivalent to the argument that fiscal expansion is contractionary for the same reason — and equivalently wrong.

But what if China doesn’t spend more, but just reallocates its reserves from dollars to, say, euros? The answer is, that’s also good for us: a weaker dollar will help our exports, at Europe’s expense.

Florida's Senator Nelson Votes Against Capping Credit Card Interest

Florida's Senator Nelson, whose party registration identifies him as a Democrat, voted against a provision in the credit card bill currently being debated in the Senate that would have capped credit card interest rates at 15% (see U.S. Senate: Legislation).

Today, one-third of all credit card holders are paying interest above 20 percent and as high as 41 percent.

We used to call that usury. Now, as Sen. Bernie Sanders noted, we call it loan sharking. But Senator Nelson is OK with that, it seems.

I wonder what sort of campaign contributions Senator Nelson gets from credit card issuers?

PS. Yes, an interest cap may mean that at the margin a tiny number of people who could pay off the short-term credit will be denied it. Compared to the large number of people stuck with an escalating debt not dischargable in bankruptcy, I think that's a net social win.

A Recipe for Increasing Human Happiness

Reading Michael Madison's Useful Models, he quotes from the Lone Gunman, quoting The Truth About Markets/Culture and Prosperity (UK/US title respectively) [evil tracking javascript code removed]:

I once debated the relationship between the social sciences with some anthropologists. We adjourned to the pub, and someone bought a round of drinks: the discussion naturally turned to the reasons why. For the economists, the explanation was obvious: the practice of buying rounds minimized transaction costs, reducing the number of exchanges between the patrons and the bar staff. The anthropologists saw it as an example of ritual gift exchange and described the many tribes that had developed similar customs. I proposed a test between the competing hypotheses: did you feel cheated or victorious if you bought more rounds than had been bought for you? Unfortunately, the economists and the anthropologists gave different answers to that question.

It seems to me that the lesson from this passage is that human happiness is maximized when economists and anthropologists drink together. Is the result generalizable? Should they marry?

DNC Having Some Fun

YouTube - DNC Web Ad: The Number Zero, Brought To You By The Party Of N-O

Good, light-hearted fun about a depressing response to a depressing subject.

Help Is On the Way

Perils of Comparative Statics

ABC News: A World Without Chocolate?

“If nothing was done, and the temperature was to rise, and the rainfalls were to change and drought became more prevalent … without looking into new farming practices, then there should be a problem, and there might likely be a problem,” he said.

In other words, if we suspend all the known laws of capitalist economics, and if we have very nasty climate change and everyone keeps their behavior utterly unchanged as a result…

No. I have enough to worry about. We may well have global warming, but we'll still have profit-maximization. This is not going on the list.

Banks Behaving Badly

TPMMuckraker, How Theresa Hatt Caused The Financial Crisis.

I realize my headline here could apply to almost anything, but it's well worth a click.

Sign of the Times

Today's NYT was amazing: lots of interesting things to read, especially for a Saturday, and almost no advertising.

I don't think I've ever seen a major newspaper with so few ads.

Please Tell Me This "Famine of 2009" Stuff Is Wrong

Via !='s entry, aptly titled Rural terror, I'm sent to The Silver Bear Cafe where someone named Stranded Bear Wind has an account of how the economic mess is going to harm this year's harvest in two ways, one overt, one covert. He calls it The Famine Of 2009. The overt problem is that spot shortages of fuel may mean that some crops in the Dakotas don't get harvested fully:

The die has already been cast in the Dakotas, they'll either get the crop in or they won't. If they don't and it winters in the field they not only lose 40% of the yield on that ground they lose 20% of next year's yield in soy beans. The corn makes an excellent snow fence, trapping drifts six feet high, and they're slow to clear in the spring. The farmers have to wait until it's dry enough to plant before they can finish bringing in the corn crop, then they plant their soy, and that delay cuts into the growing degree days available for the soy beans and thusly we see the yield drop.

The covert problem, writes Stranded Wind, is that how nutritious grains are depends on how much they are fertilized

Wheat that gets enough ammonia is 14% protein, if it is unfertilized closer to 8%, and that 43% reduction in total plant protein is going to cause unimaginable suffering in places like Egypt, where half of the population gets subsidized bread. Global end of season per capita wheat stocks have been about seventy pounds my entire life, except the last three years where they've dropped to only forty pounds. One mistake in this area and one of the four horsemen gets loose, certainly dragging his brothers along behind. That mistake may already have been made in the lack of wheat fertilization this fall.

The fall nitrogen fertilizer application has been 10% of the norm. A typical year would see 50% put on in the fall and 50% in the spring. During fertilizer application season the 3,100 mile national ammonia pipeline network runs flat out and the far points on the network experience low flow both fall and spring. If they try to jam 90% of the fertilization into a period of time when the system can only flow a little more than half of the need much of our cropland will go without in the spring of 2009.

Finances as much as weather are the issue with regards to fertilization this fall.

Scary stuff. Please tell me it's wrong.

Head v. Head v. Heart

Part of my head says that there may be reasons to nationalize the auto companies in order to insulate workers from the effects of the current panic. Another part of my head says that this ought to be possible via a bankruptcy workout.

In practice, of course, we are not yet ready to do nationalizations (give it a few months and tens of billions) but instead will give the shareholders and management a giant payment from tax money.

Which leads my heart to say something like this.

Black (Humor) Saturday

Kevin Drum wins today's prize for bleak humor with his Chart of the Day post.

Reasons to Be Thankful

I hope you are having a happy Thanksgiving.

Should you need reminders of what to be thankful for, read John Scalzi, Being Poor. (Found via Abbamouse.)

And if that depressed you too much, here's a corrective: Ian Dury's Reasons to be Cheerful (Part 3). Pedants (only) will enjoy this BBC explanation of the lyrics to Reasons to Cheerful and the Wikipedia account of the song's history.

Bailing out the Automakers

This article by Jake Brewer, GM Goes Grassroots. A Son is Torn. deserves wide readership.

It pretty well describes — but much more personally and passionately — how I and lots of folks feel about the auto companies: From my point of view they've been screwing up routinely since about 1965

Remember 'Unsafe at Any Speed'? 'Safety Doesn't Sell'? The campaign against pollution control? Against fuel efficiency? Against small cars? The lack of interest in alternate engines? The inbred nature of the automobile bureaucracies? The bailouts of the past? I remember it all. And I don't see why I should spend a dime to benefit auto executives. I do get why there may be strategic reasons to protect the auto companies — defense industries, US workers, supply chains, pension funds, danger of foreign vulture funds buying hard assets at bargain prices, and more.

If we do a bailout, there needs to be some consequences for a generation of failure in the management suites. And I wouldn't exempt the shareholders either.

Onion Does the Financal Crisis

As good as any other commentary I've seen:

In The Know: Should The Government Stop Dumping Money Into A Giant Hole?

Solutions Finding Their Problem

If we can get Congress and the electorate into a mind-set that says what the economy needs is stimulus of the electroshock variety, then all sorts of things become possible.

Here's one idea that has been floating around for years, whose time has come: Cash for clunkers.

The garbage can model of public choice decision-making describes organizations as places with 'solutions looking for problems'. I expect we might see lots of this sort of thing — and that's on the whole a good thing.

Why Don't We Bail Out Iceland?

Here's a serious question: Iceland has long been a strong ally and a NATO member, despite having no armed forces. As we all know, the Icelandic economy is suffering from a virulent case toxic shock.

Iceland's economy is not, by US standards, particularly big, clocking in at about US $12bn GDP. A bailout would, I presume, take only a fraction of that? And their troubles are really not their fault:

So how did Iceland get in so much trouble? That’s the odd part of the story: it isn’t because its banks gambled on the worthless subprime securities that helped undo Bear Stearns and so many others. Iceland’s banks prudently avoided the subprime market, even as they embarked on a lending boom at home and expanded abroad. What got Iceland in trouble was something more subtle: its banks got their money primarily from international investors, making the Icelandic miracle heavily dependent on foreign capital.

In normal times, this might not have mattered, given the country’s solid economic fundamentals. But these aren’t normal times. The subprime crisis, in which investors realized that they had greatly underestimated the risks of lending to people with bad credit, has spawned a wider credit crunch: investors now suspect disaster behind every door, and even seemingly solid borrowers find credit much harder to come by. The subprime crisis was an earthquake that caused a tsunami: the quake has done plenty of damage on its own, but the tsunami looks set to do even more.

Iceland has been swamped by that tsunami because it trusted in the availability of global credit in time for that credit to evaporate.

So why not bail them out? There is of course no legal duty to do so; I'll even stipulate that there is no moral duty to do so. It's just a way, quite cheap in the grand scheme of things, to make friends abroad and mitigate a global crisis. The Icelandic people would, I would think, be grateful for a generation. And other people around the world might see in this willingness to help out a sign of hope, which might help combat some the psychological aspects of the current crisis.

So, how much would we have to make available as a special loan facility to bail out Iceland? Any arguments against this other than it might invite other governments to ask for bailouts too and we can't afford them all?

Something to Sing About

It's not just physicists who get rap songs.

Al_Franken_Show Paul Krugman Theme Song.

OK, This I Don't Like

In Evidence that we should freak out, episode I, RC3 points me to Grain piling up in Canadian ports | FP Passport:

Still think the global credit crunch is all about the TED spread and collateralized debt obligations? Think harder. Export-bound grain has started piling up in Canada as sellers have begun refusing to trust the credit lines and financial institutions linked to their foreign buyers.

The problem is that Canada's export cargoes don't get loaded until buyers can prove their ability to pay — proof that has been increasingly hard to come by in the wake of bank defaults and shrinking credit markets worldwide. Unable to get credit lines, many buyers have left the grain market, generating big losses for Canadian shippers. Add to this the greater costs that shippers now shoulder because of delayed payments, and the picture starts looking pretty bleak.

Krugman is right (again): if the IMF crowd can't pull something fierce-looking out of the hat this weekend, next week is going to be a real shocker.

(But I find Evidence that we should freak out, episode II much less convincing. That sounds more like an investment opportunity than a looming disaster.)

Get Some Facts

The Economists' Voice has some timely writing:

Why Paulson is Wrong

Luigi Zingales

There are alternatives to a massive government bailout of the U.S. financial industry, according to Luigi Zingales—they just would be more costly for financiers and cheaper for taxpayers.

Questioning the Treasury's $700 Billion Blank Check: An Open Letter to Secretary Paulson

Aaron S. Edlin

The Treasury wants a blank check for $700 billion, at taxpayer expense; instead a businessman like Buffett should be given the job of making the taxpayers some money out of this mess, according to Aaron Edlin.

Dr. StrangeLoan: or How I Learned to Stop Worrying and Love the Financial Collapse

Aaron S. Edlin

Last week, on Wednesday September 17, 2008, the Bush Administration almost stumbled upon a way to eliminate the U.S. debt and even taxes. Aaron Edlin's ironic take on a world gone mad.

Investment Banking Regulation After Bear Stearns

Dwight M. Jaffee and Mark Perlow

The Bear Stearns bailout created an implicit guarantee that will create a great deal of moral hazard unless we smartly regulate investment banks in a way that doesn't destroy their value; so say Dwight Jaffee and Mark Perlow.

Miami Demo Against the Bailout

Miami: Say NO to the Bush Bailout Rally September 25, 2008
5:00 PM - 6:30 PM

Stand with your neighbors and say NO Bush Bailout!

Bring signs and friends so that we can all call on the government to invest in Main Street, not Wall Street.

Address
Busy Street Corner
SW 17th Avenue and US1
Miami, FL 33133

I wonder why so often progressive rallies pick this corner? Yes, it's on a main commuter route, but it's soulless and not that accessible.

Update: find a rally near you

Feh

I am very disappointed to read this in the NYT online.

At the same time, Congressional Democrats said they were prepared to drop one of their most contentious demands: new authority for bankruptcy judges to modify the terms of first mortgages. That provision, aimed at preventing foreclosures, was heavily opposed by Senate Republicans.

I hope it is not true. I have yet to read a convincing case for why banks should get all the windfalls for their evident stupidities. I do not like being asked to pay large sums of money for windfalls to the improvident, but given the choice between improvident families losing their homes and stock and bondholders in improvident banks, I know whose windfall I'd choose to hand my a share of my income to.

On a somewhat more cheerful note, it seems that the Dems might “only” hand over $150 billion, which might leave a little money for social programs in the Obama administration. Even though the $700 bn number was clearly made up, I suppose this will be about as small a number as they can get away with. Think what it could have done for health care.

If the Congress doesn't hold some sort of line on the amount, the GOP program of “starving the beast” — making the Treasury so broke that there's no danger Democrats could afford anything popular — would truly have reached its apotheosis.

Backlash

I hab a bad cold so instead of trying to say anything I will refer you to dday at Digby's place.

Fly a plane, catch a cold, it seems to be a law of nature.

This administration rushing a bill through congress, hogs at the trough, that seems to be a law of nature too.

But the Senate may be finding some spiny growths, so not all observed regularities in nature are reliable predictors.

Steps in the Right Direction

At first glance, Dodd's counter-proposal on how to deal with the Bush financial mess looks like a real improvement. But there's still room for more improvement.

(URL fixed, thanks to Adam)

A Bad First Draft

Seven Simple Reasons To Oppose The Bailout

I'm on board with at least six of these.

The Bigger They Are, The Harder They Fall (If We Let Them)

Nate Oman has an interesting, if somewhat sobering, poist at Concurring Opinions which begins as follows:

One of my students sent me the pages from Lehman's filings listing the 30 top unsecured creditors. It's a simple column of figures that makes sobering reading, even for a let-the-market-punish-them enthusiast such as myself. First past the post is CitiBank with $138 billion in unsecured bonds. Just for fun, I tried to find out what $138 billion will get you in today's world.

The comparative numbers he offers are so big as to nearly defy comprehension.

I understand the Schumpaterian arguments for size and global competitiveness, but isn't there still some virtue to keeping firms from getting too enormous?

OK, Lehman wasn't too big to fail. But two or three Lehmans might be.

And we just socialized AIG (Fed to lend $85 billion to AIG, take 80 percent stake). Did FDR do anything on this scale?

The Tragedy of 'The Tragedy of the Commons'

Trust it to be John Quarterman, who always seems so really smart when I get to be in the same room with him, to be the one to draw my attention to Debunking the Tragedy of the Commons.

