iCount

A modern-day Polaroid camera? Really? Is there really a market for digital cameras with built-in color printers? I predict a flop. Which, based on my track record, means that it will probably become all the rage…

by tgirsch on January 08, 2009 04:31 PM

A link to the possible bailout of another major industry?

by rdan (noreply@blogger.com) on January 08, 2009 11:27 AM

from Aguanomics



Fixing Monopolistic Utilities



[This is an important post. Please read the bit after my comment and please do respond/critique in the comments.]



Angrybear has a post on the TVA fuckup (a retaining wall collapsed, letting loose a huge flood of flyash -- the stuff left after burning coal -- that buried houses, killed people AND left a huge environmental mess).



I left this comment:



TVA, like most utilities (public and private), has low incentives to maintain capital stock. Spending leads to hearings over rate increases, lowers cash flow that bond buyers like to see (as noted), and reduces "performance"-related bonuses.



Ex-post clean up and rate increases are always easier to justify (they MUST occur), and they are counted as special items -- accidents that are not the CEO's fault.



The most important factor is that TVA, like other monopolistic utilities, will not go out of business for making such a stupid move (compare that to how asbestos companies got treated).



I am betting that TVA will also get gov't aid since it, like Fannie Mae, has a "privatize profits, socialize losses" incentive structure.



The only One way to prevent a future occurrence is to put people in jail since fines would be paid by rateholders anyway. The problem with that is that future execs -- everywhere -- would gold-plate everything [i.e., build capital stock to such a high (and expensive) standard that nothing would ever fail].



Another way to do that is to prohibit self-insurance against environmental damage. Instead have independent companies insure against risk, which will mean that they will also monitor the monopoly. (Insurance against water shortages would make it more likely that water rates would stay in the "right" range. Hmmm..)



So that last comment got me to thinking.



The problem with monopolies is that they don't face competition. On way to make them compete is by rewarding/punishing those that preform better/worse than a benchmark.



Another way is to chip away at the monopoly by subjecting "business lines" to competition (as the USPS was forced to do with packages and water utilities are involuntarily experiencing with bottled water).



A third way would force the monopoly to purchase from a competitive market at prices that would fall if they were well-run and rise if their operations were shoddy (e.g., TVA). So my new idea is this: Require that water monopolies (private and public) purchase insurance against outages, shortages, toxic spills, etc. Such a requirement would produce two good results:



1. Current practices would immediately improve with oversight -- solving the free-rider/coordination problem (in principal-agent jargon) of monitoring utilities.

2. Insurance companies would pay for future problems, which reduces the problem with ex-post rate increases to fix them.



Current water rates would rise, but future rates would not spike, so rates would be actuarially identical over the long run.



Bottom Line: Sometimes we must have monopolies; that doesn't mean they should be badly-run.



Addendum: Kevin Dick had a great idea (use prediction markets) in the comments. I had assumed that monopolies' insurance rates would be made public, but prediction markets would allow outsiders to bet if the rates were right or wrong. SUPER!



Addendum 2: It would cost $1-5 billion/year to bring coal waste sites (ponds and landfills) up to EPA specs. That's disaster (or profit!) waiting to happen.

by rdan (noreply@blogger.com) on January 08, 2009 10:00 AM

by cactus



A Look at What the Next President's Chief Economic Advisor Wrote About Tax Policy



Since Christina Romer is gonna be Obama's Chair of the Council of Economic Advisors, its worth revisiting her work. Now, I'm not an academic, so I don't read all that many papers. But I remember reading the March 2007 Romer and Romer paper as it made quite a spash at the time. (There's a Nov 2008 update of the paper up now, but a quick skim indicates it doesn't seem to address the problem I have with the paper which I'll be getting to in a moment.)



The paper finds that at least some tax increases are highly contractionary. Now, when I read a paper with an empirical component, I pay extra attention to the data used in the analysis. Especially if the results contradict my intuition, and even more so if the results don't match what I myself have found. Sometimes, I learn I was wrong. Sometimes I learn I wasn't. Either way, looking at the data teaches me something important.



Now, I hesitate to criticize, because Romer and Romer are very accomplished individuals, and I am, quite frankly, a nobody who has gotten into a lot of trouble a few times for questioning my betters. But sometimes my curiosity gets the better of me, and in this instance, the first sign of trouble, to me, is the fact that the paper doesn't actually provide the data - instead, it makes reference to a narrative record. And this graph (insert figure please!) has a few data points that just don't match my recollection. If you want to play along at home, I suggest you start with the most recent change in the figure. Anyone remember the great tax hike of 2005? In the graph, it is bigger than the tax increase in 1993 which most of us do remember, and its a lot more recent, so it should be right there, in the forefront of your brain, right? Well, to be honest, I don't remember the great tax hike of 2005 either.



So its off to see the wizard narrative record which hopefully will clear up the mystery of the great tax hike of 2005. And Christina Romer's website at Berkeley does have a November 2008 version of the "narrative record" up, so I took me a gander. It seems a large part of the effect of a law, according to this narrative record, is what the President and the Congress told us it would be around the time the law was passed or the policy was implemented. Well, I got news for the Romers - by that standard, the national debt has been plummeting since GW took office. And as I recall, the magic of the Laffer curve was supposed to make Reagan look fiscally responsible too.







But back to the great tax hike of 2005. 2005Q1 seems to be, according to Romer and Romer, an effect of the 2003 Jobs and Growth Tax Relief Reconciliation Act of 2003. And while they assign that act a big reduction in liabilities in 2003 (i.e., a tax cut), they assign it an increase in liabilities in 2005. (i.e., A tax hike. Read the thing yourself - its on page 88.) With all due respect, this, to me, is gobbledygook. One can assign all sorts of things to all sorts of things, but here's the way I would approach 2005: there were no changes to the marginal income tax rates or the capital gains rates between 2003 and the present, so there were no marginal tax rate changes in 2005. I believe the estate tax fell a bit as a result of the earlier in the decade GW Hearts Paris Hilton and Himself Act of 2001... and will continue falling until it hits zero in 2010. But as far as I know, the only "major" new piece of legislation to hit in 2005 was the "American Jobs Creation Act of 2004." That was a tax cut, pure and simple - the more closely the title of a law hews to "Mom and Apple Pie" the less taxes someone is gonna be paying and faster debt is gonna pile up on future generations' tab.



Going back a bit further, the narrative points to a tax hike in 1982. Big sucker too! (Check out the graph again.) Once again, the Romer and Romer narrative doesn't fit with how I remember things. I remember the bottom marginal income tax rate dropping from 14% to 12% from 81 to 82, and again to 11% in 83. As I remember things, the top marginal rate going from 69% in 81 to 50% in 82, and the top cap gains tax dropping from 35.6% to 27.3% to 27% from 81 to 82 to 83. In terms of GDP, tax collections also fell substantially, going from 19.6% in 1981 to 19.1% in 1982 to 17.5% in 1983 and even a smidge further down in 1984.



Now, Romer and Romer go on to tell us a lot about this tax increase (E.g., "The motivation for this tax increase was deficit reduction and fairness. The fiscal action was clearly not taken because policymakers felt the economy was overheating.") but to me it reads like so much verisimilitude. Whether there were bones thrown to the concept of fiscal responsibility, and regardless of whatever our esteemed leaders were peddling when they sold this thing to the public, the simple fact of the matter remains: 1982 and 1983 were tax cut years. Romer and Romer can tell me taxes were hiked all they want, but I'm also free to go around saying the Loch Ness Monster was stealing lollipops from children in Central Park at the time. The fact is, nobody remembers either episode because neither one happened. (And to forestall one line of BS I expect to otherwise see in comments: reducing an anticipated tax cut of X% to Y%, where Y = X - epsilon, does not make for a tax hike.)



Anyway, I can go on, but I think its obvious that either I've completely misread these two papers, or there's something seriously wrong with the data that went the work. I would also add that with the "right" data I can prove the earth is flat, not to mention that the Loch Ness Monster has a thing for lollipops. Furthermore, Christina Romer will be advising the next President (preview: tax cuts are the shiznit) so let's hope we can chalk this up to a major misunderstanding on my part. But I'm kinda worried the problem isn't that I'm displaying some latent feeble-mindedness - Greg Mankiw thinks Christina Romer is "an excellent choice."

__________________________________

by cactus

by rdan (noreply@blogger.com) on January 08, 2009 06:22 AM

Guns and their uses are a perennial controversy in the United States. Gun rights advocates do have some serious arguments on their side, among them the moral right of self-defense, and the overall record of reliability and restraint established by legal gun owners.

These issues come to the fore during any prominent incident involving the use of guns in self-defense. And on these occasions, gun rights advocates invariably rush to bolster their case for the responsible and judicious use of guns by acting like belligerent assholes.* Apparently, the feeling in the gun community is that maturity, responsibility, judgment, and caution are fine for the few prominent teachers and activists who represent gun issues in public, but they aren’t expected to be taken seriously by the immature, insecure, easily provoked, childishly-excited-by-violence, spoiling-for-a-thrill, self-righteously judgmental, and more than rarely more than a little racist yahoos who make up the rank and file. Or at least that’s what I have to think, because that’s the way the community chooses to behave, almost any time any incident involving guns is in the news.