When Garrett Hardin published his famous article about the “tragedy of the commons” in Science in December 1968, he cited no evidence whatsoever for his assertion that a commons would always be overgrazed; that community-owned resources would always be mismanaged. Quite a bit of evidence was already available, but he ignored it, because it said quite the opposite: villagers would band together to manage their commons, including setting limits (stints) on how many animals any villager could graze, and they would enforce those limits.

Finding evidence for Hardin's thesis is much harder…

The source is Ian Angus, Links, International Journal of Socialist Renewal, Debunking the `Tragedy of the Commons' (August 24, 2008).

Meanwhile, says John,

So privatization is not, as so many disciples of Hardin have argued, the cure for the non-existant tragedy of the commons. Rather, privatization can be the enemy of the common management of common resources.

This dovetails with some interesting recent legal work, such as Michael Heller's new book, The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives.

In any case, it's interesting to learn that one of the articles I found most influential in college has a slight empirical problem.

Trouble is, I think I may still believe it, since the tragedy of the commons seems to capture something one sees, or thinks one sees, in real life. As a result I still think in many, most, but not all, cases markets, or managed markets, are the way to structure large swaths of large-scale social and economic organization.

Too much economics Kool-Aid?

Democrats Make You Richer than Republicans

Economic sage Alan Blinder asks Is History Siding With Obama's Economic Plan?

The stark contrast between the whiz-bang Clinton years and the dreary Bush years is familiar because it is so recent. But while it is extreme, it is not atypical. Data for the whole period from 1948 to 2007, during which Republicans occupied the White House for 34 years and Democrats for 26, show average annual growth of real gross national product of 1.64 percent per capita under Republican presidents versus 2.78 percent under Democrats.

Like they say, “If you want to live like a Republican, vote Democratic.”

Calculate Your Obama Tax Cut

ObamaTaxCut.com lets you calculate your Obama tax cut — more or less.

They explain the basis for the numbers here.

A Note About the Economy

I went down to my favorite furniture store, Woodworks, this weekend to get a couple extra shelves for one of the many, many bookcases I've bought from there over the years.

And I was chatting with one of the owners, or maybe he is the owner, I'm not sure, and I commented on the fact that the store seemed pretty busy despite the recession — I'd had to wait a while, while he wrote up the sale of a complicated, somewhat expensive, custom piece to an older couple. No, he said, business was down by a third over last year. And this is for a store that has good prices on decent quality stuff that tends to last.

Ryanair Bids to Become Worst Airline in the World

Independent.ie, Ryanair travellers may lose bookings.

If this article is to be believed, the experience that Delta gave me by mistake (Delta Airlines Canceled Three of Our Four Tickets for No Discernable Reason) is about to be visited on 1,000 Ryanair passengers per day — on purpose. (Spotted via Slashdot, Airline Cancels All Flights Booked Through Third Party Systems.)

The airline yesterday said it would annul all bookings made through third party websites. In a move described as “totally unreasonable” by the Consumers' Association, Ryanair boss Michael O'Leary said the new policy would apply to anyone travelling after next Monday.

The hardline stance affects anyone who booked their Ryanair flights through websites like lastminute.com, v-tours, tui and Opodo.

About 1,000 people use these websites to book Ryanair flights every day, which means 20,000 passengers will be affected by the clampdown if bookings are made an average of 20 days in advance.

Ryanair will give refunds to all of the websites involved, Mr O'Leary said, but passing on those refunds to intending passengers would be a matter for the websites.

“We want to cause as much chaos for the [websites] as possible,” he said.

Is the airline about to go bankrupt? Would any lesser reason cause an airline to hurt its customers in this manner?

I would guess that Ryanair argues it can rescind the tickets because, just being e-tickets, they're not real contracts. I wonder how long that legal theory will survive this sort of behavior.

Do Not Read While Drinking Coffee

Kieran Healy, Sociology refutes Economics (again)

Europe Beckons

Weak US Dollar Means Nintendo Favors Europe For Now — to the point, apparently, that supplies are now short in the US.

With U.S. in slump, dual citizenship in EU countries attracts Americans

(I'm not saying the first one is causing the second.)

Perhaps my dual-national children are just part of a generational trend.

The Girl Effect

A big chunk of the development agenda summarized in a video:

Great stuff from The Girl Effect.

The Job Market of the Future

It seems at least one filmmaker with a wicked sense of humor is pretty bearish about the job market. See Job Market In 2009.

April 15 Approaches

I've been doing my taxes today. And undoubtedly tomorrow.

I believe that taxes are the price of civilization, but did they have to make TurboTax even less fun to use than it was last year?

I suppose I could offload the hassle to an accountant, but given that I'm fairly careful about claiming what I can claim — but don't believe in pushing the envelope — I can't believe one would save me enough money to justify the expense unless they went too far.

Economics Made Easy

Chris Bertram posts this marvelous video which explains Mankiw’s 10 principles of economics in terms everyone can understand. Especially funny if you have studied economics.

I think law conferences need a humor session.

Globalization Has Some Work Left to Do

Tom's Hardware finds that computer hardware prices vary enormously around the world. Globalization — and even the European single market — still has a long way to go:

Meanwhile, the price differences between different PC products are remarkable. Basic consumer electronics accessories such as a 2-GB SD memory card vary in price around the world by up to 100%, while prices for premium PC components vary by 10-30%. Cost for a Core 2 Duo E6850 processor or a GeForce 8800 GTS graphics card was very much balanced, while the Coolermaster power supply or the Zalman CPU cooler showed large pricing differences. We selected products that are available almost everywhere, and we took the average price of the four cheapest etailers to get a solid number.

We found that France is rather expensive, especially if compared to Germany, which is next door. The United States is at the other end of the pricing spectrum, as most products are less expensive there.

One reason may be that consumer-level arbitrage isn't easy:

It does not make sense to order hardware in a foreign country, or to buy large amounts of hardware when you travel. One the one hand, shipping cost will eat up all cost advantages. On the other hand, you'll have to pay custom duties or an import turnover tax for many products. The only exception is the purchase of inexpensive products, as consumers in different countries can often buy goods abroad that remain below a certain price level without having to pay duty charges.

'Murder by Spreadsheet'

They're calling it 'murder by spreadsheet' — CIGNA refused for 20 days to OK a liver transplant for Natalee Sarkisian, a teenager who died today, ironically only shortly after demonstrators and a tidal wave of bad publicity forced CIGNA to reverse its negative decision.

The 20-day delay, during which the family had to decline at least one suitable transplant opportunity due to lack of funds, is said by the family to be the proximate cause of death — although this was a very complex medical case.

We need national health insurance. (Not insurance companies for everyone.)

This is Not My Beautiful House (Anymore)

David Byrne, yes that David Byrne, one of my favorite contemporary musicians, explains the mortgage credit crisis and how the housing bubble might explain why working people voted against their interests in 2004 and helped elect GW Bush,

Meanwhile the recipients — the workingmen and women who are barely eking by — suddenly have loan offers thrown at them by the truckload. They feel richer, more flush; things are going well it seems, and their situations improving. It’s not so hard to pay the bills. They worry less and sleep more. A sense of blissfully ignorant well-being pervades the land. The working class and the under- and unemployed assume that the Republicans are somewhat responsible for this new (virtual) wealth — and maybe they were. It would follow that Mr. Joe Average might vote for the administration seemingly responsible for his new sense of well-being. Now, the bills are coming due — the housing market stalled, as I understand it, triggering the collapse of the whole house of cards.

Although Byrne's analysis of the sources of the bubble isn't half bad, the really good stuff is at Calculated Risk if you have a taste for true insider mortgage industry wonkishness in all its glory. But having seen Bryne's blog entry, I couldn't, just couldn't, resist the chance to use that headline.

Don't Use PayPal if You Can Use a Credit Card

I'd like to dissent from the view expressed at Concurring Opinions's A PayPal Christmas. Prof. Waldeck suggests that we'd all be better off if we used PayPal because “PayPal and other payment providers are intermediaries that can make both consumers and merchants better off” — primarily because “PayPal and similar services charge merchants lower processing fees and offer other advantages, such as not requiring retailers to reimburse them for fraudulent purchases.”

But in fact most consumers won't see the advantages — quite the contrary.

First, consider how Paypal gets its money from you. Unless you are a seller who puts money into Paypal from other consumers, odds are that you fund your Paypal account the way I do: with a linked credit card. It may be that Paypal gets charged a lower fee than a merchant account, but it can't be that much lower because it is still a “card not present” transaction, and those tend to be on the high end.

No, the real 'savings' to merchants is that by inserting Paypal into the payment chain, consumers waive their rights to cancel transactions if the good is not delivered or the service is performed improperly. That's because the credit card payment agreement is with Paypal, and it's not Paypal that has failed to perform. It's done exactly like you asked it, by sending money on to the merchant. And now the merchant is just a third party from the point of view of the credit card.

So, my advice is that if you are buying anything at all expensive, use your credit card. (Unless you are carrying a balance - in which case you want to pay that off first before you buy anything, even with Paypal!) Don't use your debit card, and certainly not a payment intermediary unless you trust that intermediary to have as generous chargeback terms as the credit cards.

It's certainly true that credit cards take a big bite out of merchants and that ultimately these charges are passed on to consumers. But unlike debit cards, credit cards give you a small float, even if you pay your bill in full every month (which you absolutely should). More importantly, they are in effect insuring the transaction. That's valuable now and especially valuable if you are buying something online, sight unseen, and trusting in delivery.

It may be that pressure from the paypals of the world will in time — lots of time — get credit card companies to cut their fees. But at best this is an N-person prisoner dilemma game; at worst it's a category mis-match because the service you are switching to is one that is significantly inferior to the one you are switching from. Paypal does have a “buyer protection policy” but this isn't mandated by law, and it is very significantly more limited than what your credit card will give you.

But don't take my word for it. Visit some of the Paypal fan sites, like PayPalsucks.com.

(Note: There are also “warning” sites aimed at merchants, e.g. About Paypal.org and Paypalwarning.com, but it's hard to tell if these are for real or just astroturf for a would-be competitor.)

Where Are the Customers' Yachts?

One of my all-time favorite books about Wall Street is Fred Schwed, Where Are the Customers' Yachts? or A Good Hard Look at Wall Street (1940).

It begins with the wonderful old tale of the visitor to New York who admired the yachts that the bankers and brokers had in the harbor. Naively, he then asked where the customers' yachts were. Naturally, there were no customers' yachts.

I'm reminded of this story by today's bit of front-page boosterism in the New York Times. Goldman Sachs Rakes in Profit in Credit Crisis is all about how the boffins at Goldman were smart about the mortgate crisis, and got out of the dangerous securities a year ago, or if they didn't then insured them like crazy. So they're coining it this year, while competitors are hemorrhaging.

But in a classic case of totally missing the real story, we find the following down in paragraph nine:

Even Goldman, which saw the problems coming, continued to package risky mortgages to sell to investors. Some of those investors took losses on those securities, while Goldman’s hedges were profitable.

Goldman hedged, but its customers didn't. Were the investors so sophisticated that they have only themselves to blame? Were they properly advised, and ignored the advice? Or has nothing changed since the Roaring 20s?

Well, one thing has changed: We re-wrote the securities laws. And if I were a Goldman customer who had been sold radioactive sludge as a security in the past few months without a very stern warning about the unusual risk, risk so great the G-S itself wouldn't hold the securities without insurance, I'd be calling my lawyer about now to find out what my options were.

Why the Writers Are On Strike

Here's a simple explanation of why Hollwood's writers are on strike.

It's effective. Who is going to write the studios' reply?

Financial Markets Explained

This is one of the finest explanations I've ever seen of the sub-prime crisis, and of market volatility in general:

This really is excellent. Very highly recommended even if you are not an investor.

(spotted via Calculated Risk)

Back to Basics

Someone doing good writes about the basics.

Another Great Capitalist Moment

At the conclusion of a scary, at times rebarbative, summary of the 'Values Voter' (what are the rest of us? valueless? devalued?) summit entitled I go to the 'Values Voter Summit' so you don't have to, we find this gem:

I'd like to give a shout-out to Lambda Rising, an iconic gay bookstore not far from the Hilton Washington, where the Values Voter Summit took place. Walking by the store during a break Saturday afternoon, I was amused to see a sign in the window reading, “Attention, Values Voters! Show your badge and get 20 percent off.” I's good to know that the entrepreneurial spirit lives, and my guess is that most of the guys from the 'ex-gay' ministry booth were down there the minute the conference ended.

What the Market Will Bear

Strange item by one Shankar Vedantam in the Washington Post today, which apparently ran on page A03: When Immigration Goes Up, Prices Go Down.

Seeing that headline, I expected to read about the labor market. All other things being equal, more immigration means more workers, means more competition for jobs, means lower wages, which in turn may mean lower prices too.

But no. Not at all. Here's how it starts:

Last week, a gallon of gas at an Exxon station in the tony suburb of Bethesda cost $2.99.

At an Exxon station in the less affluent suburb of Wheaton, a gallon cost $2.63 — 36 cents less.

Both Exxon stations are located near a subway line that goes to downtown Washington. Both are in the same county: Montgomery.

Why would the same company charge you 14 percent more for an identical product in one location?

Because it can.

The article goes on to suggest that concentrations of immigrants lower prices. Yes, it's presented as cause and effect:

Immigration, economist Saul Lach recently found, plays a powerful role in holding down prices. For every 1 percent increase in the ratio of immigrants to natives, prices go down by about 0.5 percent, according to Lach's new study about the effects of 200,000 Jews immigrating to Israel from the former Soviet Union in 1990.

It may be that recent immigrants are poorer, and thus are cannier shoppers, and that this causes a downward pressure on prices. But note that the article itself gives as its major example the willingness of immigrants to drive out of their way for cheaper gas (which would suggest the effect might not in fact be localized).

Whatever the circumstances were in Israel, it seems passing strange to assume that direction of causality in Maryland when there's so much reason to suspect it works the other way: low prices attract immigrants more than immigrants cause low prices.

I would have thought that poor people tend to live in neighborhoods where property prices are lower because they can't afford the homes in expensive neighborhoods. And I would have thought that commodity prices like gasoline are lower in poor neighborhoods in part because fixed costs, like rent or property taxes, are lower.

A correlation, even a strong one, is not causation.

(And let's not even start on all the evidence that food prices are higher in very poor neighborhoods because low-cost chain stores won't open there.)

Straussian Economics?

Walter J. “John” Williams is an economist with a website called Shadow Government Statistics..

It leads off with an arresting graph claiming to show a big gap between the true rate of inflation and the official Consumer Price Index (CPI):

I don't know if I am qualified to opine as to how accurate this chart is, and to be honest I haven't delved deep enough into the supporting materials to form a view.

But the bones of the argument are simple: the revised official Consumer Price Index (CPI) is a lie, since it leaves out food and energy, and these goods are a major part of household purchases. As the prices of these goods are rising much faster than the items in the basket tracked by the CPI, the series fails to capture the real measure of inflation.

A corollary of this conclusion is that most workers' wages, which were barely keeping up with the CPI if that, have in fact been eroding in real terms (while the richest get much richer).

Why might a government design a misleading CPI in this fashion? The answer is overdetermined. There may be some technical advantages to ignoring cyclical commodities (those pesky 'seasonal adjustments') and manipulated foreign / exogenous commodities, but surely these must pale in the face of the importance of food and fuel?

One cynical reason is that the rate of increase of lots of federal transfer payments are based on the CPI. Keep the CPI down and the feds don't have to pay beneficiaries as much. Should payments to social security beneficiaries be much higher?

Another reason that I can imagine (and this is just my idea, not one I found at Shadow Government Statistics) is sort of Straussian. Inflation has a psychological element: people raise prices (or wage demands) in an effort to at least keep pace with inflation, thus spurring more of it. If inflation gets out of control, especially if coupled with lousy monetary and fiscal policy, this competition to stay ahead/stay even can even lead to hyperinflation. One way to keep inflation lower than it might otherwise be is to persuasively mislead people as to extent. If people believe the CPI is a good measure of inflation, and they are therefore deluded into believing that inflation is 2-3% lower than it actually is, that must surely have a significant anti-inflationary effect.

At least until it is found out. Note that Williams also argues that if inflation is measured right, the GDP deflater grows too, shrinking the true measure of GDP…. Do we have national money illusion too?

Two Questions About the GM Strike Settlement

The news of the proposed GM Strike settlement leaves me with two questions, one political, one legal, both about the part of the deal in which GM sheds its long-term obligation to provide health care for retired workers.

The political question is whether GM getting off the hook for long-term care will reduce its political will for national health insurance. Only the intervention of the big corporations will provide the sort of political coalition that makes a worthwhile reform possible — and until now it looked as if we were on track to get it due to the ever-increasing costs being shouldered by big firms. Will their remaining obligations for their existing workers suffice to motivate the GMs of the world? I hope so.

The legal question stems from ignorance due to the fact that I never took labor law. Ordinary labor contracts are between worker and employer. Collective bargaining agreements introduce the the union as bargaining agent for the workers. When there are 'givebacks' as in the current deal, workers get a new contract in consideration for whatever the union gives away. But existing (as opposed to future) retirees are in a different position. The firm's obligation to them to provide retirement benefits has matured, has vested, and they are not getting much in exchange — unless one has reason to believe that the new entity being created has a better chance of long-term solvency than GM (could that possibly be true? I'm pretty dubious.). So my no doubt very basic legal question is, why are the retired GM workers bound by this agreement? Are they in the bargaining unit forever? And, secondarily, what happens in so-called “right-to-work” states: If there are nonunion workers, are they in or out of this deal? Wouldn't it be ironic if the very right-to-work laws that firms championed for so long as a union-busting device were to turn out to be a shield against corporate attempts to shed liabilities to former workers that those firms had voluntarily undertaken but now wish to abandon.

Penny Dreadful

I know we don't expect much from spammers, even the pump & dump crowd, but surely this email I got today is a new low?

09/11/2007 - Traded over 4 million shares with a 100% INCREASE
09/12/2007 - Traded over 6 million shares with another HUGE INCREASE

TOMORROW THIS STOCK IS EXPECTED TO DOUBLE WHAT IT HAS DONE IN THE PAST 2 DAYS! GET IN ON IT NOW WHILE THE PRICE IS LOW! FRESHLY RELEASED PRESS RELEASE!

Current: $.02
Expected: $.57

Kinda self-defeating, isn't it? Or can you really have listed prices above zero but under one cent?

Banks Engage in Economically Irrational Behavior in Order to Remove Irrational Prejudices Held by Irrational Bankers

I found this story buried deep, deep, inside the New York Times's business section to be Really Odd.

4 Major Banks Tap Fed for Financing: The country’s four biggest banks announced yesterday that they had each borrowed $500 million from the Federal Reserve, taking an unusual step to ease the credit squeeze that has been rattling the financial system for weeks.

The banks — Citigroup, Bank of America, JPMorgan and Wachovia — said that they had tapped the so-called discount window of the Federal Reserve Bank of New York, five days after the central bank lowered the rate and loosened its collateral standards in an effort to inject more money into the credit markets.

The coordinated moves were seen as largely symbolic, aimed at removing the stigma of borrowing from the discount window, which is regarded as a last resort for financial institutions. All four banks can borrow money more cheaply elsewhere, and all said they had “substantial liquidity.”

For starters, where is this cheaper money that's available on demand? I'm assuming it's the LIBOR rates, which are in fact showing a declining yield curve, running from from 5.5% for one month to 5.07% for one year.

More to the point, will anyone be impressed by this behavior?

I had the same cynical reaction as Charles R. Geisst, a financial historian at Manhattan College whom the Times quotes as saying, “The banks are circling the wagons. Somebody’s got a problem.”

Should that headline above have been, “Banks Engage in Economically Irrational Behavior in Order to Remove Rational Prejudices Held by Rational Bankers?”

Redfin Takes a Bite Out of Realtor's Commissions

Redfin is another example of the Internet's destructive effect on low-value intermediation. It's an online brokerage service that kicks back 2/3 of the agent's 3% commission to the seller. (I suppose the buyer's agent still gets the usual 3%? Why?)

[[Update: There's a much different and no doubt better explanation of how this works in the first comment below.]]

So far Redfin is only available in Baltimore, Boston, Los Angeles, Orange County, San Diego, San Francisco, Seattle, and Washington DC, but unless some states have Realtor-protective legislation banning kickbacks like this I think things like this should be everywhere soon.

Of course, it wouldn't shock me to learn we had a Realtor-protective law here in Florida, given the power of the Realtors. An example of their power is that the newspapers capitalize the “R”. They don't do that for “lawyers” or “attorneys”.

Funny. But.

This is very funny. And it isn't.

The Laboratorium: Today's Telemarketing Fun

Can I speak to Mr. and Mrs. Grimmelmann?

Speaking …

I'm calling from the [name omitted] Sweepstakes, and you've been entered in a drawing to win $25,000 or a trip to Hawaii. The sweepstakes is also available to cardholders with a Visa, Mastercard, or American Express. Do you have one of those?

Yes. When did you say the trip to Hawaii is?

The winners will be announced August 31.

Oh, I'm sorry. August 31 isn't good for us. Is there another time we could take the trip?

No, you'll find out on August 31 whether you've won.

Okay, then. We'll take the money instead. Now, you'll put that directly on the credit card, right?

I tell you what. We'll get in touch with you if you win, okay?

James ends by commenting, “I’m getting better at this.”.

Now I certainly emitted a number of evil chuckles at this one. And a chunk of me wishes I had the reflexes to do something like this in real time.

But the problem is, that horrible person on the other end of the phone is a wage slave. They are only a tiny bit responsible for the call; the whole thing is orchestrated by someone better paid. Maybe they could find something else to do, but maybe they can't.And I remember the time that phone sales was the only summer job I could find with my newly minted high school diploma. That would be shortly before I discovered people would pay you money to do programming even if you had no formal training. I found something else to do. I am lucky.

So I laughed. Then I felt guilty.

Critique of NASA Stalls on Launch Pad

Speaker Pelosi's blog carries a bit of news designed to shock us about the terrible management over at NASA. It seems they've lost $94,000,000 in stuff.

But read on to the end please before you get all worked up about this one.

First, here's what the Speaker's office, echoing the GAO, had to say:

This week, the General Accountability Office (GAO) released a report requested by Science Committee Chairman Bart Gordon on the National Aeronautics and Space Administration’s (NASA) lack of monitoring and control over their $35 billion of property, plant, and equipment. NASA has reported a loss of over $94 million in equipment in the last ten years. The GAO noted that they have reported on NASA’s lack of property control “for years” and that NASA themselves undertook an internal study but “instead of tightening controls, as recommended by the agency’s 2002 equipment loss study, when faced with equipment losses, NASA raised its threshold for tracking and controlling nonsensitive equipment items from $1,000 to $5,000. This essentially eliminated control over all nonsensitive equipment costing less than $5,000.”

And here are the two worst examples they found, both involving lost laptops:

• “My wife needed a computer at home to perform her work as a real estate broker so I checked one out from the surplus stock available. I turned the computer back in when she was done using it but never received a receipt.”
• “This computer, although assigned to me, was being used on board the International Space Station. I was informed that it was tossed overboard to be burned up in the atmosphere when it failed.”

Now, I'll grant you that the first is a bit suspicious, and the second not real credible (but who knows?).

Even so, I just can't get real worked up about this particular example of governmental waste, fraud and abuse for the following reasons:

1) It confuses stock and flow. NASA has a stock of $35 bn in equipment; it loses $94m over ten years (flow).

2) So in a single year, on average, out of $35,000,000,000 of stuff, NASA loses/misplaces $9,400,000 worth.

3) Let's do the math: 9,400,000 / 35,000,000,000 = 0.000268571429 or if you prefer 0.0268571429 %

Yes that's right: less than .03 % (three one-hundredths of 1 percent) of lost stuff per year.

Is that so terrible? I bet few corporations do so well. Sure, there's some petty theft, and there shouldn't be, but even so…

I am sure there is a great deal to pick on at NASA, but this doesn't cut it for me.

Decisions With Big Consequences

Stuff like this can have profound (and unhealthy!) effects on the shape of a market.

Joho the Blog: Laminated lock in and lock out. Verizon (according to the AP) has been removing the copper lines from the houses to which it is attaching fiber lines. This means you will have difficulty going back from FIOS, the Verizon fiber product. Also, Verizon is not required to provide other phone companies with access to its fiber lines, the way they are for copper lines. Verizon thus at once accomplishes a laminated lock in and lock out.

Sicko Frightens the Health Insurance Industry

Crooks and Liars reports SiCKO has Blue Cross Scrambling… and prints the text of a secret internal memo from Blue Cross in which they try to hone a counter-message.

Why is Spam of Such Low Quality?

W. David Stephenson blogs on homeland security et al. — and under “et al.” asks why is there no attention to detail by spammers?

This is something I wonder about every day while I hold down the delete key to kill off several hundred spams. I can see the argument that some foreign spammers can't do better as their English is too poor (but can't they find something to copy?). I can see the argument that even cheap spam makes a buck, so that there's a quality/effort sweet spot. What I can't understand is why that's the only point or why it so dominates the (mythical) quality-spam solution point.

I Wish Robert Waldmann Had Been My Freshman Economics Teacher

What do you think the world would look like if freshman micro-economics students were routinely taught by Robert Waldmann? Instead of carrying around an Austrian model in their heads in which we assume total selfishness, zero transactions costs, and conclude that transfer payments are suspect, they'd be hearing about Possible efficiency gains due to taxes and transfers,

A little bit of altruism changes everything. If people care about their own physical well being (pleasure minus pain) plus that of those they love plus 0.00001 times the well being of strangers redistribution can be Pareto improving. Non poor agent A doesn't need taxes and transfers to give his money to the poor. However, after he has chosen my level of private giving, he doesn't want to give any more via taxes. However he wants to give rich agent B's money to the poor. He cares a tiny bit about the small cost (in pleasure minus pain) to B and the same tiny bit about the large benefit to the poor. Increasing taxes and transfers from zero will make everyone happier if the population is large enough so that taxing one me is more than balanced by taxing lots of you

I'm pretty sure I had to wait until sophomore year to hear this stuff, and even then it was said with much less enthusiasm, as an embarrassing exception to an otherwise tidy result.

(Or course, Robert couldn't have been my freshman economics teacher, we graduated the same year from different universities, but you know what I mean.)

Call Me a Churl If You Like

I remember getting really excited about the idea of Heifer International, giving donations that would buy need people around the world cows and goats. Until, that is, I read the (very) fine print and discovered that my gift would not in fact buy someone an actual cow or goat, but would go into the charity's general fund.

The prices in this catalog represent the complete livestock gift of a quality animal, technical assistance and training. Each purchase is symbolic and represents a contribution to the entire mission of Heifer International. Donations will be used where needed most to help struggling people.

How many actual cows or goats emerged at the other end was uncertain.

How unfortunate therefore to see a great group like Oxfam stoop to the same tactic. If you read their online pitch for Oxfam America Unwrapped you could easily come to believe that your gift of $75 would actually buy someone an actual cow.

But that's not how it works:

In technical terms (what the lawyers tell us we need to explain):
Oxfam America works in 26 countries around the world. This catalog contains gift items that symbolically represent our work. The items selected represent project goals from grants disbursed by our seven offices around the world. The purchase of each gift item is a contribution toward Oxfam America's many programs, not a donation to a specific project or goal. Your donation will be used where it is needed the most--to help people living in poverty throughout the world.

Or, as the FAQ says:

Am I really buying a camel?
First off, let's be clear: Neither you nor your gift recipient will receive a camel (other than the handsome photo on the gift card). When you buy a camel from Oxfam America Unwrapped, you are actually giving much more. The impact of your donation will have far-reaching effects. In each case, your donation will be used where it is most needed. For more information, click on the "How it Works" tab (at the top of the page).

...

Does a camel really cost $175?
Since our gifts are symbolic, these prices represent a suggested donation. We have drawn from a range of gifts so that you can make a donation that is meaningful—and fits your budget!

Good causes, especially Oxfam, but I don't like the tricksy marketing.

I'm not sure what the going rate is for a camel, but I suspect that when you "give a camel" you are not giving a camel, not to mention "so much more" -- the going rate for a camel seems to be £300 to £2,000. If so, that $175 will thus buy at most half of one of the mangiest variety.

[If all went according to plan, I'm just back from Italy now, but very jet lagged. And I am leaving for my next trip ... tonight. So I've queued up some more posts to cover for me. This is one of them.]

Today's Economics Puzzle

TMI a little place to whine: How come…?:

At the corner of 107 and Quail Roost Rd. when 107 become Marlin Dr. There is a U-gas station, where I purchased unleaded regular gas for $3.05 a gallon today.

In South Miami, just before the main shopping dictrict, there is Chevron gas station that has unleaded regular gas for $3.64 a gallon.