What prompts this observation is an incident from June of last year, in Louisville, KY, which I have seen mentioned twice in just the past week on gun-related Web sites.

An elderly man was working on a rental property he owns in what I gather is the rough section of town. He had collected rents that day and had a large amount of cash on him. Two 19-year-old, masked, black men from the neighborhood, possibly tipped off about his cash holdings, shoved their way through the door; one was carrying a TEC-9 - a cheap, shoddy, high-capacity, high-rate-of-fire weapon beloved of street criminals, formerly banned by the defunct Assault Weapons Ban to the great dismay of responsible legal gun owners who can’t think of any reason everybody shouldn’t have one of these . . . but I digress - and shoved it into the owner’s face, demanding his wallet and shouting “You’re gonna die!”. The man faked a heart attack, doubled over, pulled his own concealed weapon, and shot the gun holder once, then his unarmed companion once, then the gun holder again, then the unarmed man again, and then loosed off 7 more rounds at the first guy after he dropped the gun and ran out the door. Both robbers died, one on the spot and the other at the hospital. Police ruled the shooting a case of self-defense and no charges were filed.

So far, so good. Based on the news reports, I have no objection to this act of seemingly justifiable self-defense. (I don’t even criticize his shooting the unarmed robber, or the disarmed robber as he fled. At the time, he couldn’t be sure the second man was unarmed or wouldn’t otherwise attack him, and he stated that he thought the first man was still armed after fleeing and would try to shoot back through the doorway, so he kept shooting in reasonable fear of a continuing threat to his life - which I can believe.) The shooter called the police, cooperated with the investigation, and was exonerated. Even more than that, based on a TV interview he did shortly thereafter, it is obvious that the shooter in this incident is a decent, restrained, gentle man. He speaks with a great sense of responsibility, unapologetically but with sorrow. He asserts his justification for his actions, but regrets the outcome and sympathizes with the dead and their families. To all appearances, he did rightly, and behaved bravely, with great presence of mind, and yet with dignity and humility afterwards.

If this guy represented what it means to carry a concealed weapon and take responsibility for its use, probably everyone would think that was a reasonable policy, and that he reflected well on both the gun-rights advocacy community and the community of law-respecting citizens in general. And in both the cases I have seen this incident mentioned, it has been touted as just that by the advocates and activists who seek to promote gun use to the public. But just as soon as one or a few voices speak up about appropriate gun use and the responsibilities of gun owners to public safety, a dozen ugly creeps chime in with their braying, tough-guy posturing and triumphal gloating over what any decent person would regard as a tragedy, whether or not justified.

One of the blogs I mentioned linked to just a two-minute news report on this story, shot before the police investigation was even completed. Based on virtually no information whatsoever, here are some representative comments from that post:

We should try to stay on top of stories like this to make sure the cops return the gun they claimed for testing.

And the brass. I figure the bullets were discarded, though.

---

Amen, and good riddance. . . . Your life became forfeit the instant you threatened to take an innocent person’s.. . . [A] cause for remorse is the lamentable damage incurred on Mr. Jackson’s property. The report sounds like their weren’t any bullet holes from stray shots, but blood stains are a royal pain to get out.

All in all, another couple of violent thugs bought the farm thanks to a law-abiding citizen who was ready, willing, and able to protect what was dear to him. I say that’s a good outcome to this event.

---

Why did he put the EMPTY gun on the mantle? In my opinion, he needed to reload it and keep it on his person.

---

I’m from the Louisville area, and I can tell you that if your skin is a shade lighter than the asphalt, you are not welcome west of 9th street. . . .

---

Good riddance to bad rubbish. I’m glad the old guy took these two pieces of shit out.I am so tired of hearing about innocent people being threatened, robbed and killed by punks that think the world owes them something. . . .

As for the two crooks, thank God we don’t have to support them for the rest of their miserable lives while they bounce in and out of prison every 10 years or so. . . .

---

. . . glad these rodents never will do anything like it ever again. . .

---

. . . One of the pieces of filth hit him in the head when he thought he was clutching his chest with a heart attack. There was no compassion in either of these thugs.. . . As a friend of mine in this area (an NRA Certified Firearms Instructor) advises, “Never say you’re glad the SOB is dead” because the thugs’ family might sue based on your expressed prejudice. I’d say he said the right thing. Since, however, I didn’t shoot them I can express my opinion that I’m glad they’re dead because otherwise they would have killed someone else eventually.

And here is my response, re-posted here because I somehow suspect it won’t make it out of moderation over there:

I find a lot of these comments distasteful and ugly. On the basis of the few facts reported, you can certainly be sympathetic to the shooter in this case, and you can certainly approve of the use of arms in self-defense as a general right. But, even assuming the guilt of the dead parties here, it goes far beyond self-defense to gloat over their being killed.

Two teenagers were shot to death - likely with justification - by a desperate and frightened elderly man who himself could have been killed. Your reaction? You want the brass back. You’re sorry . . . for the damage to the hall rug.

Very funny. You certainly give the gun community a good name. The important thing, of course, is not to understand or accept the reasons for violent action in the last extreme, but to have something funny to say over a black kid’s dead body. I guess they really “made his day”, didn’t they? I guess those punks don’t “feel lucky” now, do they? Anybody who tries that again is going to “Die Harder, With a Vengeance”. Keep it up . . . it’s hilarious, and so civilized.

So is your eagerness to stereotype two young, dead people on the basis of one bad act. They’re not just criminals, not even just violent criminals . . . for some reason that’s not enough for you. On the basis of a two-minute TV news story, broadcast before the investigation was even over, you’ve decided that these two “forfeited their lives”, are undeserving of remorse or pity, are “bad rubbish”, “pieces of shit”, “rodents”, and “filth”, that their deaths are a “good outcome” and a “good riddance”.

You also know with a certainty that they would otherwise have killed someone else, and that they would have repeatedly gone to prison. You can also read minds: you know that these “punks” were motivated by the fact that the man’s skin was “a shade lighter than asphalt”, that they “think the world owes them something”, and that they both completely lacked all compassion (including the unarmed one who, apparently, never said or did anything except tag along). Apparently you have absolute knowledge that no criminal ever reforms, that no 19-year-old punks ever straighten out, that every armed robber is a killer in waiting (or . . . is it just the ones whose skins are closer in color to asphalt?).

But, even armed with all this amazing insight, you’re worried that a shooter could be charged with “prejudice” - I can’t imagine why.

It’s a commonplace among advocates of armed self-defense that those who adopt that stance take on a great responsibility, and can be relied on to exercise it with wisdom. Luckily, most do. The shooter in this case acted decisively, yet shows great compassion and humility after the fact. But he is cheered on by the likes of the commenters on this thread - childish, bloodthirsty, remorseless (by your own gloating description), laughing at a deadly tragedy, freely stereotyping total strangers in the most vicious and prejudiced ways, celebrating a fatal shooting.

Some of you at least are concealed carriers. What you tell the world is that these are the attitudes you carry along with your guns - these are the beliefs and expectations that will guide you if you face a decision whether to shoot. If every gun owner were of the mindset of the man in this incident, I suspect many people would feel secure and reassured. But - judging by the comments in this thread (and the many others just like it on any gun blog) - the large majority would seem to be nasty, coldhearted, eager to prove their righteousness or just feel the thrill of shooting another person to death, and more than subtly bigoted in their choice of targets.

Am I wrong? Perhaps. But your behavior demonstrates, if anything, the opposite. The only way to feel at all reassured about the gun community is to hope and assume that most of its members don’t really mean what they say - that their childish posturing is just that; that they aren’t reckless enough or at least don’t have the nerve to be as quick on the draw as they pretend; that the apparent vast imbalance between mature and serious advocates of responsible gun ownership and belligerent paranoids with a chip on their shoulder is somehow just a (repeated, consistent, and pervasive) coincidence. And maybe that’s all true, but there’s no reason to think so, given the way gun advocates choose to present themselves and their own moral decisionmaking in almost any public forum.

Well done, all. You’re a credit to your kind.

The amount of intemperate, even deranged, rhetoric that seeps out of the gun community at the merest hint, or less than hint, of a controversy is truly staggering. (And I haven’t even touched on the responses you get to the issue of gun control, even within the gun community itself.) I think we’re entitled to ask how responsible, how reliable, how restrained, how cautious these people’s judgment and behavior will be, if ever tested, when their language and declared intentions and beliefs are so volatile and immature. Even given an example of a commendable gravitas and humility in the awesome act of taking another person’s life - an example on the part of a man they claim to respect and support - they can do nothing but compete with one another to offer the most gleefully obnoxious and flippant dismissal of the deceased’s humanity, grounded on almost complete ignorance of the facts. These are the people who claim the right to make that same awesome decision someday, faced by some other person whose humanity they feel entitled to mock and dismiss.