Most gas stations are averaging $3.16 a gallon.

Locational utility, imperfect information, or Walrasian tatonnement in slow motion?

Bad For Butlers

Robert Waldmann — who's been on a roll lately — writes about Democratic proposals to shift the AMT burden to the richest 1% of taxpayers. A winning argument both politically and economically. And one opposed by the plutocrat party, who call it “class warfare.” Waldmann quotes Wisconsin Rep. Paul D. Ryan, the senior Republican on the House Budget Committee, as saying that raising taxes for the wealthiest Americans is a “job killer.”

To which Waldmann replies,

I wonder if Ryan has an actual argument behind his claim that shifting taxes to the rich kills jobs.

I don't know what Ryan would say, but I imagine that at some point raising AMT for the very rich reduces the demand for butlers. So, yes, it is a “job killer” — of a very special sort.

(Yes, yes, I am aware that when taxes become confiscatory there are undesirable economic effects — but we're nowhere near there and no one is proposing we go there.)

The Economy

At The Agonist Bonddad asks, “So, are you better off now than you were 7 years ago?”

Incidentally, the Bonddad Blog is worth a look too.

Time for Some Enterprise Journalism on Campus

UM undergrads have, it is said, the highest indebtedness of any students in the USA. (It must be more than the high tuition — something about the lifestyle….)

Which makes it all more important for some local student journalist to find out if there is a local angle to this national story about student lenders and their sweetheart deals with college loan officers. The idea was to seduce or bribe the loan officers into steering student borrowers to certain companies, rather than those with the best deals. The New York Times has had a series of stories about these dubious deals (here's the latest), concentrating on NY area universities.

What I want to know is whether anything like that happened here at UM. Not that I have the least fact to suggest that it did. But given the size of the student body and its propensity for debt, we do seem like a natural market for that sort of thing. Were university loan officers contacted? If so, did they give in to blandishment or take the high road?

New Frontiers of Data Display: US Housing Prices via Rollercoaster Tycoon

This has to be the most imaginative and evocative (but admittedly not info-rich) way to present data I've seen since the famous chart of the French casualties during Napoleon's invasion of Russia: this video of US housing prices 1890-2007 (inflation adjusted) via Rollercoaster Tycoon.

Hang on for the ride. It ends with you facing off a cliff….

(via boingboing)

Sign of the Times

This piece of direct mail adverting fell through the mail slot yesterday:

Pop Quiz

Pop Quiz: What do these people have in common today?

• Alexander (R-TN)
• Allard (R-CO)
• Bennett (R-UT)
• Bond (R-MO)
• Brownback (R-KS)
• Bunning (R-KY)
• Burr (R-NC)
• Chambliss (R-GA)
• Coburn (R-OK)
• Cochran (R-MS)
• Cornyn (R-TX)
• Craig (R-ID)
• Crapo (R-ID)
• DeMint (R-SC)
• Ensign (R-NV)
• Enzi (R-WY)
• Graham (R-SC)
• Gregg (R-NH)
• Hagel (R-NE)
• Hatch (R-UT)
• Inhofe (R-OK)
• Isakson (R-GA)
• Kyl (R-AZ)
• Lott (R-MS)
• McCain (R-AZ)
• McConnell (R-KY)
• Sununu (R-NH)
• Thomas (R-WY)

Answer below.

Hint: They're not all running for President — only the ones in bold are doing that.

A: They all voted to eliminate the federal minimum wage today. Yes, really.

source: BobGeiger.com: Who Wanted To Eliminate The Federal Minimum Wage?

More details at: Senate GOP Leadership Tries To Eliminate Federal Minimum Wage.

Snow Flurry in Hell

Maybe Hell hasn't frozen over quite yet -- that will happen when the administration embraces budget transparency, but this story surely counts as at least a snow flurry,

Byrd to give up W.Va. projects: WASHINGTON -- Sen. Robert Byrd has built a reputation in Congress and in West Virginia using special interest funding to bring federal jobs and money home, but the king of pork said he's willing to give up his projects for 2007 to find a way out of the " fiscal chaos" left by the outgoing Republican-led Congress.

Amazing. Hopeful. Even statesman-like...

The Market Believes in Climate Change

The Bush administration may claim that climate change is a myth, but the market believes in it. And insurance carriers are adjusting their rates, and even their willingness to write policies accordingly.

Today, it's mostly hurricanes and coastal flooding. Tomorrow it will be higher sea levels (more flooding) and changes in crop patterns.

Not that one expects this administration to pay any more attention to market signals than any others.

Vote Democratic

GM Responds to Complaints About its Pitchman

GM's Response to the furore about it choosing Sean Hannity as its new pitchman can be found at Think Progress.

A Company With a Death Wish

In its unceasing campaign to lose market share to Japanese companies that understand the American consumer, GM has rolled out new promotion, the “You're a Great American” car giveaway. And they've hired Sean Hannity as their spokesmodel.

You have to wonder how small the ratio gets between the IQs over there and the MPG ratings of their cars: what sort of genius does it take to identify your (struggling) company with a guy who routinely insults more than half the country? As Think Progress reminds us, this is the guy who,

• said a Democratic victory in the midterm elections could be a “victory for the terrorists”
• said that “making sure Nancy Pelosi doesn’t become the [House] speaker” is “worth … dying for.”
• compared voting for Sen. Hillary Rodham Clinton (D-NY) to voting for terrorist groups Hamas or Hezbollah.

And GM thinks this will help them sell cars? Short the stock now.

Connect the Tax Cheat Dots (Since the New York Times Won't)

Gee. Think there just might be a connection between this story in today's paper,

Tax Cheats Called Out of Control: So many superrich Americans evade taxes using offshore accounts that law enforcement cannot control the growing misconduct, according to a Senate report that provides the most detailed look ever at high-level tax schemes.

and last week's story,

I.R.S. to Cut Tax AuditorsThe federal government is moving to eliminate the jobs of nearly half of the lawyers at the Internal Revenue Service who audit tax returns of some of the wealthiest Americans, specifically those who are subject to gift and estate taxes when they transfer parts of their fortunes to their children and others.

Both stories are by David Cay Johnston, but he's too coy to remind us of the first when writing the second...

A Great American

America's second-richest man, Warren Buffett is giving away $30+ billion, the large majority of his fortune, to the Gates foundation to fight disease.

Every Democrat running for office should be quoting what Buffett had to say about the idea of passing it all on to his kids:

Mr. Buffett was scathing yesterday in describing his feelings about estate taxes, which the Bush administration is trying to kill. The ability of rich men to pass on "dynastic wealth" to their grandchildren is offensive to the American tradition of meritocracy, he said.

He gets particularly upset at his country club, he said, hearing members complain about welfare mothers getting food stamps "while they are trying to leave their children a more-than-lifetime-supply of food stamps and are substituting a trust officer for a welfare officer."

(The kids are still getting billions for foundations they run, plus a tidy pile of their own, so don't cry for them.)

Friday Grumble

I spent waaay too much of the past 48 hours doing these:

• Calling around town to find out if anyone has any Altusa Fumé roof tiles that I need to fix the damage from hurricane Wilma. They just laughed. So much for efficient markets. I need about 60 ridge tiles and about a dozen of the S-tiles (aka “field” tiles). Only guy who says he has any says he'll sell me ridge tiles, but I have to buy 10 field tiles for each ridge, because that's how they come. Not that desperate yet. Yet. I may just buy some that are a clashing color instead.

• Trying to figure out why I got billed $37.04 in late fees on a discount store credit card. (We use the store credit card in that store rather than a bank credit card because they give you a discount when you use it. But this just ate a lot of it.) I pay the bills via my Very Large Bank's online bill payment system, and I always send in payments a few days early. I call the store to find out what gives. Hold. Punch wildly at buttons to get a human. Eventually the human says the store got the payment ten days late even though my records say I ordered it sent seven days early. I call Very Large Bank. The first guy says I have to talk to a different guy. We hold. We hold. I am switched to the call center somewhere several continents away, and in due course, “Armando” (yah, right) says they mailed it on time, seven days early like I asked them to, to the address in Illinois.
  
  Whoops. According to the bill I'm looking at the store's payment address is now in Tampa. Since the store presumes you will pay by check, and the address printed on the bill will show through the little hole in their envelope, they never did anything to call the change to my attention and of course I had no reason to notice: I typed the old address into Very Large Bank's bill payment service several years ago, and I don't even see it when I say how much to send the store. It seems that even though store's credit operation is run by GE Finance, they don't have electronic systems that talk with Very Large Bank. So my internet e-payment causes Very Large Bank to mail a physical check to GE Payments. Which went to Illinois before being forwarded to Tampa, a seventeen day trip.

• Putting together the paperwork needed to convince my university-provided health insurance company that the on-campus medical center that billed them for a visit last December is an actual medical office staffed by real doctors entitled to payment under health insurance rather than by me.

Oh, and did I mention that my campus email account hosted at osaka.law.miami.edu has been down since 10pm last night? Fortunately, my other mail is working fine if you want to reach me.

Prospective Usury

My credit card bill came today with one of those little notices advising me of a change in terms. This time the change is the APR. It's going to be 29.9%.

Twenty-nine point nine percent annual interest. On someone who has enough house equity to be no serious risk.

Presumably this is punishment for my paying my bill on time every month?

How the Iraqi Dinar is Managed

Via Juan Cole, some interesting information about the management of the Iraqi dinar. Used to be you could get information like this in the Economist and sometimes even the New York Times.

If it has been in either, I sure missed it. But then again, I don't read them as carefully as I used to -- so much of the information was on blogs like Prof. Cole's long before it made it into print...

A Market-Based Approach to Capturing Osama Bin Laden

Back in September '03, in a more innocent time, I suggested only somewhat tongue in cheek that there might be a market-based solution to the Iraq quagmire: Rather than spend the billions in Iraq that the administration was then requesting, we just give the Iraqis $3,230 each and go home. It was more than their pre-war GDP per person, and they'd probably make better use of the money than we would.

Of course, by now we've spent a great deal more in Iraq than the administration ever budgeted, let on, or (I suspect) imagined. The current estimate of the US cost of the war is around $283,000,000,000 and counting and of course that ignores the personal cost to Iraq, Iraqis, and the families (here and abroad) of all the fatalities and casualties. Had we taken that $283 billion and handed it out to the 25 million or so Iraqis, that would be $11,300 or so for every man, woman and child -- or 4.7 times the pre-war GDP/person.

But that's all money down the rat hole (well, mostly -- a few billion here or there was simply stolen).

Today I want to suggest a different market-based solution to an aspect of the current crisis. It's been years that the US has supposedly been searching for "most wanted terrorist" Osama bin Laden with all its might, yet without success. (Some cynics have suggested that in fact US interests are served by not finding bin Laden since his continued freedom justifies the Long War and that the failure to find him is not entirely unwelcome or accidental; that's too cynical even for my blood.)

The bin Laden hunt has been handled by the military and the intelligence services. Neither seems to have been up to the job. My proposal is simple: unleash capitalism.

Currently the US offers a paltry reward for the capture of bin Laden -- a mere $25 million dollars (There is a separate, private offer of $2 million on the table as well.) While this amounts to a great deal of money, especially in the impoverished regions in which bin Laden is thought to have his secret undisclosed location, it clearly hasn't been enough.

And if capitalism teaches us anything it is that if you want the goods and the other side won't sell, then you have to raise your price.

Considering that we've spent some $283 billion invading a country that was no threat to us and had not recently done us any particular harm, surely we could find under a thousandth of that for the bin Laden buyout? Suppose the reward were not $25 million but $250 million -- a quarter of a billion? People get very excited about powerball lotteries in that range, and a payoff that size might encourage someone to snitch.

Heck, offer a cool billion. Pay it out like lottery winnings and the present value is half that. Tax it and it's down back in the neighborhood of that quarter billion. But still real money.

The only downside I can see to this plan is that there's a danger that al-Qaeda will turn in bin Laden themselves, in order to get money to fund their next attack. I suppose the reward offer would have to be conditioned in some way to make this more difficult without descending into the catch-22 that anyone who knows bin Laden's location is presumptively a terrorist or a fellow traveler and thus the sort of person we don't want to give the money to...

Renting Out the Commanding Heights

I know the state of Florida has no shame, and I suppose that anyway this probably is no different from ads appearing on the sides of public buses but even so I was very surprised to have ads for satellite TV and satellite radio fall out of the envelope when I got my annual car registration renewal notice.

When the state sells off public functions we call it privatization. (When it sells or leases land we have unfortunately gotten used to calling it a 'rip off'.) When the state takes on formerly private functions we call it a vast number of things, depending on the circumstances and how we feel about it.

But when the state lends its good offices to put an advertisement into every home (or, who knows, just demographically selected homes?), do we just call it "advertising"? Surely there's a better word for this?

Time to Short AT&T, Verizon and BellSouth?

According to Think Progress | Telcos Could Be Liable For Tens of Billions of Dollars For Illegally Turning Over Phone Records, AT&T, Verizon and BellSouth face huge liabilities for turning over millions of American's call records to the NSA in violation of law. That potentially $1000 for each person whose call records were turned over. Millions and millions of people. Each.

This is Amazing

Sometimes there really is a conspiracy:

The multimillion-dollar lobbying effort to repeal the federal estate tax has been aggressively led by 18 super-wealthy families, according to a report released today by Public Citizen and United for a Fair Economy at a press conference in Washington, D.C. The report details for the first time the vast money, influence and deceptive marketing techniques behind the rhetoric in the campaign to repeal the tax.

It reveals how 18 families worth a total of $185.5 billion have financed and coordinated a 10-year effort to repeal the estate tax, a move that would collectively net them a windfall of $71.6 billion.

The report, available at www.citizen.org, profiles the families and their businesses, which include the families behind Wal-Mart, Gallo wine, Campbell's soup, and Mars Inc., maker of M&Ms. Collectively, the list includes the first- and third-largest privately held companies in the United States, the richest family in Alabama and the world's largest retailer.

These families have sought to keep their activities anonymous by using associations to represent them and by forming a massive coalition of business and trade associations dedicated to pushing for estate tax repeal. The report details the groups they have hidden behind - the trade associations they have used, the lobbyists they have hired, and the anti-estate tax political action committees, 527s and organizations to which they have donated heavily.

Please note: this is NOT posted to the politics:tin-foil category.