The blog that linked this story is actually a generally interesting, even-tempered, and thoughtful one. The guy who runs it seems like a decent chap, and engages in only a minimum of the otherwise traditional paranoid ranting you find on gun blogs. But right on the same page as this post about the Kentucky incident, the immediately previous post describes the writer being scared away from his local firing range by “reprobates” (his word) shooting randomly into the forest with other shooters downrange, and linked to news stories on the dangers of firing guns into the air to celebrate holidays. Further down is a post pleading with gun store clerks not to openly insult his students for refering to a revolver as a “pistol” (and noting that the term is historically accurate anyway). Another self-defense post profiles a woman in California who beat off an attacker by stabbing him with scissors; for some reason he describes her as a “most unlikely” warrior, and, naturally, the comments thread was filled with insulting remarks about “liberals”, people from Berkeley, and how the the woman who successfully defended herself was not observant or “tactical” enough, and should have shot the man instead. On the sidebar is a link to the NRA Blacklist. (Yes - unsurprisingly, they have an official blacklist. Somewhat surprisingly, they call it by that name. Among its targets: NOW, B’nai Brith, the YWCA, the Anti-Defamation League, the American Academy of Pediatrics and at least two dozen other health-related organizations, Maya Angelou, Tony Bennett, Art Garfunkel, Coretta Scott King, Dweezil Zappa, Jimmy Carter, Ed Koch, Ben & Jerry’s . . . and a host of other individual and organizational threats to America. It’s like they went out of their way to find either the most harmless, or the most beloved, people in the country and declare war on them all. Because tolerance and a sense of reasoned proportionality are watchwords of the NRA.) In other words, even the most reasonable discussion of guns is pervaded with obnoxious assholes, to the point that the gun advocates themselves have to plead with their fellows not to be insulting to potential customers and allies, and to remember basic safety rules like . . . not firing guns randomly into the air. Open stereotyping, condescending prejudice, and official enemies lists are just par for the course.

More and more it seems to me that the worst thing wrong with the pro-gun position is its advocates. There are actually decent arguments to be made in favor of some reasonable form of gun rights - it’s just that the people making them all seem to be about a heartbeat away from making a bad impression at any given moment. They can’t keep from savaging each other over trivial points of disagreement. When any practical instance of gun use rises to prominence, they fall over themselves, slavering with gleeful bloodlust, macho posturing, and racist and/or anti-government antagonism. The most prominent gun-rights organization (which most anti-gun people would be shocked to learn is regarded as traitorously weak by the real gun nuts) maintains an official “blacklist” that includes Dweezil Zappa and an ice cream company. The entire gun community would be a massive self-parody except that they really mean it all. And it’s not me saying this - these are their words, their behavior. Every time I think there is some sense to pro-gun politics, I am brought up short by pro-gun people.

* I am fully aware, and it has been proven on this blog several times in the past, that this accusation will immediately engender dozens of viciously angry rebuttals from gun owners acting like belligerent assholes. Allow me to admit in advance that I stand corrected by the undeniable force of your counter-examples.

UPDATE: Xavier, the blogger I linked to, did post my comments, quoted above, on his blog. I credit him with being open enough to do so. The follow-up remarks, of course, were just what you’d expect.

by KTK on January 07, 2009 11:59 PM

Tom Bozzo



Via TrafficWorld:

According to the House Transportation and Infrastructure Committee, 50 percent of funds provided to states will be required to be obligated within 90 days.



Within 180 days of enactment, states must submit a program of projects outlining how the remaining 50 percent of the projects will be obligated within one year of enactment, according to the committee's proposal.

On the face of it, this looks good for projects that are in advanced stages of planning but not quite spade-ready — which may answer how to quickly obligate big bucks (by U.S. standards) for transit, passenger rail, and other projects more complicated than road repairs. It also suggests that the $85 billion amount being floated is an amount to be obligated in one calendar year rather than two (or the next one-and-a-half fiscal years).



Meanwhile, John Boehner rounded up his merry band of economists against the stimulus. When the #2 commenter on the (rather low-wattage*) list of skeptics is Donald Luskin, you're in trouble.



----------------------------



* And as a low-wattage economist myself, I use the term advisedly.

by Tom Bozzo (noreply@blogger.com) on January 07, 2009 09:36 PM

by Bruce Webb

What does it take? A stake through the heart? A bullet through the brain? Baker and Krugman do some pushback.

Dean Baker in his post The Post's Jihad against Social Security points to this article Obama Predicts Years of Deficits over $1 trillion and notes that they don't hesitate to single out the usual suspect. Is it the cost of the war? The cost of the bailout? The cost of the stimulus package? Nope apparently those are just short term problems. Instead as always the first stop for deficit reform is Social Security.

WaPo: The mounting debt has raised an alarm on Capitol Hill, where some Republicans and moderate Democrats are pressing Obama to tackle the looming challenge of skyrocketing Medicare and Social Security spending, and to adopt tough new budget rules to prevent future deficits from ballooning.

Which leads Dean to reply with some exasperation:

The article includes a comment about "the looming challenge of skyrocketing Medicare and Social Security spending. " Of course Social Security spending is not projected to skyrocket. It is projected to increase gradually, and its costs are fully covered by its own tax stream until 2048, according to the Congressional Budget Office's latest projections.

In a related note Paul Krugman poses the question in a Jan 5 post A Bullet Dodged

What would have happened if George W. Bush had actually succeeded in his plan to privatize Social Security?

and suggests an answer 'Ask the Italians' Bloomberg News: Italian Pensions Sapped by Private Funds Bush Backed



In my view it is practically criminal for policy makers to be wasting a second talking about Social Security given the very real possiblity we are headed for a new Great Depression. And so equally criminal for opinion makers to be twisting current events to pursue this old vendetta. It is a shame that people like Baker and Krugman still have to keep a vigilant eye out for the zombies intent on eating the flesh of Social Security. Maybe we can make a deal. If the Right will simply stop taking every possible opportunity to take a bite at Social Security then I promise to shut up. And then maybe we can let Krugman and Baker continue the really important discussion.



"Social Security 'reformers'! Report back to your graves!"

by Bruce Webb (noreply@blogger.com) on January 07, 2009 09:15 PM

And the only prescription is more ukulele!

It’s obvious that even though they goof off a lot, these people are really good. Also, I defy you to watch this video the whole way through and not have the song stuck in your head for at least two days.

H/T: Gary Farber

by tgirsch on January 07, 2009 04:04 AM

Gail the Actuary on the OilDrum presents a thoughtful, well-organized piece on economic prospects for 2009. She outlines levels of debt resting on actual income. The economic outlook is not rosy. Below is her opening figure:









She points out that

It is only when the system is under stress, and shortfalls in income of the ordinary citizen start shaking the system, that these connections becomes clearer.

She notes that there are "many feedback loops" in the tower.

When things are very good, the feedback loops tend to make things look very, very good (higher wages-> higher spending -> profitable businesses -> more hiring -> rising home prices -> less need for government programs). These same feedback loops work the opposite direction when things are bad (layoffs, for example), making a bad economic scenario truly terrible. The huge tower is also expensive to maintain, and takes resources from productive uses, like building infrastructure and new factories. As more and more layers are added to the tower (like TARP), the tower becomes more and more unstable, and more and more likely to have big reactions to small events.

To drive her point home, she presents the following graph:









I would add one graph of my own:









Unless root causes, not symptoms, are addressed, then there is little hope that the future will be very bright. We move blindly from one crisis to another, trying to staunch the latest wound with another expensive band-aid.

We have become incapable of holding more than one idea at a time.

Does the lobby wheel cater only to special interests that have led us into the health care morass and other disasters as well? Will the vulture-lobbyists-politicians be there to guide the latest stimulus package? You betcha. But forget about them. We need the stimulus package.

Have banks refused to loosen up credit after being given loads of money? You betcha. But forget about them. We failed there. Let's try something else. Bring on the latest stimulus package.

Is our trade deficit and current account balance dangerous? You betcha. Forget about that. We need the stimulus package. Besides, only a handful of economists--Peter Morici among others--have complained. We should be glad we are getting cheap goods. Well, to keep its export machine going, Asia will certainly do its best to make that export machine alive. Goods will be even cheaper. Deflation is on the prowl.

Are the massive and dangerous trade imbalances a result Asian currency manipulation, export tax rebates, cheap labor--and a flood of FDI into these countries trying to cash in on the export machine to the U.S. You betcha. But forget about all that. Get the stimulus package going. We can't let their export machines collapse. Globalization, as structured, needs to be rescued.

Always the latest crisis; always the latest short-term solution. Is there any vision? Hardly. We are watching a parade of the thoughtless, the foolish, and the dangerous.

I am reminded of Eugène Ionesco's Rhinoceros where crowds of people morph into dangerous, thoughtless rhinos, blindly following each other in one rampage after another.