Declining Returns Seen in Academic Sector

In the course of justly reaming Thomas Friedman's The World is Flat for the Journal of Economic Literature, Edward Leamer delivers himself of a throwaway remark on the declining returns from the academy and what that might teach about the open source movement,

We [academics] are part of a "Self-Organizing Collaborative Community" called the research universities of the United States and increasingly the rest of the world. Unlike contributors to Wikipedia and Linux, we get paid for our work, not by those who consume the fruits of our labor, but by taxpayers and by donors and by our students, all of whom we have convinced are better off by virtue of the research that we do. When it got started fifty years ago, this system worked great, but it isn't working as well anymore. While we are doing plenty of worthwhile research we are also doing plenty that isn't worthwhile, and the competition for research talent defined by the fads of the moment is driving up the cost of education to unaffordable levels. Adam Smith would have understood what's wrong here. It takes sales for the invisible hand to do its magic. Begging in your work clothes when you aren't working isn't enough, even though the pastime may be lucrative. On the contrary, the more lucrative is the begging, the more likely is the conclusion that the work is worthwhile. But it takes accurate market prices to tell us what's valuable and what's not. Of course, good will and good intentions can carry a collaborative community productively for a while, but financial rewards relentlessly bend the system to their will, slowly perhaps, but inevitably. That's the invisible hand at work. Thus, open-sourcing has the same problems and the same probable longevity as the communes of the 1960s -- they worked great for a while, but the participants chose other ways to live once they got to know the people in the community.

Uncomfortable, but with a ring of truth.

Indeed, I think I heard one of the death-knells for the modern high-priced university this week. Increasingly, even reasonably well-off parents without pensions, people planning to retire off 401(k) plans, just don't think they can afford it any more.

Incidentally, the entire Leamer review is great stuff and I recommend it.

Dean Baker Wants Numerate Reporting

Economist and one-man economic truth squad Dean Baker has a new blog, Beat the Press, dedicated to "commentary on economic reporting."

The inaugural posting asks, reasonably enough, why most economic journalism fails to put raw numbers in context, choosing to report the big exciting number of "$285 billion over the next six years" for the new transportation bill, rather then the more informative, contextualized number of "approximately 1.7 percent of projected federal spending over this period."

In this case, though, it seems to me that this question actually answers itself: $285 billion sounds like a front-page headline; "approximately 1.7% of federal spending over the next six years" sounds like what William Safire used to call a "nine-point MEGO" where the MEGO stood for "my eyes glaze over" and the scale was logarithmic like the Richter scale.

And while I'm carping at my betters, let me point out that telling people that the new transportation bill will be 1.7% of federal spending or even "approximately 4.6 percent of projected discretionary spending" won't tell most readers all that much either...unless you tell them how it compares to transportation spending last decade, whether it covers deferred maintenance, current expenditures or new capital projects, and what it does to the deficit... And your economic journalist has, what, fourteen column inches on a good day?

Households Are Selling Stocks and Deeper in Debt

Angry Bear has some facts for us about what is going on in the US household portfolio:

The following table displays the annual changes in the assets and liabilities of US households over the last several years.


Sources: FOF tables F.100 and B.100. Note that this data is actually for households and nonprofit organizations. Nonprofit assets are estimated to comprise about 6% of the total combined category.

A couple of aspects of this data strike me as interesting. First of all, for the seventh year in a row, US households acquired more financial liabilities than they did financial assets. Naturally, this is due to the fact that much of the debt taken on by households was taken on to buy real estate. The escalating price of real estate meant that in 2005 the gap between the financial assets that households acquired and the financial liabilities they incurred was by far the largest ever.

It's also interesting to note that households (and their pension funds) were net sellers of equities during 2005.

OK. So households as a sector as selling stocks and deeper in debt in both mortgages and other other debt (credit cards!). Does this mean they are house rich and cash poor, or just poorer over all?

Not to mention that I read this to mean that households will be in bigger trouble when the housing bubble pops. And that there's less cushion nationally if the dollar overhang tries to come home...

Where We Live Now

Brad DeLong summarizes the ongoing restructuring of American society:

1. The rise of a very powerful, successful, exploitative upper class.
2. Further increases in inequality as the tax and transfer system becomes less progressive.
3. Increases in risk that threaten to move middle-class families sharply downward in the wealth distribution.
4. Skill-biased technical change that sharply raises the benefits to education.
5. Holes in the safety net--the fall in the value of the minimum wage, time-limited welfare, and so forth.

Corporate Social Responsibility (Redefined)

A hitherto unknown business group the Center for Union Facts ran a startling, rather nasty, anti-union ad in yesterday's New York Times, Washington Post and Wall Street Journal. The ad basically blames unions for job losses overseas. Now, as an economic matter, it stands to reason that anything which raises wages makes it harder to compete with ultra-low-wage foreign producers, but life is much more complex, since human capital is more than just simple hours of labor. And unions are shrinking anyway.

But I'll leave all that to the economists. What interests me is who paid for it. According to the New York Times, all that the group's spokesman would say is: "various companies and a foundation had contributed to his nonprofit group, but he refused to identify them." And their web site is even more opaque about who is behind it.

Do you suppose that the corporations paying for this stuff are booking the contributions under their 'corporate social responsibility' expenditures?

Sex and Money

To make up for today's light posting, here--again courtesy of my wife and of the UK's Financial Services Authority--is a link to a website using the 'stripped down' modern approach to investor education: The world of money laid bare, from the FSA.

I guess it says something about the British that you need pictures of unclothed people to get them to pay attention to their finances.

I also bet this post gets lots of traffic...

If Money Be the Measure of Man

A reader writes:

"America believes in education: the average professor earns more money in a year than a professional athlete earns in a whole week."

      - Evan Esar (1899 - 1995)

But we do tend to have longer careers.

Anyway, it depends on the sport. And whether by "average" person you mean the median person, or if you really want to average the salaries.

And for the ones with bigger teams, do you look just at the stars, or the median player? After all the average (not median) baseball player 'only' made $2,476,589 in 2005, and I bet the median player made less than that. That's under $47,626 per week on a 52-week basis. There definitely are professors in the humanities who make more than that, and the professional schools are loaded with them. (The 52-week comparison isn't as unfair as it seems since many professors have 9-month contracts, which is only a little longer than the baseball season, if you count spring training.)

Update: I think as regards baseball at least, this isn't quite accurate, although it's close: Median baseball salaries on a team range from $ 322,500 on the Colorado Rockies to $ 5,833,334 on the NY Yankees. The median salary on the median team is either the Seattle Mariners' $ 800,000 or the Minnesota Twins' $ 750,000 depending if you round down or up. Which puts it just under 12 times the average professor's salary!

Of course, if you throw in other professional sports, who knows, it might be true...

A Sign of the Times

Today I received an email request from a person who described herself as "the human resources manager for a mid-sized law firm in downtown Miami." She named the firm, but I'm not going to. She wondered if I might have information on "finding quality legal staff candidates from universities in India (i.e., paralegals, legal assistants, word processors, etc.)". Or maybe I know "the best universities in India producing good candidates for these types of position"

In short, she'd like me to help her figure out how to outsource local jobs to India.

I Don't Think So, thank you.

However, in what is undoubtedly a sign of advancing age and who knows maybe even incipient maturity, I have deleted each of the replies which have come to mind, and thus have yet to email a reply. (Yes, I know this contradicts my previous post on giving offense.)

Berkely J Students Are So Lucky

Berkeley J-School students are in for a treat: Brad DeLong is going to explain to them how not to get snowed by politicians spouting economic statistics See Covering the Economy for a taste of what he's up to.

Just a few basic rules -- understanding trends, comparing like with like, doing everything in real dollars would be a good start.

And, Brad, I know you are mainly intersted in public data from federal sources, but may I mention one of my pet peeves? I hatehatehate the way the business section reports corporate profits. Neither I nor anyone else cares if profits were up or down twelve million percent over last year. That depends so much on what last year was like. We want to know how much it grew in real dollars, or maybe the ROI compared to last year, to other players in the industry, or the industry as a whole. Or anything else standardized and meaningful. BUT NOT % CHANGE OVER LAST YEAR. (Please?)

Today's Tax Fact

The cost this year alone of the Bush tax cuts enacted in 2001 and 2003 comes to $225 billion. In other words, the revenue lost because of tax cuts going through this year without any congressional action would more than pay the costs of Katrina recovery.

Source: E. J. Dionne Jr.

How to Pay for Rebuilding New Orleans

It's not too early to think about how to pay for the rebuilding of New Orleans and the other area communities that have been devastated. Indeed, a firm long-run plan will give the people who live(d) there more hope, and help discourage flight of the most mobile professionals that a city depends on for its economic health.

The government has already appropriated $10.5 billion for immediate relief, but that's a drop in the bucket. And that, plus every other cent going forward, is just added to the deficit. So it's time for Democrats to step up to the plate and propose an emergency surtax -- like we used to do in wartime -- to rebuild all the damaged areas. And to do it right, with coastal, wetland and barrier island reconstruction, so the next storm surge will not be so dangerous. It's an expensive undertaking, but it's the least we owe the people of the area after the hideous treatment they are now experiencing.

I don't know exactly how big the tax would need to be, but I'm certain we could design one that's suitably progressive. Ideally it would be focused on the people who've benefitted the most from the last five year's growth, i.e. top 1% of the wealthy would pay the most, the next 20% would pay a share, and the rest (who have seen no benefit as a class, or even lost ground) would make NO more token payments. It's especially important for Democrats to get out in front on this issue given the GOP leadership's trial balloon, via House Speaker Dennis Hastert, if the idea that this national cultural landmark (and Democratic stronghold) should be left to rot.

Corrected: I had left out a key "NO" above.

Update: and how about a windfall profits tax for the oil refining business, now looking forward to much higher margins.

Hot Stock Tip

One of my favorite UM staff people has a new blog, and she offers a hot stock tip:

pssst...hey you...wanna hear a great stock tip?

Peanut butter.

Yeah, that's what I said. Peanut butter.

Why?

Well it's not insider information, that's for sure. It's common sense.

I paid $10 this morning to put 3.76 gallons of regular unleaded into my car so I could get to work. $10 used to be just below the full line. Now it's barely to 1/2 a tank. So I used to have more money to spend on eating out at lunchtime. No big fancy restaurant or anything, just away from work and the work crowd. I would do that once a pay period, sometimes twice. So, that was $20 or $30 a month I spent to keep the economy rolling.

Now I put that $20 or $30 into my gas tank to keep OPEC and George W. Bush's oil pals well fed while I eat in the building.

As I said, peanut butter is the coming thing. The stock in peanut butter should be going through the roof soon because I am not the only one who is cutting back on lunch expences. Right now I am still able to afford lunchmeat, but as transportation costs and energy costs rise I will be looking for alternate foods that don't cost an arm and a leg to refrigerate and transport. Lunch meat is perishible. Peanut butter is not.

So, if I wanted to make a killing in the stock market equal to the killing the oil barons are making I have to do it soon. Investing in peanut better may be the wave of the future. Get in now on the ground floor before the prices of it go up too and you're priced right out of the market

Investors (and politicians), take note.

The Price of Water

Bottle of Dasani (glorified tap water) in Orlando Marriott hotel room: $3.

Slightly smaller bottle of Dasani in hotel vending machine down the hall: $1.

Glass of water from tap, or ice water from hotel bar: $0

Edgy Thinking

This query at Nicholas Weaver's Random Thoughts is the sort of thing you see first at the edges, on smaller blogs, and then, sometimes, a few days later you see it everywhere.

Except that I just spent a chunk of Monday morning in the car repair waiting room, which was playing one of the local TV stations, I think the NBC affiliate.

In the hour and a half I was there, the news covered the following topics (that I can recall):

• The weather (the sun rose this morning — illustrated with lovely pictures of Miami)
• Anchorman Peter Jennings dies
• Yoga for dogs (actually, they didn't cover this — they produced a lengthy promo for the upcoming story on the nightly news).
• Space shuttle landing delayed due to weather
• The weather (the sun is in the sky, illustrated with lovely pictures of Key West)
• Extensive interview with a mother who had to take her kids to the first day of school today.
• What to do about the “problem” of curly hair
• The world's smallest ice cream
• Interview with Barbara Walters about Peter Jennings [note that he anchored for a different network; this wasn't an internal ABC promotional thing]

There were probably other stories, but I can't remember them. I can, however, assure you that the following topics were never mentioned at any time:

• The war in Iraq¹
• The economy
• Any foreign countries
• Any other states (except in the weather report) (update: and possible landing sites for the shuttle)

Which is why some of this edgy thinking stays at the edge….

---

¹ Update: I forgot one: the war did get mentioned during a segment on four singing grannies who were interviewed wearing their silly costumes. The grannies write and sing anti-Bush protest songs, and they called the war illegal and immoral. The segment didn't actually make fun of them, although one had the sense the interviewer was struggling between a desire to mock and a desire to respect the aged.

Risk and the Compensation Culture

Tony Blair spoke about better regulation, risk and the compensation culture this week. He gave a speech on Living with Risk at an event organised by the Institute for Public Policy Research and the Association of British Insurers. There's a lot in this speech, including a theme that worry about liability has got out of hand:

something is seriously awry when teachers feel unable to take children on school trips, for fear of being sued; when the Financial Services Authority that was established to provide clear guidelines and rules for the financial services sector and to protect the consumer against the fraudulent, is seen as hugely inhibiting of efficient business by perfectly respectable companies that have never defrauded anyone; when pensions protection inflates dramatically the cost of selling pensions to middle-income people; where health and safety rules across a range of areas is taken to extremes. Europe has done itself more damage through what is perceived as unnecessary interference than all the pamphlets by Eurosceptics could ever do

Blair recognises that much of the talk about the “compensation culture” may be just that, and that the risks of liability may be much less than people think, but he also acknowledges that public authorities sometimes respond in weird ways to the thought of the risk of liability.

Then there is a theme about risk. Blair doesn't want regulation to eliminate risk (if it were possible):

A natural but wrong response is to retreat in the face of this change. To regulate to eliminate risk. To restrict rather than enable. But we pay a price if we react like this. We lose out in business to India and China, who are prepared to accept the risks. We are unable to exploit our scientific discoveries. We seek protection from risks that are exaggerated or even imagined. We allow the conspiracy theorists to dictate the argument without a basis in fact.

So Blair wants the British people to be subject to the same levels of risk as if they were living in India or China?