And where were the economists, even those we most admire?

With Nouriel Roubini at the academic helm, a year ago the World Economic Forum issued its 2008 Financial Development Report. Guess what? The U.S. was rated number 1 in financial sophistication and maturity.

Talk about squaring the circle! The link to this report has been put on this site a number of times. (I did once or twice; Movie Guy did once.) You can lead a rhino to water....

One year later, we are on the verge of the next Great Depression, so says Krugman...and I agree. Did the economists for that Financial Development report take a vote, after polling numerous well-heeled CEO's and fellow economists? Damned if I know.

But consider all the glowing predictions and all the glowing congratulations that have been made and offered in the past six years. The world is on the path to a new millennium, the hey-day of free trade as orchestrated by the WTO and the globalization zealots, who cared not a whit that global imbalances were growing ever more precarious. It will all right itself in the end, they said. Just keep the party going.

Gail sets her grim picture against resource depletion as world population increases. I depair of even thinking about that problem, along with that nameless other (global warming. Forget I even mentioned it.)

by Stormy (noreply@blogger.com) on January 06, 2009 08:54 PM

by Tom Bozzo



Live from San Francisco: The iTunes store is going DRM-free. (The record labels get variable pricing.) Good riddance.

by Tom Bozzo (noreply@blogger.com) on January 06, 2009 06:38 PM

Last night, I used the phrase “strewn about,” and it got me to wondering: WTF is the present tense of “strewn?” Strew? As it turns out, it is: To strew. But nobody ever uses it in any form other than “strewn,” at least not that I’ve ever heard.

And that got me to wondering: Are there any other verbs that are commonly used, but only in a past-tense or other non-root form?

by tgirsch on January 06, 2009 03:25 PM

Several recent events have been described as "just symbolism," which apparently is a method of dismissing uncomfortable statements of fact, such as 'Sarah Palin is the nominee for Vice President' or 'Rick Warren will give the invocation at Barack Obama's inauguration.' Apparently, these moments are supposed to have a lifespan closer to that of Britney Spears's first marriage than, say, Britney Spears' [sic] Guide to Semiconductor Physics.*



Ladies and Gentlemen, I give you Symbolism Writ Large, in a manner to shame Christo himself:

US opens world's largest foreign mission in Iraq



The $592 million, 104-acre compound that was dedicated in Baghdad's fortified Green Zone on Monday is meant to symbolize a long-term commitment to Iraq.

That's a lot of "symbolizing."



Tell me again why we need to be cautious in investing in domestic infrastructure. (Yes, I get that it's incrementally larger. So was the Federal-Aid Highway Transportation Act of 1956. Nu?)



*Since Rick Warren was the driving force behind the PEPFAR initiative, discussed by cactus here, response for tens of thousands of African illnesses and deaths, and so discredited that even popular television shows are lambasting it, the idea that he will Just Go Away on 20 January 2009 around 2:00pm is even more absurd than usual.

by Ken Houghton (noreply@blogger.com) on January 06, 2009 02:34 PM

Tom Bozzo



Around election time, the House Transportation and Infrastructure Committee had identified $45 billion in ready-to-go infrastructure projects a stimulus package. Now TrafficWorld reports that the Committee now is looking at $85 billion:

The recommendations, outlined in a Dec. 12 memo, include $30 billion for highways and bridges, $12 billion for transit, $4.9 billion for passenger rail, $5 billion for airports, $14.3 billion for environmental infrastructure, $7 billion for the U.S. Army Corps of Engineers and $10 billion for federal buildings, according to the committee.

To put this amount in perspective, under SAFETEA-LU, the highway and transit funding bill in effect through FY09, federal highway and transit expenditures run around $60 billion/year ($284 billion for FY05-FY09), so $42 billion on highways and transit is a pretty big increment.



That's not to say that $100 billion/year is necessarily a large amount of money to spend in the less-short term, especially if we want things like vastly improved transit and passenger rail systems and considering some of the things $100B/year were spent on during the Bush administration. Politically, it seems to me that it would be better to fund the medium-term projects outside the stimulus package in a FY10+ infrastructure bill to follow SAFETEA-LU, which just so happens to be due this year. If the projects are valuable — and many are or will be — then then they should not be funded only in case of economic emergency.

by Tom Bozzo (noreply@blogger.com) on January 06, 2009 01:20 PM

Robert Waldmann



I understand that traders are compensated roughly half based on mark to market profits in a given year and half on long term outcomes (the was the AIG AIG-FP deal). This implies that many people made a lot of money being wrong about the housing bubble etc. It also implies that the conditions for profitable market manipulation are much broader than they would be if market manipulators were trading their own money and the conditions for sophisticated traders to buy into bubbles are weaker.



Using his BA in philosophy Matt Yglesias gets this point. Compensation based, even in part, on short run mark to market profits is a recipe for disaster.



I see (via Yves Smith) that Financial Times' John Dizard puts it well

A once-in-10-years-comet- wiping-out-the-dinosaurs disaster is a problem for the investor, not the manager-mammal who collects his compensation annually, in cash, thank you. He has what they call a "résumé put", not a term you will find in offering memoranda, and nine years of bonuses....

A "model" after the jump.





The model is based on



J. Bradford DeLong, Andrei Shleifer, et al (1990), "Positive-Feedback Investment Strategies and Destabilizing Rational Speculation," Journal of Finance 45: 2 (June), pp. 374-397.



There are 3 types of agent in the model. First necessarily there are momentum traders or trend chasers, agents who buy assets whose price just increased (say like you know houses). Second there are value investors whose demand for assets is downward sloping in current price just like a normal demand curve (call them Buffets)

super smart investors who know all about fundamental values *and* about the momentum traders (Soroses). There were two results, under extreme assumptions about mementum traders it is possible that sophisticated traders drive asset prices further from their fundamental value when there is a disturbance, that is pump up the bubble. It is also possible that, without any exogenous shock, the sophisticated investors deliberately trigger a bubble -- that is manipulate the market.



The asset in the model is finite lived. The challenge is that it gets back to its fundamental model when in matures (in period 4). This makes it hard to find cases where it is rational to buy into a bubble or manipulate the market.



With an incentive contract such that people get paid in uhm period 2 based on marked to market profits then never ever have to give that money back, I think it is enough that there be some momentum traders.



Let's say I am a manager who controls a large amount of money and I want to manipulate the market. I buy a lot of an asset. I have to pay a high price to get it from the Buffets. Suddenly momentum traders want the asset too so next period they buy (and I don't sell). Mark to market says I have made money. If other super sophisticated traders know what is going on they will cooperate with me. I think this strategy is technically illegal, but there is no way to detect it.



I think the only thing that protects us from this is the irrational arrogance of financial operators. They consider their position to be very valuable as they think they can systematically beat the market. If they knew they were mostly just lucky to be where they are, they would be more tempted to cash in by manipulating the market.



In any case, the fact that traders don't really lose when they buy into bubbles is a reason that only the very very top managers got a bad deal out of the 21st century so far.



I think the worse problem is, as Yglesias note, the contrarian looses for a while and might be out of the business irreversibly by the time the crash comes.

by Robert (noreply@blogger.com) on January 06, 2009 05:59 AM

All is not well.

I was recently the victim of a great fraud, resulting in serious bodily harm and likely permanent psychological trauma. I believed things told to me by people I respected, and relied upon advertising text promulgated by a corporate entity consumed, without my knowledge, by depraved indifference to human dignity. Misled by misrepresentations beyond my control I acquired - as a Christmas gift, no less - a device so dangerous and of such shoddy design as to constitute a willful malfeasance in and of itself, and employed, in good and unsuspecting faith, that device upon my person to woeful and grievous consequence.

Having been misinformed by positive reviews of this device, obviously written by persons concealing a deep self-loathing, and by the text prominently displayed on its box asserting “You Can’t Mess This Up!”, I took it upon myself to use the diabolical instrument in the manner prescribed, and did thereby mess it up.

I post this as a warning to all others deceived by transient dreams of efficiency and cost-savings: Do-It-Yourself Haircuts are Not a Good Idea, no matter what it says on the box.

BEFORE
AFTER

by KTK on January 05, 2009 09:44 PM

Easily the best video I’ve seen so far in this very young new year:

Via ObWi.

by tgirsch on January 05, 2009 07:51 PM

Tom Bozzo



is amazed at the reaction of leading figures in the left blogiverse to the W$J's "news" that there will be tax cuts as part of the stimulus. See Aravosis, Digby, Krugman, Marshall.



Can we cancel the circular firing squad?



As far as I can tell from the Journal's reporting, the main tax elements are largely indistinguishable from what Obama was promoting in the fall. Here, for instance, is a snippet of the third debate:

[Bob Schieffer:] Senator Obama, you proposed $60 billion in tax cuts for middle- income and lower-income people, more tax breaks to create jobs, new spending for public works projects to create jobs...



[TB Note: The $60 billion mentioned by Schieffer is an annual figure, while the $300B reported by the W$J is over two years.]



[Sen. Obama:] Number one, let's focus on jobs. I want to end the tax breaks for companies that are shipping jobs overseas and provide a tax credit for every company that's creating a job right here in America.



Number two, let's help families right away by providing them a tax cut -- a middle-class tax cut for people making less than $200,000, and let's allow them to access their IRA accounts without penalty if they're experiencing a crisis.

Now Prof. Krugman's analysis actually is pretty solid on the economics of stimulating via a combination of tax cuts and public expenditures, and he seems to detect the underlying politics. That is, use a spoonful of tax cuts that the Obama camp was going to push anyway to peel off enough Republican votes to advance a lot of stuff that the Senate Republicans' paleolithic caucus won't like (and, let's face it, can't stop, whatever Mitch McConnell might say about wanting to lend rather than grant money to the states and such). If the 'carrot' approach is followed by capitulation rather than by aggressive pressure to promote the plan a la Obama, then the political observers may have something to gripe about.



On the economics, I don't especially care for the business tax cut components, which in the absence of a general loophole-closure program I'd expect would as likely as not stimulate the tax law sector of the economy while the Tax Foundation still gets to gripe about high statutory corporate rates. And it's a matter both of Our Stupid Discourse and government accounting methods that fail to distinguish between government consumption and investment spending that tax cuts are less controversial than appropriately targeted spending. But anyone who's surprised by this part of the stimulus package wasn't paying attention during the campaign.

by Tom Bozzo (noreply@blogger.com) on January 05, 2009 04:50 PM

Did anyone else here see the Falcons-Cardinals playoff game on Saturday? The end of that game had me smiling from ear to ear.

The Cardinals went up by 13, 30-17, by recording a safety with 12:37 left in the game. Atlanta winds up getting the ball back with 7:51 remaining, down by the same score. After a nice drive, the Falcons score to get to within 6 points, 30-24, with 4:15 remaining. On the ensuing kickoff, the Cardinals get the ball out to their own 20, equivalent to a touchback, and 4:10 left on the clock, and Atlanta with all three of their timeouts.

Now, conventional coaching wisdom here says that you run the ball three times, eat as much clock as possible, punt the ball away, and leave it to your defense to save the day. And that’s what the overwhelming majority of coaches would do in that situation. But that’s not what Cardinals coach Ken Wisenhunt did. He started by calling a pass play, and not even a high-percentage one: it was a 20 yard completion over the middle from Warner to Fitzgerald. That first down took almost a minute off the clock, taking it down to 3:25. Next play, a handoff, which went for no gain (of course) because the Falcons were stacking against the run. Timeout Atlanta, 3:10 on the clock, now 2nd-and-10. Next play? A 25-yard completion down the left side from Warner to Breaston. 1st-and-10, the clock goes all the way down to 2:29, and the Cardinals are only about 10 yards out of field goal range.

Run up the middle on first down gets stuffed (of course), and the Falcons take their second timeout (of course), 2nd-and-8 with 2:21 left. Now, the only mystifying call of the series: the Cardinals try an end-around which gets stuffed for an eight yard loss, and Atlanta takes their final timeout, 3rd-and-16 at the Atlanta 46 with 2:17 left on the clock, and the Falcons have no timeouts left.

Once again, the conventional wisdom says call a high-percentage play, maybe a draw, run the clock down to the two minute warning, punt the ball, and count on your defense to stop them with under two minutes left and no timeouts. But that’s not what Wisenhunt calls. Instead, he calls a play-action fake that results in a 23-yard completion down the middle from Warner to Spach. That takes the clock down to the two minute warning, and three knees later, the Cardinals walk off the field victorious.

Now some will doubtless criticize the play calling here: if somebody for the Cardinals drops a pass, the clock stops “for free,” leaving more time for the Falcons if they get the ball back. And what if the ball is intercepted? But if you’re a playoff-caliber team, you count on your offense to win games for you, not simply to not lose them. The Cardinals stuck with what had worked all day, rather than suddenly changing their approach in the final minutes, and it suited them well. Dance with the one who brought you, as the saying goes.

Anyway, it was thrilling for me to see a coach NOT go all Mike Holmgren ultra-conservative in trying to protect a small lead.

by tgirsch on January 05, 2009 03:16 PM

by cactus

by rdan (noreply@blogger.com) on January 05, 2009 10:34 AM

rdan



(hat tip Stormy)



Market Oracle has an opinion on where the trade deficit will be headed:

Durable and capital goods



The US's manufacturing sector is concentrated in industries most vulnerable to an economic downturn, durable and capital goods. Durable goods are products that last for more than three years like SUVs, motor/sail boats, etc. These items are the first areas where consumers cut back spending, which is why the big three are in so much trouble. Capital goods are equipment/machinery used in creating other goods, and the biggest demand for these products has come from emerging markets with their growing manufacturing sectors. With emerging market manufacturing now in contraction, demand for these capital goods is set to disappear, which leaves the US in a disastrous situation:



* We make mining equipment at a time when commodity prices are crashing and mines are shutting down.

* We make construction equipment (caterpillars, pickup trucks, etc…) at a time when global construction is grinding to a halt.

* We make civilian aircrafts at a time when global trade and travel is quickly contracting.



Cheap consumer goods



At the other end of the spectrum from durable and capital goods are the cheap consumer goods found in retailers like Wal-mart. Demand for these lower-end consumer products tends to hold through the severest of recessions, because they are absolutely essential to our modern standard of living. While some current shoppers at Wal-Mart might be forced to cut spending on these essential items, new spending from shoppers who are downgrading from higher end stores will pick up a lot of this shortfall. For example, as more American's lose their jobs, there will be a lot of consumers downgrading from designer clothes to Wal-Mart's cheaper clothing. The resiliency of Wal-Mart sale is bad news for the US, as virtually all the retailer's cheap goods are imports from Asia.



The trade deficit



A quick look at where the US's trade deficit is concentrated reveals just how grim the outlook is. We are running huge deficits in consumer goods and industrial supplies (oil), which we desperately need, and the only category with a sizable surplus is capital goods (civilian aircrafts, mining equipment, etc), for which global demand is crashing. This explains why the US trade deficit grew in October.

Spencer mentioned in an e-mail that to date he is not sure the deficit is worsening.

I'm not so sure the US trade deficit is worsening.



It did last month, but that looks like one month

of a counter trend movement.



It would be out of line with historic trends

that in recessions imports drop so much

that the US trade deficit improves.



Also note that the I/S ratio is up sharply

this fall and that implies that imports will weaken over

the next 6 months as retailers cut back

on import orders to reduce inventories.



real imports a function of:

1. lagged change in relative import/domestic prices

2. lagged change in domestic consumption

3. current change in inventories.



over an expansion no. 3 is not important,

but in recessions it plays a major role.

Rdan here: What needs to be added to this information? They address different aspects of the same picture.

by rdan (noreply@blogger.com) on January 05, 2009 10:00 AM

Krugman correctly lays out the problem: We are facing the second Great Depression. Agreed again that simple monetary policy is not enough. Agreed also that a stimulus package is certainly needed; otherwise the domino effect of shrinking businesses and increasing unemployment, together with tight credit and deflation will prove disastrous.



The point I have made repeatedly is that a stimulus package, while necessary, must be combined with programs and policies that address root problems. Otherwise, after the stimulus package runs its course, we will again be in the same boat: A wasteful and inefficient health care system now out of cost control, an energy independence policy too long neglected with costs poised to re-escalate once Americans are back to work, a trade policy that has permitted massive imbalances in the global economy, and a banking system that remains fearful and frozen.



Krugman despairs that the stimulus plan will come too late and too little. Even if Congress acts quickly--which is unlikely--, projects need time to be properly planned and organized. We may not have that time.



Of course, Congress could do revenue sharing with states and localities, as Galbraith suggested; thus passing off the actual delineation and oversight of projects, while quickening their progress and enhancing the prospects for their success.



But, as I have said repeatedly, much more is needed. Attacking the symptoms of the disease is not enough. We must simultaneously address root causes.



I outline them again, without too much comment:

• Universal health care, setting fees and schedules. Putting such in place would remove an enormous monetary burden from millions of Americans. The actual cost of doing business would be improved. Consider the Canadian, the British, or the French systems, which are far more cost effective than the American. This is one investment that will actually save money.
• Crash programs in energy independence. Nothing should be off the table. Cheap oil is a reflection of the growing crisis. What happens when the crisis is passed? Expect energy prices to rise once again.
• A sensible trade policy. At the very least, we should insist that China allow its currency to float more freely. If we cannot even do that, there is no hope. Once spending starts again, will we just return to buying Asian? Will jobs continue to flow to emerging nations? At some point, we must address the current account deficit and the net trade imbalance.
• A national bank. If private banks continue to tighten credit--and in this environment it is natural that they will--, then we should create a national bank that will lead the way.

by Stormy (noreply@blogger.com) on January 05, 2009 07:43 AM

How is Social Security holding up given the terrible employment numbers? Well not as bad as I had feared.