There are to be a number of new initiatives including the Arculus suggestion of a “one in-one out” approach to regulation - every time a new rule is introduced an old one is eliminated and a new Compensation Bill to regulate claims farmers and (re)define negligence. And the media will be nobbled:

The media have a responsibility. MMR is one example. The present debate on mobile phones is another. We only narrowly avoided massive expenditure on SARS. We need to involve the media in a better dialogue about risk. To that end, I have asked John Hutton to invite newspaper and broadcast editors to discuss with the Chief Medical Officer and the Government's Chief Scientist the best and most appropriate forum for ensuring that risk is communicated effectively so that the maximum information can be put into the public domain with the minimum of unnecessary alarm.

What the Government wants is as follows:

We should understand the nature of the decisions we take together, have a mature, reasoned debate between government, experts and people; a conversation between adults taking responsibility for the risks they face.

Sort of like the position with the decision to invade Iraq?

"Better Regulation"

The subject of regulation is on the table in the UK these days. Gordon Brown has been talking about a Better Regulation Action Plan. This all makes me feel very old - I can't help but feel that I have heard all of this before - in the 1970s and 1980s and 1990s and in particular in 1997 when the Blair Government changed the terminology from deregulation to better regulation and set up the Better Regulation Task Force. The Blair Government inherited a 1994 statute, the Deregulation and Contracting Out Act which was supposed to facilitate the destruction of uunnecessary regulation. Then there was the Regulatory Reform Act 2001. But after the Arculus Report and the Hampton report (Dec. 2004 version) Gordon Brown now proposes a bill for “removing outmoded and unnecessary regulations” He says:

We will begin a widespread consultation with businesses to identify regulations that should be removed or simplified.

Some of Brown's other language reeks of Thatcherism:

A risk based approach helps move us a million miles away from the old assumption - the assumption since the first legislation of Victorian times - that business, unregulated, will invariably act irresponsibly. The better view is that businesses want to act responsibly. Reputation with customers and investors is more important to behaviour than regulation, and transparency - backed up by the light touch - can be more effective than the heavy hand. So a new trust between business and government is possible, founded on the responsible company, the engaged employee, the educated consumer - and government concentrating its energies on dealing not with every trader but with the rogue trader, the bad trader who should not be allowed to undercut the good. And the risk based approach has wide application from environmental health, to financial services and even taxation.

No wonder the conservatives lost the election!

The Absent Consumer - again

IOSCO isn't the only supranational financial standards setter which doesn't get input from consumers. In its first few years of existence, the EU's CESR (Committee of European Securities Regulators) didn't bother much about consumer views either. In March 2005 CESR held a “Consumer Day” to discuss the MiFID (Markets in Financial Instruments Directive). In a subsequent summary of the meeting CESR stated:

The importance CESR attaches to receiving comments on its advice from representatives of retail clients and consumers was stressed and CESR expressed its concern that the responses received to previous consultations carried out on MiFID, had not reflected sufficiently this set of stakeholders. CESR made it known that it intended to organise similar meetings in the future to continue and develop this dialogue further

The Consumer representatives who attended the meeting made some useful observations. They pointed out that they did not necessarily have the resources in terms of knowledge and staff to be able to prepare “considered responses” to consultations. They also suggested that it would be helpful if consultation papers were more “reader-friendly” and if they were translated from English into the different national languages in the EU.

This translation point is important and particularly critical in the EU which has been committed since the very early days to communicating with citizens in their own languages. Enlargement puts stresses on the EU's translation resources, and leads the EU to limit the number of documents that are translated into all of the official languages and to produce shorter pre-legislative documents. Publishing consultation papers only in English tends to favour people in the UK, and members of the elite who either read English or can afford to pay for translators.

The Strange Case of the Disappearing Consumer

In November 2004 IOSCO (the International Organisation of Securities Commissions), which promulgates international standards for securities regulation, published a consultation document about its consultation procedures. The document contained a set of general objectives. The second of these stated that IOSCO would conduct public consultations:

To benefit from the expertise of market intermediaries, exchanges and other market operators, securities clearing and settlement system service providers, endusers and consumers, auditors and auditing companies, and other public authorities, international standard setters, international financial institutions, and regional development banks, when assessing and analyzing regulatory issues

IOSCO received a very limited number of public comments on this document. It is unclear how many private comments it received. The April 2005 Executive Committee Report on IOSCO Consultation Policy and Procedure does not mention consumers at all. Where the inclusive stakeholder paragraph appeared in the draft there now appears the following language:

To benefit from the expertise of the international financial community when assessing and analyzing regulatory issues.

What happened to the consumers? Is IOSCO just responding to the lack of comments by consumer groups or does the change in language reflect a change in policy? It's worth noting here that the International Bar Association's comments on the November draft emphasised that transparency in rule-making at the supranational level is important because:

It seems increasingly clear that the essential discussion of standards will take place at the IOSCO level rather than later at the home country level and that home country regulators will increasingly take the position that the standards adopted by IOSCO foreclose further discussion in the home country of the topics covered by these standards. This process is legitimate in democratic rulemaking when, and only when, those same principles have been fully vetted in a public manner at an international level.

In the same way, if IOSCO decides not to seek consumer input, then the consumer voice may be lost at the domestic level as well.

Corporate Manslaughter

I have been interested for a while in the ways that financial trade associations seek to influence the law, particularly in the context of international financial markets and transactions. This week I am working on my draft of a paper called Private International Law-Making for the Financial Markets which I am going to talk about at the Law & Society Conference in Las Vegas. I have been noticing the ways in which financial trade associations (such as the Bond Market Association and the Securities Industry Association) work together and separately in commenting on proposed regulations.

Last week I saw that CMS Cameron McKenna is inviting people to respond to a survey about the UK Government's proposed Corporate Manslaughter Bill (this proposal is from before the recent election but the new Government proposes to introduce a Bill). The English rules on corporate liability for manslaughter are currently very restrictive. A company is only criminally liable for manslaughter where a “directing mind” of the company was liable for manslaughter. It is difficult to succeed in prosecuting a large company for manslaughter because even if there is one person who is the directing mind that person is likely to be far removed from the people who may be responsible for causing others' deaths.

CMS Cameron McKenna is a law firm, not a financial trade association, and the topic it is inviting comments on is not really directly an international finance topic (although the statute would, if enacted in the form proposed in March, affect the criminal liability of foreign corporations). But CMS Cameron McKenna's invitation to comment on the Government's proposals is an invitation to comment to the firm (which states on its web site that it is preparing a response to the government's consultation) rather than to the Home Office (which published the draft Bill in March). The survey document does not seem to invite responses from those who approve of the idea of increasing the risks of corporate criminal liability. For example, one question asks:

Do you believe the proposed new offence could encourage risk averse behaviour and bureaucratic systems?

Another question asks:

Will those industries which are traditionally exposed to health and safety issues struggle to attract top-level managerial talent in the face of corporate manslaughter prosecutions?

The email on CMS Cameron McKenna's list (although not the web page) suggested that the firm was preparing a response to the consultation on behalf of the CBI (Confederation of British Industry) which expressed reservations about an earlier proposal to expand corporate criminal liability, and in its response to the Queen's Speech said

If the government is going to press ahead on corporate manslaughter, it must ensure that the legislation is fair. The grossly negligent must be separated from genuinely responsible employers who do everything possible to ensure safety.

If the eventual response is published in the CBI's name I'd have no problem with this, but if it is to be published in the law firm's name I would have some problems because of the skewed nature of the survey questions and because I would think that people (in the UK) might think that a law firm would be more neutral on such questions than the CBI. But then perhaps my views about how the legal profession should behave are old-fashioned?

Fiddling While Rome Burns

Almost Unnoticed, Bipartisan Budget Anxiety: There were no cameras, not a single microphone, and no evidence of a lawmaker or Bush administration official in the room …

With startling unanimity, they agreed that without some combination of big tax increases and major cuts in Medicare, Social Security and most other spending, the country will fall victim to the huge debt and soaring interest rates that collapsed Argentina's economy and caused riots in its streets a few years ago.

“The only thing the United States is able to do a little after 2040 is pay interest on massive and growing federal debt,” Walker said. “The model blows up in the mid-2040s. What does that mean? Argentina.”

…

The unity of the bespectacled presenters was impressive — and it made their conclusion all the more depressing. As Ron Haskins, a former Bush White House official and current Brookings scholar, said when introducing the thinkers: “If Heritage and Brookings agree on something, there must be something to it.”

This time around the “fiddling” is the other sort.

Overcoming Small Collective Action Problems

This post by Ben Hyde, Fundable, at “Ascription is an Anathema to any Enthusiasm” is worth a read. It explains a variety of collective action problem in very clear terms, and then suggests that startup fundable may help to solve some of them.

Great start, too:

Why don’t neighborhoods have a collectively owned tool shed? My neighbors and I own the most amazing amount of idle capital equipment! We each have our own hedge trimmers, snow blowers, lawn mowers, etc. etc.

Of course the real answer is that everyone wants to use the lawn mower early Saturday morning while I'm trying to sleep.

Ineresting Charts

Lots of stacatto blogging this busy week.

Kevin Hayden has a very interesting chart with A Surprising Find in the List of Median Income By State…and some thoughts about its political significance.

On the subject of interesting charts, I also commend to you Angry Bear's discussion of the US savings rate, How Low Can It Go?”. It's not a pretty picture. Ideas about how to invest one's pennies to ride out the coming train wreck gratefully received.

Why I'm No Fan of John Kenneth Galbraith

My friend Brad DeLong has a warm review of Richard Parker's, John Kenneth Galbraith: His Life, His Politics, His Economics in, of all places, Foreign Affairs.

It's clear Brad likes Galbraith's work, and up to a point I do too. But in my mind the work is inescapably tarred by my one meeting with the man, and ironically it has everything to do with foreign affairs.

In general I believe that the merits of a speaker should not reflect on the merits of his cause. While I think that's a good rule in politics, the exception in my mind is that one's conclusions about the carefulness (or fairness) of a person do entitle you to alter the presumptions of care or reasonableness that you bring to an appreciation of their academic writing.

My sole personal exposure to JKG was in about 1981, when he came to Yale for some reason and was enticed into a private meeting with the editorial board of the Yale Daily News. (It would have been either the year I was a copy editor, or the year I was News editor, I can't now recall.) As a somewhat liberal economics major, I was delighted at the prospect.

We met in the News's Board room, a room dominated by a long table. Galbraith gave a brief, lightweight, talk then said he was really there to answer questions.

In the course of the conversation, someone asked him what magazines and newspapers he read. JKG rattled off a fairly short list. “Don't you read The Economist” was the follow up question. “Oh, no,” said the great man, “too many articles about little countries you don't care about.”

[Had Galbraith said “too right-wing” I might have understood, although in those days I would have disagreed. Back then the Economist was much more interesting than that caricature. Today, alas, the Economist is a thin shadow of its former self. Its economic analysis is pedestrian, and its coverage of US politics is not just shallow, but utterly predictable by reading GOP talking points. And there isn't enough coverage any more about little countries that the New York Times doesn't care about. When, for example, was there last an article solely devoted to Albania? I may well not renew my subscription.]

It may be unfair of me, but Galbraith's patrician and disdainful lack of interest in international events and foreign countries seemed shocking then, and has cast a pall over my enjoyment of and sympathy towards his writing ever since.

Brad DeLong is Cranky Today

Brad DeLong says he is cranky today.

Brad DeLong's Website: Sigh Greg Mankiw: I am cranky, and annoyed. And I am not asking for very much. All I want is:

• No more claims that we know that carving-out Social Security revenues to fund private accounts will have no damaging effect on national saving. It might work. It might not.
• No more claims that the U.S. is a small open economy. It isn't.
• No more claims that there is no reason to think that slower economic growth will carry lower asset returns with it. There are good reasons to fear this.
• No more claims that the household employment survey is as good a guide to short-term labor market trends as the establishment survey. It isn't.
• No more claims that an honest forecast of what George W. Bush's policies are sees the deficit cut in half by the end of this decade. It doesn't.

I think Brad should be cranky more often. But then I don't have to live with him.

Too Good To Be True

I was actually modestly cheerful this morning, reading about the Bush administration coming out against some of the most atrocious farm subsidies.

It would be nice to have a government initiative I could actually agree with.

Comes now Brad DeLong, assisted by Mark Schmitt, to bring me back down to earth…where in fact this is just another example of the Washington Monument ploy, or perhaps even just an other episode of Dingbat Kabuki.

Sigh.

Good Ideas in Economics, Summarized For Your Convenience

Robert's Stochastic thoughts, formerly Robert's Random Thoughts, summarizes (sends up?) the good ideas in economics as falling in one of 14 categories.

I think he's on to something here, at least if you accept, as I do, that whatever virtues may have lurked in his sociology, Marx was a very poor economist.

Two Optical Illusions: One Smart, One Stupid-Scary

The Dragon Illusion (video) is one super-smart illusion. It uses the way eyes and brain are wired to take advantage of mistaken assumptions:

When we see a solid object rotating, there are all sorts of clues that tell us what is going on, which way it is rotating, etc. The dragon gives us the wrong clues, because we mis-interpret what its shape is. The nose of the dragon appears to be pointing out towards the viewer, but in fact the dragon's head is concave.

The Bush plan to create deficit-cutting bragging rights also tries to take advantage of mistaken assumptions, primarily the one that our goverment wouldn't lie quite this brazenly:

To make Mr. Bush's goal easier to reach, administration officials have decided to measure their progress against a $521 billion deficit they predicted last February rather than last year's actual shortfall of $413 billion.

By starting with the outdated projection, Mr. Bush can say he has already reduced the shortfall by about $100 billion and claim victory if the deficit falls to just $260 billion.

But White House budget planners are not stopping there. Administration officials are also invoking optimistic assumptions about rising tax revenue while excluding costs for the wars in Iraq and Afghanistan as well as trillions of dollars in costs that lie just outside Mr. Bush's five-year budget window. …

“I've been watching this more than 30 years, and I have never seen anything quite this egregious,” said Stanley Collender, a longtime author on budget issues and a senior vice president at Financial Dynamics, a communications firm in Washington. …

Administration officials are omitting a second big group of costs for goals Mr. Bush has identified but not formally proposed.

By far the biggest of these is his plan to privatize Social Security in part and let people divert some of their payroll taxes to private accounts.

In otherwords, a complete tissue of lies.

Trickery makes for cute toys, but not cute budgets.

The Greeks Had A Name For It

The Washington Post's Jonathan Weisman notices something important, then fails to call it by its name.