OAS::Opening balance//Projected year end balance-Intermediate Cost//Y-O-Y Increase//Year end balance-Low Cost//Y-O-Y increase-Low Cost

$2.023 trillion // $2.216 trillion //$193 billion// $2.221 trillion// $198 billion



DI::Opening balance//Projected year end balance-Intermediate Cost//Y-O-Y Increase//Year end balance-Low Cost//Y-O-Y increase-Low Cost

$214.9 billion//$218.7 billion//$3.8 billion//$221.3 billion// $6.4 billion.

Per IV.A2 the opening balance for DI was $214.9 billion, projected year end under IC $218.7 billion, under LC $221.3 billion



June 30th/Mid-year: OAS $2.140 trillion// DI $220 billion



Aug 31st/Two-thirds: OAS $2.164 trillion// DI $219 billion



Sept 30th/Q3: OAS $2.177 trillion// DI $219 billion



Oct 30th/Five-sixths: OAS $2.187 trillion// DI $218 billion



Nov 30th/Eleven twelvths: OAS $2.197 trillion//DI $217.5 billion. So what does all this mean? Well nothing really. Mostly the outlook is unchanged, which is why I'll keep the brief discussion below the fold.



The DI (Disability Insurance) Trust Fund is more or less holding its own with the balance in recent months dropping by less than a billion a month. A reasonable year end estimate for this fund would be something over $216 billion which would put it below both Intermediate Costs projection of $219 billion and Low Cost's projection of $221 billion. Not great news but maybe what you would expect in the face of an extended downturn, if you had managed to stay in the regular work force during the boom but really would qualify for Disability the 2007-2008 period might be the right time to make the transition. But spin it how I will, and putting on a happy smile through gritted teeth, there is little doubt that the 2009 Report will show some degradation in the outlook for DI. And this true even though the year over year balance is still positive.



As for OAS. Well it is still running a surplus, but then a good part of that is accrued interest. And the same will be true for December, the Treasury will still be crediting interest on the existing portfolio of bonds and so we can expect some uptick, but a fair estimate is that OAS is kind of on auto-pilot right now. Still we can expect about an additional $10 billion in the TF by years end taking the total balance up to maybe S2.207 compared to Intermediate Cost projections of $2.216 trillion and Low Cost Projections of $2.221 trillion. So once again we will probably see a miniscule deterioration in outlook come the release of the new Report come March. But once again the net year over year effect is to show continued surpluses.



You have to wonder how many other multi-trillion dollar funds saw slightly less than expected but still positive returns over the last year.



Bottom line. Social Security is not immune to periods of economic crisis, how could it be. But it is buffered by being tied to real wage on the one hand and CPI on the other and calculates its health from the top down rather than the bottom up. That is a change in unemployment for 4.5% to 6.9% computes to more than a 50% increase when examined from the bottom up. And if you are out of work that may be the right metric. But from the point of view of Social Security that just means a drop from 84.5% to 73.1% of covered workers paying in, meaning that payroll tax based worker retirement can never take the hit that individual workers do in any given year.

by Bruce Webb (noreply@blogger.com) on January 05, 2009 05:49 AM

by Bruce Webb



Paul Rosenberg has started an interesting series over at Open Left that in some ways could see my post What is the Nexus? as prologue.



The first post in the series is Hegemony On Steroids--Episode 35,879: "The Neocons Couldn't A Dunnit!" It starts by stating one set of revisionist talking points eagerly being peddled by wingnuttia (and the Village) to keep from having to take responsibility for Iraq

Last week, the day before Christmas, Digby took note of an eager wanker (Frank Harvey, pimped by Kelly McParland) making the argument that if Gore had been President instead of Bush, we would have had the exact same clusterfuck, because (a) the neocons had nothing to do with it, that's just a conspiracy theory! (b) invading Iraq was inevitable and (c) Al Gore had all sorts of hawkish attitudes, towards Iraq in particular, so, case closed!

Well Digby did a through take down on points (b) and (c). Mainly in that Al Gore came out publicly against the then current Bush approach on Sept 23, 2002, i.e. before the war. (Extensive quotes and links at OL). Which allows Paul to pursue assertion (a).



And in the course of that he totally demolishes the twin arguments that the Neo-Cons were not powerful enough to get everyone else to go along and that in the end everybody was sharing the same intelligence analysis. Both are simple nonsense and Paul lays out the case why that is so. Conclusion of part 1

In fact, if one looks carefully at what was going on behind the screen--and even just what was going on in plain sight--it soon becomes quite apparent that BushCo and the neocons were quite aware of how utterly flimsy their "evidence" was. They may have fooled some other folks--or at least bluffed them into playing safe and stiffling their doubts--but they knew all along their case couldn't stand the light of day.



Which is why they never laid it out for anyone else to see. They knew very well that there was no "there" there. They were eager to show us all the evidence. They just didn't have any.



In Part 2, we'll take a closer look.

Link to Part 2 and some comments below the fold



Hegemony On Steroids--"The Neocons Couldn't A Dunnit!", Part 2

After the Iraq fiasco, the key to continuing neocon power was two-fold: First, disappearing the disaster. Second disappearing the neocons themselves. The disaster was disappeared by a series of rationalizations and redefinitions, the most important of which was the replacement of the original rationale--9/11, WMDs and all that--with goal of "democratization" (which the US originally had no interest in), and the replacement of all else with the mantra, "the surge is working." Disappearing the neocons involved a rather extensive chameleon act, a key part of which was the erasure of their fingerprints all over everything in sight.

This is where we get the common bit of hegemonic narrative used to excuse the Iraq War, the claim that "everyone" believed the intelligence that Saddam had WMDs. This narrative is not just false, it's a textbook case of how hegemonic discourse makes it virtually impossible to think straight about anything. There's an old adage that if you ask the wrong questions, you can't get the right answers. Hegemonic discourse works best by making sure that nothing but wrong questions get asked.



By implicitly making the question, "did everyone believe Saddam had WMDs?"--and not even asking it, but simply asserting an answer, every question we ought to be asking is summarily swept off the table. And the chance of making a truly fundamental break with the neocon direction is substantially weakened

If some of this sounds awfully familiar it should, various commenter/war supporters here have been faithfully pushing versions of this argument for years.



In any event Paul goes on to give a detailed chronological timeline of how the intelligence was being consciously shaped around the war policy. In other words the Brits had it exactly right in the Downing Street Memo. The question of why Blair and Powell and Rice and Tenet (none of them neo-cons) and yes too many congressional democrats went along is really the theme of the rest of the piece. The whole thing is longish but certainly worth it.

by Bruce Webb (noreply@blogger.com) on January 04, 2009 07:00 PM

When Biden talked of Obama being tested, he should have noted that some of our so-called friends will test him even more. So it is with the horror that is now Gaza. American-Likud foreign policy has been cruel and disastrous. The Likud government continues to expand its settlements, cutting so-called Palestine into ever more pronounced Swiss cheese. The U.S. politely protests but continues to look the other way. Both Lukud and the U.S. have repeatedly insisted that they and they alone have the right to select the leaders of Palestine. Unhappy with Arafat? Unhappy with Hamas? Get rid of them.



Perhaps Israel should stop the charade and simply annex Palestine. Democratic elections clearly mean nothing to the to Israel...or the U.S. in this matter? Why should it when it has a world-class military force pitted against rocks and a few rockets.



After a right wing zealot assassinated Rabin and after the aborted Clinton-Barak-Arafat meeting, there has been no serious peace process. Instead, the U.S. has allowed the Likud government to dictate not only its path in the Palestinian conflict but also its Middle East policy in general. The net result has been to radicalize more and more Islamists.



I listened this morning to Ofir Gendelman of the Israeli Foreign Ministry claim that there was and has never been a humanitarian crisis in Gaza, that passage for supplies to Gaza have always been open. When told that journalists inside Gaza have been reporting just the opposite, he responded that those Hamas is clearly intimidating them. When told that the Supreme Court of Israeli has said that foreign journalists should be allowed to cover what is going on in Gaza and asked why the Israeli government would not allow such coverage, he responded that the world would then blame Israel if they got hurt or killed. But journalist cover wars all the time. And so the defense of the indefensible continues. Of course this confrontational exchange occurred on CBC television; it would never be allowed to air in the U.S. The simple explanation those in the U.S. hear is: Israel is defending itself from Hamas rockets.





The Canadian commentator then confronted Hanan Ashrawi, a Palestinian negogiator, about those rocket attacks. Her simple reply was that Hamas had maintained a six month cease fire...and still Israel maintained a siege on Gaza, one of the most densely populated places in the world.



"Is there any responsibility on the part of Hamas," the commentator asked?



"These are the people under occupation," she replied. "You would do the same." She continued that ultimately all sides will have to sit down and work this out and realize that bloodshed gets us nowhere.



The New York Times described part of the problem:

“If the war ends in a draw, as expected, and Israel refrains from re-occupying Gaza, Hamas will gain diplomatic recognition,” wrote Aluf Benn, a political analyst, in the newspaper Haaretz on Friday. “No matter what you call it,” he added, “Hamas will obtain legitimacy.”

In addition, any potential truce deal would probably include an increase in commercial traffic from Israel and Egypt into Gaza, which is Hamas’s central demand: to end the economic boycott and border closing it has been facing. To build up the Gaza economy under Hamas, Israeli leaders say, would be to build up Hamas. Yet withholding the commerce would continue to leave 1.5 million Gazans living in despair.

Implicit in Mr. Benn’s argument, however, is that the only way to stop Hamas from gaining legitimacy is for Israel to fully occupy Gaza again, more than three years after removing its soldiers and settlers. That is a prospect practically no one in Israel or abroad is advocating.

I see no end to this tragedy until America straightens out its crooked and disastrous slavish following of Likud. America's media and America's leaders have been tied to the hip of right wing, religious fanatics in Israel. These are harsh words--and meant to be.



The testing of Obama has begun.

by Stormy (noreply@blogger.com) on January 04, 2009 05:15 PM

rdan



(hat tip 2slugbaits) Krugman says here:

What I’ve illustrated here is the marginal cost and benefit of government purchases of public goods in and near a liquidity trap. The marginal benefit is presumably a downward-sloping curve. If G is low, so that monetary policy cannot achieve full employment, the marginal cost of an additional unit of G is low, because the additional government purchases don’t crowd out private spending. Once G is high enough to bring full employment, however, any further rise in government purchases will be offset by a rise in the interest rate, so that extra G does come at the expense of C, implying a jump in the marginal cost.

It's a back-of-the-envelope model explaining why monetary policy won't do the job and why we need fiscal policy to stimulate aggregate demand. ( I was going to try for more but injured my foot so am in no mood to continue...really, not the social kind involving mouth.)



Update: Notice the link opens in a separate window...one annoyance down. Thanks stormy.

by rdan (noreply@blogger.com) on January 03, 2009 08:17 PM

Robert Waldmann



While blogging here at Angry Bear, I have been almost as blunt and direct as I am ignorant, but I would like to be much more frank in this post. The question, roughly, is which innovative financial instruments and trading strategies are socially useful. This is important, because people argue against draconian regulation on the grounds that it will block financial innovation and/or interfere with the trading strategies of legitimate arbitrageurs. My honest opinion is that all recently developed instruments are harmful and that the typical activities of law abiding financial operators destroy value. I don't see any downside risk of excessive regulation basically because I think that, on balance, the allegedly undesirable side effects are desirable.



It should be possible to guess that I don't think that "market liquidity" is a good thing. I use quotes as I would define assets as liquid or illiquid and markets at thick or thin. The issue is whether one can quickly buy or sell a large amount of an asset without causing its price to shift much. I believe (without proof as usual) that assets are liquid when trading volume is high. Thus my question becomes whether high trading volume is a good or a bad thing.



A sudden decline in the liquidity of assets can create problems as firms can't unwind leveraged positions without extreme market disruption. If the assets had always been illiquid, those leveraged positions would never exist. I think that would be a good thing.



Now there is a class of arguments that rational investors will take highly leveraged positions to profit from asset miss pricing and that this is socially desirable as they will drive asset prices towards their fundamental values. It is hard find these arguments convincing given the enormous increase in asset price volatility which has accompanied the enormous increase in gross long positions and gross short positions not to mention the huge increase in trading volume. My sense is that the average super smart highly trained trader is driving asset prices away from fundamentals. Thus I think honestly reported legal trading strategies are, on average, worsening the quality of the signals financial markets send to the real economy.



In particular, hedging strategies require constant trading. They are not feasible if there are significant bid ask spreads. The scale of hedged positions is limited if assets aren't perfectly liquid as the hedging trades drive prices against the hedger. So ? There is no huge amount of trading by people who don't follow hedging strategies such that a huge amount of hedged trading is required to balance it. Rather the huge volume consists of roughly equally sophisticated traders, all of whom know how to hedge, taking bets against each other. The cure is the disease.



It doesn't have to be this way. I would be possible for trading volume to be tiny compared to current volume -- the way it was in the 50s. Trading for reasons other than perceived asset misspricing would be very rare. There would be investors who save when young and dissave when old, investors who liquidate financial assets to make downpayments on houses and maybe a tiny bit of investors hedging their labor income risk (has anyone ever met anyone who ever did that ?). Now the most archaic market in which there are specialists who sell for one eighth of a cent more than they pay when they buy would be a tiny tiny problem for life cycle investors. If people aren't trying to beat the market, liquidity barely matters to them.



As noted above, if no one tries to beat the market no one gathers information on, say, firms prospects. That would imply that price earnings ratios of shares would depend on rough guesses. That wouldn't be strong form efficient. I don't think any sensible person can look at the history of asset prices and doubt that the old market in the 50s was closer to a strong form efficiency.

by Robert (noreply@blogger.com) on January 03, 2009 07:53 PM

In 1979 Peter Sellers starred in a brilliant movie about the ultimate in accidental Presidents. As the movie ends Chance the Gardiner has not actually been elevated to be Leader of the Free World but is well on his way. Because people could read meanings they wanted to hear into what he was saying. I hadn't made the connection until today but this movie tells us much about the process which left us with the Boy Chimperor Bush. When Chance admits "I don't read" this is taken as a statement that he instead acts from the gut and not by taking direction from the pointy headed among us. Which should sound painfully familiar. You want a 'Bush Legacy Project'? I suggest forwarding a copy of the DVD to his library. It will probably give a lot more insight than any number of future biographies.



The only real difference between Chance the Gardiner and George W. Chimperor is that the team that picked Chance to be the leader of the Free World didn't know where he came from. Whereas Uncurious George came with a pedigree. But the decision making process was much the same.

by Bruce Webb (noreply@blogger.com) on January 03, 2009 06:50 PM

by cactus



Kafka and Bills



Back in May, we moved out of state. Before we did, we canceled our assorted services, ranging from the newspaper subscription to gas. One of the utilities we canceled was Los Angeles Department of Water and Power. The ex-GF called, and they said they'd do a final reading and send a bill to the address we provided; a two month temporary apartment. Perhaps we should have been more pro-active about wondering about where that bill went, but what with the move out of state (actually, two moves), a new job, etc., there was a lot on our minds.



Fast forward (more than) a few months. The day before Christmas, my ex-GF gets a call from a collection agency. They had gotten her phone number from LA DWP, which was irate that we hadn't paid the final bill; issued in September one month after we had moved out of our temporary apartment. We never got that bill, or any other notices from DWP. And, apparently it never occurred to the folks at LA DWP that if they had my wife's phone number, they might try to call her themselves before paying a collections agency to do just that with the number they provided to the collections agency. Again - perhaps we should have been more diligent, but things fall through the crack when you're moving around... and we had provided contact info - a place to send the bill that might have been useful had they not taken four months to put out a new bill (if it was ever sent), and a phone number that remains valid to this day.



So my wife decides to call the LA DWP to see if she could pay them directly. She spoke to several people at LA DWP including several supervisors, and every one of them claimed not to be authorized to accept payment for this bill. She even left several messages with the collections department of LADWP and no one returned the messages. So she called back the collections agency - PMR Progressive - and perhaps because its the holiday season, nobody answered. She's called back. Nobody answers.

______________________________________

by cactus

by rdan (noreply@blogger.com) on January 03, 2009 03:36 PM

rdan



Knoxville News points to a 2003 report on options to fix the leaks:

In November 2003, a leak along the bottom of the dike forced TVA to cease depositing fly ash into the pond's dredge cells.



TVA considered at least eight options to address the leak, according to a Dec. 22, 2003, agency update. Three of the options would have provided a "global fix" to the problem, but high costs were cited as liabilities to pursuing them.



The most expensive option - converting to a dry fly ash collection system - would have cost an estimated $25 million. That's far less than the $37 million spent to clean up a 2005 Pennsylvania fly ash spill one-tenth the size of the Kingston spill.



Two other proposed global fixes were to construct a synthetic liner for the pond for $5 million and building a cutoff wall around the perimeter of the dredge pond for $2.6 million. In addition to high cost, TVA noted that using a synthetic liner would set a precedent for all other dredge cells.



TVA opted to repair the dike and install "underdrains," which in a summary of the inspection report the agency likens to residential french drains, "to relieve water pressure."



Repairs were completed in 2005, but the dike sprang another leak the next year.

Summary of 2007 budget items:

TVA is the largest single producer of power in the country.Their revenue in 07 was $9 Billion, they showed a $385 Million (non taxable) profit after paying $48 Million in bonuses.



They make a total of about $480 Million a year in "tax equivalent" payments to municipalities where they operate. I believe Roane County gets about $1 Million per year from them. That's been a great deal for them...til now.