Changing for the Better — or Worse?. Throughout a two-day conference on the economy, President Bush and his allies extolled the virtues of his tax cuts and “pro-growth” policies, which they said have lifted the nation from recession and propelled it well above its international economic competitors. If Washington adheres to the path of fiscal restraint while following the president's tax prescriptions, it was suggested, policymakers could secure powerful economic growth far into the future.

Yet when the subject turned to the nation's legal or Social Security systems, the picture grew suddenly dark. Frivolous lawsuits have hobbled America's businesses and have put them at the mercy of their enlightened overseas competition, administration officials said. As for federal entitlements, a rising tide of retiring baby boomers will inevitably slow economic growth and bankrupt Social Security.

“The crisis is now,” Bush warned in his closing speech.

Such contradictions emerged repeatedly, pointing up the delicate balancing act that Bush faces as he tries to sell his economic proposals.

Sorry, Jonathan, but there's a name for political posturing that involves saying both 'A' and 'not-A' at the same time while trying to whip people up into supporting your political program..

Demagoguery.

Cause or Effect?

My brother notes:

Michael Forsythe writes for Bloomberg News: “One of the best indicators of superior returns on U.S. stocks during President George W. Bush's first term was contributions to Republican candidates.

“The 50 companies that most favored Republicans with their political donations delivered an average 44 percent return on investment over the last four years, while the Standard & Poor's 500 Index fell 4.1 percent, assuming dividends were reinvested.”

An Unusual Example of Currency Decline Harming Exports

In Macro 101 they teach you that when your currency drops, exports become cheaper, so they increase — this is one of the major factors that works to stop currency free fall. But here's an I hope unusual account of a circumstance in which one sort of export, albeit one based largely on imported parts, shrinks as a result of a currency decline:

Boing Boing: Danger, high voltage: It's common for people living in Europe to buy computer hardware in the US where prices are lower and the Euro is strong. Just don't try it with the new iMacs. An article in today's International Herald Tribune points out that the G5 iMacs sold in the US are strictly 100-110 volt, unlike every other Apple machine on the market with the exception of the eMac. Plug a new iMac into a standard 220-240 European outlet without a transformer and your motherboard will fry. From the IHT article:

It was a sudden, unexpected and little publicized change for Apple…

I asked Apple why and have not received an answer. Postings on Internet discussion boards are thick with speculation. The most likely reason is that limiting the reach of U.S. and Japanese computers is meant to help preserve European sales, where PC sales are relatively strong but the economy is weak. A company also gains if its revenue is in a more valuable currency than the one its costs are in.

Link.

Can You Retire on One Meal Per Month?

Angry Bear has an interesting post on the further decline in the US savings rate (go read it) which contains this arresting statistic:

The personal saving rate fell to just 0.2% of after-tax income in October. That means that an average family that earns $75,000 per year, with take-home pay of about $5,000 per month, is saving about $10 per month. That's it.

The Sleeper Issue that Should Keep You Awake at Night

I think our high-deficit cheap dollar party is a strategic blunder of the first order. And I also think currency markets are chaotic, and we are at risk of falling off a cliff. Brad thinks I'm silly, but I think this is doubly true now that the Euro is a credible alternate reserve currency (and commodity pricing index…what happens when oil is priced in Euros and the dollar falls?).

Of course, a sudden collapse in the value of the dollar could never happen…

TaxProf Blog on WSJ's Sloppy Coverage of Heinz-Kerry Tax Return

You would think the WSJ, a very fine paper, would get something this basic right. But apparently not. See TaxProf Blog: Schmalbeck Criticizes Wall Street Journal's Reporting on Teresa Heinz Kerry's Tax Return for the numerators and denominators. See also TaxProf's summary of Michael Kinsley's defense of her investment strategy.

Economists Will Soon Have a 'Voice'

Brad DeLong's Semi-Daily Journal: A Weblog: Preview: The Economists' Voice: A Manifesto

Economists are losing the battle for mindshare in public debates and discussions about the economy. Too much of what we economists write meets the technical canons of modern economics, but reaches a very small audience (if it reaches any audience at all). Too much of the rest of what we write is murdered by being forced into the Procrustean bed of the 700-word op-ed: a space too small to make any but the most pathetic and oversimplified excuse for an argument. The result is that public understanding of the economy is abysmal, and the intellectual level of the public debate is far too low. We economists all can, no doubt, think of a dozen examples in the past month of hideous errors in the public perception of the economy and hideous mistakes made in good faith (i.e., not by lobbyists) about the effects of public policies. (And, because we are all economists, we economists at least would all largely agree on at least 80% of what are hideous mistakes.)

We—that is, Joe Stiglitz, Aaron Edlin, and I—aim to start an online publication, The Economists' Voice, to be “published” by Berkeley Economic Press, to try to remedy this situation. The two youngest of us are confident that we have a very good chance of succeeding. Our confidence is based on one fact: Joe Stiglitz thinks that this will work, and his judgment in this area is very good, as is shown by the remarkable success of the Journal of Economic Perspectives which has greatly increased the flow of information across the subfields of economics, and done a remarkable job of welding the American Economic Association into a stronger intellectual community.

The Economists' Voice will aim for pieces longer than an op-ed and shorter than (and much more readable than) a piece for a standard journal. We thus avoid the op-ed problem—the problem that op-ed space is too short for an argument, and only provides space to be shrill. But we also hope to stay short enough to be readable, and understandable. And we will aim for quick turnaround—days rather than the years of journals.

The level will be non-technical but sophisticated: perhaps what one expects to read in the Financial Times and the news pages of the Wall Street or National Journal, or perhaps a notch above. The aim will be to provide an economist's argument and point of view on some salient and interesting issue: a survey of something interesting happening in the economy, or a call for some change in policy or institutions—which would consist of a review of what the principal important factors are, what the objective function is, what the constraints are, why the objective function is maximized at the particular set of policies or institutional arrangements that the author prefers.

We will launch the The Economists' Voice later this year. We will succeed if we become the place on the internet where economists, journalists, interested observers, staffers, and others turn in search of high-quality comprehensible economic analysis.

The best title for this item would be

A) Dismal Science Tries to Jazz It Up

B) Economists Launch Highbrow Popular Online Journal

C) 'Economists' Voice' Seeks to be 'Masters' Voice' for Chattering Class

D) Man, I'd Like To Work With Stiglitz

E) Oh no, One More Thing I Won't Want to Miss

F) Where Does Brad Find the Time?

G) All of the Above

Optimal Vampires

Kudos to Maggie McConnell of Optimization Prime for unearthing this reference to Models of Optimal Vapirization. (Fun reading, yes, but I think Laurell Hamilton is even more fun, although I do not like the design of her web page.)

Add to List of Worries: Food Prices

Memo to self: soon as you get done worrying about oil prices, start worrying about food prices. Memo to John Kerry: it's all the fault of the Chinese. Memo to Brad: yes, yes, that's a joke, really, I know trade is good for everyone in the long run (which I believe to be some time after November). No manholes in Coral Gables, so I don't have to worry about falling down one.

On Tax Collection

OK, so he published this for April 15, and I'm behind on my reading.

yesh omrim : A timely thought: According to the American Institute of
Philanthropy, “$35 or less to raise $100 is reasonable for most
charities.”

By comparison, the Federal government, in its fiscal '04 budget, plans to spend about $40 billion on “administration of justice” and about $10 billion on tax collection, in a total budget of about $3250 billion. So even if we attribute the expense of the entire Justice Department and Federal prison system to the cost of government “fund-raising”, it costs the government less than $2 to raise $100. (These figures are from the National Budget Simulation.)

The next time someone tells you that private charities are “more efficient” than the government at achieving some worthy goal, remember these figures.

This could, however, be an economy of scale. Or, perhaps, think of it a measure of how much it is better to be feared than loved?

Venturpreneur Throws Cold Water on Google IPO

The Venturpreneur is an interesting blog I stumbled on last week. Now I discover that the author is Gordon Smith, someone I met in Tilburg, the Netherlands (not as strange a place as it may sound for two Americans to meet — Tilburg, along with Amsterdam, is an Internet studies powerhouse).

Gordon is now a law professor at Wisconsin, and he's writting some provocative comments today about the new Google IPO:

The Growth Story: Selling stock in an IPO is not about convincing people that your present performance is stellar. It is about your growth story. People who invest in IPO shares are hoping that your company will become the next Microsoft. A compelling vision is crucial. I have been reading the prospectus for clues about Google's growth story, and this is what I have found.

…

Bottom line: The prospectus is worse than I imagined it could be. I assumed Google would have a difficult time telling a growth story, but I thought that they would give it the old college try. Instead, their growth story is nothing more than a celebration of past accomplishments. “Don't you just love our search technology?!”

Yahoo is currently trading at a price/earnings ratio of approximately 125. Google is currently less efficient at servicing the bottom line, and it admits that operating margins will decline. In the face of these realities, it will need to achieve a price/earnings ratio higher than Yahoo's to obtain the kind of valuations projected over the last few days. While it may reach such lofty heights if retail investors get overly enthusiastic, those prices are not sustainable under any scenario contemplated in the prospectus.

I hope this is pessimistic, although it certainly seems right as far as I can tell. I'd like the first major IPO which is run on a pure public auction, without huge margins to the parasites investment banks, to be a stunning success.

Update: John Battele's take on the IPO

I Always Suspected There Were Too Many Kinds of Toothpaste

I always sort of suspected that the world might be better off with fewer kinds of toothpaste — an intuition that flies directly in the face of all the free-market stuff I usually believe. Now comes Ben Hyde, summarizing Barry Schwartz's book Paradox of Choice, to explain why this intuition might actually be right:

The punch line of Paradox of Choice is made in a simple cartoon. Partition the world into two kinds of people. The maximizers and the satisfiers. Maximizers spend more resources on getting the best possible outcome while satisfiers don't.

The joke? Maximizers do tend to achieve their goals. They do accumulate more than the satisficers. The ironic revenge of the Gods? They are never satisfied.

He reports that depression is highly correlated with maximizing behavior. Then he lays down the cornerstone of the entire book.

Can you conspire to change a person's behavior? Convert them into a maximizer? How? Yes - you just present them with more choices. That increases the chances their behavior will switch from happy satisfier to depressed maximizer. It's a denial of service attack on the problem solver. It's restructuring the game so that the search algorithms are no longer effective. It's the old chestnut that marketing is war. It's the cliche that planning is what you do to avoid action.

In other words, marketers make more choices to turn rational people into shoppers. But these choices make people less happy than they would otherwise be (the paradox).

But wait. This (as opposed to, say, the quest for shelf space) doesn't alone explain why firms make so many different varieties of what's more or less the same product. What's in it for the firm, which presumably forgoes some small economy of scale? Do unhappy consumers spend more money in a quest for more happiness (either in product quantity or quality or price), or do they just spend more time searching? Do they buy eight kinds of toothpaste to try them out? Does the increased search time expose them to more goods that would have chosen to buy had they but known of them, in which case search makes you happier but poorer? Or do the consumers spend so much time searching they buy less? Or is the depressed consumer an impulse buyer? There has to be some mechanism by which the 'more search, less joy' mentality gets translated into goods or this fails to explain the marketers' incentives. And even if a greater variety of toothpaste on offer makes you generally unhappier it's not at all obvious to me how this translates into toothpaste sales given the fixed quantity of mouths per person.

On a related note, the suggestion that there may be an economic grounding for my suspicions about toothpaste makes me hope that someone will be able to confirm my claim of an economic justification for another of my other potentially irrational beliefs. I have a tendency towards comparison shopping for the lowest price, a maximization behavior that my wife likes to laugh at as obsessive (while no doubt enjoying the savings). I like to rationalize this tendency as a public-spirited behavior with positive externalities: by doing my best to embody Rational Economic Man, and finding the low-cost supplier I am rewarding the low-price supplier (and, especially, failing to reward the price gougers) and thus helping the market be efficient, which contributes to lower prices for everyone. Any truth to that in a world of sensible satisficers?

More on Digital Public Goods

In a comment to an item below, John Quiggen gently and correctly points out that the insight for which I credited Brad is at least as much his:

If the Internet continues to grow in economic importance, the central role of public goods in its formation will pose big problems for capitalism, though not necessarily to the benefit of traditional forms of socialism.

What's more, he's already working on an article about it. So that's one less project I have to worry about — I can wait for him. The provision of public goods is already one of the major challenges for modern society, one that the US at least responds to fairly badly (see, e.g. the lack public transport in Miami and the really clogged roads) and it's really interesting to speculate about what we should do if the increase in importance of digitized information and tools to play with it makes this problem worse.

Brad and I have written one article which cataloged some of the issues, but it doesn't offer very much in the way of solutions. Much remains to be done here.

There's an Article Here

In an otherwise normal science look at Valuing Google, Brad writes a sentence that deserves an article:

Social value is drifting away from potential profitability, and this threatens to become a huge problem in our collective social resource allocation mechanisms.

Hey Brad, maybe that should be our next collaborative project (after the one I already suggested we do this summer…)? I have ideas floating around about how you organize efficient state ownership of (some) things.

RFID Tags in $20 Bills? Nah.

RFID tags are big news these days, and for good reason. But I'm fairly sure that if there were any truth to this claim that RFID tags were snuck into the new $20 bills and that the RFID Tags in New US Notes Explode When You Try to Microwave Them, I'd have heard about it. Slashdot ran the story, but I still think it's not so.

In contrast, RFID tags are going to be embedded in Euros. Which I think is supremely stupid, and an invitation to high-tech targeted mugging. Plus hiding cash under the mattress won't work if the burglars have an RFID detector. No word yet on what happens when you microwave a new-model Euro.

Brad DeLong Does Suskind & O'Neill

Notes: Suskind and O'Neill. Why read the book when you've got Brad to give you all the juiciest bits—and explain why they're juicy!

Bush Labor Dept. Explains to Employers How to Avoid Paying Overtime

You'd think the Labor department was about helping workers, at least in an election year. But not this one. The Dept. is preparing new rules which will no longer require that employers pay millions of higher-paid employees overtime; in the future, however, 1.3 million low-paid employees (paid under $22.1K per year) who are not covered by the current overtime requirement will have to get time and half if they work over 40 hours. In a combination of chutzpah and political ham-handedness, the Bush Labor department is explaining to employers how, they can evade this new rule in order to keep down their lowest-paid workers' pay packets: they could, for example, cut hourly wages, so that with the overtime the total pay remains the same.