The reason that these fixes were never done was because TVA sells securities....the fixes would have cost dollars that would have affected their security sales by moving them closer to true non profit status. Many people do not understand that TVA is a hybrid. It is a gov't agency but only sort of.....



The fly ash clean up that they just settled cost them $35 Million for a spill 1/10th the size of this one. After paying the piper here they will most likely have to some serious restructuring.

(bolding mine)



Unintended consequences is real, but rarely the complete story. At what point does one intention become unintentional somewhere else. My assumption is that not setting a precedent is a high level decision. The current CEO has a remuneration package of $3.27 million, being a competitive amount for large utilities. And who is to foot the bill for the possible unintended $350 million cleanup? And where else are there problems?

by rdan (noreply@blogger.com) on January 03, 2009 07:55 AM

She's got a broken collarbone, so we're indulging her for the moment. So after we finished reading the two age-appropriate books (e.g., Paddington at the Zoo), she said, "go back to the one you were reading me earlier."



She fell asleep to Geography and Trade.

by Ken Houghton (noreply@blogger.com) on January 03, 2009 04:23 AM

Wow...here we go!

by rdan (noreply@blogger.com) on January 02, 2009 10:00 PM

rdan



CNN has a follow up to the story and post concerning the breaking of a retaining dam and the coal ash that was released. Coal ash is full of heavy metals, and not bio-degradable.



I believe I was the only one to be concerned about the water sources for the area as part of clean up and reparations in comments. This is an area of concern that takes a steady approach and re-visiting of consequences over time...usually time periods too long to hold readers'interest.



It is worth a re-visiting from time to time.



Update: Kentucky and Indiana obtain 90% of their electricity from coal. This article in Kentucky newspaper points to some concerns. Source Watch offers more information and an interactive map for all fifty states.



Update 2: This GAO report on toxins in the Great Lakes is instructive.



Update 3:







Independent toxin screens and survey in comments hat tip reader run.



The TVA in published statements has found no contamination above safety limits except for lead, with the water intake for Kingston being a high impact test site.

by rdan (noreply@blogger.com) on January 02, 2009 08:29 PM

Economy: Enjoying the Pre-Game Show?

Sorry to be missing from the Angry Bear scene – but I have had several long and serious medical outages in 2008. Good health insurance was my best investment – picking up a six-figure tab.

So far as other investments are concerned -- in some of my 2007-2008 HALOSCANS I had mentioned that my biggest position was with Prudent Bear Funds [BEARX] which made enough to cover all losses on the long side of my portfolio and then some – and I did not need to spend my time shorting individual stocks.

Target Conservative Portfolio for 2009: 50% Canned Goods / 50% Ammo.

But first a brief detour to one year ago:

http://angrybear.blogspot.com/2007/12/edward-charles-ponzi-jr-looks-ahead.html

I continue to stand by the (very general) ideas that I put forward as themes for 2008. I do not see our current situation as a “downturn” – I see it as a COLLAPSE. A downturn – a normal part of the business cycle – does not usually include a banking-broker/dealer-insurance-derivatives meltdown that requires trillions in support to prevent insolvency of virtually all of major financial institutions.

In the long run, we would be better off without many of those institutions. My buddies on Wall St. used to tell me that they were “creating wealth” – I would correct them and tell that they were “making money” (and participating in massive mal-investment and un-economic activity). The Baily Building and Loan Assoc. (of Bedford Falls) somehow didn’t need billions in leveraged speculation, proprietary trading or derivative bets.

There seems to be a lot of talk in AB and elsewhere about this thing called “solutions”. Solutions are not my department – predictions are. Any reasonable solution is by definition politically impossible – our political process is about putting out today’s fire and leaving the water damage issue to another day.

Since our society cannot go forward carrying every currently existing debt ($50T++) – (this figure does NOT include unfunded liabilities) unwinding unwise credit expansion means insolvency or inflation. There are few true creditors in our society – being a debtor is far more universal. The Federal Government, State Governments, Wall St., Banks, homeowners, consumers, leveraged investors and many other groups would benefit (in a lesser of various evils sense) from the debt reducing power of inflation.

Inflation is on vacation at the moment – but it is the end game. Fiat money requires at least some net positive inflation and a determined Central Bank can Quant-Ease (plus Gov fiscal) some of our problems away – with many side effects to be sure – but someone has to go over the top rope – and it is going to be savers and not debtors.

At some point we will have what may be called A Recovery – but it will really turn out to be A Reflation and collapse again – just like in the late 1930s. Inflating our way out of trouble may also crash into Peak Oil – creating Check Mate and Lights Out.

Obama recently pointed out how so many “different” economists – were in lockstep about the need for massive “stimulus” – funny how a counter-cyclical idea can seem sensible – but the same people advocate pro-cyclical “stimulus” as we chase one free-lunch after another.

My long-term view is dimmer than my short-term view -- so as we enter this New Year, let’s all try and fondly recall how affluent our society once felt – as you will not see that again in your lifetime.

Regards to All !

Edward Charles Ponzi Jr.

by rdan (noreply@blogger.com) on January 02, 2009 12:14 PM

I spent most of the evening reading Underbelly posts, so this link is probably due to Buce:

On Oct. 22, 1986, President Reagan signed into law the Tax Reform Act of 1986, one of the most far-reaching reforms of the United States tax system since the adoption of the income tax. The top tax rate on individual income was lowered from 50% to 28%, the lowest it had been since 1916.

About thirteen years from 1916 to 1929. About thirteen years (plus the Clinton Administration) from 1986 to 2008.

by Ken Houghton (noreply@blogger.com) on January 02, 2009 02:42 AM

All (somewhat***) via Mark Thoma:



Thomas Frank in the WSJ tells me why I always disagree with Robert (and the Other Economists) on the role of rating agencies:

And who makes sure that Moody's and its competitors downgrade what deserves to be downgraded? In 1999 the obvious answer would have been: the market, with its fantastic self-regulating powers.

If you look at the spreads of various debt products, you can see that the market was doing that type of job even in 2007. For instance, the debt market priced ["rated"] Bear Stearns's five-year bond issue in August 2007 at 245 over: rather closer to "junk" status than its rating would have implied. If you compare the debt and stock markets, it's easy to see which is closer to "rating." Unfortunately, the area where information is more valuable* is not the one discussed and understood in the press, where BSC kept trading up for several more months.



If a market "regulates" but no one notices, does it make the WSJ?



Brad Setser finishes the destruction of Tyler Cowen's LTCM "argument" begun by Buce, while revealing its underbelly:

The big banks called to the New York Fed were the creditors of LTCM and they were in some sense “bailed-in.” To avoid taking losses on the credit that they had extended to LTCM, they had to pony up and recapitalize LTCM. [footnoted exception for BSC]



It just so happened that the market recovered and it was possible for LTCM to exit many of its positions without taking large losses, or in some cases any losses. The banks that took control of LTCM when LTCM was on the ropes were able to unwind LTCM’s portfolio in a way that didn’t result in additional losses. But the result Cowen desired — large losses for the banks and broker-dealers who provided credit to LTCM – was quite possible if LTCM’s assets weren’t sufficient to cover all its liabilities. No creditor of LTCM was able to get rid of its exposure as a result of the Fed’s actions. [emphases mine]

It used to be a standard rule that if you wanted to bury something in a newspaper, you published it on a Friday, or the day before a holiday. This seems to be what the NYT is doing with Casey Mulligan (previously discussed here here), who dropped the other shoe yesterday and was, amazingly, worse than expected. PGL at Econospeak does the read and calls out the deed:

Mulligan is essentially saying that those poor saps who have lost their jobs actually quit so they can game the mortgage system. In other words, there is no such thing as involuntary unemployment or being forced to either lose one’s home versus enter into one of these mortgage modification programs.

As noted in the WaPo two weeks ago (via Stan Collender at Capital Gains and Games),** qualifying for the "mortgage modification" program (i.e., reducing the principal on your loan to not more than 90% of the current market value) is an onerous task:

He was hoping he could qualify for the federal government's Hope for Homeowners program, which allows the Federal Housing Administration to insure a new mortgage if the lender voluntarily writes down the mortgage principal to 90 percent of the new value of the home. But when he asked his bank about that, he was told he would have to be on the brink of foreclosure or have an adjustable-rate mortgage.

So Mulligan is basically blaming (1) those whose ability to keep their home depended on keeping their job and (2) those who took Alan Greenspan's venal advice to go into ARMs just at the point at which he started raising rates. Class act.



And, finally, lest you think I'm always bashing Tyler Cowen, he notes a phenomenon in chess and suggests a reasonable conclusion:

I also see a general principle operating: the more exact a "science" the game becomes, the smaller is the value of accumulated experience relative to sheer skill.

The sheer is dicey, but the identification of the shift in proportionality may be accurate, and probably has applications in economics as well.



*The debt market is less liquid and ther