The AP story explaining this was in the Miami Herald, but doesn't seem to have made either the NYT or the Washington Post. It contains the most bald-faced denials of reality by a press spokesman, one Ed Frank, I've seen for a long time: Despite publishing instructions on how to avoid paying workers extra for overtime, “We're not saying anybody should do any of this.” Right. We're just explaining their options to them very carefully. Let's nominate Mr. Frank for a Ron Ziegler Award. [Sadly, Tammy McCutchen can't be included among the nominees, because she's an administrator, not a press secretary. Even though she's the Labor Department's Wage and Hour Division administrator who said that making a “payroll adjustment” which lowers hourly wages but keeps the total including overtime constant, one that results “in virtually no, or only a minimal increase in labor costs,” is not a pay cut.]

In fairness, I should note that the Labor Dept. also lists raising base salary above the threshold as another way to avoid paying overtime (although for workers near the cap, this 'raise' may paradoxically reduce their total takehome when they are required to do substantial ovetime).

The Labor Department is giving employers tips on how to avoid paying overtime to some of the 1.3 million low-income workers who would become eligible under new rules expected to be finalized early this year.

The department's advice comes even as it touts the $895 million in increased wages that it says those workers would be guaranteed from the reforms.

Among the options for employers: cut workers' hourly wages and add the overtime to equal the original salary, or raise salaries to the new $22,100 annual threshold, making them ineligible.

…

A final rule, revising the 1938 Fair Labor Standards Act, is expected to be issued in March. The act defines the types of jobs that qualify workers for time-and-a-half if they work more than 40 hours a week.

Overtime pay for the 1.3 million low-income workers has been a selling tool for the Bush administration in trying to ease concerns in Congress about millions of higher-paid workers becoming ineligible.

But the Labor Department, in a summary of its plan published in March, suggests how employers can avoid paying overtime to those newly eligible low-income workers.

“Most employers affected by the proposed rule would be expected to choose the most cost-effective compensation adjustment method,” the department said. For some companies, the financial impact could be “near zero.”

Employers' options include:

• Adhering to a 40-hour workweek.

• Raising workers' salaries to a new $22,100 annual threshold, making them ineligible for overtime pay.

If employers raise a worker's salary “it means they're getting a raise — that's not a way around overtime,” Frank said. The current threshold is $8,060 per year.

• Making a “payroll adjustment” that results “in virtually no, or only a minimal increase in labor costs,” the department said. Workers' annual pay would be converted to an hourly rate and cut, with overtime added in to equal the former salary.

Essentially, employees would be working more hours for the same pay.

The department does not view the “payroll adjustment” option as a pay cut. Rather, it allows the employer to “maintain the pay at the current level” with the new overtime requirements, said the Labor Department's Wage and Hour Division administrator, Tammy McCutchen.

Labor unions criticized the employer options.

Mark Wilson, a lawyer for the Communications Workers of America who specializes in overtime issues, said the Bush administration was protecting the interests of employers at the expense of workers.

“This plan speaks volumes about the real motives of this so-called family-friendly administration,” Wilson said.

He says cutting workers' pay to avoid overtime is illegal, on the basis of a 1945 Supreme Court ruling and a 1986 memo by the Labor Department under President Reagan.

But McCutchen disagreed. If changes were made week to week to avoid overtime, they would be illegal. A one-time change is not, she said.

“We had a lot of lawyers look at this rule. We would not have put that in there if we thought it was illegal,” she said.

“Unless you have a contract, there is no legal rule … prohibiting an employer from either raising your salary or cutting your salary,” she said. “We do not anticipate employers will cut people's pay.”

Shorter George Will

Shorter George Will

Now that Clinton is safely out of office even I agree that Robert Rubin is a good economist, so if Rubin says that economic predictions can never be certain it follows that we cannot be certain that the Bush deficit is really as bad as people say, and therefore it's ok to ignore everything I said in the past about deficits and continue to support Bush and bash his deficit hawk critics, especially if they are Democrats.

Dollar vs. Euro Suggests Bush Economic Plan Fails Basic Market Test

Once again justifying the Economist's Big Mac Index, which had been saying the dollar was overvalued, the dollar has been crashing against the Euro. This is particularly noteworthy as the Euro-area is not itself in the most wonderful economic shape. Which means that the currency traders think we're in even worse shape (click the imgage for details of the slide over the last 30 days). Lovely.

Update on Digby Jones Quote

I’ve had an emailed reply from the efficient, and no doubt quite busy, CBI press office to my query asking for confirmation that Director General Digby Jones had said what the Evening Standard quoted. In my query I asked for the text of Digby Jones’s speech. Here’s the reply:

There is no speech this came from an interview with the Evening Standard - Digby Jones is speaking today though, at 12.30

The speech and press release will be on the website later.

And it is, but it's about the EU.

Are They That Stupid? Someone Is, And It's Bad News

Brad DeLong expresses doubt as to whether (as I noted earlier that the Evening Standard had reported) even the Bush administration could be quite dumb enough to be strong-arming US defense firms in hopes of getting them to close up shop abroad and bring jobs to the US:

I do not believe this. I cannot believe this. Incompetent, short-sighted, ungrateful, and mendacious as we all know the George W. Bush administration to be, even they wouldn't do something as stupid and counterproductive as this.

Would they?

I understand Brad's reluctance. Like him, I don't want to think that our leaders can be that dumb. And the Evening Standard is not the gold standard for reporting.

Trouble is, it's not that easy to figure out exactly whether the Director-General of the Confederation of British Industry Mr. Digby Jones actually said what was reported in the Evening Standard. The text of the speech doesn't seem to be online. I've e-mailed the Confederation of British Industry in the hopes they will send it to me.

In the mean time, we have to make do with the newspapers. The usually reliable Financial Times more or less echoes the Evening Standard. A Scottish paper suggests this isn't about private strong-arming so much as the “Buy America” campaign. And the Daily Telegraph says that the pressure came from Congresspeople — some of whom unquestionably are this stupid — and not from the White House. And, indeed, if you look at what the FT and ES actually say, they don't finger the Bush administration as such — just give the strong impression the Administration is the source of the pressure from the context, which is about Bush's visit.

But even if the pressure came from Bush's allies in Congress, instead of directly from the administration, this isn't good.

Start with the Financial Times, which is highly reliable. In Testing time for very special friends, the FT reports the various and growing US-UK tensions over Guantanamo and over economic relations, and then notes that,

there is deep suspicion in business circles these days of the extent to which the US is actually on the UK's side, a suspicion accentuated by the imposition of hefty protectionist tariffs on European steel imports.

The suspicion was all too evident yesterday at the annual conference of the CBI, the employers' body, where Digby Jones, director-general, made plain to delegates in Birmingham his concerns about the US.

“Three chief executives of American companies investing in Britain have told me to my face that they have been told to close down, bring their stuff home and make it in the US,” said Mr Jones. “Whether flouting international law with their steel tariffs or telling their companies to come home, this bullying affects Britain and British jobs. We are America's biggest trading partner but if this escalates it hits us worst because we are such a big player in the world market.”

The Herald, a Scottish newspaper, suggests the context for the quoted remark is the US's 'Buy America' campaign. (Update: As far as I know, while there are existing “Buy American” laws on the books, the attempt to toughen them in the 2004 Defense Authorization Act did not succeed. )

That's also the Daily Telegraph's line, with the added bit that the pressure came from Congress rather than the White House:

Mr Jones also said he knew of two US companies - one defence rated and one manufacturer - which were being pressured by US congressmen to move their UK operations to America.

He added that a third company from the defence sector had told him that one of its American clients had been told by the US Government to buy its goods from an American rival and it would refund the difference.

Mr Jones said he had urged Mr Blair to raise the “buy America” campaign with Mr Bush. He said: “This goes to jobs of ordinary skilled people in Britain. This will cause unemployment in Britain and this is from our best friend.”

So there seem to be two versions of this story, one awful, one just bad.

If the administration is behind this pressure, it's awful. But even if it's just Republican congressmen, it's bad. For whether this pressure comes directly from Bush or just from his domestic political allies who he apparently cannot control, just think about the message this story sends the world: If there is one government that supported Bush and gave him essential political cover over Iraq, it was Tony Blair's Britain. And this is what they get in return?

Imagine the effect on countries trying to decide whether to cooperate with us in the future.

Bush Employment Plan Revealed: Start a Trade War

US firms told 'take UK jobs home': Turns out that the Bush folks do have a plan to increase US employment, one whose stupidity boggles the mind: blackmail defense contractors into closing plants in allied countries and repatriating the jobs. The idiocy of this thuggish idea exceeds even that of the incredibly stupid and obviously illegal steel tariff.

Ok, the Evening Standard is not the New York Times, but it is London's major evening paper, and it's hard to believe they would get this wrong:

US-based multinationals have been told they will receive compensation from American trade authorities if they cancel contracts in Britain and take jobs home, according to CBI director-general Digby Jones.

…

Speaking at the CBI's annual conference in Birmingham, Jones said: 'Three chief executives of American companies investing in Britain have told me to my face that they have been told to close down, bring their stuff home and make it in the US.'

He said the companies were major employers in defence or manufacturing.

Jones continued: 'Whether flouting international law with their steel tariffs or telling their companies to come home, this bullying affects Britain and British jobs.

(Spotted by the sideshow.)

Well, that ought to make for fun discussions with Tony Blair, don't you think? And for a good show at the next Question Time…

Employment Numbers Demystified

It's good that a little bit of the defict-pumping tax cut is trickling down to working people. What's surprising is not that employment is up, but how little. What's even more surprising is how ineptly the numbers are being reported in the newspapers.

Comes now MaxSpeak to draw a picture and set us all straight. “OH PROMISE ME …” has a nice simple picture we can all understand, comparing the jobs the Administration promised its economic plans would create to the jobs actually produced. Worth more than a thousand words, easy.

Reproduced with permission from Max Sawicky.

A Catholic Law and Economics Argument for Respecting Picket Lies

You don't see stuff like this every day: Stephen Bainbridge's The LA Strikes and the Economic Analysis of Unions uses a prolix merger of Catholic Worker Social Teaching and Law Economics to explain why he doesn't cross picket lines.

$87,000,000,000.00

George W. Bush wants $87,000,000,000.00 of extra deficit-funded spending for his wars (of which, amazingly, more than 10% is for a slush fund primarily designed to bribe other goverments into sending troops and acting supportive).

Here's a web site that tries to help you visualize just how much money $87,000,000,000.00 really is. It's effective.

Brad DeLong Channels Plato, Marx, Pirandello, Stoppard, D-Squared and Leo Strauss All At Once

It probably helps to have a little background in microeconomics, literary theory and political philosophy to appreciate the full playfulserious subversive brilliance of Brad DeLong’s A Non-Socratic Dialogue on Social Welfare Functions, but even if you don’t have that background you will enjoy it. If you do have such a background, don’t read it while drinking coffee or there’s a serious risk to your keyboard.

What makes this entry particularly brilliant is not just the self-deprecating manner in which it clubs you over the head with its intelligence, but the hidden subversive message aimed at great philosophers of past, present, and future ages.

Answer key:

Plato - obvious from the cast
Marx - obvious from the text
Pirandello - well, it's only two characters in search of an author, but it's short
Stoppard - Think 'Rosencrantz and Guildenstern Are Dead'
D-Squared - look here for more twisted economic theory edginess; alas there's less of it here
Leo Strauss: If I explained that one I'd have to kill you. But look very very carefully at the last few lines of Brad's essay.

Slashdot: "How Were You Fired?"

Slashdot is running a discussion entitled How Were You Fired? It's full of personal stories, some with happy endings, many of them horrible, some totally disgusting, others compelling.

Yet another reason to be really, truly, grateful for tenure.

Someone somewhere, must write manuals about How To Fire Employees, and those manuals must be full of stuff about turning off computer IDs, escorting people of the premises under guard as if they were felons, and not letting them have their personal possessions from their desks.

I know, from talking to victims in places I've worked after they were RIF'd, that these things happen even in work environments where they are utterly unnecessary. It can only be due to mindless automatons in Human Resources reading from a one-size-fits-all playbook.

Iraq

I've added three items to the left column:

• A link to the military casualty count maintained by lunaville.org based on this methodology;
• [Update: Just a link to, see comments for details] A chart of civilian casualties provided by iraqbodycount.org based on this methodology;
• A dollar estimate of the cost of the war to the US from costofwar.com based on this methodology;

I have not personally checked these numbers, but they all look as if they are serious attempts to provide meaningful estimates [and in the case of the military data, a simple tally] of very gloomy data sets.

The Senate Starts To Grow A Spine

“Up to now, it's been like Dodge City before the marshals showed up.”

— Senator Ron Wyden (D-Or.) speaking of the Administration's contracting practices in Iraq as the Senate voted to require open bidding on Iraq-related contracts.

Of course it's just a small growth of spine, as Iraq is just a small part of the picture. What worries me is that the entire approach to the Treasury, the budget, the tax code, has been too much like barbarians sacking a wealthy city…

Hedging the Dollar

Brad DeLong, who I've known since grade school and who writes a wonderful semi-daily journal, does not hedge as he puts into words something I've been wondering about for a couple of weeks: "why foreign exchange traders, gibbering in terror as they look at the U.S. trade deficit, haven't dumped the dollar, pushing it down in value". My answer to that question might lean a bit more on the traders' belief that the Euro isn't yet a reliable reserve currency -- maybe there's a shortage of perfect substitutes for the dollar. But if that's right, it also follows that it should be a major objective of US fiscal policy to ensure that the dollar remains more attractive than the Euro. Even a partial switch to the Euro would be a catastrophic event (in both senses of the word). The Bush administration's complacency on this issue appears to have one or more of these three causes: lack of imagination, lack of intelligence (that seems to be Brad's guess), or the completely mendacious short-termism more commonly associated with barbarians looting the city.

But enough theory. Suppose I believe that the dollar is over (or under) valued. Short of buying foreign currency at ruinous bank rates, which then would require an account to hold them, or buying short term currency futures which expire too fast, what sort of foreign-currency-denominated asset is there that I can acquire on reasonable terms (small lots, low transactions costs)? Who markets currency hedges to households? Any single foreign stock or bond is too risky, if only because I am too ignorant to pick one. And the so-called foreign-currency bond funds on offer that invest in the major stable currencies (as opposed to emerging market funds) seem, when you look at them carefully, to hold amazing amounts of US government bonds. Many of them are also set up in ways that appear designed to allow speculation on medium- to long-term interest rate differentials rather than currency rates -- you buy a dollar's worth of the fund, and the price stays fixed, with returns fluctuating over time primarily as a result of changes in interest rates. Is there a market opportunty here, or is it already filled?